Meltzer/Austin Restaurant Corporation et al v. Benihana National Corp.
ORDER DENYING 84 Motion to Compel; GRANTING 87 Motion for Protective Order; GRANTING IN PART AND DENYING IN PART 88 Motion to Compel; Benihana shall serve responses ordered no later than January 18, 2013. Signed by Judge Andrew W. Austin. (kkc)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
CORPORATION, et al.
BENIHANA NATIONAL CORP.,
Before the Court are Plaintiffs’ Motion and Supporting Memorandum to Compel Defendant
Benihana National Corporation to Amend Its Initial Disclosures (Clerk’s Doc. No. 84), Plaintiffs’
Motion for Protective Order (Clerk’s Doc. No. 87), Plaintiffs’ Motion and Supporting Memorandum
to Compel Defendant’s Interrogatory Responses (Clerk’s Doc. No. 88), Defendant’s Response
Memorandum in Opposition to Plaintiffs’ Motions to Compel (Clerk’s Doc. No. 96), and Plaintiffs’
Reply to Defendant’s Response (Clerk’s Doc. No. 100). The District Court referred the above
motions to the undersigned Magistrate Judge for resolution pursuant to 28 U.S.C. §636(b)(1)(A),
FED . R. CIV . P. 72, and Rule 1(c) of Appendix C of the Local Rules of the United States District
Court for the Western District of Texas, Local Rules for the Assignment of Duties to United States
Magistrate Judges (Clerk’s Doc. Nos. 86, 89, and 93). The Court conducted a hearing on the
motions on December 19, 2012.
This case arises from a dispute between the franchisee-Plaintiffs (“Meltzer”) and the
franchisor-Defendant (“Benihana”). Prior to the events at issue in this case, Meltzer had been a
successful Benihana franchisee for thirteen years. Meltzer opened his first Benihana restaurant in
Austin in 1998 and a second restaurant in San Antonio in 2001. Meltzer’s successful Benihana
franchises received several awards and recognition from Benihana over the years. Meltzer alleges
that his relationship with Benihana changed following the death of its founder, Rocky Aoki, in 2008.
Shortly after Aoki’s death, Meltzer began to receive franchise violation notices from Benihana for
items that had been previously approved. According to Meltzer, he spent tens of thousands of dollars
to bring his Benihana franchise restaurants into compliance in 2009. In addition to these violations,
Meltzer also asserts that Benihana made misrepresentations relating to a new franchise agreement
between Meltzer and Benihana that led Meltzer to purchase property for a new Benihana franchise
Meltzer’s relationship with Benihana further deteriorated in November, 2010, when he
received notices of default from Benihana with respect to his Austin and San Antonio restaurants,
informing Meltzer that he had thirty days to correct the use of nonstandard and nonapproved menus
and to remove the large exterior sign outside his restaurants. However, Meltzer claims that the
actions on which the notices of default were based had previously been approved by Benihana. On
June 23, 2011, Meltzer received written notice of termination from Benihana. Meltzer’s Austin
restaurant closed on July 31, 2011, and his San Antonio restaurant on August 3, 2011. Meltzer
alleges that the improper termination of his Benihana franchises and closure of his Benihana
restaurants caused him additional financial losses.
The current case is a consolidation of three separate cases, the first filed by Meltzer against
Benihana in District Court in Travis County, Texas, in June, 2011, for breach of the parties’
franchise agreements and fraud. The second was filed by Benihana, also in June 2011, in federal
court in the Southern District of Florida, alleging Meltzer had improperly used Benihana’s
trademarks and service marks in the operation of his Austin and San Antonio restaurants. Benihana
removed Meltzer’s Texas state court petition to this Court, and sought to transfer the case to the
Southern District of Florida. Finally, the third case was filed by Meltzer in July 2011, in this Court,
alleging fraud, negligent misrepresentation, and other causes of action relating to Meltzer’s purchase
of property for a new Benihana franchise. Benihana also sought to transfer this case to the Southern
District of Florida, but on December 14, 2011, the Southern District of Florida judge transferred
Benihana’s suit to this district, and on February 3, 2012, Judge Yeakel consolidated all three cases
into the instant action.
