J&J Agrees to Pay $22.9 Million to Settle on Drug Recalls

Johnson & Johnson (JNJ), the world’s largest maker of health-care products, agreed to pay $22.9 million to settle a lawsuit claiming it misled investors about quality-control failures that led to recalls, according to court papers.

The proposed settlement, filed July 15 in federal court in Trenton, New Jersey, would resolve claims that the failures led to the largest recall of over-the-counter children’s medicine in U.S. history, a plant closing and a congressional probe. The group, or class-action, accord still needs a judge’s approval.

The case focused on recalls of over-the-counter drugs made by J&J’s McNeil Consumer Healthcare division in Las Piedras, Puerto Rico, and Fort Washington, Pennsylvania. Investors claimed that J&J and its executives made misleading statements about details of the recalls and that they suffered stock losses after the true reasons for the recalls became public.

“The proposed settlement is a favorable recovery for the class especially when viewed in light of the significant risks posed by continued litigation,” according to the filing.

J&J will make no admission of wrongdoing, according to a joint filing by investors and the company.

“We maintain that the claims in this action are without merit, and settled this case in order to avoid the expense, distraction and time associated with continuing litigation,” Ernie Knewitz, a spokesman for New Brunswick, New Jersey-based J&J, said in an e-mail.

The settlement would cover buyers of J&J shares between Oct. 14, 2008, and July 21, 2010. It follows mediation by a retired judge, Daniel H. Weinstein, according to the filing.

Suit Dismissed

J&J claimed that investors were unable to prove the materiality of alleged misstatements and omissions or how they caused shares to drop, and that company executives acted in good faith. A judge’s ruling had meant “there was a great likelihood” that the class asserted “would have been substantially curtailed,” according to the filing.

U.S. District Judge Freda Wolfson previously dismissed a similar suit claiming that J&J directors ignored “red flags” foreshadowing product recalls and government probes of manufacturing defects and marketing practices.

Recalls dogged J&J for two years, led by the withdrawal of more than 40 brands of children’s Tylenol, Motrin and other medicines with foul odors or faulty ingredients. J&J shut one factory for an overhaul and signed a consent decree expanding U.S. oversight at three plants.

The case is Monk v. J&J, 10-cv-04841, U.S. District Court, District of New Jersey (Trenton).

To contact the reporters on this story: David Voreacos in Newark, New Jersey. at dvoreacos@bloomberg.net; Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net

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