Johnson & Johnson has agreed to pay $23 million to settle their class action shareholder suit regarding their failure to disclose manufacturing violations.  The company is responsible for the biggest recall of over the counter children’s medicine in history, which impacted their child Tylenol project.

Plaintiffs argued that the company’s failure to use quality control mechanisms that would have caught the problems with the children’s medication harmed stockholders, since the price of the stock dropped from $59.57 to $57.12 in July, 2010. 

Negotiations regarding this settlement took more than six months.  The case began with highly contested litigation, but two days of mediation sessions in December and February set the tone for a settlement possibility, moving the case forward dramatically.  After those sessions, it was only a matter of time before parties agreed to the wording in the settlement agreement.  In April, both parties agreed to settle the suit for $22.9 million plus interest, which was to be deposited into an escrow account for the class involved. 

The first complaint was filed in September 2010, alleging that company officials were aware of manufacturing violations in Pennsylvania and Puerto Rico.  Products made at those locations gave off a musty odor, and although officials were aware, they did not launch an investigation or notify the Food and Drug Administration on their own.  Those products were involved in eight different recalls and a number of national and statewide investigations after the public and government were aware of the issue. 

Johnson & Johnson responded by stating that plaintiffs could not prove that the revelations of the recalls and manufacturing problems were linked to the decline in stock prices.  From that point, parties worked through their attorneys to develop an agreeable final settlement.  Plaintiffs submitted a motion for preliminary approval of the settlement on Monday, July 15^th.