Matsumura et al v. Benihana National Corporation et al, No. 1:2006cv07609 - Document 159 (S.D.N.Y. 2014)
Court Description: MEMORANDUM AND ORDER denying 144 Motion for Attorney Fees; granting 146 Motion for Attorney Fees: For the foregoing reasons, defendant Benihana's motion to recover its attorneys' fees, costs and expenses is granted insofar as the Court orders that Benihana is the prevailing party entitled to fees pursuant to the governing contract. Defendant Benihana's request for a specific award of attorneys' fees is denied without prejudice to its renewal within 14 days of the entry of the appellate mandate on this Court's docket. Plaintiffs' motion is denied. This Memorandum and Order resolves Docket Nos. 144 and 146. (Signed by Judge Naomi Reice Buchwald on 4/17/2014) Copies Mailed By Chambers. (tn)
Download PDF
<![CDATA[
Matsumura et al v. Benihana National Corporation et al Doc. 159 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ----------------------------------------X MEI PING (BARBARA) MATSUMURA AND CARL MILNER, AS TRUSTEE OF THE TRUST U/W/O ARTHUR CUTLER, INDIVIDUALLY AND AS SHAREHOLDERS OF HARU HOLDING CORP., Plaintiffs, MEMORANDUM AND ORDER 06 Civ. 7609 (NRB) - against BENIHANA NATIONAL CORPORATION, AND HARU HOLDING CORPORATION, Defendants. ----------------------------------------X NAOMI REICE BUCHWALD UNITED STATES DISTRICT JUDGE 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 restaurant chain in New York City. to defendants of a sushi 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 denies herein, the Court grants in part and in part defendant’s motion, and denies plaintiffs’ motion. Dockets.Justia.com BACKGROUND 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. App’x 23, 2447 (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 restaurant chain, in New York City in 1996.1 Haru, a sushi 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. contained the following provision Section 11.7 of the SPA regarding attorneys’ relevant to the instant motion: 1 Plaintiff Mei Ping (Barbara) Matsumura owned and operated Haru with Arthur Cutler, whose ownership interest in the enterprise passed upon his death into a trust of which plaintiff Carl Milner is the trustee. 2 fees 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 Agreement (“SHA”). Esq. in Support execution of a revised Stockholders’ See Ex. L to Declaration of Alfred N. Metz, of Plaintiffs’ filed Apr. 6, 2009, Dkt. 75. Motion for Summary Judgment, Pursuant to the SHA, plaintiffs received a Put Option, enabling plaintiffs, at their discretion, to compel Benihana to purchase plaintiffs’ remaining interest during a three-month time period in mid-2005. provided a pricing formula for the Put Option 20% The SHA whereby an increase in Haru’s consolidated cash flow, as defined therein, 2 Further negotiation by the parties between the execution in August 1999 of the SPA and the transaction’s closing date in December made certain amendments to the Stockholders’ Agreement, a modified version of which was ultimately executed by the parties on December 6, 1999. 3 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. ¶ 1. Thereafter, Benihana employed an “interdepartment” notation in its accounting of Haru’s consolidated financial statements. Pursuant to this system, Benihana categories of debt it was owed by Haru: recorded three major (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. formula delineated Benihana applied the Put Option pricing in the SHA (which, as noted above, incorporated interdepartment company debt) and determined that plaintiffs’ remaining Plaintiffs challenged consummate the Put 20% interest Benihana’s Option was worth calculation transaction, $3,717,996.20. and instead refused filing to the present suit. 3 The relevant provision defined the “Put Price” as follows: “(A) Four and One-Half (4 1/2) times (B) the Company's Consolidated Cash Flow for the Pricing Fiscal Year, from which total is subtracted (C) the Amount of Company Debt, which total is divided by (D) the number of shares of Common Stock outstanding as at the date of such computation.” SHA ¶ 1. 