In an unsurprising response, the U.S. Trustee’s Office has informed Chief U.S. District Judge Alia Moses that it opposes a proposed $1.4 million settlement Jackson Walker has reached with former bankruptcy client JCPenney.
JCPenney had filed a motion seeking approval of the deal Sept. 11, and the U.S. Trustee filed its opposition Sept. 30. The bankruptcy proceedings for JCPenney are among 33 bankruptcy cases where the U.S. Trustee, often referred to as the watchdog of the bankruptcy system, is seeking to claw back millions in fees awarded to Jackson Walker in cases where David Jones, a former bankruptcy judge who resigned from the bench amid a romance scandal, served as the judge or mediator.
Jones resigned after his previously secret relationship with Elizabeth Freeman, a former bankruptcy partner at Jackson Walker, was publicly reported. Freeman left the firm before the news became public.
Tuesday’s filing was not the first time the Trustee has told the court to reject the proposed settlements and proceed with a full trial on the merits in the cases where it is seeking to claw back more than $10 million in legal fees.
“Although JW and J.C. Penney may settle their disputes, neither J.C. Penney’s confirmed plan of reorganization, the Bankruptcy Code, nor the Bankruptcy Rules authorize or require a court order to approve that settlement,” Region 7 Trustee Kevin Epstein argued in the response. “The court should therefore not enter an order approving the settlement motion.”
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JCPenney is the sixth former JW bankruptcy client to seek approval of a settlement with the law firm. The Trustee has previously explained that the proposed settlements only address disgorgement of fees, while the watchdog is seeking “broader, and more curative” remedies that will only come to fruition following a full trial.
“The settlement motions jump straight to the payment of fees and presume that the employment orders will be deemed valid,” the Trustee wrote. “This presumption ignores the U.S. Trustee’s position that the employment orders entered by Judge David R. Jones should be vacated, a result that would deny JW any compensation — whether under the settlement motions or otherwise — because the Bankruptcy Code does not authorize it. The court should reject the settlement motions’ efforts to ratify portions of JW’s fees before the threshold issue of whether JW should have been employed in the first place can be adjudicated.”
JCPenney is represented by Stephen Lemmon of Streusand, Landon, Ozburn & Lemmon.
Jackson Walker is represented by Jason Boland, William Greendyke, Julie Goodrich Harrison and Maria Mokrzycka of Norton Rose Fulbright and Rusty Hardin, Leah Graham and Emily Smith of Rusty Hardin & Associates.
The U.S. Trustee is represented by Millie Aponte Sall, Vianey Garza and Alicia Barcomb.
The case number is 4:23-cv-04787.