(CN) - Johnson & Johnson can institute corporate governance changes and pay $10 million in attorneys' fees to settle a shareholder complaint, a federal judge ruled.
Several derivative actions consolidated in the District of New Jersey claimed that Johnson & Johnson (J&J) grossly mismanaged the company for more than a decade by paying kickbacks to doctors who prescribed Johnson & Johnson drugs and medical devices.
After negotiations began, the court dismissed eight of the suits without prejudice for lack of specificity, but these plaintiffs continued to participate in the settlement discussions.
Under terms of the settlement, Johnson & Johnson's board will adopt a Quality and Compliance Core Objective to correct noncompliance with drug-marketing laws.
The board will also establish a Regulatory, Compliance & Government Affairs Committee to assist the board with compliance issues, and implement a new product risk management standard for all Johnson & Johnson subsidiaries.
U.S. District Judge Freda Wolfson approved the deal last week, noting that shareholders would face an uphill procedural battle if the negotiations failed.
"Here, plaintiffs face significant hurdles in proving their cases," Wolfson wrote. "J&J succeeded in its motion to dismiss against the demand-futility plaintiffs, and no amended complaint has been filed for the Court to assess whether an amended complaint could withstand a second attack. As I suggested in granting J&J's dismissal motion, while J&J's alleged conduct was troubling, it was not clear that the Board members were aware of red flags and chose to ignore them. And, mere negligence is not enough to create liability."
The terms of the settlement represent a board commitment to greater quality control and compliance with drug marketing laws, the decision states.
"By agreeing to create and operate RCGC [Regulatory, Compliance & Government Affairs Committee], the J&J board will further cement its now centralized role in overseeing J&J's compliance with drug marketing laws and cGMP [current good manufacturing practices]," Wolfson wrote. "I find that this reform is tailored to remedy the plaintiffs' overarching allegation that the board insulated itself from reporting on quality control issues. In addition, as [plaintiffs' expert] Dr. [Mitchell] Glass notes, the creation of the committee constitutes a best practice, which is tailored to remedy the plaintiffs' allegation that J&J failed to institute good manufacturing practices in its subsidiaries."
The judge also noted that, "while some may argue that monetary relief would amount to a greater recovery, the Supreme Court and Court of Appeals have made clear that injunctive relief, on its own, may constitute a significant benefit for the corporation."
Johnson & Johnson must also pay $10 million in attorneys' fees, along with $450,000 in costs, according to the ruling.
Earlier in the action, the court appointed Abraham, Fruchter & Twersky as lead counsel. Kantrowitz, Goldhamer & Graifman served as liaison counsel.
Carella, Byrne, Cecchi, Olstein, Brody & Agnello; Morris and Morris Counselors at Law; Robbins Geller Rudman & Dowd LLP; and Bernstein Litowitz Berger & Grossmann also represented the shareholders.
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