A popular two-judge panel that handles complex Chapter 11 cases in Houston will remain intact for the time being, despite controversy surrounding the judge who helped found it.
Judge Christopher M. Lopez of the US Bankruptcy Court for the Southern District of Texas said during a bankruptcy conference in Austin on Friday that the two-judge panel isn’t going anywhere. His statements came as questions about the future of the panel swirled following the resignation of the judge who spearheaded it, Judge David R. Jones.
“We’re going to see this through,” said Lopez, who sits on the panel.
Jones, who officially resigned this week, has been credited with turning the Southern District of Texas into a corporate bankruptcy hub by creating a complex case panel in 2016 that assigned large Chapter 11 cases to either himself or one other Houston-based judge. The system gave troubled companies the reassurance of knowing who would handle their bankruptcies.
Several restructuring lawyers and advisers attending the 42nd Annual Jay Westbrook Conference this week said they hoped the panel wouldn’t be disbanded following Jones’ departure. He stepped down following revelations that he failed to disclose a long-term relationship with a local attorney who worked at Jackson Walker, a firm that regularly represented clients before him.
Drew McManigle, founder and CEO of financial advisory firm MACCO Restructuring Group LLC, said he hopes the complex two-judge panel continues because it yields what most bankruptcy lawyers seek: consistency.
“I don’t think the premise of the complex case panel is broken,” McManigle said. “If it ain’t broke, don’t fix it.”
Several bankruptcy academics and industry groups in an open letter earlier this month urged the Southern District of Texas bankruptcy court to abolish the two-judge complex panel and randomly assign cases to all bankruptcy judges in the district. One judge could “undermine the whole system by a lapse in judgment,” the letter said.
Lopez didn’t address the letter, but noted during the conference that the panel will continue to only have two judges: himself and Judge Marvin Isgur.
“Nobody’s going to reshuffle the deck anymore,” he added.
See earlier: Booming Texas Bankruptcy Venue in Doubt After Judge Resigns (1)
‘Nothing Has Changed’
The panel gave other major bankruptcy venues—specifically, Delaware and the Southern District of New York—a run for their money in terms of attracting large Chapter 11 cases by assuring one of two judges would handle a case and providing a prompt, customer service-like approach. Lax federal rules governing venue selection give corporate bankruptcy attorneys wide latitude in choosing venue.
“We are working hard and nothing has changed,” Lopez said during the conference.
His comments on Friday seemed aimed at alleviating fears that recent turmoil would prompt firms and businesses to be more reluctant to file in the district, at least in the near-term.
While Texas attempts to rebound, other bankruptcy hot spots have emerged. New Jersey’s bankruptcy court has recently attracted several large Chapter 11s, including co-working giant WeWork Inc., cryptocurrency firm BlockFi Inc., wedding dress retailer David’s Bridal Inc., pharmacy giant Rite Aid Corp., and homeware retailer Bed Bath & Beyond Inc.
Jones formally resigned on Nov. 15, ending a US Court of Appeals for the Fifth Circuit probe into his actions.
The Justice Department’s bankruptcy monitoring unit has challenged around $13 million in fees Jones approved for Jackson Walker. The law firm said it was unaware until 2022 of “any ongoing intimate relationship” between its former attorney, Elizabeth Freeman, and Jones. The firm first learned of allegations of a relationship in March 2021.
Panel Future
Making changes to the two-judge complex panel risks throwing out the good things Jones did, said R. J. Shannon, a partner at Houston, Texas-based Shannon & Lee LLP. The panel even benefited smaller cases, he said.
“The complex case panel is particularly under target,” Shannon said. “But not only is it helpful for large cases; it also has good results for smaller cases. Knowing your subchapter V case won’t get crowded out by the next mega case is just as valuable as the inverse.”
Jones’ departure has led to a reassignment of his massive caseload of some 4,200 cases, including 77 complex Chapter 11s, 2,900 consumer or small business cases, and about 1,250 adversary cases.
The future of the two-judge panel will involve many factors, “including geography, experience, willingness to serve, randomness of assignments, etc.,” Chief Judge Randy Crane, who heads the Southern District of Texas’ district court, wrote in an email.
“Our Chief Bankruptcy judge has considered all of the media input, academic input as well as the logistics of our court and is making appropriate work orders. He has the complete confidence of our court,” Crane said.
Chief Bankruptcy Judge Eduardo Rodriguez said via email that he could only confirm that there have been no changes to court operations since his Oct. 16 general work order, which was issued the day after Jones announced his resignation. That order reshuffled case assignments so Isgur would be on the complex panel along with Lopez.