November 3, 2023
A recent Law 360 story by Daniel Connolh, “US Trustee Moves to Reverse ‘Tainted’ Jackson Walker Fees”, reports that, in the ethics fallout involving former U.S. Bankruptcy Judge David R. Jones of the Southern District of Texas and his undisclosed intimate relationship with a Jackson Walker LLP bankruptcy partner, the federal agency that oversees the bankruptcy court system filed multiple motions to strip millions of dollars in fee awards from the firm. Writing that "all orders awarding fees and expenses are tainted and should be set aside," the U.S. Trustee's Office for the region that covers the Southern District filed motions to undo fee awards in at least 11 cases, including the bankruptcies of J.C. Penney Co. and Neiman Marcus.
The trustee, Kevin Epstein, cited Jones' cohabitation with Elizabeth Freeman, a former Jackson Walker bankruptcy partner who now leads her own small firm. The relationship was recently revealed through litigation and media reports, and led to a formal ethics complaint filed Oct. 13 against Jones, who has resigned. "Judge Jones' secret relationship with Ms. Freeman created an unlevel 'playing field' for every party in interest in every case Jackson Walker had before Judge Jones, including this one, and in Jackson Walker cases mediated by Judge Jones," Epstein wrote in Thursday's motion in the J.C. Penney case.
In the J.C. Penney bankruptcy alone, Judge Jones had signed orders compensating Jackson Walker for its work as debtor's local counsel and awarded about $14,000 in expenses and about $1.1 million in fees, including about $286,000 billed by Freeman, according to a summary compiled by the U.S. Trustee's Office. The precise dollar amounts of all the proposed fee reversals weren't immediately clear, but one section of Epstein's motion describes the general scope.
"Judge Jones presided over at least 26 cases, and perhaps more, where he awarded Jackson Walker approximately $13 million in compensation and expenses while Ms. Freeman was both a Jackson Walker partner and living with him in an intimate relationship. This includes approximately $1 million in fees billed by Ms. Freeman herself in 17 of those cases." The U.S. Trustee's Office has filed proposed orders that call for the previous orders approving Jackson Walker's fees and expenses to be vacated. If approved, parties would have 120 days to object to Jackson Walker's fees and expenses, and a hearing would take place.
The U.S. Trustee's Office has also moved to block a $1.3 million fee award to Jackson Walker in at least one case — the GWG Holdings Inc. bankruptcy — in which Judge Jones acted not as presiding judge, but as a mediator. A recent document filed by the trustee highlights several other cases in which Judge Jones acted as mediator, rather than as judge. Property records show that Judge Jones and Freeman had jointly owned a house in Houston since 2017. Earlier, Freeman had served as Judge Jones' law clerk.
In a previous interview, Wilkinson said the law firm first learned about a potential relationship between Freeman and Jones in March 2021, and took steps including consulting outside ethics counsel. Wilkinson had forwarded an emailed statement: "Our firm acted in a timely fashion once we learned of this issue, including conducting a full inquiry and consulting independent outside ethics counsel for their guidance. From the time we first learned of this allegation Ms. Freeman was instructed not to work or bill on any cases before Judge Jones. We are confident that we acted responsibly."
The U.S. Trustee's recent filings say Jackson Walker didn't act responsibly. "Notwithstanding Jackson Walker's admitted knowledge of the secret relationship between its partner, Ms. Freeman, and Judge Jones no later than March 2021, Jackson Walker never disclosed that relationship in any pending or subsequently filed case during the following 21 months while Ms. Freeman was a partner — or thereafter when she was working as a Jackson Walker contract attorney on bankruptcy cases after leaving Jackson Walker," Epstein wrote in the motion, which was signed by Millie Aponte Sall, assistant U.S. trustee.
And at least one court document suggests that Freeman was still indirectly participating in cases for Jackson Walker that were pending before Judge Jones after March 2021, by consulting with other attorneys. A Fifth Circuit ethics complaint said that whether or not Freeman directly participated in a case before Judge Jones, she still stood to gain money. The U.S. Trustee's Office has filed motions seeking to undo Jackson Walker's fees and expenses in the following cases, all in the U.S. Bankruptcy Court for the Southern District of Texas:
J.C. Penney Co. Inc., et al., case number 20-20184
Neiman Marcus Group Ltd. LLC, case number 20-32519
Westmoreland Coal Co. et al., case number 18-35672
Whiting Petroleum Corp., case number 20-32021
Stage Stores Inc., case number 20-32564
Chesapeake Energy Corp., case number 20-33233
Covia Holdings Corp., case number 20-33295
Tug Robert J. Bouchard Corp., case number 20-34758
Mule Sky LLC, case number 20-35561
Seadrill Partners LLC, case number 20-35740
Katerra Inc. et al., case number 21-31861