4 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, Benihana’s General Counsel Darwin Dornbush. Haru Holding, and 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. were plaintiffs’ allegations Underlying all these claims 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. amended complaint, plaintiffs sought compensatory In their 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 5 claims other than those for breach of contract and breach of fiduciary duty. F.Supp.2d 245, dismissed all because See Matsumura v. Benihana Nat’l Corp., 542 247 claims plaintiffs requisite n.1 brought had scienter, (S.D.N.Y. 2008). against failed, The Dornbush alia, reliance reasonable inter or Court also individually, to plead existence the of a fiduciary duty or indeed to allege actionable misrepresentations by Dornbush at all. Id. at 252-59. Discovery with followed respect to the two remaining theories, after which the parties submitted their first set of cross-motions decision, for this summary Court judgment. considered plaintiffs’ remaining arguments. In and a rejected March the 5, bulk 2010 of Matsumura v. Benihana Nat’l Corp., No. 06 Civ. 7609 (NRB), 2010 WL 882968 (S.D.N.Y. Mar. 5, 2010). Specifically, we found that Benihana’s use of push-down accounting of the purchase price did not constitute a breach of the SPA, nor did the recording of the purchase price or other costs as “interdepartmental debt” comprise a breach of the SHA. In addition to disposing of these claims for breach of contract, we also denied plaintiffs’ claims for breach of fiduciary duty and for breach of the implied covenant of good faith and fair dealing, both of which had also accounting of Haru’s purchase price. challenged the push-down In so finding, we noted that Benihana’s accounting treatment of the purchase price was 6 permitted by the language of the operative contracts, complied with Generally Accepted Accounting Principles, and even met a standard of intrinsic received a generous investment. fairness, annual given return that on plaintiffs their Put had Option Id. at *9-*11. In contrast to the many claims dismissed, our March 2010 decision granted only a single, limited aspect of plaintiffs’ application. We found that Benihana had improperly included $393,551.61 in legal and investment banking expenses associated with its purchase of Haru in the “Amount of Company Debt” used to calculate the Put Price. Id. at *6. Because this push-down treatment of legal and banking fees constituted a breach of the SPA, the Court ordered the parties to exclude the fees in recalculating the value of plaintiffs’ Put Option and complete the Put Option transaction that had been held in abeyance. at *11. Id. Since the amount spent on legal and banking fees was relatively low compared to the $8.125 million purchase price, this revision had only a modest impact on the value of the Put Option. Upon recalculation, the Put Option’s price increased approximately $78,000 to $3,796,706.52. See Amending Order, October 18, 2010, Dkt. 98. Plaintiffs March 5, 2012, subsequently the Second appealed Circuit this issued judgment, a Summary and on Order affirming most of our conclusions, but vacating and remanding a 7 limited issue for factual determination.4 Matsumura v. Benihana Nat’l Corp., 465 F. App’x 23 (2d Cir. 2012). Plaintiffs then petitioned the Second Circuit for rehearing with respect to the denial of pre-judgment interest and were denied. al. v. Benihana Rehearing, Petition Dkt. for et 83 al., No. 10-4258, (2d Cir. Mar Rehearing, Dkt. 100 19, (2d Matsumura et Petition 2012); Cir. for Order Panel Mar. 30, Denying 2012). Further summary judgment briefing followed before this Court, and, on July 9, 2013, this Court resolved the issue remanded to us by the Second Circuit in the defendants’ favor. See Matsumura v. Benihana Nat’l Corp., No. 06 Civ. 7609 (NRB), 2013 WL 3465785 (S.D.N.Y. July 9, 2013). Plaintiffs have appealed that most recent decision to the Second Circuit, but the parties later stipulated to dismiss plaintiffs’ appeal without prejudice and subject to reinstatement motions before us now. following the decision on the See Orders of U.S. Court of Appeals for the Second Circuit, Dkts. 156, 157, 158. Presently before the Court are the motions regarding the award of attorneys’ fees. Defendant Benihana moves outright to recover fees, its attorneys’ costs and expenses, while plaintiffs’ motion instead merely seeks an order declaring them 4 The issue was “whether the amount of day-to-day business expenses carried by Haru as interdepartmental debt was indeed canceled out by Haru’s ‘upstreaming’ of revenue to BNC.” Matsumura, 465 F. App’x at 29. 