Plaintiffs’ Motion and Supporting Memorandum to Compel Defendant Benihana
National Corporation to Amend Its Initial Disclosures (Clerk’s Doc. No. 84)
In this Motion, Meltzer seeks the Court’s assistance to compel Benihana to amend its initial
disclosures. Meltzer asserts that despite the complex and fact-intensive nature of this case,
Benihana’s initial disclosures amounted to less than four pages of substantive information. In
particular, Meltzer criticizes Benihana for not mentioning key individuals in the litigation and not
providing a straight response to the request for information regarding insurance coverage. See
Clerk’s Doc. No. 84. Benihana responds that its initial disclosures were adequate and satisfied its
obligations under Rule 26 of the Federal Rules of Civil Procedure. Benihana notes that both Rules
26(a)(1)(A)(i) and (ii) require the disclosure of individuals and documents that the disclosing party
“may use to support its claims or defenses,” and asserts that it has disclosed all of those individuals
and documents. See Clerk’s Doc. No. 96 at 2–5. In response, Meltzer alleges that Benihana has
“failed to comply with the purpose of FED R. CIV . P. 26(a), which is to accelerate the exchange of
basic information and facilitate preparation for trial or settlement.” See Clerk’s Doc. No. 100 at 2.
Alternatively, Meltzer argues that Benihana should be limited to calling or offering at trial only the
witnesses and documents listed in its initial disclosures. Id.
Meltzer is seeking to apply Rule 26 more broadly than it is written. Rule 26(a)(1) requires
parties to make initial disclosures regarding individuals and documents that “the disclosing party
may use to support its claims or defenses . . . .” See, e.g., FED . R. CIV . P. 26(a)(1)(A)(i); FED . R. CIV .
P. 26(a)(1)(A)(ii) (emphasis added). The plain, unambiguous language of the rule makes it clear that
such disclosures are based on what the disclosing party believes it will use to support its claims or
defenses at trial, not what the opposing party believes to be relevant. Thus, while Meltzer believes
that three and a half pages of initial disclosures were inadequate, this does not mean that Benihana’s
list of what it anticipates it will use at trial to support its claims or defenses is incorrect. Through
its filings and arguments at the hearing, Benihana has represented to the Court that its disclosures
were completed in good faith. The Court takes Benihana at its word and has seen no evidence that
Benihana’s disclosures were not made in good faith. Rather, what is apparent is that Meltzer has a
very different view of what this case is about, and what is therefore relevant evidence.
Furthermore, to the extent Meltzer seeks to limit Benihana’s witnesses or documents it may
use at trial, Meltzer’s request will also be denied. The Federal Rules clearly contemplate that Parties
will supplement their initial disclosures as the case moves forward. For example, FED . R. CIV . P.
A party who has made a disclosure under Rule 26(a) . . . must supplement or correct
its disclosure or response:
(A) In a timely manner if the party learns that in some material respect the
disclosure or response is incomplete or incorrect, and if the additional or
corrective information has not otherwise been made known to the other
parties during the discovery process or in writing; or
(B) As ordered by the court.
FED . R. CIV . P. 26(e)(1) (emphasis added). It is plainly obvious that parties are not limited to their
initial disclosures and may supplement their disclosures. As this case progresses, and the scope of
the issues for trial becomes more defined, if Benihana intends to use additional individuals or
documents to support its claims or defenses at trial, it has a duty to supplement its initial disclosures.
Finally, as to the issue regarding any relevant insurance, the Court is at a loss to understand
what Meltzer is complaining about. Benihana’s answer states unequivocally that it is unaware of
any insurance policy that would apply to these disputes. That is not a cagey answer, and complies
with the obligations imposed by Rule 26.
Plaintiffs’ Motion for Protective Order (Clerk’s Doc. No. 87)
Meltzer also requests the Court to enter the standard form Confidentiality and Protective
Order provided by the Western District’s Local Rules. Meltzer alleges that repeated attempts to
agree on a stipulated protective order in this case have been unsuccessful and accuses Benihana of
“foot dragging.” Clerk’s Doc. No. 87 at 1. Benihana responds that the problem derives from
miscommunication between Meltzer’s Austin and Houston attorneys and is not the result of
Benihana’s actions. Clerk’s Doc. No. 96.
