By Erin Geiger Smith
Theodore Frank, who often seeks to knock down high attorneys fees in class action settlements, has now entered the fray in a
shareholder derivative lawsuit. Frank, on behalf of a Johnson &
Johnson shareholder, is asking a federal court in New Jersey to dismiss an entire action brought against the company's board
members and executives, arguing that the settlement, in which
the plaintiffs' attorneys could receive $10 million, provides no
benefit for shareholders and should have never been filed.
In July of this year, Johnson & Johnson, represented by
attorneys at Sidley Austin, and members of its board and other
company leaders, represented by Patterson Belknap Webb & Tyler,
agreed to settle multiple derivative actions filed in 2010 and
2011. The plaintiffs alleged that the individual defendants
breached their fiduciary duties and caused the company
regulatory and legal problems relating to drug marketing and
medical product and device quality control. The proposed
settlement agreement, submitted to U.S. District Judge Freda
Wolfson in Trenton, New Jersey, requires the defendants to adopt
certain governance reforms, to spend the funds necessary to
carry out the reforms, and to maintain the provisions of the
agreement for five years from the effective date.
The settlement agreement states that the company has agreed
to pay plaintiffs' attorneys, led by Carella, Byrne, Cecchi,
Olstein, Brody & Agnello and Bernstein Litowitz Berger &
Grossman, "not more than $10,0000,000 for their fees and
$450,000 for their expenses, subject to court approval."
The agreement did not sit well with longtime shareholder
Mark Petri, a former partner at Foley & Lardner, who approached
Frank for help. Petri moved to dismiss the suit under Federal
Rule of Civil Procedure 23.1, which says that a derivative
action cannot be maintained if "it appears that the plaintiff
does not fairly and adequately represent" shareholder interests.
The motion argued that plaintiffs are not adequately
representing shareholders because they have "permitted their
attorneys to negotiate worthless relief" that benefits only the
The corporate governance changes the settlement calls for,
the motion said, are nothing more than "cosmetic changes" to
pre-existing company policies and governmental requirements.
Petri asked that, should the court not dismiss the suits
entirely, the attorneys' fee award be knocked down
James Cecchi of Carella, Byrne was in a mediation and
unavailable to talk, but told us via email that the plaintiffs'
response to the filing will "expose the utter frivolous nature
of his motion."
Wolfson granted the plaintiffs' motion for preliminary
approval of the settlement on July 16, and she set a settlement
hearing for Sept. 28. In their motion in support of that
preliminary approval request, the plaintiffs spent 29 pages
laying out their argument for the settlement's fairness,
including extensive discussions of their experts' work with the
company to develop the corporate governance strategies. (The
experts included former Securities and Exchange Commission chair
Sidley Austin's Walter Carlson declined to comment. Erik
Haas of Patterson Belknap did not immediately respond to a
request for comment.
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