The Doris Behr 2012 Irrevocable Trust v. Johnson & Johnson

• Court: Court of Appeals for the Third Circuit
• Decided: May 9, 2023
• Docket: 22-1657
• Status: Unpublished

Opinion

NOT PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT _____________

No. 22-1657 _____________

THE DORIS BEHR 2012 IRREVOCABLE TRUST; HAL S. SCOTT, Appellants

v.

JOHNSON & JOHNSON

CALIFORNIA PUBLIC EMPLOYEES RETIREMENT SYSTEM; COLORADO PUBLIC EMPLOYEES RETIREMENT ASSOCIATION, (Intervenors in D.C.) _____________________________________

On Appeal from the United States District Court for the District of New Jersey (D.C. No. 3-19-cv-08828) District Court Judge: Honorable Michael A. Shipp _____________________________________

Submitted Pursuant to Third Circuit LAR 34.1(a) on April 24, 2023

Before: KRAUSE, BIBAS, and RENDELL, Circuit Judges.

(Filed: May 9, 2023) _________

OPINION* _________

* This disposition is not an opinion of the full Court and, under I.O.P. 5.7, is not binding precedent. KRAUSE, Circuit Judge.

The Doris Behr 2012 Irrevocable Trust and Hal Scott (collectively, Plaintiffs) seek

a declaratory judgment on the legality of a shareholder proposal they submitted to Johnson

& Johnson (Defendant). The District Court ruled that Plaintiffs’ suit was non-justiciable

and thus dismissed for lack of subject matter jurisdiction. We agree and will affirm.

I. BACKGROUND

Plaintiffs are shareholders of Defendant. In 2019, they submitted a proposal for

inclusion in Defendant’s proxy materials that would have directed the board of directors to

adopt a bylaw requiring shareholders to arbitrate securities claims against the Defendant or

its officers or directors. Concerned that the bylaw would violate federal and New Jersey

law, Defendant informed the U.S. Securities and Exchange Commission (SEC) staff that

Defendant planned to exclude the proposal and requested a no-action letter. The New Jer-

sey Attorney General urged the SEC staff to grant no-action relief, opining that New Jersey

law forbade Plaintiffs’ proposed bylaw. In support of that view, the Attorney General re-

lied on a recent Delaware Court of Chancery decision invalidating a similar bylaw. See

App. 76–77 (discussing Sciabacucchi v. Salzberg, No. 2017-0931-JTL, 2018 WL 6719718

(Del. Ch. Dec. 19, 2018)). Treating the Attorney General’s position as authoritative, the

SEC staff issued a no-action letter. In reliance on that letter, Defendant omitted Plaintiffs’

proposal from its 2019 proxy materials.

Plaintiffs then sued Defendant in the District Court, seeking both a declaratory judg-

ment confirming the legality of their proposed bylaw under both New Jersey and federal

law and an injunction requiring Defendant to include the proposal in its proxy materials.

2 As the parties litigated this suit, the Delaware Supreme Court reversed the Chancery Court

opinion that the New Jersey Attorney General had relied upon before the SEC. See App.

27 (citing Salzberg v. Sciabacucchi, 227 A.3d 102 (Del. 2020)). Following that decision,

Defendant relented in its opposition to Plaintiffs’ proposal and agreed to include the pro-

posal in future proxy materials.

Plaintiffs subsequently resubmitted their proposal twice—once in 2022 and again

in 2023. On both occasions, Defendant included the proposal in its proxy materials, but

Plaintiffs withdrew their proposal before the shareholder vote.

Defendant moved to dismiss Plaintiffs’ suit for lack of subject matter jurisdiction.

The District Court granted that motion and Plaintiffs timely appealed.

II. DISCUSSION1

Article III limits the jurisdiction of the federal courts to “actual, ongoing cases and

controversies.” Keitel v. Mazurkiewicz, 729 F.3d 278, 279 (3d Cir. 2013) (quotation omit-

ted). We enforce the case or controversy requirement through doctrines including ripeness

and mootness. Id. at 280. Applying those doctrines here, we hold that Plaintiffs’ suit is

non-justiciable.

