The romance between David R. Jones and Elizabeth Freeman caused quite the stir in legal circles. The pairing is not per se noteworthy, but when a federal bankruptcy judge gets together with a bankruptcy partner of a major law firm and continues to hear cases involving that partner/law firm, well, that kind of ethical lapse will set tongues a-wagging. In the immediate aftermath of the romantic entanglement becoming public, Judge Jones resigned his position on the US Bankruptcy Court for the Southern District of Texas, ending the ethics inquiry that the Fifth Circuit opened on the judge. Freeman is no longer at Jackson Walker, but the firm is still dealing with the aftermath.
The firm received fees in 26 Chapter 11 cases in front of Jones that Freeman worked on. The firm — which says it didn’t know about Freeman’s relationship until 2021, at which time she was instructed not to bill to any matters before Jones — didn’t disclose the entanglement between the judge and their then-partner in those cases, putting $13 million in fees at risk.
As reported by Bloomberg Law, this could be very bad for the firm:
But Jackson Walker and others in the coming months face more accusations that they harmed creditors and others involved in several cases overseen or mediated by Jones and that they jeopardized the integrity of the nation’s bankruptcy system by failing to adhere to legal disclosure requirements.
“I’m not sure the ball has stopped rolling yet,” said Northwestern Pritzker School of Law professor and former Nevada bankruptcy judge Bruce Markell. It all turns on “who knew what, when,” he said.
The lawsuits from creditors alleging they got a bum deal in front of Judge Jones are already rolling — in fact, it was one such lawsuit that brought the relationship to light. Plus the Justice Department’s bankruptcy oversight program, US Trustee, has gotten involved, trying to restore faith in a system whose reputation has been badly damaged by the scandal.
It’s filed numerous bankruptcy court requests to disgorge fees that the firm earned in dozens of cases presided over by Jones from 2018 to 2022 while Freeman was an attorney at the firm. But the process is convoluted and remains in the early stages.
In some instances, trials are set. Judge Marvin Isgur of the US Bankruptcy Court for the Southern District of Texas in August will hear Jackson Walker fee disputes in the cases of Neiman Marcus, Seadrill Partners, and Strike LLC.
But many others remain in flux. The fact that several months have passed and it’s still undetermined which court will be handling certain matters “is most unfortunate for those who care about the public confidence in the bankruptcy process and the bankruptcy system,” said [Clifford White, former director of the US Trustee Program].
But trying to untangle this particular web has been particularly challenging. Some of the fees US Trustee is trying to disgorge are from cases that are closed — sometimes years ago. Confusing is an understatement.
The administrative burden of reviving bankruptcies that, in some cases, were long ago completed, has even caused confusion for Judge Christopher Lopez, who is tasked with overseeing some of the US Trustee’s fee disgorgement requests.
“I didn’t know these cases were closed,” Lopez said at a March 21 bankruptcy court hearing regarding a subset of the cases assigned to him months ago.
The truth is, we don’t even know what other ramifications are on the horizon for those wrapped up in the scandal. Nancy Rapoport, a University of Nevada, Las Vegas law professor, told Bloomberg, “We don’t even know the other shoes that are going to drop. Depending on what facts get found, there may be bar complaints, too.” There’s also the distinct possibility of a criminal referral stemming from this mess as well. So stay tuned for the next episode of As The Bankruptcy Court Turns.
Kathryn Rubino is a Senior Editor at Above the Law, host of The Jabot podcast, and co-host of Thinking Like A Lawyer. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter @Kathryn1 or Mastodon @Kathryn1@mastodon.social.