8 to be the “prevailing parties,” leaving for further briefing the question of the amount of fees to be awarded. DISCUSSION III. Legal Standards Under the “American Rule,” it is axiomatic that “attorneys’ fees are not ordinarily recoverable in the absence of a statute or enforceable contract providing therefor.” U.S. Fid. & Guar. Co. v. Braspetro Oil Serv. Co., 369 F.3d 34, 74 (2d Cir. 2004) (quoting Summit Valley Indus., Inc. v. United Bd. of Carpenters & Joiners, 456 U.S. 717, 721 (1982)). presumption by contractually Parties may override the agreeing to permit recovery of attorneys’ fees, in which case “a federal court will enforce contractual rights to attorneys' fees if the contract is valid under applicable state law.” Id. (quoting McGuire v. Russell Miller, Inc., 1 F.3d 1306, 1313 (2d Cir. 1993)). Pursuant to New York law, which governs the operative SPA, “a contract that provides for prevailing an party award in an of reasonable action to attorneys' enforce the fees to contract the is enforceable if the contractual language is sufficiently clear.”5 NetJets Aviation, Inc. v. LHC Commc’ns, LLC, 537 F.3d 168, 175 (2d Cir. 2008). Although awards of attorneys’ fees typically fall within the Court’s discretion, “where a contract authorizes 5 Neither party here contests the validity or clarity of the applicable contract. 9 an award of attorneys' fees, such an award becomes the rule rather than the exception.” McGuire, 1 F.3d at 1313. Thus, the Court’s threshold determination – and the subject of the instant motions — must be which, if any, party is the “prevailing party.” Much of the case law regarding the determination of a “prevailing party” arises in the context of interpretation of statutes containing fee-shifting provisions or interpretation of entitles prevailing the attorneys’ fees. Federal Rule of party e.g. See, to Civil MTX Procedure recover 54, costs, Communications which but not Corp. v. LDDS/WorldCom Inc., No. 95 Civ. 9569 (RO), 2001 WL 674142 at *1 (S.D.N.Y. Jun. 15, 2001) (noting that “[t]he cases defining the term ‘prevailing federal statutes, party’ such generally as the arise Civil in Rights the context Attorney's of Fees Awards Act of 1976.”). Where, as here, the parties’ claims for attorneys’ fees derive from contractual language, New York precedent instructs courts to consider “the true scope of the dispute litigated, followed by a comparison of what was achieved within that scope.” Sykes v. RFD Third Ave. I Assocs., LLC, 833 N.Y.S.2d 76, 77 (N.Y. App. Div., 1st Dep’t 2007) (citing Excelsior 57th Corp. v. Winters, 641 N.Y.S. 675 (N.Y. App. Div., 1st Dep’t 1996)). “To be considered a ‘prevailing party,’ one must simply prevail on the central claims advanced, and receive substantial 10 relief in consequence thereof.” Mgrs. of 55 Walker St. Id. at 77-78 (quoting Board of Condominium v. Walker N.Y.S.2d 701 (N.Y. App. Div., 1st Dep’t 2004). of contractual language specifically St., LLC, 774 In the absence defining “prevailing party,” this precedent provides useful guidance. IV. Application As an initial matter, we note and the parties acknowledge that any entitlement to attorneys’ fees here arises exclusively from the language of the contract, and not from a statutory scheme. Hence, the precedent analyzing federal housing and civil rights statutes, upon which plaintiffs heavily rely, is of little value here.6 See Pls. Mem. at 7-10. Indeed, that case law is expressly limited in some instances to the context of fee-shifting statutes, in light of the “two strong equitable considerations” at stake: first, the fact that a plaintiff bringing a statutory claim “is the chosen instrument of Congress to vindicate a policy that Congress considered of the highest priority,” and secondly, prevailing plaintiff in the the fact that statutory “against a violator of federal law.”7 6 fees awarded context are to a awarded Christiansburg Garment Co. For example, plaintiffs’ contention that the Supreme Court rejected the “central claim” test for threshold determination of “prevailing party” status is beside the point, since in that case the Supreme Court was interpreting the meaning of the term as it appears in a civil rights statute. See Hensley v. Eckerhart, 461 U.S. 424, 433 (1983); Pls. Opp’n at 9 n.6. 