Although it is not entirely clear what all of the areas of disagreement on the form of a
protective order are, it appears that the main area of dispute is Paragraph 17 of Benihana’s proposed
Protective Order, which (in summary) directs Meltzer not to disclose any documents to any third
parties, including other Benihana franchisees. Paragraph 17 also prohibits the usage of any
documents identified as “Confidential” in other litigation or disputes, now or in the future. Clerk’s
Doc. No. 87, Exh. 8 at ¶ 17. At the hearing, Benihana was unable to articulate any factual reasons
why this paragraph is needed in this case. There is no evidence, for example, of Meltzer improperly
using Benihana’s documents, or soliciting others to join in his suit. Furthermore, the standard form
Confidentiality and Protective Order for the Western District of Texas already contains language
which addresses Benihana’s concern. In Section 4, the form order provides:
All Classified Information provided by any party or nonparty in the course of this
litigation shall be used solely for the purpose of preparation, trial, and appeal of this
litigation and for no other purpose, and shall not be disclosed except in accordance
with the terms hereof.
See Western District of Texas Protective Order, available at http://www.txwd.uscourts.gov
Benihana has proffered no reason why the Western District of Texas’
Confidentiality and Protective Order would be insufficient to serve its needs. Accordingly, the Court
will enter the standard form protective order for this case.
Plaintiffs’ Motion and Supporting Memorandum to Compel Defendant’s Interrogatory
Responses (Clerk’s Doc. No. 88)
In this Motion, Meltzer seeks to compel Benihana to amend its interrogatory responses,
which Meltzer believes are “woefully inadequate.” More specifically, Meltzer asserts that Benihana
has made improper general, boilerplate objections to the interrogatories and cites problems with
Benihana’s responses to Interrogatories 1, 2, 5, 6, 7, 8, and 9. Clerk’s Doc. No. 88. The Court will
address the specific interrogatories in turn.
Interrogatory No. 1: Identify all persons who you believe have knowledge of
relevant facts and identify the issues upon which you believe they have
Interrogatory No. 2: If Benihana Corporation is a partner, a partnership, or a
subsidiary or affiliate of a publicly owned corporation that has a financial
interest in the outcome of this lawsuit, list the identity of the parent corporation,
affiliate, partner, or partnership and the relationship between it and the Meltzer
Parties. If there is a publicly owned corporation or a holding company not a
party to the case that has a financial interest in the outcome, list the identity of
such corporation and the nature of the financial interest.
Benihana responded to Interrogatory No. 1 by providing a set of individuals, along with their
job titles and a short description of the information each individual may possess. Benihana answered
“none” to Interrogatory No. 2. Clerk’s Doc. No. 88, Exh. 2. Meltzer alleges that Benihana’s
responses to both interrogatories are inadequate, noting that given the complex and lengthy history
of this case, it is “hard to imagine” Benihana’s answers were so short. Clerk’s Doc. No. 88 at 3–4.
Once again, Meltzer is basing its view of Benihana’s responses on Meltzer’s expansive view
of the issues presented by this case. Interrogatory No. 1 only requests information from Benihana
regarding individuals that Benihana believes would have knowledge of the relevant facts. Whether
or not Meltzer believes that more individuals have knowledge of relevant facts is not the measure
of whether Benihana has sufficiently responded to the interrogatory. With regard to Interrogatory
No. 2, Benihana points out that it is a privately held corporation, and not an affiliate or subsidiary
of a publicly-held corporation. and thus it has correctly answered the interrogatory. Meltzer’s
objections to this response are that “we suspect this is not accurate,” and points to what was then an
impending acquisition of Benihana reported in financial news outlets in August, 2012. But if in fact
Benihana was acquired, that changes nothing. Benihana is the party being sued, not its shareholders,
and a change in the shareholder group does not change the answer to the interrogatory. Rather, the
plain language of Meltzer’s own question demanded an affirmative answer only if Benihana was a
partner, affiliate or subsidiary of a publicly traded corporation, or if a publicly-traded corporation had
a financial stake in the case. Nothing Meltzer has submitted suggests otherwise. In short, Benihana
has represented that its responses to Meltzer’s first two interrogatories are truthful and made in good
faith, and Meltzer has presented no evidence demonstrating the contrary.
