Law firm tied to bankruptcy judge resignation did not make conflict disclosures -data analysis

[October 30, 2023]  By Tom Hals

WILMINGTON, Delaware (Reuters) - A Texas law firm did not follow standard disclosure practices in at least 27 cases that might have revealed its former partner was secretly in a romantic relationship with U.S. Bankruptcy Judge David Jones while the firm was appearing before him, a data analysis by Reuters has found.

Jackson Walker, a firm with nearly 500 lawyers and deep roots in the state, failed to disclose in court filings in major bankruptcy cases including oilfield services company McDermott International whether it had checked for connections between its attorneys and any judges on the Houston court, according to a review of the docket.

Jones announced his resignation on Oct. 15 after publicly acknowledging he had been living for years with his longtime romantic partner Elizabeth Freeman, who until December was a partner at Jackson Walker.

Court records show Jones approved millions of dollars in fees for Jackson Walker, the leading local counsel firm for corporate debtors filing for bankruptcy in Houston since 2019, according to Bankruptcydata.com. Freeman became a partner in 2018.

Freeman also worked as a contract lawyer for Jackson Walker after leaving the firm. In April, she secured a key role in a mediation overseen by Jones to wind down insurance-services provider GWG Holdings, a job that started at $100,000 a month. Jones and Jackson Walker signed off on the arrangement without disclosing the relationship, court papers show.

Jones' announcement of his resignation, due to take effect Nov. 15, rocked the corporate bankruptcy world. Until then he was the busiest bankruptcy judge in the United States, overseeing the dissolution or restructuring of corporate titans ranging from Neiman Marcus to J.C. Penney. The judge's announcement led to the reassignment of 3,500 cases.

A spokesperson for Jackson Walker and Tom Kirkendall, an attorney for Freeman, declined to comment.

Jones did not respond to a request for comment left with his chambers.

After allegations about the undisclosed relationship surfaced this month in a court filing by a litigant challenging an order by Jones, the judge acknowledged the relationship with Freeman in an interview with the Wall Street Journal. He said he believed he was not required to disclose the connection because Freeman did not appear in his courtroom, there was no economic benefit to him from her legal work and the two are not married.

Jackson Walker said in a statement following Jones' public acknowledgement that it first learned in March 2021 of an allegation of a romantic relationship between the judge and Freeman, who joined the firm after six years working as a clerk for Jones.

Jackson Walker said it investigated the allegation and consulted with outside ethics experts, and instructed Freeman not to work or bill on any cases before Jones. It did not identify the ethics experts it consulted or say what it learned from the investigation.

REQUIRED DISCLOSURES

Law firms and other professionals employed by debtors are required under a bankruptcy rule to publicly list potential connections so that judges and other parties in the bankruptcy can assess if there might conflicts of interest.

The rule does not mention judges specifically; it refers to debtors, creditors and "parties in interest." But disclosing connections to judges appears to be a standard practice. In the court filings Reuters reviewed, the larger national law firms that worked for the debtor alongside Jackson Walker always indicated that they had searched for connections to the judges on the bankruptcy court.

Reuters reviewed Jackson Walker's initial applications to represent debtors with at least $1 billion in debt that were filed in Houston since 2018 to the present. The list was compiled by Debtwire.

U.S. Bankruptcy Judge David Jones, who oversees more major Chapter 11 cases than any other U.S. judge, is seen in a screenshot from video shot during a virtual interview with Reuters done from Houston, Texas, U.S. December 11, 2020. REUTERS/Staff//File Photo

Jackson Walker filed applications in 30 such cases in Houston during the period, according to the Reuters analysis of court records. In only three applications did it file papers indicating that it had searched for connections to judges, and the firm said it had found none. It was not immediately clear why Jackson Walker searched for connections to judges in these three cases and apparently not the others.

If Jackson Walker lawyers knew of the relationship between Jones and Freeman but failed to report the connection in cases the firm was involved in, they may face accusations of having violated bankruptcy disclosure rules, eight legal experts said. Such violations can result in disgorgement of fees or even, in rare cases, criminal prosecution, they said.

In addition, there could be violations of rules of professional conduct, which require lawyers to report to the state bar association if they became aware of another lawyer whose conduct raises a substantial question about their honesty, the experts said. Violations of the rules could lead to a loss of a license to practice.

These reports are rare, as are findings of violations, the experts said.

A misconduct complaint against Jones filed by the chief judge of the 5th U.S. Circuit Court of Appeals in the wake of Jones' Wall Street Journal interview disputed his characterizations of his disclosure obligations and said there was probable cause that he engaged in misconduct.

The misconduct complaint has prompted the U.S. Department of Justice's bankruptcy watchdog to ask for time to review the propriety of two mediations overseen by Jones: the GWG Holdings case and also a case involving Tehum Care Services, a bankrupt affiliate of prison healthcare company Corizon.

Freeman participated in both mediations.

A lawyer for Tehum did not immediately respond to a request for comment about the judge's resignation and possible delay in the case.

It is unclear if the watchdog's review will have an impact on the case of GWG, since a plan to wind down the company went into effect in August and the official committee of creditors was dissolved. Freeman remains the GWG trustee.

An attorney with the Office of the U.S. Trustee watchdog did not respond to a request for comment.

Bankruptcy judges often serve as mediators in complex cases that are being run by other judges. In the GWG bankruptcy, Jackson Walker on Nov. 30 asked the judge overseeing the case to appoint Jones as mediator. The next day, Freeman began to work for Jackson Walker as a contract attorney on the case, according to court records.

After months of mediation overseen by Jones, Freeman was appointed to serve as trustee charged with winding down GWG in an agreement signed by Jones and Jackson Walker attorneys. The trustee role was expected to last three years and pay $700 an hour. She was expected to be paid $100,000 a month for the first six months, then $50,000 a month after that, according to court documents.

The U.S. Trustee asked the court last week to delay approval of Jackson Walker's fees in GWG, a request that was granted. The fee hearing had been scheduled for Friday.

"I am both shocked and saddened," said Bruce Markell, a former bankruptcy judge, when Reuters showed him the documents, signed by Jones, that named Freeman as the wind-down trustee.

(Reporting by Tom Hals in Wilmington, Delaware; additional reporting by Dietrich Knauth in New York; editing by Alexia Garamfalvi, Amy Stevens and Grant McCool)

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