“An enormous zeal for the overdog” — a good description of this effort to get the shareholders of J&J to waive their right to file shareholder lawsuits — permanently.
Over the past two years, some senior officials at the Securities and Exchange Commission have indicated that they would be open to corporations foisting mandatory arbitration on their shareholders, and now a team of pro-corporate players are ready to put them to the test. Two lawyers have joined with a high-profile Harvard professor on a pivotal case that could strip away shareholders’ rights to sue public companies.
The Harvard professor, Hal S. Scott, runs a Wall Street advocacy group supporting deregulation. The lawyers both made their names busting labor unions; one of them, Jonathan Mitchell, is a current Trump nominee, and social media posts link the other, Wally Zimolong, to discriminatory views.
A trust run by Scott, an emeritus professor at Harvard Law School, sued Johnson & Johnson in a New Jersey federal court last month, seeking to force the company to allow shareholders to vote on a proposal that would take away their right to sue the company in court. Johnson & Johnson, relying on a determination by the SEC that such a measure would risk violating New Jersey state laws, declined to present the proposal to shareholders in advance of its April 25 annual meeting. On March 26, the trust sought a court injunction to force the company to include the proposal. On Monday, U.S. District Court Judge Michael A. Shipp denied the injunction but allowed the litigation to proceed.
The Doris Behr 2012 Irrevocable Trust lawsuit is in some sense perverse: a shareholder is seeking to restrict shareholder rights. But Scott has long decried class-action shareholder lawsuits as a boondoggle for lawyers and a burden on shareholders who bear the costs of defending and settling the suits. As president of the Committee on Capital Markets Regulation, he was an early proponent of rescinding shareholders’ rights to sue, suggesting in 2006 that shareholders be allowed to decide whether the companies they invest in should force arbitration. The Committee, according to a 2010 nonprofit filing, has been funded by such Wall Street titans as Goldman Sachs, Citigroup, Fidelity Investments, Deloitte, Pricewaterhouse Coopers, and hedge fund billionaire Kenneth Griffin.
In an op-ed in February, Scott said that most shareholder class actions “have no merit, damage shareholder interests, and tarnish the attractiveness of our public capital markets.”
Scott, who did not respond to an email query, has taken strong, sometimes curious, positions against other forms of corporate accountability. In a 2015 op-ed, he disparaged the idea of forcing companies to admit wrongdoing when they settle a regulatory case. What does an admission of guilt accomplish “other than again imposing additional penalties, by perhaps damaging the reputation of a firm?” he asked.
What Scott has in common with attorneys Zimolong and Mitchell, according to F. Paul Bland, executive director at the watchdog organization Public Justice, is “an enormous zeal for the overdog.”