259 F. Supp. 3d 16
S.D.N.Y.2017Background
- Benihana, Inc. (BI) and Benihana of Tokyo, LLC (BOT) are related entities that split worldwide Benihana rights in a 1995 Amended & Restated Agreement (ARA); BI controls U.S. rights except Hawaii, where a separate 1995 License Agreement granted BOT a perpetual license to operate the Honolulu restaurant.
- The License Agreement requires BI to reasonably approve BOT’s menus and advertising and makes breaches of certain provisions material defaults subject to injunctive relief and fee-shifting; it also contains an arbitration regime for many disputes.
- From 2013–2015 BI successfully litigated/arbitrated that BOT committed material breaches (e.g., serving unauthorized hamburgers, failing to list BI as additional insured); arbitral panel found material breaches and awarded BI fees but (2–1) declined to permit termination as unreasonable.
- BOT sued BI and AGC (the private equity investor that owns BI) in state court alleging breach of the ARA, breach of the implied covenant, and tortious interference by AGC — claiming BI and AGC refused to reasonably approve menus/ads to force BOT into a sale.
- BI removed to federal court asserting diversity jurisdiction because AGC was fraudulently joined (and alternatively federal-question jurisdiction); BI and AGC moved to dismiss; BOT moved to remand.
- The district court denied remand (finding AGC was fraudulently joined under the economic-interest doctrine) and dismissed BOT’s ARA-based contract claim and implied covenant claim without prejudice to pursuing a License Agreement claim in court or arbitration.
Issues
| Issue | Plaintiff's Argument (BOT) | Defendant's Argument (BI/AGC) | Held |
|---|---|---|---|
| Whether remand required because AGC was properly joined | AGC actively participated in a scheme with BI to deny approvals; joinder is legitimate so diversity destroyed | AGC was fraudulently joined; economic-interest defense bars tortious-interference claim, so diversity exists | Denied remand — AGC was fraudulently joined because complaint shows AGC had an economic stake in BI and alleges no malice/illegality |
| Whether tortious-interference claim against AGC survives | AGC induced BI to breach ARA/License to force BOT sale | AGC’s conduct was protected by the economic-interest defense (owner/controlling investor in BI) absent allegations of malice/fraud/illegality | Dismissed — economic-interest defense applies; claim barred as pleaded |
| Whether BOT stated a breach of contract under the ARA | BI’s unreasonable withholding of menu/ad approvals breached ARA §7.05 best-efforts duty | ARA §7.05 is limited to consummation/efforts to effect the 1995 transaction; alleged conduct concerns the separate License Agreement | Dismissed — alleged refusals to approve menus/ads are breaches of the License Agreement, not of the ARA’s transactional best-efforts clause |
| Whether implied covenant claim is viable | BI’s conduct in withholding approvals breached the implied covenant in the ARA | Covenant claim duplicates the ARA breach claim and therefore must be dismissed | Dismissed as duplicative of the (failed) ARA breach claim |
Key Cases Cited
- Pampillonia v. RJR Nabisco Inc., 138 F.3d 459 (2d Cir.) (fraudulent-joinder standard; heavy burden on defendant)
- White Plains Coat & Apron Co., Inc. v. Cintas Corp., 8 N.Y.3d 422 (N.Y.) (economic-interest defense bars tortious-interference claims absent malice/illegality)
- Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413 (N.Y.) (elements of tortious interference with contract)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S.) (plausibility standard for pleadings)
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S.) (legal conclusions not presumed true on a motion to dismiss)
- Grable & Sons Metal Prods. v. Darue Eng’g & Mfg., 545 U.S. 308 (U.S.) (federal-question jurisdiction test for embedded federal issues)