Federal judge rules against Johnson Controls shareholders

But case on tax bite from move to Ireland isn’t over

A federal judge in Milwaukee has sided with Johnson Controls Inc. in the first ruling in a case filed by shareholders facing a big tax hit from the company’s move to Ireland.

The ruling doesn’t address the merits of the shareholders’ complaint, which will be decided at a later date.

Judge Pamela Pepper ruled that the shareholders aren’t entitled to a preliminary injunction that could have delayed or stopped the mailing of tax forms reflecting the tax bite the shareholders would face.

At issue in the suit is whether roughly 20% of Johnson Controls shareholders should have to face the capital-gains tax impact of the Glendale company’s decision to shift its corporate headquarters to Cork, Ireland, as part of its combination with Tyco International. That shift is expected to save the company $150 million a year in taxes.

Cork-based Tyco completed its purchase of Johnson Controls last September, changing its name to Johnson Controls International. The combined company, which sells building products and batteries, has $30 billion in sales and is being run for the first 18 months by Johnson Controls Chairman Alex Molinaroli.

Former Tyco Chairman George Oliver, now Johnson Controls president and chief operating officer, will succeed Molinaroli as CEO in 2018, under a succession plan agreed to while the deal was being negotiated.

In the suit, shareholders needed to prove at a hearing earlier this month that they would have faced irreparable harm for the judge to agree with them. She said they had not done so.

Under that standard, the shareholders aren’t entitled to relief at this time because they will be eligible for monetary damages if they ultimately prevail in the case, Pepper said in her 23-page ruling.

The shareholders who filed the suit are longtime company employees and retirees or descendants of retirees whose holdings in Johnson Controls built up over the years in taxable accounts.

They now face lower dividend income, a tax bite that would reduce their retirement income and higher medical costs, the employees said in affidavits filed with the court.

But the shareholders would have needed to prove they would go broke if they paid the inversion-related taxes in order for a preliminary junction to be warranted, Pepper ruled.

Citing a ruling in a prior case, she wrote, “It provides that a plaintiff could show that monetary damages would be inadequate if the plaintiff were to go broke waiting for them. The plaintiffs have not made that showing.”

Of the shareholders, many of whom are retirees, Pepper wrote, “Many describe losses to their retirement income, reductions in their retirement assets, decreases in other assets. All talk of reduction

in income or loss of income, and many indicate that the lost or reduced income was part of the money they have relied upon for living expenses, or for medical expenses for loved ones. None, however, state that paying these taxes will render them insolvent. None argue that they will ‘go broke’ if they have to wait until the end of the litigation to collect money damages.”

The shareholders are proposing that the case be certified as a class-action suit, and a decision in the case is likely years away.

A similar lawsuit that was filed three years ago remains pending before the state Supreme Court in Minnesota. That case involves shareholders of Minneapolis medical device manufacturer Medtronic Inc., which shifted its headquarters to Ireland in 2015 with its purchase of Ireland-based Covidien.

In her decision released Wednesday, Pepper told lawyers for the shareholders that if they desire to file an amended complaint, they must do so within three weeks.