Usually confident to the point of coming across self-righteous, Houston Bankruptcy Judge David Jones’ voice quivered as he stated repeatedly, “I don’t know. I don’t know. I don’t know what is going to happen next. I just don’t know.”
The chief judge of the U.S. Court of Appeals for the Fifth Circuit had just published notice that it was conducting an investigation into possible misconduct by Judge Jones over allegations that he had been involved in a multiyear secret romance with a former bankruptcy partner, Elizabeth Freeman, at Dallas-based Jackson Walker. The firm had been paid more than $20 million — fees often approved by Judge Jones — for its role in dozens of high-profile bankruptcies in which Jones served as judge or mediator.
“I’m going to send a letter tomorrow announcing that I am resigning,” Jones told The Texas Lawbook in an interview one year ago Tuesday. “I didn’t think my personal life was anyone’s business. We never discussed cases. It never impacted a single decision I made. But I guess I have to resign. I have no idea what I am going to do next.”
Jones, who handled more large corporate bankruptcies from 2019 to 2023 — including Neiman Marcus, J.C. Penney and Chesapeake Energy — than any other judge in the U.S., officially resigned Oct. 15, 2023.
The 365 days since have been pure chaos in the Houston bankruptcy courts, which is one of the three busiest courts in the nation for business bankruptcies.
“The whole thing is a mess, a complete fiasco,” said Royal Furgeson, the former dean at the University of North Texas at Dallas College of Law. “The stress that Judge Jones and this situation has created for his fellow judges and for the lawyers and law firms is tremendous. The future of some excellent Texas lawyers and law firms is at risk. And it all could have been easily prevented by some simple disclosures and recusals.”
The fallout during the past 12 months has been intense, including:
- The U.S. Trustee, the federal watchdog over bankruptcy proceedings, is seeking to force Jackson Walker to return between $18 million to $22 million in legal fees it was paid in 33 different bankruptcy cases involving Freeman in which Jones was either the judge or the mediator. The case is scheduled to go to trial Dec. 16.
- The U.S. Justice Department has opened a criminal investigation into the matter, ordering many of the lawyers and Houston federal court officials involved to preserve their records. As a result, Jones took the Fifth Amendment against self-incrimination when asked about his relationship with Freeman during a deposition earlier this month.
- Two federal lawsuits brought by creditors in cases handled by Judge Jones and that involved Freeman accuse the judge, Freeman, Jackson Walker and the law firm Kirkland & Ellis of a conspiracy to favor debtors at the expense of creditors and to funnel tens of millions of dollars in legal fees to the defendants.
- Two investment firms, Fidelity and Apollo Global Management, filed court documents three months ago in Sanchez Energy’s bankruptcy claiming they would not have accepted a 2020 settlement agreement pushed by Judge Jones, who mediated the dispute in which Freeman was a lawyer for the debtor, Sanchez, which is now called Mesquite Energy. The two lenders want to participate in the clawback of fees against Jackson Walker.
- And just three weeks ago, Houston Bankruptcy Judge Marvin Isgur, whom Jones has described as his mentor and best friend, referred Jackson Walker to a federal district judge to consider disciplinary action for ethical breaches that Judge Isgur said “defiled the very temple of justice” by not disclosing the relationship between Freeman and Jones years earlier.
“What we have here is a scandal of epic proportions, all brought about by failures to disclose,” Nancy Rapoport, former dean of the University of Houston Law Center and a bankruptcy law expert, wrote in a law review article for Emory University’s Bankruptcy Law Developments Journal. “Judge Jones absolutely should have recused himself from cases involving Ms. Freeman. Ms. Freeman should have disclosed the relationship, and she shouldn’t have appeared in cases assigned to her romantic partner. Jackson Walker should have disclosed the relationship once it became aware of it (and it should have done more than take Ms. Freeman’s word for it that the relationship had ended).”
“It’s hard to avoid the conjecture that the lawyers who should have disclosed chose not to do so at least in part because of the financial and strategic benefits of being employed in those cases,” wrote Rapoport, who is now a law professor at the University of Nevada Las Vegas.
Dallas lawyer Randy Johnston, an expert on legal ethics, said that “the facts in this case are devastating.”
“What happened here are almost certainly clear ethical violations and breach of fiduciary duties by the judge, the lawyers and Jackson Walker,” Johnston said. “If I was a Jackson Walker lawyer right now, I would need a change of underwear.”
MORE: Key Developments Over the Years in the SDTX Bankruptcy Court Scandal
Multiple efforts to seek comments from Jackson Walker, Judge Jones and Freeman were unsuccessful.
Jones has argued that he has judicial immunity from all legal claims. Jackson Walker has claimed that Freeman lied to them about her relationship with the judge and that it did nothing wrong. Jackson Walker has also argued that if the U.S. Trustee or attorneys in that office knew of the relationship before it was publicly reported and failed to act, it cannot now try to claw back Jackson Walker’s legal fees.
Legal experts say the questions in nearly all of the related cases come down to this: When did the lawyers know about the relationship between Jones and Freeman, and what, if anything, did they do about it?
The entire scandal came to light when Michael Van Deelen, who owned 30,000 shares of McDermott stock when the company filed for bankruptcy in 2020, filed a lawsuit last October accusing Judge Jones and Freeman of having a secret relationship. He accused the defendants of a “sprawling tapestry of ethical lapses” that led to his stock being worthless and Jackson Walker and Kirkland — debtor’s counsel for McDermott — of profiting millions of dollars from the alleged conspiracy. He’s claiming mental anguish and financial loss.
The case was transferred to Western District of Texas Chief District Judge Alia Moses, who dismissed the lawsuit in August on grounds that Van Deelen did not have legal standing.
“None of the foregoing discussion redeems Jones’ misconduct,” Chief Judge Moses wrote. “The Jones-Freeman relationship presented a glaring appearance of impropriety. Whether through hubris, greed, or profound dereliction of duty, Jones flouted these statutory and ethical requirements by presiding over dozens of cases from which he was obviously disqualified.”
In September, Judge Isgur dealt Jackson Walker a potentially devastating blow when he signed a five-page finding of facts that stated, “It appears that Jackson Walker breached its own ethical duties after it learned of the relationship. Breaches by the firm itself defiled the very temple of justice.”
“Throughout, it is apparent that Jackson Walker concluded that it had no duty of candor to this court,” Judge Isgur wrote, in referring the case to the chief judge of the Southern District of Texas for possible sanctions against the firm and its lawyers. “It is intolerable that Jackson Walker protected the Jackson Walker firm to the exclusion of its inherent professional responsibilities.”
SDTX Chief Judge Randy Crane has appointed U.S. District Judge Lee Rosenthal to handle the ethics inquiry.
“There is no question but that the entire Southern District bench is under scrutiny on how it handles this,” said University of Texas law professor Jay Westbrook. “It is hard to know how far this goes, but it is well within Judge Rosenthal’s reach to suspend or even disbar specific lawyers from practicing law in the Southern District, which would be potentially devastating for Jackson Walker.”
“I believe there is going to be some disciplinary measures taken,” he noted.
Johnston, the Dallas lawyer, agrees.
“There is no question that the rules of ethics require the judge, the lawyer and the firm to disclose this relationship or recuse themselves, and none did,” he said. “I cannot imagine that the State Bar of Texas is not going to be investigating and bringing its own disciplinary proceedings.”
Furgeson, who is also a retired federal judge, said it is difficult to understand “how it could all go this sideways” for Jones, Freeman and Jackson Walker.
“Judge Jones must have just had a blind spot,” Furgeson said. “I don’t know why it did not occur to him that he was in so much jeopardy here. It is all very sad.”