The litigation trustee in the GWG Holdings bankruptcy dispute has asked a federal judge to approve a $405,000 out-of-court settlement agreement with the law firm Jackson Walker related to the scandal involving former Houston Bankruptcy Judge David Jones.
Lawyers for Reid Collins, who represent the court-appointed litigation trustee in the GWG bankruptcy, filed a 33-page motion Friday stating that the settlement agreement is “reasonable, fair and in the best interest of the litigation trust and its ultimate beneficiaries.”
The GWG litigation trustee is the seventh party to reach a proposed settlement with Jackson Walker, which is accused of knowing about and failing to disclose a secret romantic relationship between one of its former bankruptcy partners, Elizabeth Freeman and Judge Jones.
The U.S. Trustee, which is the bankruptcy watchdog of the U.S. Justice Department, has publicly filed motions opposing the previous six settlement agreements between Jackson Walker and their former clients.
“Taking into account the strength of the Trust’s core claim, the costs and risks of litigation, and the defenses that Jackson Walker has raised, the Litigation Trustee believes the proposed settlement is in the best interests of the Litigation Trust and its beneficiaries,” Reid Collins lawyers state in the motion. “It provides an immediate monetary recovery while avoiding lengthy and costly litigation (including potential appeals) with uncertain prospects.”
The motion was filed with U.S. District Chief Judge Alia Moses of the Western District of Texas, who has been specialty appointed to handle the fee disputes related to the Judge Jones controversy.
GWG Holdings filed for Chapter 11 bankruptcy protection in the Southern District of Texas in April 2022. The Dallas-based financial firm hired Jackson Walker as its local counsel. The bankruptcy was assigned to U.S. Bankruptcy Judge Marvin Isgur, who then appointed Judge Jones as a mediator in the case at the request of Jackson Walker.
The proposed settlement requires Jackson Walker to pay 31 percent of the $592,729 the firm billed GWG for its legal services. Freeman played a key role in the bankruptcy, and the firm billed GWG $205,157 for her legal work.
The agreement reached followed “extensive settlement negotiations, including a mediation” before former federal judges Royal Furgeson and Gary Feess.
“First and foremost, the proposed settlement maximizes recovery on the Litigation Trust’s strongest and most likely theory of recovery: disgorgement of fees incurred after Jackson Walker became aware of a Jones-Freeman relationship,” the motion states. “Because Judge Isgur was the presiding judge over GWG’s bankruptcy case, not Judge Jones, the Litigation Trustee does not believe that Jackson Walker had an obligation to disclose to GWG or to Judge Isgur — at least in GWG’s bankruptcy case — what it knew about the Jones-Freeman relationship when it was retained by the debtors or when it filed its retention application in May 2022.”
The litigation trustee argues that view changed Nov. 30, 2022, when Jackson Walker filed a motion on behalf of the debtors seeking Judge Jones’s appointment as mediator.
“At that point, the Litigation Trustee asserts that Jackson Walker was obligated to inform both the debtors and the court about what it knew regarding the Jones-Freeman relationship,” the motion states.
Reid Collins lawyers argue that Jackson Walker has raised several legal defenses that “complicate and potentially mitigate — if not bar — recovery.”
“Among other arguments, Jackson Walker contends that it had no duty to disclose any connections to a mediator in the GWG bankruptcy case, and that Judge Jones did not preside over the GWG bankruptcy case, issued no judicial orders in the GWG bankruptcy case, and acted solely as a mediator,” the motion states. “Jackson Walker also points to the involvement of sophisticated counsel for all the parties during the mediation sessions with Judge Jones, the absence of prejudice or harm to the estate, and the reasonable value of the legal services provided. These defenses, if successful, could significantly limit the Litigation Trust’s recovery.”
For a list of the other six settlements and a timeline of The Lawbook’s extensive coverage of the Judge Jones scandal, click here.
The GWG Litigation Trustee is represented by Reid Collins lawyers Nathaniel Palmer, William Reid and Taylor Lewis.
The case is In re Professional Fee Matters Concerning the Jackson Walker Law Firm, SDTX, 4:23-cv-04787.
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