The Justice Department’s bankruptcy watchdog has argued that Jackson Walker LLC should be sanctioned for allegedly violating the bankruptcy code by not disclosing a romantic relationship between an attorney and a judge presiding over several of its cases.
The US Trustee has requested the US Bankruptcy Court for the Southern District of Texas to sanction Jackson Walker for its misconduct and to expand its investigation into cases involving both Jackson Walker and former Judge David R. Jones.
This call for sanctions comes amid the financial and legal repercussions facing Jackson Walker and Jones, following the revelation of a relationship between former Jackson Walker attorney Elizabeth Freeman and Judge Jones. Freeman had clerked for Jones before working at the law firm and left in 2022. She was awarded at least $2.25 million in fees in various Jackson Walker cases and mediations that are currently under investigation by the US Trustee.
The Trustee has also reiterated its plea for the return of at least $13 million in fees and expenses from 26 cases awarded to Jackson Walker to restore faith in the bankruptcy system. Additionally, the Trustee has asked the court to vacate Jackson Walker’s applications for compensation and retention in several of those cases for allegedly violating bankruptcy law.
The US Trustee is now reviewing at least eight Jackson Walker mediations overseen by Jones, where at least $5.7 million in fees were awarded. This is an expansion of the probe into Jackson Walker fees and the relationship between Jones and Freeman. Amended motions have been filed in several bankruptcies, including those of Seadrill Limited, Neiman Marcus Group LTD LLC, Strike LLC, and 4E Brands North America LLC.
According to court filings, Freeman’s attorney, Tom Kirkendall, urged Jackson Walker to disclose the relationship for all past and future cases in 2022, even though he believed the firm was not legally obligated to do so. The US Trustee disagreed with Kirkendall on this issue.
Jackson Walker allegedly ignored Kirkendall’s advice and did not disclose the relationship until nearly two years later, when a civil suit was brought against the judge. Freeman continued to live with Judge Jones in a house they jointly owned while working for Jackson Walker.
The US Trustee argues that Jones should have been disqualified from presiding over cases involving Jackson Walker, and therefore, the firm’s retention and compensation approvals should be vacated in those instances.
Additionally, the law firm allegedly failed to disclose its connection to judges in the bankruptcy court during Freeman’s employment but began to do so after her departure. The US Trustee believes that these pre-March 2021 disclosures did not meet the reasonably diligent inquiry standard.
Jackson Walker was at risk of being disqualified from representing clients in a courtroom run by Jones if they disclosed the relationship, as Jones presided over some of the largest chapter 11 cases in the country, contributing to the growth of Jackson Walker’s bankruptcy practice.