1 The District Court had putative jurisdiction under 28 U.S.C. §§ 1331, 1367. We have jurisdiction under 28 U.S.C. § 1291. See Guerra v. Consol. Rail Corp., 936 F.3d 124, 131 (3d Cir. 2019) (“[W]e always have jurisdiction to determine our own jurisdiction.” (quota- tion omitted) (cleaned up)). We review a dismissal for lack of subject matter jurisdiction de novo. Manivannan v. U.S. Dep’t of Energy, 42 F.4th 163, 169 (3d Cir. 2022). In doing so, we accept the complaint’s well-pleaded allegations as true and review them in the light most favorable to Plaintiffs. Id. 3 According to Plaintiffs, their suit presents a justiciable controversy regarding two

injuries: (1) Defendant’s exclusion of Plaintiff’s proposal from its 2019 proxy materials on

the grounds of illegality and refusal to retract or correct that disparagement created a “cloud

of legal uncertainty,” Opening Br. 23, that “make[s] it impossible for the proposal to re-

ceive a fair vote in any future shareholder meeting,” id. at 18,;2 and (2) Defendant could

“return to excluding the [Plaintiffs’] proposal from its proxy materials at any point in the

future,” id. at 29.

Neither asserted injury suffices. The possibility that a shareholder vote on Plain-

tiffs’ proposal could be distorted by Defendant’s prior exclusion of the proposal is too

contingent to create a ripe dispute. And Plaintiffs’ case is moot to the extent they argue

that Defendant will once again exclude their proposal because Defendant has repeatedly

demonstrated its willingness to include that proposal in its proxy materials.

A. Ripeness

Plaintiffs’ conjecture that a future shareholder vote on their proposal would be un-

fair fails to establish a ripe dispute since such a vote “may not occur as anticipated, or

indeed may not occur at all.” Trump v. New York, 141 S. Ct. 530, 535 (2020) (per curiam)

(quotation omitted). In declaratory judgment actions, we assess ripeness by considering:

“(1) the adversity of the parties’ interests, (2) the conclusiveness of the judgment, and (3)

2 Notably, Plaintiffs do not directly challenge Defendant’s decision to exclude their pro- posal from its 2019 proxy materials. Nor could they. Declaratory relief is “by definition prospective in nature,” so Plaintiffs cannot seek a declaratory judgment to remedy past harm. CMR D.N. Corp. v. City of Philadelphia, 703 F.3d 612, 628 (3d Cir. 2013). 4 the utility of the judgment.” Mazo v. N.J. Sec’y of State, 54 F.4th 124, 135 (3d Cir. 2022)

(quotation omitted). Each of these factors confirms Plaintiffs’ case is unripe.

The parties’ interests are not sufficiently adverse, as Plaintiffs’ “claim involves un-

certain and contingent events, [instead of] a real and substantial threat of harm.” Wayne

Land & Min. Grp. LLC v. Del. River Basin Comm’n, 894 F.3d 509, 523 (3d Cir. 2018)

(quotation omitted). Plaintiffs have prevented a shareholder vote to date by repeatedly

withdrawing their proposal. And even if such a vote were to occur, Plaintiffs’ assertion

that the vote would be tainted by Defendant’s prior exclusion of the proposal is entirely

speculative. Because the possibility of an unfair shareholder vote is both uncertain and

contingent, “the adversity of interest[s] between the parties here is minimal.” Armstrong

World Indus., Inc. by Wolfson v. Adams, 961 F.2d 405, 420 (3d Cir. 1992).

Nor would a declaratory judgment be conclusive. Rather, the judgment would

merely advise “what the law would be upon a hypothetical state of facts,” if Plaintiffs were

to resubmit their proposal, allow it to proceed to a vote, and prevail on that vote. Travelers

Ins. Co. v. Obusek, 72 F.3d 1148, 1155 (3d Cir. 1995) (quotation omitted). Without those

“necessary facts,” id.—none of which is certain to occur—the declaratory judgment

“would itself be a contingency,” Armstrong, 961 F.2d at 412 (quotation omitted).3

3 Plaintiffs contend their case is nevertheless ripe because it presents a pure question of law. However, “[t]he presence of a purely legal question is not enough, of itself, to render a case ripe for judicial review, not even as to that issue.” Armstrong, 961 F.2d at 421 (quoting Off. of Commc’n of United Church of Christ v. FCC, 826 F.2d 101, 105 (D.C. Cir. 1987)). 5 Finally, the declaratory judgment would have limited practical utility. To gauge

utility, we look to “the hardship to the parties of withholding judgment.” NE Hub Partners,

L.P. v. CNG Transmission Corp., 239 F.3d 333, 345 (3d Cir. 2001). Here, there is no

indication Defendant’s “plans of actions are likely to be affected by a declaratory judg-

ment,” Plains All Am. Pipeline L.P. v. Cook, 866 F.3d 534, 543 (3d Cir. 2017) (quotation

omitted), as Defendant has demonstrated it will include Plaintiffs’ proposal in its proxy

materials regardless. Likewise, withholding judgment would not impose a hardship on

Plaintiffs because they are already able to submit their proposal to a shareholder vote. Un-

less the shareholders approve Plaintiffs’ proposal, the requested declaratory judgment

would provide minimal “practical help to the parties.” Travelers Ins., 72 F.3d at 1155.

