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
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