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

Rule:

To assess the fairness of a settlement, a court must consider the following factors, referred to by courts as the "Girsh" factors: (1) the complexity, expense and likely duration of the litigation; (2) the reaction of the shareholders to the settlement; (3) the stage of the proceedings and the amount of discovery completed; (4) the risks of establishing liability; (5) the risks of establishing damages; (6) the risks of maintaining the derivative action through the trial; (7) the ability of the defendants to withstand a greater judgment; (8) the range of reasonableness of the settlement agreement in light of the best possible recovery; and (9) the range of reasonableness of the settlement fund to a possible recovery in light of all the attendant risks of litigation. Ultimately, the decision to grant or deny approval of a settlement rests within the discretion of the court, and the court is free to consider other relevant circumstances and facts involved in the settlement. 

Facts:

Presently before the United States District Court was a motion to approve a final settlement reached between Plaintiffs-shareholders and nominal Defendant J&J Corporation ("J&J") in several consolidated shareholder derivative actions, as well as motions to intervene and dismiss by an objector to the settlement. The consolidated shareholder derivative action is comprised of eight separately filed demand-futility suits against members of its Board of Directors, alleging that there were "red flags," such as Food and Drug Administration warning letters, that should have alerted the Board about three substantive categories of alleged corporate misconduct: (a) product recalls; (b) off-label marketing of drugs; and (c) illegal kick-backs. The settlement was reached between the parties where the company agreed to institute corporate governance changes and pay up to $10 million in attorney's fees and $450,000 in costs, subject to this Court's approval. 

Objector Petri argues that he is entitled to intervene as of right for the purpose of asserting that the named plaintiffs do not adequately represent the class and, therefore, that the class action should not be certified and the suit dismissed. 

 

Issue:

In a shareholder derivative action, should the court approve the final settlement between the plaintiffs-shareholders and nominal defendant corporation?

Answer:

Yes

Conclusion:

The United States District Court approved the settlement because the matter was complex and would require an extensive trial, only a few shareholders objected to the settlement, and counsel had sufficient information to make an informed decision regarding settlement. The Court appointed a special master to aid the Court in determining reasonable attorney's fees and costs.

Under Fed. R. Civ. P. 23.1, parties to a shareholder derivative action must obtain the Court's approval to settle. The Court must find that the settlement is "fair, adequate, reasonable and proper, and in the best interests of the class and the shareholders." The Court concluded that the Girsh factors when taken together, favored approval of the settlement. The "principal factor" to be considered is the extent of the benefit to be derived from the proposed settlement by the corporation, the real party in interest.

Applying a four-prong test to evaluate a claim of intervention as of right under Fed. R. Civ. P. 24(a)(2), the Court explained that the objector, having hinged his motion on alleged collusion between class counsel, the named plaintiff-shareholders, and J&J, must do more than simply point to an agreement to a sizeable fee award. The Court also held that the objector's claims failed to meet the three-prong test for permissive intervention: Pursuant to Fed. R. Civ. P. 24(b), a person or an entity, who is not a named party in an action, may seek to intervene in the interested litigation.

 

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