7 To be sure, some courts have opined that “the standards governing who is a ‘prevailing party’ in the statutory context should not significantly 11 v. Equal Emp’t Opportunity Comm’n, 434 U.S. 412, 419 (1978) (internal citation dictates stark omitted). Consequently, differentiation between that the precedent fee-shifting treatment of prevailing party plaintiffs and prevailing party defendants. No Id. at 418-422. such applicable differentiation in the case or at equitable bar, where considerations the are fee-shifting arrangement is a result only of a bargained-for contract between two sophisticated economic actors. Moreover, this suit, brought to consummate the Put Option transaction pursuant to governing contracts, hypothetically could have been initiated by Benihana, the defendant here. Given that the roles of plaintiff and defendant could have been reversed in this type of breach of contract action, proposition that we a cannot subscribe defendant may to only plaintiffs’ become a implicit “prevailing party” if it has obtained “complete relief” or has succeeded on an offsetting counterclaim. See Pls. Opp’n at 7-13. Rather, our analysis here must be grounded in the contract-specific case law discussed supra, as well as that “basic precept of contract interpretation . . . that agreements should be construed to effectuate the parties' intent.” Welsbach Elec. Corp. v. MasTec North America, Inc., 859 N.E.2d 498, 500 (N.Y. 2006). differ in a contract case.” MTX Communications Corp., 2001 WL 674142 at *1. However, for the reasons discussed supra, we do not endorse that view in this context. 12 Bearing these considerations in mind, we first examine the operative contract, negotiation which between was the sophisticated result parties, of all of extensive whom had business acumen, financial resources, and the representation of counsel.8 The relevant contractual language provides, “[i]n the event of any action at law or suit in equity in relation to this Agreement or any agreement required Schedule, Exhibit hereunder, the or other instrument prevailing party in or such action or suit shall be entitled to receive its attorneys’ fees and all other costs and expenses of such action or suit.” 11.7. The inclusion of this clause indicates an SPA ¶ intent to dissuade the contractual parties from bringing non-meritorious claims, to eliminate the financial burden of defending such claims, and to ensure that each party bear the risk of pursuing unsuccessful arguments. By any common sense measure, Benihana was the “prevailing party” in this action. It succeeded on the “central claim[] advanced” – i.e., the issue of whether its push-down accounting of Haru’s purchase price breach of fiduciary duty. also successfully constituted breach of contract Sykes, 833 N.Y.S.2d at 77. defended the large majority of or Benihana secondary claims advanced by plaintiffs, including challenges to its push8 See our January 2008 decision on defendant Dornbush’s motion to dismiss for further discussion of the negotiation process and sophistication of the parties. Matsumura v. Benihana Nat’l Corp., 542 F.Supp.2d 245, 256-58 (S.D.N.Y. 2008) 13 down accounting treatment of construction costs and operating costs. Without the necessity of discovery, Benihana prevailed at the motion to dismiss stage on plaintiffs’ claims for fraud in the inducement, constructive fraud, unjust enrichment, monies due and owing, and equitable claims for constructive trust and accounting. Though not directly relevant to this motion, it is worth noting that Benihana’s General Counsel and Director Darwin Dornbush also successfully moved to dismiss all claims plaintiffs brought against him individually. By contrast, Benihana was unsuccessful in defending only a single aspect of plaintiffs’ voluminous complaint – the challenge to its push-down treatment of the $393,551.61 in legal and banking fees associated with its purchase of Haru. The consequent relief to plaintiffs was a $78,710.32 increase in the value of their Put Option, a relatively modest amplification when viewed in comparison with Benihana’s initial valuation of the Put Option at $3,717,996.20 and the overall compensation received for the sale of Haru, which, including the money received in the Put Option transaction, amounts to nearly $12 million. amount The $78,710.32 gain is even further dwarfed by the of damages plaintiffs sought in their complaint – compensatory damages of not less than $10.7 million and punitive damages of three times that