By Erin Geiger Smith

We've recently chronicled increasing judicial skepticism about shareholder and consumer settlements that deliver no cash to plaintiffs, but U.S. District Judge Freda Wolfson of New Jersey apparently isn't one of the skeptics. On Friday, Wolfson approved a no-cash settlement for shareholders in a consolidated derivative case accusing Johnson & Johnson's board of ignoring red flag warnings of corporate misconduct. She did say, however, that several plaintiffs' firms will have to wait and see how much of a requested $10 million in fees they'll get.

The settlement, in which J&J agreed to several corporate governance reforms, hit a speed bump last month, when long-time shareholder Mark Petri, represented by professional class action tormenter Theodore Frank of the Center for Class Action Fairness, filed an objection. Petri protested (among other things) the $10 million fee request by six plaintiffs' firms, including Morris and Morris. In her ruling Friday, Wolfson appointed a special master to determine a lodestar value for plaintiffs' fees. The shareholders' firms reported total hourly billings of more than $6.5 million, led by Morris's billings of a little over $2 million; they requested a 1.5 multiplier, which is how the total gets up to $10 million. (Karen Morris of Morris and Morris was not immediately available to comment.)

Frank and Petri brought an "ideologically driven objection, and the case didn't fit it," said Mark Lebovitch, whose firm, Bernstein Litowitz Berger & Grossman, has requested about $1 million in fees in the case.

Wolfson devoted the majority of her 53-page opinion to evaluating the settlement and discussing whether the work of the plaintiffs' attorneys merits substantial fees. Wolfson distinguished between class actions and shareholder derivative suits, which, she noted, "are far less likely to involve a monetary component than the typical class action." She also mentioned a study showing that the "overwhelming majority" of derivative suits result only in corporate governance reforms like those at issue in this settlement.

The judge also said that the paucity of objections weighed in favor of approving the deal. Only 15 of the more than 380,000 J&J shareholders objected, and most of them only took issue with the fees requested by plaintiffs' lawyers. Wolfson said the shareholder lawyers had obtained meaningful corporate governance changes, including creation of a committee to oversee Johnson & Johnson's compliance with regulations and internal policies. The reforms, the judge said, "help ensure that crucial information is reported upward to the Board" and are tailored to remedy deficiencies in J&J's oversight structure.

And because the corporate governance benefits are substantial, Wolfson said, shareholder lawyers are entitled to fees. The objector Petri had complained that plaintiffs' experts used incorrect methods to assess the value of the settlement to plaintiffs, but the judge said she was not persuaded that Petri's method was necessarily superior to that of plaintiffs' experts, including former SEC chairman Harvey Pitt.

The plaintiffs' attorneys did not get everything they wanted, however. Wolfson said their fee reports were overly broad and not uniform, so she couldn't determine exactly how much time was spent doing what. She appointed a magistrate to take on that job.

Objector counsel Frank told us, via email, that his client is reviewing his options and has until Nov. 26 to decide whether to appeal. Erik Hass of Patterson Belknap Webb & Tyler represented the individual defendants. He declined to comment. Walter Carlson of Sidley Austin, who handled the case for Johnson & Johnson, did not immediately respond to a request for comment.

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