Rabbani v. Enzo Biochem Inc
| Decision Date | 01 February 2010 |
| Docket Number | No. 10 Civ. 170(DLC),10 Civ. 170(DLC) |
| Citation | 682 F.Supp.2d 400 |
| Parties | Shahram K. RABBANI, Plaintiff, v. ENZO BIOCHEM, INC., Dr. Elazar Rabbani, Barry W. Weiner, Stephen B.H. Kent, Irwin C. Gerson, Bernard L. Kasten, and Melvin F. Lzaar, Defendants |
| Court | U.S. District Court — Southern District of New York |
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Brian S. Cousin, Jonathan E. Goldberg, Seyfarth Shaw LLP, New York, NY, for Plaintiff Shahram K. Rabbani.
Kenneth A. Lapatine, Jeffrey R. Mann, Greenberg Traurig, LLP, New York, NY, for Defendants Enzo Biochem, Inc., Dr. Elazar Rabbani, Barry W. Weiner, Stephen B.H. Kent, Irwin C. Gerson, Bernard L. Kasten, and Melvin F. Lazar.
Plaintiff sought a preliminary injunction to enjoin Enzo Biochem, Inc. ("Enzo") from conducting its annual shareholder meeting ("Shareholder Meeting") on January 29, 2010. The motion seeking a preliminary injunction was denied in an Order dated January 27, 2010, with an opinion to follow. This is the opinion.1
The plaintiff Shahram K. Rabbani ("Rabbani") is a co-founder of Enzo and a member of its board. Rabbani brings claims against Enzo and six individual defendants who are Enzo directors for violations of federal securities laws and New York statutory and common law.2 Rabbani filed a motion for a preliminary injunction on January 11. He seeks, inter alia, a delay of the Shareholder Meeting until no earlier than March 15, 2010.
Pursuant to this Court's individual practices, and with the consent of the parties, the direct testimony of the witnesses for the preliminary injunction hearing was submitted by affidavit. Rabbani submitted declarations from himself; Andre de Bruin, at one time nominated by Rabbani as a candidate for director of Enzo; and Norma J. McDaniel, Avie Roy, William R. Stansbury, Jan W. Vandersande, Marvin Miller, and Richard Miller, all shareholders of record of Enzo.3 The defendants submitted declarations from defendants Barry Weiner ("Weiner"), Stephen B.H. Kent, Irwin C. Gerson, Bernard L. Kasten, and Melvin F. Lazar; Andrew R. Crescen-zo ("Crescenzo"), the Senior Vice Presi- dent of Finance for Enzo; and David C. Goldberg ("Goldberg"), the Vice President of Corporate Development at Enzo. Following the service of the preliminary injunction papers, the parties consented to the submission of this motion on that paper record. Based on those submissions, the following constitutes the Court's findings of fact and conclusions of law.
Enzo is a publicly held corporation organized under the laws of the State of New York. It is a life sciences and biotechnology company focused on harnessing genetic processes to develop research tools, diagnostics, and therapeutics. Rabbani co-founded Enzo in 1976 with his brother, Dr. Elazar Rabbani (Dr. Rabbani), and their brother-in-law, Weiner. Rabbani previously served as the company's chief operating officer and chief financial officer. More recently, he served until March 5, 2009 as the president of the company's largest subsidiary; and until November 25, 2009 as Secretary and Treasurer of Enzo. Rabbani owns approximately 3.8% of the outstanding shares of Enzo. Dr. Rabbani is the Chief Executive Officer, Chairman of the Board, and Secretary of Enzo. Weiner is President, Chief Financial Officer, Principal Accounting Officer, Treasurer, and a director of the company.
There are seven members of Enzo's board of directors, split into three classes. Each class serves a term of three years. There were three vacancies on the board to be filled in January 2010. Enzo's Bylaivs
Several of the issues raised in this litigation rest on the application of Enzo's Amended and Restated By-Laws ("the Bylaws"). The pertinent provisions of the Bylaws include its description of the method by which a shareholder may nominate candidates to serve as directors of the Company. The Bylaws require that each notice of intent to nominate directors contain specified information as well as
such other information regarding each nominee proposed by such shareholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board.
(Emphasis supplied.) The Bylaws allow the chairman of the meeting to "refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure."