Moreover, as with initial disclosures, FED . R. CIV . P. 26 contemplates the need for parties to
supplement their interrogatory responses. See FED . R. CIV . P. 26(e). Should Benihana become aware
of more relevant individuals or information in the future, it will have a duty to supplement its
interrogatory responses. At this stage in the dispute, Benihana’s responses are sufficient.
Interrogatory No. 5: For each of the violations that you allege were grounds for
terminating the Meltzer restaurant franchises in Austin and San Antonio, please
identify each time you found a similar violation in any other Benihana
restaurant (including both franchise and corporate restaurants) in the county.
For each violation occurrence that you identify, please state the date, restaurant
location, whether it is a franchise or corporate restaurant, and the resulting
Interrogatory No. 6: List all franchisees that have been required to provide
monthly financials from January of 2009 to the present (i.e., not just monthly
profit and loss statements).
Interrogatory No. 7: What are the royalty payment percentages, actual
payments and dates on the agreements (and any amendments thereto) for each
of the Benihana restaurants?
Interrogatories No. 5, No. 6, and No. 7 request information on other franchisees. Benihana
objects to these interrogatories on the basis that information on other franchisees is irrelevant to the
dispute between Meltzer and Benihana. Clerk’s Doc. No. 88, Exh. 2. Meltzer believes the evidence
regarding other franchisees is critical to show that Benihana treated Meltzer differently from other
franchisees. According to Meltzer, the contracts between Meltzer and Benihana are governed by
New York law and therefore contain an implied covenant of good faith and fair dealing. Meltzer
contends that Benihana’s differing treatment of Meltzer would be a breach of this implied covenant
and the evidence is therefore relevant to his claims. Clerk’s Doc. No. 88 at 5–6. In its Response,
Benihana asserts that there is no general duty to treat franchisees equally, and any information
regarding other franchisees is therefore irrelevant to this case. Clerk’s Doc. No. 96 at 8–11.
The dispute at the foundation of this issue is whether the contracts between Benihana and
Meltzer are governed by New York or Texas law. Meltzer asserts that the license and franchise
agreements are governed by New York law, whereas Benihana claims Texas law applies. See
Clerk’s Doc. No. 78, ¶ 131; Clerk’s Doc. No. 81 at 7. At issue is the interpretation of Paragraph 15.7
of the License Agreement and Paragraph 16.7 of the Franchise Agreement, both of which contain
the following, awkwardly worded provision:
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York, applicable to agreements made and to be performed solely
within such state.
Clerk’s Doc. No. 78, Exh. 1 and Exh. 2. Benihana argues that this choice of law provision is only
“applicable to Agreements made and to be performed solely within each state,” and thus New York
law does not apply to the agreements between Meltzer and Benihana, as the restaurants at issue in
their agreements were to be operated entirely within Texas. Clerk’s Doc. No. 81 at 7. Meltzer,
however, asserts that the provision means that the parties were agreeing that whatever New York law
“applicable to agreements made and to be performed solely within such state” is, that is the law
governing their agreements. Clerk’s Doc. No. 83 at 7.
Benihana further contends that even if New York law is the governing law, the New York
implied duty of good faith and fair dealing only extends to the specific obligations the contracts
imposed on Benihana, and does not create additional, independent duties. Clerk’s Doc. No. 102.
Under this reading of New York law, information regarding a franchisor’s treatment of other
franchisees would not be relevant because the duty does not include an obligation to treat all
franchisees in a similar manner. Id. Meltzer disagrees, and contends that New York construes the
implied duty of good faith and fair dealing broadly, and as encompassing a duty to treat all
franchisees fairly. Clerk’s Doc. No. 103. In its most recent brief, Benihana appears to go even
further, arguing that Meltzer cannot maintain a cause of action for breach of the implied duty of good
faith and fair dealing under New York law at all. Clerk’s Doc. No. 102.
