Bloomberg News

J&J Must Defend Securities-Fraud Lawsuit Over Drug Recalls

January 03, 2012

(Updates with excerpt from ruling in fourth paragraph.)

Dec. 21 (Bloomberg) -- Johnson & Johnson, the world’s largest health products company, must defend a lawsuit claiming it misled investors about quality control-failures at manufacturing plants that led to recalls, a judge ruled.

U.S. District Judge Freda Wolfson in Trenton, New Jersey, ruled Dec. 19 that the securities fraud suit against J&J, Colleen Goggins, the former head of its consumer group, and another executive may go forward. She dismissed claims against Chief Executive Officer William Weldon and Peter Luther, president of the McNeil Consumer Healthcare division. The judge didn’t rule on the merits of the class-action, or group, lawsuit.

The case focuses on recalls of over-the-counter drugs made at McNeil plants in Las Piedras, Puerto Rico, and Fort Washington, Pennsylvania. Investor Ronald Monk said that J&J and its executives made misleading statements about details of the recalls and that he suffered stock losses after the true reasons for the recalls became public. As part of a so-called phantom recall, J&J even hid its recall of a batch of Motrin tablets, Monk said.

“Plaintiff’s assertion that Goggins attended the Feb. 19, 2010, meeting where the phantom recall was discussed sufficiently alleges that she had knowledge of the recall when she testified” at a Congressional hearing “that she did not have such knowledge,” Wolfson said in a 55-page opinion.

William Price, a J&J spokesman, declined to comment on the ruling. William Phillips, a lawyer for J&J, Weldon, Goggins and Luther, didn’t immediately return a call.

‘Red Flags’

In October, Wolfson 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 have dogged J&J the past 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 last year and signed a consent decree in March expanding U.S. oversight at three plants.

J&J and the individual executives urged the judge to dismiss the complaint because Monk failed to allege enough facts to show that the defendants had a “wrongful state of mind” when making the allegedly misleading comments.

Wolfson said Monk may file a new complaint to address flaws she identified in the present one. James Cecchi, a lawyer for Monk, didn’t immediately return a call.

The case is Monk v. J&J, 10-cv-4841, U.S. District Court, District of New Jersey (Trenton).

--Editors: Andrew Dunn, Peter Blumberg

To contact the reporters on this story: David Voreacos in Newark, New Jersey, at dvoreacos@bloomberg.net, and David Glovin in New York federal court at dglovin@bloomberg.net.

To contact the editors responsible for this story: Michael Hytha at mhytha@bloomberg.net.


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