sum. When we evaluate “the true scope of the dispute litigated,” followed by a comparison of 14 “what was achieved conclusion is to within regard that scope,” Benihana as the the only reasonable prevailing party. Sykes, 833 N.Y.S.2d at 77. Notwithstanding subordinate claim, party status. the limited plaintiffs relief cannot they lay received claim to on a prevailing Their legal position that they are the rightful prevailing parties is at odds with the result that they were hoping to achieve when they filed suit. Further, plaintiffs acknowledged – behaviorally if not explicitly – that the outcome was adverse to their position by filing two separate appeals to the Second remains Circuit pending. of this When Court’s the decisions, Circuit dismissed one of most which of the arguments plaintiffs presented on their first appeal, plaintiffs unsuccessfully petitioned the Circuit for rehearing. Defendants, by contrast, have filed no appeals. While not in any suggest way dispositive, these measures do not that plaintiffs themselves believe that they prevailed. To be sure, plaintiffs did receive the relief described supra on a portion of their complaint that certainly could have been brought as a stand-alone claim, in which case the outcome regarding different. prevailing party status may well have been quite Had they done so, however, the effort and expense invested in this suit would have been of an entirely different magnitude. It is not too speculative to imagine that a narrower 15 dispute may even have been resolved by settlement without the need for lengthy, costly litigation. Nevertheless, despite early setbacks, plaintiffs pressed on, thereby increasing the legal fees that have accumulated over the course of over seven years of litigation. To now find that plaintiffs were the prevailing party, as plaintiffs urge, would be to disregard our obligation to effectuate the intent of the parties, who drafted Section 11.7 of the SPA presumably in an effort to avoid precisely that scenario. V. Award of Fees Deferred The parties have neither fully briefed the issue of whether the requested fees are reasonable, nor have they presented the typically required detail or documentation with respect to the amount of fees sought, perhaps recognizing that such effort would be misplaced before plaintiffs’ pending appeal before the Second Circuit assessment. is decided. We cannot disagree with their Accordingly, we do not require further submissions regarding the particulars of the fees requested at this time. Instead, we deny that portion of defendant’s motion without prejudice and defer the consideration thereof until after the Second Circuit pending appeal. has addressed the merits of the plaintiffs’ See Fed R. Civ. P. 54(d)(2)(B); Tancredi v. Metropolitan Life Ins. Co., 378 F.3d 220, 225-26 (2d Cir. 2004) (“If an appeal on the merits 16 of the case is taken, the [district] court may prejudice, directing for after the filing deny the motion under subdivision appeal Advisory Committee's notes). [for fees] (d) (2) (B) a has been resolved.") without new period (citing 1993 This deferral does not prevent the merits judgment we have rendered from being considered final for purposes of appeal. Fund of Int'l See Ray Haluch Gravel Co. v. Union of Operating Eng'rs, 134 Cent. S. Ct. Pension 773, 777 (2014) . CONCLUSION For the recover its insofar as party foregoing reasons, attorneys' fees, the entitled Court to orders fees defendant costs that pursuant Benihana' s and expenses Benihana to the is the governing motion to is granted prevailing contract. Defendant Benihana's request for a specific award of attorneys' fees is denied without prejudice to its renewal within 14 days of the entry of Plaintiffs' the appellate mandate on this Court's docket. motion is denied. This Memorandum and Order resolves Docket Nos. 144 and 146. Dated: New York, New York April /7, 2014 NAOMI REICE BUCHWALD UNITED STATES DISTRICT JUDGE 17 Copies of the foregoing Memorandum mailed on this date to the following: and Order have Attorney for Plaintiffs Alfred N. Metz, Esq. Deutsch, Metz & Deutsch, LLP 18 East 41st Street New York, NY 10017 Attorneys for Defendants Alan H. Fein, Esq. Adam M. Schachter, Esq. Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A. Museum Tower, Suite 2200 150 West Flagler Street Miami, FL 33130 18 been
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
