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Matsumura v. Benihana National Corporation

United States District Court, S.D. New York

April 17, 2014




This litigation began over seven years ago, with a dispute regarding the valuation of a Put Option retained by plaintiffs in connection with their sale to defendants of a sushi restaurant chain in New York City. The substance of the dispute has been resolved over the course of extensive motion practice before this Court and the Second Circuit. Now pending before the Court are the cross-motions filed by the parties requesting declaration of entitlement to attorneys' fees. For the reasons stated herein, the Court grants in part and denies in part defendant's motion, and denies plaintiffs' motion.


The factual background of this case is presented more fully in our prior Memoranda and Orders of March 5, 2010 and July 9, 2013, as well as the Second Circuit's decision of March 5, 2012. See Matsumura v. Benihana Nat'l Corp., No. 06 Civ. 7609 (NRB), 2010 WL 882968, at *1-*4 (S.D.N.Y. Mar. 5, 2010); 2013 WL 3465785, at *1-*3 (S.D.N.Y. July 9, 2013); 465 F.Appx. 23 , 24-47 (2d Cir. 2012). For the purposes of this motion, we set forth here only that factual and procedural history necessary to provide context to our decision.

I. Factual Allegations

Plaintiffs are restaurateurs who founded Haru, a sushi restaurant chain, in New York City in 1996.[1] Approximately three years later, plaintiffs reached an agreement in principle to sell an 80% interest in Haru to defendant Benihana National Corporation, an international restaurant chain. See Matsumura v. Benihana Nat'l Corp., No. 06 Civ. 7609 (NRB), 2010 WL 882968, at *1 (S.D.N.Y. Mar. 5, 2010). On August 5, 1999, Matsumura and Benihana signed a Stock Purchase Agreement ("SPA") containing the terms of the proposed acquisition. Section 11.7 of the SPA contained the following provision regarding attorneys' fees relevant to the instant motion:

In the event of any action at law or suit in equity in relation to this Agreement or any Schedule, Exhibit or other instrument or agreement required hereunder, the prevailing party in such action or suit shall be entitled to receive its attorneys' fees and all other costs and expenses of such action or suit.

See Ex. B to Defendant's Second Renewed Motion to Recover its Attorneys' Fees, filed on August 26, 2013. The SPA, which included in the same provision a New York choice of law, did not further define the term "prevailing party." The SPA also required that the parties execute a Stockholders' Agreement on the closing date, an unsigned copy of which was appended to the SPA.[2]

On December 6, 1999, the plaintiff consummated the sale to Benihana of 80% of plaintiffs' interest in Haru in exchange for $8, 125, 000 via the execution of a revised Stockholders' Agreement ("SHA"). See Ex. L to Declaration of Alfred N. Metz, Esq. in Support of Plaintiffs' Motion for Summary Judgment, filed Apr. 6, 2009, Dkt. 75. Pursuant to the SHA, plaintiffs received a Put Option, enabling plaintiffs, at their discretion, to compel Benihana to purchase plaintiffs' remaining 20% interest during a three-month time period in mid-2005. The SHA provided a pricing formula for the Put Option whereby an increase in Haru's consolidated cash flow, as defined therein, caused the value of plaintiff's interest to rise, while an increase in Haru's amount of company debt, also defined therein, caused the value of plaintiffs' interest to fall.[3] Id . The "Amount of Company Debt" was defined to include debt owed by Haru to majority owner Benihana. Id . ΒΆ 1.

Thereafter, Benihana employed an "interdepartment" notation in its accounting of Haru's consolidated financial statements. Pursuant to this system, Benihana recorded three major categories of debt it was owed by Haru: (1) Benihana's purchase price for Haru, (2) construction costs for new Haru restaurants, and (3) the costs of goods and services used in the day-to-day operations of the Haru restaurants.

When the Put Option window opened in 2005, plaintiffs duly exercised their option. Benihana applied the Put Option pricing formula delineated in the SHA (which, as noted above, incorporated interdepartment company debt) and determined that plaintiffs' remaining 20% interest was worth $3, 717, 996.20. Plaintiffs challenged Benihana's calculation and refused to consummate the Put Option transaction, instead filing the present suit.

II. Procedural History

Plaintiffs filed their initial complaint on August 25, 2006 and subsequently an amended complaint on July 10, 2007. The amended complaint set forth eleven separate causes of action against three defendants - Benihana, Haru Holding, and Benihana's General Counsel Darwin Dornbush. The claims included breach of fiduciary duty, fraud in the inducement, constructive fraud, breach of contract with regard to both the SPA and SHA, unjust enrichment, equitable claims for constructive trust and accounting, aiding and abetting the breach of fiduciary duty, negligent misrepresentation, a claim for "monies due and owing, " and derivative claims against Haru. Underlying all these claims were plaintiffs' allegations that Benihana had unlawfully recorded as Haru's "interdepartmental" debt the purchase price it had paid to acquire Haru, a method known as "push-down accounting, " which, by increasing the value of company debt, thereby decreased the value of plaintiffs' Put Option. In their amended complaint, plaintiffs sought compensatory damages of $10.7 million and punitive damages of three times compensatory damages, in addition to an award of not less than $3, 717, 996.20, representing Benihana's valuation of the Put Options due to plaintiffs.

Defendants moved to dismiss under Rule 12(b)(6), and the Court granted a large part of defendants' motion, dismissing all claims other than those for breach of contract and breach of fiduciary duty. See Matsumura v. Benihana Nat'l Corp. , 542 F.Supp.2d 245, 247 n.1 (S.D.N.Y. 2008). The Court also dismissed all claims brought against Dornbush individually, because plaintiffs had failed, inter alia, to plead the requisite scienter, reasonable reliance ...

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