Judge tosses 'red flag' suit against J&J directors

U.S. District Judge Freda Wolfson thinks angry Johnson & Johnson ($JNJ) shareholders have a point. The investors raised some "troubling and pervasive" allegations, Wolfson said in a ruling, and they identified "what appears to be serious corporate misconduct on J&J's part."

But that's not enough to support a shareholder derivative suit, Wolfson said. The shareholders didn't provide strong enough evidence that individual directors actually knew about problems at the company and then failed to act. "None of the various types of red flags suggest that the board acted in bad faith," Wolfson wrote (as quoted by Reuters). "While plaintiffs' allegations are disconcerting, they do not contain the (requisite) detail."

Wolfson tossed the suit. Thus ends the shareholders' attempt to hold directors individually accountable for J&J's recent missteps, from manufacturing violations to repeated recalls to marketing allegations that led to a multimillion-dollar settlement with the Justice Department. It's the second bid by J&J shareholders to fail in pursuing allegations against the company's board. Another group called for an investigation, the board set up a special committee to comply, and then the committee found no wrongdoing, as Reuters notes.

Shareholder plaintiffs could sue the board for its records, then amend their complaint to add specifics on their allegations about individual board members, Wolfson suggested. But she also cautioned that if they failed to prove their case, they might find themselves on the hook for J&J's legal fees.

"We are pleased Judge Wolfson granted our motion to dismiss the consolidated shareholder derivative lawsuit," J&J spokesman William Price told Bloomberg. "We do not agree with the allegations in the complaint and will dispute them in court if and when the case moves forward."

- read the Reuters analysis
- get more from Bloomberg

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