Johnson & Johnson (NYSE:JNJ) yesterday escaped a shareholders derivative lawsuit alleging that the company over-paid former CEO William Weldon, who presided over a spate of recalls that bedeviled the healthcare giant a few years back.
The September 2011 lawsuit alleged that J&J’s board breached their fiduciary duties "by overcompensating Mr. Weldon in light of product recalls and other investigations and lawsuits involving J&J subsidiaries and by making misrepresentations in proxy statements relating to Mr. Weldon’s compensation in violation of J&J’s credo," according to court documents.
Weldon, who made Dealbook’s list of the worst CEOs of 2011, got a 30% pay bump in 2012 and was slated to walk away with a cool $143.5 million when he retired in April 2012. But a year-long independent investigation of the lawsuit’s allegations, commissioned by Johnson & Johnson’s board of directors, found that "neither the allegations made in the demands of legally excessive compensation nor the allegations of materially false and misleading disclosures are well founded," according to the documents.
"As a result, the company would be unlikely to succeed on the merits if the board elected to pursue derivative litigation based on the claims made in the demands. Moreover, the company would not be likely to recover any amounts in such litigation, and the litigation would likely come at consideration cost to the company in terms of legal fees and disruption to the company’s business operations," according to the report.
Ms. Alito found that J&J’s independent directors were "independent, disinterested individuals who actively and in good faith engaged in their duties" and concluded that all of the compensation decisions were "within the range of reasonableness, and were consistent with the Company’s Credo, history, culture, and compensation philosophy."
Yesterday Judge Joel Pisano of the U.S. District Court for New Jersey granted J&J’s motion for summary judgment and dismissed the suit.
"[B]ecause the undisputed facts establish that the board: (1) was independent and disinterested; (2) acted in good faith and with due care in their investigation of plaintiff’s allegations; and (3) made a reasonable decision to not pursue litigation based on plaintiff’s demands, the court finds that plaintiff has failed to demonstrate any genuine issue of material fact and defendants are entitled to judgment as a matter of law," Pisano wrote.
The judge also denied the plaintiff’s bid for additional discovery in the case, ruling that a New Jersey state law granting limited discovery doesn’t apply to cases brought in federal courts, according to the documents.