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Benihana Brawl: Founder’s third wife scores a win

September 22, 2015

Keiko Ono Aoki, BenihanaKeiko Ono Aoki, Benihana
Keiko Ono Aoki with a chef at KOA, her new restaurant.Photograph by Reed Young for Fortune

Keiko Ono Aoki, the embattled CEO of Benihana of Tokyo (BOT) and third wife of late Benihana founder Rocky Aoki, can throw another steak on the hibachi grill: last Friday, an arbitration panel decided her company can continue to operate its highly profitable restaurant within Honolulu’s Hilton Hawaiian Village Waikiki Beach Resort.

For those unacquainted, Benihana split into separate entities years ago and the two factions have been engaged in a crazy, bitter battle over Benihana. This is a big win for Ono, but not without cost.

The fate of the Hawaii restaurant—which accounted for 39% of BOT’s sales and 63% of profits last year—has hung in the balance since February 2014, when Benihana Inc (BI), the operator of the teppanyaki chain in the U.S., terminated BOT’s license to operate the Hawaii outlet over a raft of alleged infractions, including selling hamburgers (the “Beni Burger”), using hip-hop dancers (the “Beni Girls”) and Ono (labeled as “Ms. Benihana”) in promotional activities, and not using garlic butter, that it charged were in violation of the license agreement and damaging to the Benihana image.

Small and resolvable as these issues may seem, they escalated into a series of outlandish lawsuits—in February 2014, a federal judge enjoined BOT from serving hamburgers—and they reflect a larger struggle between the two Benihanas (BOT and BI) over the heart and soul of the brand.

BOT, which has been helmed by Ono since 2010, controls the rights to Benihana in most countries outside the U.S.; it owns or franchises 19 restaurants abroad. BI, which was bought by private equity firm Angelo Gordon in 2012, runs the chain in the U.S. The Hawaii restaurant, owned by BI, but operated by BOT through an open-ended licensing agreement is the single exception; a quirk in corporate structure that can be credited to Benihana founder Aoki.

As for BI’s beefs with the Hawaii restaurant, BOT protested they were misguided; practices like selling burgers and using plain butter were not license violations, but business-savvy modifications that were both compatible with the Benihana brand and the clientele in Hawaii. BOT also argued that BI had never exercised such oversight before and that the termination of its license to operate the Honolulu restaurant was unreasonable.

The arbitrators did not buy much of BOT’s argument. They found the company had unequivocally violated its licensing agreement by selling “Beni Burgers.” And again, when BOT continued to sell them (having agreed not to) as “Tempura Burgers” on a patio adjacent to the restaurant.

Though the Beni Girls were given a pass—the arbitrators wrote it “strains credulity” that a pair of “pretty hip-hop dancers” could diminish the image of a restaurant chain at which chefs tell “cornball jokes”—BOT was permanently enjoined from “selling unauthorized food items” or publishing advertisements that have not been approved by BI.

The arbitrators found other alleged breaches, like not using garlic butter, to be immaterial.

BOT was also ordered to pay $1.1 million of BI’s $1.7 million in legal fees.

But the panel did side with BOT on the most existentially important point: the termination of its license in Hawaii was unreasonable for selling hamburgers. Joseph Manson, who represented the company in the arbitration proceedings, called it a “huge win for BOT” in an email.

This is hardly the end of the crazy, bitter battle for Benihana, however. Though Ono, for now, retains her tenuous grip on what remains of the family restaurant empire, she is still entangled in litigation with her stepchildren over the rightful control of BOT.

To read this full crazy family saga, click here: http://fortune.com/2015/03/04/battle-over-benihana/.