Three months after initially arguing for dismissal of a lawsuit brought against Jackson Walker by a former CEO who alleges he was the victim of a conspiracy carried out in a bankruptcy proceeding before former Judge David Jones, the law firm re-urged that outcome in a reply filed Wednesday.
In February, former Bouchard Transportation Company CEO Morton Bouchard III filed a racketeering and fraud lawsuit against former Judge Jones, former Jackson Walker bankruptcy partner Elizabeth Freeman, Jackson Walker, Kirkland & Ellis and Portage Point Partners, a bankruptcy advisory firm appointed by Judge Jones to oversee the BTO bankruptcy in 2020. The lawsuit was filed in the wake of the public disclosure of a previously private romantic relationship between Jones and Freeman.
In another lawsuit stemming from that fallout, the U.S. Trustee’s office is seeking to claw back about $13 million in attorney fees that were paid to Jackson Walker in cases before former Judge Jones.
In Wednesday’s filing, Jackson Walker told Chief U.S. District Judge Alia Moses of the Western District of Texas that “Mr. Bouchard’s response fails to solve the standing and pleading defects that plague the fiction his counsel has labeled as a complaint.”
“Mr. Bouchard cannot establish standing ‘simply based on the intensity of [his] interest’ in BTC or his strong opposition to Judge Jones’ removal of him as BTC’s CEO,” the firm argued.
Portage Point, Freeman, Kirkland and former Judge Jones have each asked the court to dismiss them from the lawsuit. In fighting dismissal, Bouchard has alleged the defendants were involved in “perhaps the most significant bankruptcy scandal in U.S. history.”
“For years, Judge Jones awarded millions of dollars in attorneys’ fees to his live-in girlfriend, attorney Elizabeth Freeman and Jackson Walker,” Bouchard argued in a response. “Jones, Freeman, Jackson Walker and Kirkland & Ellis were able to replicate the scheme in multiple mega-bankruptcy cases by carefully concealing the existence of the Jones-Freeman relationship from creditors, shareholders and others who would be likely to object to the debtor being represented by the girlfriend of the presiding judge.”
Bouchard alleges the century-old ocean shipping company he formerly helmed was valued at nearly $750 million in 2019 but faced significant debt, leading it to seek restructuring. He said lawyers at Kirkland advised him to file for Chapter 11 bankruptcy in the Southern District of Texas before a friendly judge but alleges those lawyers said nothing about the relationship between former Judge Jones and then-Jackson Walker partner Freeman. Kirkland used Jackson Walker as local counsel in Houston bankruptcy cases.
Kirkland and Jackson Walker have told the court they didn’t know about the Jones-Freeman relationship and also said there was no way to know whether the Chapter 11 proceeding for BTC would be assigned to Jones or his colleague U.S. Bankruptcy Judge Marvin Isgur.
Jackson Walker has contended Freeman had lied to the firm about the relationship until 2021 and that after she confessed, she was prohibited from working on matters before Judge Jones and was eventually asked to leave the partnership.
Kirkland, similarly, has maintained it did not know about the relationship until 2021 when Jackson Walker informed it.
Bouchard claims that the defendants worked together with restructuring advisor Portage Point and its founder Matthew Ray to allegedly dismantle his company, which was “worth nearly three quarters of a billion dollars, for pennies on the dollar.” He alleges the defendants “orchestrated a coup” to have him removed as CEO after he “began scrutinizing professional fees” that were being paid out in the bankruptcy.
“The defendants then proceeded to hold a fire sale of the company’s assets. In the process, plaintiff lost tens of millions of dollars, which he had invested personally to help keep the company afloat,” Bouchard told the court. “He also incurred considerable costs in defending against an adversary proceeding lodged by the defendants after he scrutinized their fees and business reputation damages from their malicious attacks, which prevented him from obtaining new employment.”
Bouchard was removed as CEO on Feb. 26, 2021, by former Judge Jones, who ordered the move sua sponte, or on his own authority, without any party requesting that action. Ray was appointed as his replacement.
Portage Point argued Bouchard was trying to make an “end-run around the bankruptcy process to avenge personal grievances, settle scores and seek recoveries that he was unsuccessful in achieving in Chapter 11.”
“Plaintiff is unhappy that the bankruptcy court removed him from his role as CEO of the company,” Portage Point argued. “But that removal, by plaintiff’s own admission, occurred ‘sua sponte,’ after the bankruptcy court concluded that plaintiff was actively impeding the Chapter 11 process, preventing BTC from making payroll, and blocking its ability to access needed interim financing.”
A recurring complaint Jackson Walker made against Bouchard in its reply filed Wednesday is that he was bringing “derivative claims” that actually belong to the bankruptcy estate and that he cannot bring as a third party. Additionally, Jackson Walker argued that the claims against it are expressly barred by the bankruptcy court’s confirmation order for BTC, which contained a release provision for any potential creditor claims against BTC or its lawyers.
“Literally from the first paragraph to the last, the complaint alleges injuries belonging to BTC; harm that Jackson Walker did not proximately cause; and damages (e.g., the disgorgement of fees) that Mr. Bouchard cannot legally obtain,” the firm told the court.
Bouchard’s claims against Jackson Walker should be tossed for another reason, the firm argued: his failure to first take the complaints to the bankruptcy court.
“The Fifth Circuit has held that ‘when parties to a bankruptcy case’ had the opportunity to challenge ‘a provision of a plan approved by the bankruptcy court’ and ‘fail to do so, they cannot challenge the court’s order later through a collateral attack,’” the firm argued.
Jackson Walker is represented by Rusty Hardin, Leah M. Graham, Jennifer E. Brevorka and Emily Smith of Rusty Hardin & Associates.
Bouchard is represented by Mikell Alan West of Bandas Law Firm.
Freeman is represented by Thomas Kirkendall of The Woodlands.
Jones is represented by David Boies and Tyler Ulrich of Boies Schiller Flexner.
Kirkland & Ellis is represented by John Hueston, Karen Ding and Michael Todisco of Hueston Hennigan.
Ray and Portage Point are represented by Mike Lynn of Lynn Pinker Hurst & Schwegmann and Anastasia Cembrovska, Duane L. Loft, John McAdams and Shireen A. Barday of Pallas Partners.
The case number is 4:24-cv-00693.
Mark Curriden contributed to this report.