J&J in the midst of two shareholder suits

In the wake of recent legal troubles, pharmaceutical company Johnson & Johnson now faces two shareholder lawsuits against the Johnson & Johnson Board. The bottom line of the suits is that the Johnson & Johnson board of directors failed to take action in response to illegal practices.

The shareholder suits are a response to a number of recent legal troubles for Johnson & Johnson. According to sources, J&J has, in the last year, paid out $102.4 million in settlements connected to off-label marketing of the epilepsy drug Topamax and a settlement accusing the company of engaging in illegal overseas bribery. J&J also faced recent problems with the Department of Justice and the Food and Drug Administration over production problems with over-the-counter medicines and, most recently a criminal investigation over the company's off-label marketing of the schizophrenia drug Risperdal. The latter resulted in the company's third criminal plea in just over a year's time.

In response to these problems, one group of plaintiffs has accused the company's board of failing to pay attention to red flags concerning medical-device manufacturing and marketing violations from as far back as 2004. In their complaint, filed last December, they allege, "Put simply, the J&J board only takes action to curtail illicit practices at the company when facing imminent civil or criminal penalties."

In the second shareholder suit, another group of plaintiffs served a demand letter on the J&J board requesting that they sue a number of "corporate villains," as sources put it, for the benefit of shareholders. In response, the board formed a special committee to investigate the possibility of litigation, which eventually concluded that no such litigation was justified. According to the plaintiffs, the special committee's conclusions demonstrate the board's conflict of interest.

In our next post, we'll continue looking at recent legal action taken against the J&J board in the wake of its company troubles.

Source: Thomson Reuters, "Thinking of suing J&J board? Too late-case is already underway," Alison Frankel, August 10, 2011.