Bloomberg Law
Feb. 12, 2019, 2:41 PM

J&J Won’t Have to Let Shareholders Vote on Investor-Lawsuit Ban

Ben Bain
Ben Bain
Bloomberg News

Johnson & Johnson won’t have to let its shareholders vote on a proposal that could have effectively barred investors from suing the company through class-action lawsuits.

The Securities and Exchange Commission told the company Feb. 11 that it can exclude the proposal from its proxy statement, ending weeks of speculation over how the regulator would rule on the politically contentious topic. Johnson & Johnson didn’t want its investors to weigh in on restricting class-action litigation, and had sought the SEC’s permission to deny shareholders from voting on the issue.

The proposal, put forth by Harvard Professor Hal Scott, would have pushed the company to let shareholders resolve disputes with New Brunswick, N.J.-based Johnson & Johnson through arbitration, a process that is considered cheaper and more efficient for companies to deal with grievances. The SEC has never allowed a U.S. company to ban its shareholders from suing, even though the U.S. Chamber of Commerce and other business groups have long lobbied for such a change.

The SEC staff, siding with Johnson & Johnson, determined that Scott’s proposal violated New Jersey law.

“I believe the approach taken by the staff -- to not recommend enforcement action in this complex matter of state law -- is appropriate,” SEC Chairman Jay Clayton said in a statement.

Still, he left the door open for changes at some point by making clear that the SEC wasn’t addressing whether banning shareholder class-action lawsuits is legal under federal law.

“I continue to believe that any SEC policy decision on this subject should be made by the commission in a measured and deliberative manner,” Clayton said.

In an interview, Scott said he was surprised by the SEC decision and the agency’s focus on whether his proposal was legal under state law. Scott added that he planned to appeal the decision, and was considering whether to sue Johnson & Johnson in federal court assuming the company leaves his proposal off its proxy.

©2019 Bloomberg L.P. All rights reserved. Used with permission

To contact the reporter on this story: Ben Bain in Washington at

To contact the editors responsible for this story: Jesse Westbrook at Gregory Mott