Enzo Biochem, Inc. v. Harbert Discovery Fund, LP

Background

Enzo Biochem sued Harbert Discovery Fund, LP and related defendants over statements made during Harbert’s 2019 proxy contest for seats on Enzo’s board. Harbert responded with counterclaims against Enzo and individual board members, including Dr. Elazar Rabbani and Barry W. Weiner. The counterclaims alleged violations of federal securities laws and breaches of fiduciary duties.

The court had previously granted in part and denied in part the parties’ motions to dismiss. Enzo, Harbert, and several individual board members later settled most of the claims, and the court ordered dismissal of those claims on June 7, 2022. The only remaining claims were two counterclaims by Harbert against Rabbani and Weiner concerning the 2019 proxy season. Harbert moved to dismiss those counterclaims voluntarily without prejudice.

Motions and Arguments

Rabbani and Weiner opposed the requested dismissal. They argued that Harbert might sue them again and that the settlement between Harbert and the other parties might be collusive, made in bad faith, or inconsistent with obligations owed to them and others. They also moved to compel discovery about the settlement so they could investigate and potentially challenge it.

Court’s Analysis

Because Harbert had already answered the claims at issue, it could not dismiss them automatically. Under Federal Rule of Civil Procedure 41(a)(2), court approval was required, and the court could impose proper terms. The court applied five factors concerning voluntary dismissal: how promptly Harbert sought dismissal, whether it acted improperly or to harass the opposing parties, how far the case had progressed, whether dismissal would create duplicative expense, and whether Harbert adequately explained its request.

The court found that all five factors favored dismissal. Harbert filed its motion two weeks after the settlement-related dismissals, which the court considered prompt. The court found no specific evidence that Harbert acted to harass Rabbani or Weiner. Although the case had been pending for more than two years, discovery had not meaningfully occurred beyond initial disclosures because the parties had focused on settlement. The court also found no significant risk of duplicative expense and accepted Harbert’s explanation that the remaining claims had become less significant after the settlement, changes in Enzo’s leadership, and the passage of time since the 2019 proxy contest.

The court also considered whether dismissal would cause legal prejudice. It held that the possibility of another lawsuit was not enough. It further held that Rabbani and Weiner’s desire to obtain settlement-related discovery for possible future claims did not justify keeping the counterclaims pending, particularly because neither had filed a claim against Harbert. The court noted that they might be able to seek relevant documents in another proceeding.

Disposition

The court granted Harbert’s motion for voluntary dismissal without prejudice. It denied Rabbani and Weiner’s motion to compel discovery. The court declined to impose conditions on the dismissal, directed the clerk to terminate the motions, and ordered the case closed.