A decision on whether the claims in this case are governed by New York or Texas law—and
should New York law govern, the scope of the implied duty of good faith and fair dealing—has
significant implications for this case, beyond simply the scope of discovery. Both parties raise this
issue in briefing on Benihana’s Motion to Dismiss Meltzer’s Fourth Amended Complaint (Clerk’s
Doc. No. 81), which is pending before Judge Yeakel. Further, Benihana’s supplemental briefing in
this motion (Clerk’s Doc. No. 102) raises the argument that no such cause of action is even available
here. Because a decision on these issues would directly impact the dispositive motions pending
before Judge Yeakel, the undersigned declines to make a ruling on them at this time, and will defer
to Judge Yeakel’s resolution of those questions. In light of this, and given the breadth of Meltzer’s
discovery requests relating to other franchisees, the Court at this time will deny Meltzer’s request
to engage in wide-ranging discovery on how other franchisees have been treated by Benihana. If
Judge Yeakel’s ruling on the motion to dismiss makes Benihana’s treatment of other franchisees
relevant to the claims in this case, then Meltzer is of course permitted at that time to conduct
discovery on those issues.1
It is incumbent on Meltzer to initiate discovery on these issues if the ruling on the motion
to dismiss makes the issues relevant, and he should not await any ruling from the Court to do so.
Interrogatory No. 8: Describe the events and reasoning behind Joel Schwartz’s
departure from his position at Benihana Corporation.
Benihana objects to Interrogatory No. 8 on the basis that it is irrelevant to the issues between
Meltzer and Benihana in the instant case. As support, Benihana highlights that Joel Schwartz is only
briefly mentioned in Meltzer’s Fourth Amended Complaint. Clerk’s Doc. No. 96 at 11. In response,
Meltzer alleges that Schwartz is integral to this case as he was involved in the power struggle for
control of Benihana with Mr. Richard Stockinger, who Meltzer deems responsible for many of
Benihana’s bad actions toward him. Clerk’s Doc. No. 88 at 6–7.
Meltzer has failed to explain how the relationship between Schwartz and Stockinger is
relevant to the dispute between Meltzer and Benihana. Whether Schwartz was forced to resign and
the issues surrounding Schwartz’s departure from Benihana are irrelevant to the instant case.
Meltzer’s allegation that Schwartz has intimate knowledge of the facts at issue in this case appears
to derive from multiple levels of speculation. For example, the Court would have to assume that
Stockinger disclosed to Schwartz his intent to target Meltzer’s franchises, an assumption this Court
is unwilling to make based purely on Meltzer’s assertions. Furthermore, at the hearing, Meltzer did
not present any evidence to support his speculation. The Court will therefore deny the motion to
compel a response to this question.
Interrogatory No. 9: What factors do you consider in rating successful
franchises and corporate stores?
In response to Interrogatory 9, Benihana states that the terms “factors” and “successful” are
not defined and inherently subjective. Additionally, Benihana also objects that to the extent Meltzer
seeks this information with regard to other franchisees, such information is irrelevant and
confidential. Clerk’s Doc. No. 88, Exh. 2. Meltzer claims Benihana refusal to provide an answer
is improper. Meltzer believes that many of the violations cited by Benihana for termination of
Meltzer’s franchise agreement were either fabricated or not enforced against other restaurants.
Clerk’s Doc. No. 88 at 7.
At the hearing, Benihana represented to the Court that it had no objection to providing
information regarding its general criteria in determining whether a franchisee is successful. It did
object to providing specific information on other franchisees.
Considering the parties’
representations, the Court will GRANT Meltzer’s motion to compel as to the general criteria used
by Benihana in rating their franchisees and ORDERS Benihana to respond to the interrogatory to that
extent. However, in accordance with the previous discussion on Interrogatories No. 5, No. 6, and
No. 7, to the extent this question seeks information regarding the performance of specific franchisees
other than Meltzer, the Court will deny the motion to compel on this interrogatory.
In summary, Meltzer’s Motion to Compel Defendant Benihana National Corporation to
Amend Its Initial Disclosures (Clerk’s Doc. No. 84) is DENIED. Meltzer’s Motion for Protective
Order (Clerk’s Doc. No. 87) is GRANTED, and the Court has entered a protective order in the form
called for in the Local Rules. Finally, Meltzer’s Motion and Supporting Memorandum to Compel
Defendant’s Interrogatory Responses (Clerk’s Doc. No. 88) is GRANTED IN PART AND DENIED
IN PART as set forth above. Benihana shall serve responses ordered no later than January 18, 2013.
SIGNED this 4th day of January, 2013.
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE
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