The litigation regarding the secret relationship between former Houston Bankruptcy Judge David Jones and former Jackson Walker partner Elizabeth Freeman heated up Tuesday when the U.S. trustee seeking to claw back $13 million in legal fees from the Texas law firm asked Southern District of Texas Chief Bankruptcy Judge Eduardo Rodriguez to reject Jackson Walker’s “no harm, no foul” defense and Jackson Walker won the battle to depose Judge Jones as part of its defense against the trustee’s efforts.
At the same time, in separate but related litigation, lawyers for former Bouchard Transportation Company CEO Morton Bouchard asked U.S. District Chief Judge Alia Moses of the Western District of Texas to reject the defendants’ motions to dismiss the racketeering and fraud lawsuit he filed earlier this year against Judge Jones, Freeman, Jackson Walker, Kirkland & Ellis and Portage Point Partners.
In a two-page order issued Tuesday, Judge Rodriguez ruled that Jackson Walker will be able to depose Judge Jones for up to seven hours on July 18 at the law office of Houston lawyer Rusty Hardin, who represents Jackson Walker in the litigation against the U.S. trustee. Jackson Walker argues that it needs to depose Judge Jones in order to prove that the firm was kept in the dark about the judge’s secret relationship with Freeman while she was a partner at Jackson Walker.
Meanwhile, the U.S. Trustee Kevin Epstein said in a 75-page brief filed in the Neiman Marcus bankruptcy case that the judge should reject Jackson Walker’s petition to keep the $13 million in legal fees it was paid in 26 different bankruptcies handled by Judge Jones because the firm’s actions undermine the perception of justice.
“The court should reject Jackson Walker’s dismissive ‘no harm, no foul’ approach to its misconduct,” the U.S. trustee wrote. “The harm, in these cases and to the reputation of this court and the integrity of the bankruptcy system more broadly, is immeasurable. But harm is not a prerequisite to sanctioning attorney misconduct.”
“Jackson Walker’s ostrich defense fails because its partner’s knowledge is imputed to it,” Epstein argued. “Every aspect of this litigation is rooted in the fact that Jackson Walker behaved without clean hands. Jackson Walker omitted material facts and violated disclosure obligations, putting the perceived fairness of the judicial system in jeopardy.”
Battle Over Motions to Dismiss RICO Case
Two weeks ago, lawyers for bankruptcy advisor Portage Point Partners, a bankruptcy advisory firm appointed by Judge Jones to oversee the bankruptcy of the Bouchard Transportation Company in 2020, asked Judge Moses to dismiss the firm from the federal racketeering lawsuit brought by Bouchard, who claims a conspiracy to defraud against Judge Jones, Freeman, Portage Point and law firms Jackson Walker and Kirkland & Ellis.
Jackson Walker, Kirkland and Freeman previously asked Judge Moses, who sits in Del Rio, to dismiss them from the litigation.
On Tuesday, Bouchard’s lawyers fired back, saying 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,” wrote Corpus Christi lawyers Mikel West and Robert Clore, who represent Bouchard. “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.”
“It is this scheme by defendants to fraudulently conceal the Jones-Freeman relationship while reaping financial and reputational benefits from it that is the genesis for the plaintiff’s claims,” the lawyers wrote.
In court documents, Bouchard claims that the century-old ocean shipping company was valued at nearly $750 million in 2019 but faced significant debt, leading it to seek restructuring. Bouchard claims that he was advised by lawyers for Kirkland to file for Chapter 11 bankruptcy in the Southern District of Texas before a friendly judge. Bouchard claims that Kirkland did not tell him or company officials that Judge Jones had a romantic relationship with Freeman, who was then a partner at Jackson Walker, which Kirkland used as local counsel in its Houston bankruptcy cases.
Lawyers for Kirkland and Jackson Walker, in their motions to dismiss filed two months ago, argue that they did not know at the time about the Judge Jones and Freeman relationship and point out that there was no way they would know if Judge Jones or colleague, Houston Bankruptcy Judge Marvin Isgur, would be assigned the Bouchard case.
The case was assigned to Judge Jones.
Lawyers for Jackson Walker argue that Freeman lied to the law firm about the relationship until 2021. When she did finally confess that they had a relationship, the firm prohibited her from working on matters before Judge Jones and eventually asked her to leave the partnership. Kirkland argued Jackson Walker did not tell it about Freeman’s relationship with Judge Jones until 2021.
In a 39-page brief filed Tuesday, lawyers for Bouchard claim that the defendants, “working together with restructuring advisor Portage Point Partners, and its founder Matthew Ray, dismantled Bouchard Transportation Company, a generational ocean-going barge company worth nearly three quarters of a billion dollars, for pennies on the dollar.”
“With the presiding judge working in concert, they orchestrated a coup to remove BTC’s longtime CEO, Mr. Bouchard, when he began scrutinizing professional fees,” Bouchard’s lawyers wrote. “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. 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’s lawyers also argue that Kirkland is equally responsible.
“Jones was only friendly so long as Bouchard played nicely’ within the sandbox of the Jones-Freeman-Jackson Walker-Kirkland Enterprise,” Bouchard’s lawyers wrote. “When Bouchard began questioning professional billing in the bankruptcy, Jones quickly — and without so much as a motion — removed him as CEO on February 26, 2021, replacing him with Kirkland’s chosen financial advisor, Portage Point Partners, and its founder Matthew Ray.”
In its motion to dismiss, Portage Point lawyer Michael Lynn described Bouchard’s lawsuit as a “vexatious attempt to relitigate matters” that were properly resolved during the Bouchard Transportation bankruptcy proceedings.
“Plaintiff is unhappy that the bankruptcy court removed him from his role as CEO of the company,” Lynn wrote in a motion to dismiss for Portage Point. “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.”
“None of this is alleged to have anything to do with the Portage Point Parties,” Lynn wrote. “Plaintiff is simply seeking 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.”
The case is Morton S. Bouchard III v. David R. Jones, No. 4:24-cv-00693.