In sum, the possibility of an unfair shareholder vote is too contingent to create a ripe

dispute here.

B. Mootness

This case is also non-justiciable notwithstanding Plaintiffs’ assertion that Defendant

could exclude their proposal from its future proxy materials. Under the mootness doctrine,

we lack jurisdiction when an intervening development makes it “impossible for us to grant

any effectual relief whatever to the prevailing party.” Clark v. Governor of N.J., 53 F.4th

769, 775 (3d Cir. 2022) (quotation omitted). At the outset of this lawsuit, Plaintiffs sought

a declaratory judgment establishing the legality of their proposed bylaw to prevent Defend-

ant from excluding that proposal from its proxy materials. But that barrier has since been

lifted, as Defendant has agreed to put Plaintiffs’ proposal up for a shareholder vote. Indeed,

Defendant has already included Plaintiffs’ proposal in its proxy materials twice. Cf. N.Y.

6 City Emps.’ Ret. Sys. v. Dole Food Co., 969 F.2d 1430, 1433 (2d Cir. 1992) (“[T]he pro-

posal was included in the mailing to shareholders. Since the relief sought by [plaintiff]

was secured by the mailing of the proxy . . . the controversy is no longer alive.”). Because

Defendant has shown that it will not exclude their proposal, Plaintiffs no longer have a

“personal stake in the outcome” of this lawsuit so we “must dismiss the case as moot.”

LaSpina v. SEIU Pa. State Council, 985 F.3d 278, 289 (3d Cir. 2021) (quotation omitted).

To avoid that conclusion, Plaintiffs emphasize that Defendant’s changed position

amounts to voluntary cessation of a challenged action. We agree and recognize Defendant

therefore bears “the formidable burden of showing that it is absolutely clear the allegedly

wrongful behavior could not reasonably be expected to recur.” Already, LLC v. Nike, Inc.,

568 U.S. 85, 91 (2013). In a suit for declaratory relief, the Defendant must show “there is

no reasonable likelihood that a declaratory judgment would affect the parties’ future con-

duct.” Hartnett v. Pa. State Educ. Ass’n, 963 F.3d 301, 306 (3d Cir. 2020).

Defendant has met its burden here for two reasons: First, Defendant changed its

position in response to the Delaware Supreme Court’s reversal of the Chancery Court rul-

ing that had provided the foundation for both the New Jersey Attorney General’s opinion

and the SEC staff’s no-action letter. See id. at 307 (noting the “argument for mootness is

much stronger” when a defendant’s cessation is attributable to a “ruling in a completely

different case”). Second, it is absolutely clear that Defendant will not exclude Plaintiffs’

proposal because Defendant has actually included that proposal in its proxy materials

twice. This suit is therefore moot despite Defendant’s voluntary cessation.

7 Alternatively, Plaintiffs contend that this case satisfies the capable of repetition yet

evading review exception to mootness. We disagree. That exception is “narrow and avail-

able only in exceptional situations,” Rendell v. Rumsfeld, 484 F.3d 236, 241 (3d Cir. 2007)

(quotation omitted), in which “there is a reasonable expectation that the same complaining

party will be subject to the same action again,” Kingdomware Techs., Inc. v. United States,

579 U.S. 162, 170 (2016) (quotation omitted). Plaintiffs argue that Defendant could ex-

clude their proposal again. But Defendant’s repeated inclusion of Plaintiffs’ proposal in

its proxy materials belies any reasonable expectation that Defendant will do so. Instead,

“the inescapable fact is—as [Plaintiffs’] speculation about [Defendant’s] future actions re-

flects—they cannot make a reasonable showing that they will again be subjected to the

alleged illegality.” McNair v. Synapse Grp., 672 F.3d 213, 226 (3d Cir. 2012) (quotation

omitted).

III. CONCLUSION

For the foregoing reasons, we will affirm the judgment of the District Court.