Jones Day Bid to Represent Bankrupt J&J Talc Unit Under Fire

Jones Day LLP’s help creating Johnson & Johnson’s talc liability spinoff should disqualify the firm from serving as the unit’s lead bankruptcy counsel, the Justice Department and thousands of talc injury claimants said.

Jones Day “appears to be the architect” of J&J’s October corporate restructuring, the U.S. Trustee’s office—the DOJ’s bankruptcy watchdog—said in a court filing Wednesday.

The move, known colloquially as the Texas Two-Step, allowed the manufacturing giant to isolate its exposure to more than 35,000 baby powder injury lawsuits and address those claims in Chapter 11.

By assisting J&J through the divisional merger and bankruptcy filing, Jones Day appears to lack the independence to be a fiduciary for the debtor, the U.S. Trustee told the U.S. Bankruptcy Court for the District of New Jersey.

A law firm representing thousands of talc injury claimants also filed an objection Wednesday to Jones Day’s application to represent J&J unit LTL Management LLC.

“The prepetition machinations orchestrated by Jones Day are ripe for investigation and challenge in this bankruptcy case,” Aylstock, Witkin, Kreis & Overholtz PLLC said. “These circumstances make it impossible for Jones Day to meet its burden to show that it is a ‘disinterested person’ and does not ‘hold or represent an interest adverse to the estate.’”

A spokesman for Jones Day didn’t immediately respond to a request for comment. A representative for LTL Management also didn’t immediately respond to a request for comment.

LTL Management filed for Chapter 11 in October, seeking to use special federal rules that allow bankrupt companies to set up a trust fund to pay all current and future asbestos claims.

The J&J unit faces consumer claims that its baby powder caused asbestos-related health problems, including ovarian cancer. It has proposed paying all alleged victims through a trust funded with at least $2 billion.

The case was moved from North Carolina to New Jersey last month after a bankruptcy judge determined that the company lacked ties to the former state. A committee of talc injury claimants has called for a total dismissal of the bankruptcy.

The case is In re LTL Mgmt. LLC, Bankr. D.N.J., No. 21-30589, objections filed 12/8/21.