Jackson Walker Bankruptcy Court Fee Trials to Start in April

Trials have been scheduled for April to determine whether Jackson Walker LLP must disgorge millions of dollars after failing to disclose a romance between an attorney and a judge, but key decisions will be split among several judges.

The trials will address challenges to former Houston bankruptcy judge David R. Jones’ approval of Jackson Walker’s retention in 33 corporate bankruptcy cases while he was in a relationship with one of its partners and as much as $23 million in fees the firm collected. But the matters will be handled separately from each other, based on different legal issues, Chief Judge Eduardo V. Rodriguez of the US Bankruptcy Court for the Southern District of Texas ruled on Tuesday.

Rodriguez’s decision to split up proceedings on the fees and calls to vacate Jones’ orders allowing Jackson Walker to represent clients in his court comes amid an already complicated fight between the US Trustee, which serves as the Justice Department’s bankruptcy monitor, and Jackson Walker.

Rodriguez said he will consider whether Jones’ orders should be vacated, and whether Jackson Walker can be sanctioned, in trials scheduled to begin on April 21 and which could last two weeks. But whether the fees can actually be disgorged, and whether creditors can receive those fees, will be decided by different bankruptcy judges who are presiding over those 33 bankruptcy cases, he said.

The US Trustee has challenged millions of dollars in fees Jackson Walker collected in cases involving Jones while Jackson Walker employed bankruptcy attorney Elizabeth Freeman. Jackson Walker should have disclosed the relationship between the two but never did, and shouldn’t be allowed to keep the fees it earned, the US Trustee has said.

Jones resigned in November 2023 as one of the most prominent bankruptcy judges in the country soon after he publicly admitted to the relationship and an appeals court chief judge issued a complaint against him. Freeman left Jackson Walker in December 2022. The relationship may have started as long ago as 2013, and the pair have owned a home together since 2017.

If Jones’ orders aren’t vacated and the fees can’t be legally disgorged, Jackson Walker should be sanctioned that same amount, the US Trustee has said.

‘Wreak Havoc’

The US Trustee has said Jones lacked authority to approve the firm’s fees because he should have been disqualified from those cases. That issue should also be heard by different presiding judges, Rodriguez said on Tuesday. He noted that he has concerns over that argument.

“These are matters that would have broad-ranging implications in the entire case and I think would wreak havoc across the district, if something like that would happen in one case, much less 33,” Rodriguez said.

The US Trustee has sought to have all the fee disputes consolidated to Chief Judge Alia Moses of the US District Court for the Western District of Texas instead of Houston bankruptcy court judges. The US Trustee has argued that having one judge would promote uniformity, efficiency, and help restore public confidence in bankruptcy court integrity.

The US Trustee’s office and Jackson Walker on Tuesday also said they have a tentative agreement for the firm to produce its partnership agreement to the government. The US Trustee has agreed to not share the document to any other parties, US Trustee attorney Joel Charboneau said.

The agreement could show firm partners’ legal obligations in situations such as the Freeman-Jones relationship, the government has argued.

Jackson Walker is represented by Rusty Hardin & Associates LLP and Norton Rose Fulbright US LLP.

The case is Professional Fee Matters Concerning the Jackson Walker Law Firm, Bankr. S.D. Tex., No. 23-00645, hearing 10/29/24.