Jones Day Disqualified as Vanderbilt Minerals Legal Counsel Due to Prebankruptcy Work for Nondebtor Parent; Global Settlement Trial Starts April 16, UCC Bid to Dismiss Case Kicked to April 23 

At a hearing today, Judge Wendy A. Kinsella disqualified Jones Day from serving as legal counsel to the Vanderbilt Minerals debtor and otherwise sustained objections to the proposed retention from the official committee of unsecured creditors and U.S. Trustee. Judge Kinsella found that Jones Day’s prior representation of nondebtor parent R.T. Vanderbilt Holding and other affiliates created a strong appearance of “divided loyalties.” Judge Kinsella said she would issue a written decision.

The judge also adjourned the hearing on the debtor’s final DIP financing motion and the UCC’s motion to dismiss the chapter 11 case to April 23 at 10 a.m. ET; the matters were scheduled to be heard tomorrow, Thursday, April 16.

Otherwise, trial on the debtor’s proposed global settlement with its parent and affiliates to resolve intercompany claims is scheduled to commence tomorrow at 10 a.m. ET. The debtor faces a Monday, April 20, milestone to obtain settlement approval under the third interim DIP order. DIP lender’s counsel David Agay of McDonald Hopkins stressed today that his client is not willing to extend that milestone.

The global supplier of mineral products filed chapter 11 to execute a sale and confirm a chapter 11 plan to address the “negative financial impacts” of talc-related litigation. The company’s strategy rests on obtaining authority for $15 million in DIP financing from Commodore Material Funding LLC, the global settlement and a proposed sale of all of its assets to Commodore Materials LLC as stalking horse bidder for $50 million.

The debtor’s global settlement was negotiated by its one-member special committee led by independent manager Ben Pickering. Pickering’s counsel, Dan Barnowski of Katten Muchin Rosenman, said that Jones Day had “no involvement” in the settlement negotiation and that the special committee is prepared to move forward with the settlement motion tomorrow.

The committee argues that the bankruptcy filing and proposed settlement constitute bad-faith litigation tactics designed to circumvent the Supreme Court’s Purdue Pharma decision prohibiting nonconsensual third-party releases. According to the UCC, the debtor’s predecessors operated talc mines contaminated with lethal forms of asbestos. In response to multimillion-dollar jury verdicts in favor of victims, the enterprise restructured in 2012 to separate historical talc liabilities from the valuable chemical business, leaving the debtor significantly undercapitalized.

The committee further asserts that the debtor aims to use the bankruptcy process to take control of victims’ state law tort claims against nondebtor affiliates – such as alter ego, veil piercing and successor liability claims – and settle them for “nuisance value” without the victims’ consent. The UCC accuses the debtor’s special committee of conducting a “sham investigation,” including that it ignored successor liability and alter ego claims that, according to the committee, are worth more than $500 million.

In ruling that Jones Day is conflicted from representing the debtor, Judge Kinsella pointed out that Jones Day represented R.T. Vanderbilt until September 2025 and was involved in transactions that may have been detrimental to the debtor. The parties submitted supplemental briefing on the transactions, but the judge found that the court should not have to dig into the merits of the transactions to confirm there are no conflicts.

Given the mass tort nature of the case with a creditor body composed mostly of talc victims that may have suffered serious injuries or death, Judge Kinsella reasoned that the case requires a process “devoid” of any appearance of conflict.

The judge also said she is “troubled” by the lack of specificity in Jones Day’s initial disclosures about its prior representations. Creditors must be able to trust the process and that is “not possible” with Jones Day at the helm, Judge Kinsella concluded.