Reinsurance Focus

Defendant‐appellant Benihana of Tokyo, LLC appealed a 2014 order of the United States District Court for the Southern District of New York granting the application of plaintiff‐appellee Benihana, Inc. for a preliminary injunction in aid of arbitration of a dispute arising under the parties’ license agreement. The district court enjoined Benihana of Tokyo from: (1) selling unauthorized food items at the restaurant it operates pursuant to the license agreement; (2) using certain trademarks in connection with the restaurant in a manner not approved by the license agreement; and (3) arguing to the arbitral panel, if it rules that Benihana of Tokyo breached the license agreement, that Benihana of Tokyo should be given additional time to cure any defaults. The Second Circuit concluded that the district court was within its discretion in granting the first and second components of the injunction. However, the district court erred in restricting the arguments Benihana of Tokyo may make to the arbitral panel because the parties’ dispute had been submitted to arbitration. The district court undermined the arbital process by independently assessing the merits of the case instead of confining its role to preserving the status quo pending arbitration. Prohibiting a court’s assessment of the merits of the case until after the arbitral decision has been rendered was consistent with the Federal Arbitration Act and the “strong federal policy” favoring arbitration. The Act contains no provision for a court’s pre‐arbitration assessment of whether a particular remedy is supported by the parties’ agreement and therefore may be awarded by the arbitrator. Also, the Second Circuit pointed out that if a court determines the merits of the parties’ arguments in advance of a pending arbitration, the purpose for resorting to arbitration – to avoid litigation – would be frustrated. Finally, refraining from a view on the merits of the case until after an arbitral decision was rendered would also assist the district court in applying the proper and highly deferential standard of review to those decisions. Benihana, Inc. v. Benihana of Tokyo, LLC, No. 14-841 (2d Cir. Apr. 28, 2015).

This post written by Kelly A. Cruz-Brown.

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