Jackson Walker will, at a minimum, depose one current and one former employee of the U.S. trustee’s office in its quest to determine whether the bankruptcy watchdog knew about a secret romantic relationship between a former law firm partner and a then-sitting bankruptcy judge before the news became public.
Chief U.S. Bankruptcy Judge Eduardo V. Rodriguez made that decision during a nearly four-hour hearing in Houston that ended shortly before 8 p.m. Tuesday. The U.S. trustee has identified 33 cases in which former judge David Jones served as judge or mediator in which Jackson Walker and its former partner Elizabeth Freeman were awarded fees totaling about $18 million — fees that the U.S. trustee is attempting to claw back. Jones resigned from the bench in October when the secret relationship was publicly reported. Freeman was asked to leave the partnership in 2021 after confessing to the firm the relationship existed.
For most of the hearing, U.S. trustee’s office attorney Joel Charboneau argued Chief Judge Rodriguez should quash five subpoenas seeking to depose the current U.S. trustee for Region 7, Kevin Epstein, his predecessor Henry Hobbs, former trial attorney Stephen Statham, and current trial attorneys Millie Sall and Hector Duran.
Because Epstein is a “high-ranking” government official, Charboneau argued Jackson Walker has to show there are “exceptional circumstances” that merit taking his deposition. He made similar arguments regarding why Hobbs also should not be deposed. Sall, he argued, should not be deposed because she is “active trial counsel in this case.”
In briefing, the trustee’s office had argued all five depositions should be quashed, but arguments before the court largely focused on only quashing the depositions of Epstein, Hobbs and Sall. Epstein submitted a sworn statement on behalf of himself and his office that he didn’t know about the Freeman-Jones relationship “to the best of his knowledge,” which Charboneau argued also undercuts the alleged need to depose him.
Chief Judge Rodriguez seemed unconvinced and told Charboneau that Epstein was “hedging on his answer” by using the “to the best of his knowledge” language in the sworn statement. Charboneau countered that Jackson Walker has presented the court with no evidence to contradict that sworn statement.
Rusty Hardin of Rusty Hardin & Associates, who represents Jackson Walker, argued that discovery in the litigation — which the U.S. trustee’s office brought — should be a two-way street.
He said his client is seeking a small number of depositions compared to the 30 depositions already conducted by the trustee’s office.
“Surely the government can’t decide to be the plaintiff and then say they’re insulated from depositions,” he argued.
Taking the depositions of those working in the trustee’s office is important, Hardin told the court, because if the relationship between Jones and Freeman was something known to those attorneys, and nothing was done to expose it, it calls into question whether there exists “extraordinary circumstances” or “manifest injustice” that would allow the trustee’s office to claw back Jackson Walker’s fees.
“Extraordinary circumstances do not exist if they knew and could have done something much sooner,” Hardin said.
Chief Judge Rodriguez gave Jackson Walker and the U.S. trustee’s office until Oct. 15 to provide the court with further briefing on whether the depositions of Epstein, Hobbs and Sall should take place. He promised to rule quickly on the matter after the briefing is filed and said that for each day after Oct. 16, if he doesn’t file an order, he will be extending discovery deadlines by one day.
Discovery is slated to close Nov. 1.
About an hour after Tuesday’s hearing concluded, Bloomberg published an exclusive story based on 2021 text messages between two Jackson Walker attorneys the news outlet said it had reviewed. Bloomberg reports that the text messages show firm partners were aware of the Freeman-Jones relationship and discussed potential fallout should that news become public.
During the hearing, Hardin told the court he had recently handed over certain text messages between Jackson Walker lawyers in response to a discovery request from the U.S. trustee. Charboneau unsuccessfully tried during the hearing to get into the substance of the text exchanges, while Hardin argued the messages were not relevant to the hearing on the motion to quash.
Charboneau argued the messages showed Jackson Walker was trying to keep the relationship a secret and that they were concerned others might become suspicious about its existence. Hardin disputed that the messages — which have been filed under seal with the court — showed that.
Also this week, on Tuesday, each of the 33 fee dispute cases was transferred to Chief Judge Rodriguez, who will determine whether the final order compensating Jackson Walker in each case should be vacated.
After Judge Isgur referred Jackson Walker for possible disciplinary proceedings based on its failure to disclose the relationship, he also recused himself from all fee dispute cases. Those cases were reassigned to other bankruptcy judges prior to being transferred to Chief Judge Rodriguez this week.
U.S. District Judge Lee Rosenthal has been appointed as the “hearing judge” to oversee the disciplinary case against Jackson Walker. According to the docket, no hearings have been set in that case.
The case number in the disciplinary proceeding is 4:24-mc-01523. The case number in the fee dispute is 23-00645.