US seeks return of fees from law firm tied to bankruptcy judge resignation
By Nate Raymond
(Reuters) - The U.S. Department of Justice's bankruptcy watchdog is seeking to force a law firm to give back millions of dollars in fees it earned in cases presided over by a top Texas bankruptcy judge after he confirmed he had been in an undisclosed romantic relationship with one of its lawyers.
The Justice Department's Office of the U.S. Trustee late on Thursday began filing motions in several corporate bankruptcy cases seeking to reverse decisions by Houston-based U.S. Bankruptcy Judge David Jones to award fees to Jackson Walker.
Jones, who came to handle more major Chapter 11 corporate bankruptcies than any other judge nationally, presided over at least 26 cases in which he awarded Jackson Walker about $13 million in fees while he was in a relationship with a partner at the firm, the U.S. Trustee said in one of the filings.
Similar motions were lodged in at least 10 other bankruptcy cases including those of JC Penney, Nieman Marcus and Westmoreland Coal Company.
The U.S. Trustee said throughout those bankruptcies, the fact that Jones was in a relationship and living with Elizabeth Freeman, a Jackson Walker partner who herself billed about $1 million in 17 of those cases, went undisclosed.
It argued that the bankruptcy system was "significantly compromised" by their undisclosed intimate relationship, which "created an unlevel 'playing field' for every party in interest in every case Jackson Walker had before Judge Jones."
The U.S. Trustee asked that the issue be referred to a judge in another district to examine. A spokesperson for Jackson Walker had no immediate comment. Jones and Freeman's lawyer did not immediately respond to requests for comment.
Jones announced his resignation on Oct. 15 after days earlier acknowledging to the Wall Street Journal that he had been in a years-long relationship with Freeman, a former law clerk of Jones who left Jackson Walker in December and opened her own practice.
The 5th U.S. Circuit Court of Appeals had prior to the announcement launched an investigation, and its chief judge, Priscilla Richman, on Oct. 13 filed a misconduct complaint against Jones for failing to disclose the relationship.
Jackson Walker has said that it first learned in March 2021 of an allegation of a romantic relationship between Jones and Freeman and, following an investigation, instructed Freeman not to work or bill on any cases before Jones.
But the U.S. Trustee said the 500-lawyer law firm never in the 21 months that followed disclosed that relationship in any case.
It argued the firm breached its fiduciary duty to debtor companies' estates and violated Texas legal ethics rules by failing to seek Jones' recusal from the cases they were handling.
A data analysis by Reuters published on Monday found that Jackson Walker did not follow standard disclosure practices in at least 27 cases that might have revealed Freeman was secretly in a romantic relationship with Jones while the firm was appearing before him.
A creditor of a bankrupt company Jackson Walker represented in its Chapter 11 proceedings before Jones, called for the disgorgement of the firm's fees in that case last month.
(Reporting by Nate Raymond in Boston; additional reporting by Tom Hals; Editing by Alexia Garamfalvi and Bill Berkrot)
