Since about 5 p.m. Tuesday — Day 1 of a three-day hearing on approval of nine settlements with former bankruptcy clients totaling roughly $4 million — Jackson Walker’s counsel and the U.S. Trustee had been working, at the judge’s direction, on reaching a compromise on the settlement language.
At the heart of the matter was the effect and scope of the language in the settlement agreements. The U.S. Trustee maintained the settlements are an attempted end-run to vacate more than $20 million in fees awarded to the firm in 34 cases involving former Houston bankruptcy judge David Jones and former Jackson Walker partner Elizabeth Freeman. The bankruptcy watchdog jumped into the litigation after a once-private romantic relationship between Jones and Freeman was publicly reported, leading to Jones’ resignation from the bench.
Meanwhile, counsel for Jackson Walker maintained the settlements between two private parties, the firm and certain individual clients, have no bearing on the actions of the trustee and its pursuit of relief under Rule 60b motions and no bearing on the inherent authority of the court.
“See if you can come to a resolution,” Chief U.S. Bankruptcy Judge Eduardo V. Rodriguez on Tuesday told Jason Boland of Norton Rose Fulbright and Millie Sall of the U.S. Trustee’s Office, ordering them to meet and confer on the issue. “I’m not saying you have to [reach a resolution].”
The first day of the evidentiary hearing, while that disagreement on settlement language persisted, moved slowly and was contentious, lasting from 9 a.m. until a little after 9 p.m. Proceedings ramped up again at 9 a.m. Wednesday.
Around 2:20 p.m. Wednesday, a string of lawyers began entering and exiting the courtroom. One lawyer gave a low thumbs-up signal to his co-counsel. Joel Charboneau, lawyer for the U.S. Trustee, left the well of the courtroom, got Boland’s attention and the pair left the courtroom.
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Minutes later, Brian Thill, for the U.S. Trustee, who was at the podium cross examining the Chapter 7 trustee for Brilliant Energy, was passed a note from his co-counsel.
“I’ve been informed by my colleague it seems as though the parties and Jackson Walker had some, not just progress on the language that kicked off this hearing yesterday … but reached agreement,” he said.
At the judge’s direction, the hearing continued through closing arguments. During Thill’s closing arguments, Chief Judge Rodriguez grilled him on the argument the U.S. Trustee had repeatedly made throughout the hearing: that it was opposed to approval of all nine settlements because of its impact on the U.S. Trustee’s ability to seek relief under the Rule 60 motions and on the ability of the creditors to accept potential additional funds should it be successful at trial.
“You’re making these allegations, I want to see where it is in the agreement,” the judge said.
Thill argued that the language that says the settlement released “all claims” was the problem, but the Chief Judge said that means within the context of the settlement entered into between two parties and that it didn’t include the U.S. Trustee. The Chief Judge also questioned how a Chapter 7 trustee who signed the deal with Jackson Walker would even have the authority to waive claims brought by the U.S. Trustee.
Thill again told the court the deal reached between the U.S. Trustee and counsel for Jackson Walker would make the exchange he was having with the court moot.
“We didn’t have an understanding before, and now we do,” he said, telling the court the agreement on the settlement language would hopefully “make this discussion academic.”
“If it doesn’t, we’ll come back to it,” the Chief Judge replied.
At 3:25 p.m., Boland and Sall stepped to their respective podiums facing the court. They announced they had reached an agreement on the language and that some of the nine settling parties had already accepted it, too. The court ordered a half-hour break to contact the remaining settling parties and gauge consensus.
The directive from Chief Judge Rodriguez Tuesday evening — to meet and confer on the settlement language — was in line with a January order from Chief U.S. District Judge Alia Moses that referred two issues to Chief Judge Rodriguez for an evidentiary hearing:
- Whether the settlement motions should be approved before adjudicating the merits of the U.S. Trustee’s vacatur motions; or
- Whether an alternative to approval exists that would best serve the interest of the affected parties while preserving the merits of the vacatur motions.
Chief Judge Rodriguez will be authoring a report and recommendation regarding approval of the deals for Chief Judge Moses to consider.
Around 9 p.m. Tuesday, shortly before court adjourned for the day, Boland gave Chief Judge Rodriguez an update: Discussions with Sall had been productive, and the parties were working toward a compromise.
Throughout Tuesday’s testimony, Boland had accused the U.S. Trustee of trying to “rewrite” the settlement agreements he crafted on behalf of Jackson Walker. The U.S. Trustee, meanwhile, argued it was only trying to ensure the settlement language preserved its right to seek relief under Rule 60.
At 4 p.m. Wednesday, Sall and Boland again took their respective podiums.
But the tense nature of the deal was evident even in the way Boland and Sall addressed the court to announce the agreement. Boland began by telling the judge that Jackson Walker, the U.S. Trustee and the settling parties had reached an agreement on language to put into a stipulation for the court to consider as part of the settlement agreements, under which “the U.S. Trustee would withdraw their pending objections. …”
“No,” Sall interjected. “Resolving. Don’t use the word withdraw and we’re good.”
“OK, we’re resolving …,” Boland began again.
“I thought you had an agreement,” Chief Judge Rodriguez chimed in, breaking the tension and garnering laughs from those present.
Sall then addressed the court, thanking the Chief Judge for pushing the parties to “keep talking” and saying that both sides are “pleased to have reached an agreement.”
“These couple of days have been very difficult — everybody’s put in a lot of effort — and I wanted to make sure this is not all for naught,” she said, adding that the U.S. Trustee “welcomes” private settlements in bankruptcy estates.
“But here, the U.S. Trustee filed objections to settlement motions to preserve the status quo and to address the provisions that could have been interpreted to cap the … recovery in the pending Rule 60b motions, or the ability of settling parties to receive additional money from Jackson Walker,” she said.
Testimony is scheduled to continue Thursday.
Jackson Walker is also represented by Julie Harrison, William R. Greendyke and Maria Mokrzycka of Norton Rose Fulbright, and Rusty Hardin and Emily Smith of Rusty Hardin & Associates.
The U.S. Trustee is also represented by Laura Steele and Vianey Garza of the Department of Justice.
The case number is 4:23-cv-04787.