According to the Bylaws, a shareholder may nominate directors on written notice given either sixty or seven days in advance of a shareholder meeting, depending on whether the shareholder meeting is the annual meeting or a special meeting for the election of directors. The Bylaws provide:
only if written notice of such shareholder's intent to make such nomination has been given... to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 60 days in advance of such meeting, and (ii) with respect to an election to be held at a special meeting of shareholders for the election of directors, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders.
(Emphasis supplied.) Under the Bylaws, the annual meeting must take place in the month of January. Specifically, the Bylaws require that the annual shareholder meeting "be held during the sixth month following the close of the Corporation's fiscal year." Since Enzo's fiscal year ends in July, the meeting must be held during the month of January.
The Bylaws also require that shareholders be given written notice of all shareholder meetings:
Notice of the place, date and time of the holding of each annual and special meeting of the shareholders and, in the case of a special meeting, the purpose or purposes, thereof, shall be given personally or by mail in a postage prepaid envelope to each shareholder entitled to vote at such meeting, not less than ten nor more than fifty days before the date of such meeting....
Enzo's annual Form 10-K, filed with the U.S. Securities and Exchange Commission ("SEC") on October 14, 2009, disclosed that the annual shareholder meeting would be held "on or about January 26, 2010." On October 21, Goldberg informed the board of directors that the annual shareholder meeting would take place on January 19, 2010. As already noted, the Bylaws require the annual meeting to be held no later than January, and that had been the company's practice for approximately the last twenty years.
In an effort to comply with the Bylaws' requirement of sixty days notice of nominations in advance of an annual shareholder meeting, on November 20, Rabbani advised Enzo in writing that he was nominating three persons for election to the board of directors ("the Nomination Letter"): Joseph V. Gulfo, Steven Katz, and Andre de Bruin.
On November 23, Enzo distributed an agenda for a November 25 board meeting that listed a February 9 date for the annual meeting. It read, "Notice of Annual Meeting Information: Record Date-December 14, 2009; Meeting date-February 9, 2010." Consistent with the agenda, on that same date, Crescenzo notified Broa-dridge Investor Communications Solutions ("Broadridge"), the proxy server hired by Enzo; American Stock Transfer & Trust Company, Enzo's transfer agent ("American Stock Transfer"); and an entity called CEDE & Co., described as the company in whose name most "street named" shares are held (collectively, "the Proxy Entities"), that the annual shareholder meeting date was being changed to February 9.
Almost immediately, however, Enzo reversed course and decided to proceed with its annual meeting in January, as required by its Bylaws. On November 24, Enzo's outside counsel sent an email to Crescenzo that said "Changing annual mtg date to January 29." Crescenzo promptly informed some of the Proxy Entities that the meeting date would be January 29.4 Neither Enzo nor its counsel advised Rabbani at that time of the January 29 meeting date.
At the November 25 meeting of Enzo's board of directors, the board removed Rabbani as Secretary and Treasurer. It also established a Stockholder Meeting Committee ("Committee") composed of Dr. Rabbani and Weiner. It explained the reasons for creating the special committee in a resolution, which reads in pertinent part:
WHEREAS, to properly and more efficiently manage... and work with the Company's management and outside professional advisors with respect to planning, strategizing, soliciting votesand convening the Company's 2009 Annual Meeting or, to the extent such meeting is not held on or before January 31, 2010, any subsequent special meeting of the Company's stockholders at which Company directors are to be elected and the matters to be acted upon and presented thereat including, without limitation, communicating with the Company's stockholders and addressing amy potential opposition election campaign to be instituted by Shahram K. Rabbani or any other stockholder of the Company, the Company's directors have determined that it is in the best interest of the Company for a committee of the Board to be constituted and established for the aforementioned purposes.
(Emphasis supplied.) The Resolution also states that the Committee "shall report from time to time to the entire Board."
At the November 25 meeting, Rabbani asked Enzo's outside counsel what had happened to the shareholder meeting date of February 9th listed on the agenda, and the outside counsel told him that the "February 9 date was out" and that there was no new shareholder meeting date. No one at the meeting advised Rabbani that the annual meeting would be held in January, although as the Resolution quoted above reflects, the Board was on notice that if the annual meeting was not held before the end of January, any subsequent meeting would be a "special meeting."
Also on November 25, Dr....
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