In re Johnson & Johnson Derivative Litigation

A group of shareholders (the shareholders) (plaintiffs) filed shareholder derivative lawsuits against Johnson & Johnson Corporation (defendant), a pharmaceutical company, after Johnson & Johnson was found to have engaged in illegal off-label marketing of pharmaceuticals. The lawsuits ultimately alleged that due to Johnson & Johnson’s decentralized management structure, the company lacked adequate quality and assurance systems to ensure that it complied with laws and regulations. The shareholders and Johnson & Johnson settled the case and proposed a settlement agreement to the United States District Court for the District of New Jersey. The settlement agreement required Johnson & Johnson to pay attorney’s fees and costs associated with the litigation and enact several corporate-governance reforms. Through the proposed reforms, Johnson & Johnson agreed to create adequate quality and assurance systems to detect and prevent practices that did not comply with law and regulations and to create a culture at all levels of Johnson & Johnson that encouraged compliance. The Johnson & Johnson board of directors agreed to oversee Johnson & Johnson’s new compliance measures, and a chief quality officer was appointed to be ultimately responsible for compliance issues. The settlement agreement would bind Johnson & Johnson to its terms for five years and required Johnson & Johnson to fully fund its new compliance initiatives in order to prevent further legal violations.