Top US bankruptcy judge steps aside from big cases amid investigation

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A prominent US bankruptcy judge will step away from hearing large cases as a federal appeals court investigates his alleged failure to disclose a romantic relationship with a prominent bankruptcy lawyer.

An order posted on Friday said cases classified as “complex”, or those with liabilities more than $200mn, assigned to David R Jones, the chief judge of the US bankruptcy court for the southern district of Texas, will be transferred to other judges.

Earlier, Jones revealed in a court hearing that media reports of the relationship “has prompted an investigation by the Fifth Circuit that is ongoing”, and that the appeals court requested he step aside from complex cases, according to an account of the remarks from Reorg Research. When reached for comment, Jones pointed back to his remarks in court.

Jones, who joined the bench in 2011, had become an unlikely star of high-profile corporate Chapter 11 bankruptcy protection cases. In recent years he oversaw a string of high-profile cases including Cineworld Group, Serta Simmons Bedding and Neiman Marcus.

His relationship with Elizabeth Freeman — then a top lawyer at Houston firm Jackson Walker — was revealed in a lawsuit brought by Michael Van Deelen, who wanted to pursue a claim against oil services company McDermott International. Van Deelen wanted to litigate his claim in state court, but Jones, who was overseeing McDermott’s 2020 bankruptcy, ruled he could not.

Van Deelen alleged in his lawsuit that Jones was the domestic partner of Freeman, whose firm represented McDermott in its bankruptcy. He said that neither Jones nor Freeman disclosed the relationship, creating a potential conflict of interest that should have caused Jones to recuse himself from the bankruptcy. The lawsuit was first reported last week by Business Insider.

Jones later confirmed his personal relationship to The Wall Street Journal but said that because Freeman, who had been a law clerk for Jones, never personally appeared in his court that he did not need to disclose their relationship.

In recent years Houston has become a hub for major bankruptcies. Until a decade ago, most high-profile cases were filed in New York and Delaware. But in the first half of 2023, 16 of the 20 largest bankruptcy cases were filed in the Southern District of Texas, according to recent report from Cornerstone Research.

US bankruptcy law gives companies wide latitude in selecting venues, and Jones marketed the Houston court as a destination for big restructurings, which would be assigned to either Jones or another judge, Marvin Isgur.

Jones told the Financial Times in 2022 that Houston had become a hub because of the legal and financial expertise of him and Isgur and their willingness to be available to lawyers on nights and weekends.

“I don’t like seeing my name in the newspaper. The goal was really to create a court that we could all be proud of,” Jones said. “I work very hard every day. My philosophy is that the case should never be about the judge. The case should be about the constituents in order to effectuate the right transaction.”

Jackson Walker frequently represents debtors in the Texas court, usually in tandem with a large national firm — often Kirkland & Ellis — that leads the case.

Some lawyers and legal scholars have raised worries about “judge shopping” and “forum shopping” in US corporate bankruptcies. Members of Congress have sought to change the law to force companies to file closer to their headquarters or core operations, though such legislation has yet to pass.