The federal government’s bankruptcy court watchdog asked a federal judge Friday to reject efforts by Jackson Walker to individually settle claims against it involving the law firm’s critical role in the secret romance scandal between one of its partners and former Houston Bankruptcy Judge David Jones.
Lawyers for the U.S. Trustee told U.S. District Judge Alia Moses that Jackson Walker’s recent motions seeking approval to settle disputes by making a combined $2.27 million in settlements with four companies — Seadrill Partners, 4E Brands, Basic Energy and Sungard AS — “seek to prematurely and improperly short circuit the U.S. Trustee’s prosecution.”
The U.S. Trustee is demanding a full trial with potentially significant penalties and punishments beyond just disgorgement of fees in its efforts to claw back more than $10 million in legal fees paid to Jackson Walker from its work in about 33 large corporate bankruptcy cases in which former Judge Jones either oversaw the Chapter 11 restructuring or served as a mediator. The trustee claims Jackson Walker profited — and possibly benefited — from the secret romantic relationship between then Judge Jones and former Jackson Walker partner Elizabeth Freeman.
Jackson Walker, which claims Freeman lied to them about her relationship with the judge, has filed four petitions seeking Judge Moses’ approval of financial settlements with their former clients. Those settlements include:
- Sungard AS New Holdings for $385,000, which is 93 percent of the fees Sungard paid to Jackson Walker;
- 4E Brands North America for $617,000, or 71 percent of the legal fees the company paid to the firm;
- Basic Energy Services for $783,000, or 50.7 percent of the fees Jackson Walker received from the company during its bankruptcy proceedings; and
- Seadrill Partners for $485,000, which is 63 percent of the fees Seadrill paid Jackson Walker.
In its six-page motion filed Friday, the U.S. trustee argued that the settlements only address disgorgement of fees and that the government seeks “remedies [that] are broader, and more curative than a partial disgorgement of fees to a private party alone.
“A full trial is necessary to ensure the court can consider all evidence and remedies within a single proceeding,” the U.S. trustee wrote. “At that time, the court may also consider the private parties’ views as to the value of their individual claims.”
The U.S. trustee identified other possible penalties that include:
- Suspension of Jackson Walker lawyers to practice before the bankruptcy court;
- Requirement that Jackson Walker report the court’s findings to its clients;
- Additional fines and attorney’s fees; and
- An order requiring Jackson Walker to develop a court-approved conflicts of interest procedures.
“The settlement motions jump straight to the payment of fees and presume that the employment orders will be deemed valid,” the trustee wrote. “This presumption ignores the U.S. Trustee’s position that the employment orders entered by Judge David R. Jones should be vacated, a result that would deny JW any compensation — whether under the settlement motions or otherwise — because the Bankruptcy Code does not authorize it. The court should reject the settlement motions’ efforts to ratify portions of JW’s fees before the threshold issue of whether JW should have been employed in the first place can be adjudicated.”
In a footnote, the trustee states that it “will offer sufficient evidence at trial to establish that vacatur of the employment orders should be granted.”
“For example, the U.S. Trustee will offer email correspondence from JW general counsel and partner William R. Jenkins to JW ethics counsel regarding disclosure of the Freeman Jones relationship in the Sungard employment application,” the trustee wrote. “In that email correspondence, Mr. Jenkins states to ethics counsel: ‘We are not going include the proposed disclosure at this time. We may amend once we have a game plan.’”
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The trustee’s motion quoted Judge Moses from a May 22 status conference saying, “Because I’m seeing this as an end around this particular case, all these individual settlements. It’s people trying to get around the fact that this case is pending before this Court. That’s the way I see it, and those are the kind of games that I’ve been talking about all morning since I took the bench, is I’m kind of tired of this game-playing by the attorneys.”
The cases are pending before Judge Moses, who is chief judge of the Western District of Texas but is sitting by appointment in this case to avoid further conflicts of interest involving federal judges in the Southern District.
Jackson Walker is represented in the litigation by Jason Boland, William Greendyke, Julie Goodrich Harrison and Maria Mokrzycka of Norton Rose Fulbright and Rusty Hardin, Leah Graham and Emily Smith of Rusty Hardin & Associates.
The U.S. Trustee is represented by Laura Steele, Millie Aponte Sall and Vianey Garza.
The case is In Re Professional Legal Matters Concerning the Jackson Walker Law Firm. The case number is 4:23-cv-04787.