## Facts

- Johnson & Johnson shareholders brought consolidated derivative actions against certain directors and officers, with Johnson & Johnson as the nominal defendant.
- Plaintiffs alleged the board failed to respond to compliance “red flags” tied to (a) product recalls and manufacturing deficiencies, (b) off-label marketing, and (c) illegal kickbacks.
- Shareholders claimed the company’s decentralized management and inadequate quality-assurance systems allowed violations to continue, causing regulatory exposure and financial and reputational harm.
- The litigation included both demand-futility actions (no pre-suit demand) and demand-refused actions (demands made and rejected by the board).
- After an earlier dismissal without prejudice of the demand-futility complaints and continued litigation of limited claims, the parties negotiated a global settlement.
- The settlement primarily required corporate governance and compliance reforms, including enhanced board oversight, a Chief Quality Officer role, and funded compliance measures for a defined period; it also contemplated payment of attorneys’ fees and costs subject to court review.
- A shareholder objector sought to intervene and to dismiss or block the settlement, challenging the settlement’s adequacy and representation.

## Issues

1. Whether the proposed derivative settlement, centered on governance and compliance reforms and a fee-and-cost payment, was fair, reasonable, and adequate to the corporation and its shareholders.
2. Whether an objecting shareholder should be permitted to intervene and obtain dismissal or rejection of the settlement based on alleged inadequacy of relief, representation, or process.
3. Whether, and how, attorneys’ fees and costs should be evaluated when the settlement relief is primarily non-monetary.

## Decision

- The court granted final approval of the derivative settlement as fair, reasonable, and adequate.
- The court held the governance reforms provided a substantial benefit in light of the allegations and the litigation risks and uncertainties.
- The court denied the objector’s motions to intervene and to dismiss, finding no sufficient showing of a distinct interest requiring intervention or a basis to derail the settlement.
- The court appointed a special master to assist in determining reasonable attorneys’ fees and costs within the settlement’s negotiated caps.

## Legal Principles

- A shareholder derivative settlement must be fair, reasonable, and adequate to the corporation and its shareholders, evaluated against factors including litigation risks, potential recovery, procedural posture, and shareholder reaction.
- Non-monetary relief, including targeted corporate governance and compliance reforms, may constitute a substantial corporate benefit supporting settlement approval.
- Settlement approval may be appropriate even where plaintiffs face significant procedural and merits hurdles (including demand-related barriers, causation, and damages), making continued litigation uncertain.
- Objectors seeking intervention bear a substantial burden to show inadequate representation, collusion, or an unprotected legal interest; disagreement with settlement valuation or strategy is insufficient.
- Under the corporate-benefit approach, attorneys’ fees may be awarded for achieving meaningful governance reforms, with the court retaining authority to review reasonableness and use a special master when appropriate.

## Conclusion

The court approved a derivative settlement requiring extensive compliance and governance reforms at Johnson & Johnson, rejected an objector’s attempt to intervene and dismiss the actions, and appointed a special master to recommend a reasonable attorneys’ fee and cost award within agreed caps.


In re Johnson & Johnson Derivative Litigation, 900 F. Supp. 2d 467 (D.N.J. 2012)