Although a New York federal district court would have found the same result as the dissenting arbitrator if it were resolving this case as an original matter, the limited scope of judicial review of arbitral decisions prevented the court from vacating the arbitration award. The petitioner and respondent were parties to a license agreement concerning the operation of a Benihana restaurant. The respondent allegedly committed various breaches of the license agreement, and petitioner exercised its option to terminate the agreement. The respondent commenced arbitration to declare it was not in default. The panel construed the license agreement “to permit termination only when reasonable,” finding the petitioner was not reasonable as respondent’s breaches were “trivial” and it had taken corrective measures to cure them. A dissenting arbitrator concluded that the petitioner had been justified as a result of the numerous material breaches by the respondent, as New York law holds “a non-breaching party may terminate a contract where the other party committed a material breach” – precisely what occurred here.
The court was unable to review the panel’s findings of fact, even for manifest disregard, nor can a claim of factual error support vacatur. As to the petitioner’s challenge that principles of equity were not properly considered, it fell “short of showing either that the panel ‘ignored’ these principles where their application was clear, or that this misapplication ‘led to an erroneous outcome.’” Nor did the court find the panel exceeded its authority by construing the license agreement as it did, as the license agreement did not define “reasonableness,” a term the arbitration panel was left to determine. As to the petitioner’s last challenge – that the panel refused to hear evidence by rejecting the petitioner’s request to submit a decision in a separate case between the parties relating to similar misconduct of the respondent – such conduct did not rise to the level of a violation of fundamental fairness. Benihana, Inc. v. Benihana of Tokyo, LLC, Case No. 15 Civ. 7428