US seeks clawback of fees paid to law firm with ties to top bankruptcy judge

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US officials want a prominent law firm to hand back the fees it earned from multiple cases over the past five years after a romantic relationship between one of its lawyers and a top bankruptcy judge was not disclosed.

The Office of the US Trustee, which represents the government’s interest in bankruptcy cases, has asked a court in Texas to reverse the award of fees made to the firm Jackson Walker in 26 cases overseen by Judge David R. Jones.

Jones resigned last month as the chief judge of the US bankruptcy court for the Southern District of Texas after he admitted to concealing a relationship with Liz Freeman, a Houston bankruptcy lawyer and, until late last year, a partner at Jackson Walker.

“Due to the intimate, cohabiting relationship between Judge Jones and Ms Freeman, Ms Freeman and Jackson Walker were so connected to Judge Jones ‘as to render it improper’ for Judge Jones to have presided over or approved any Jackson Walker fee application, including those with fees billed by Ms Freeman herself,” the US Trustee noted in a legal motion filed late on Thursday.

Jones approved $13mn of fees for Jackson Walker in cases he oversaw, according to the filing. Freeman, who spent six years as Jones’s former law clerk before joining Jackson Walker, billed approximately $1mn of the fees, the filing states.

The US bankruptcy code requires that advisers seeking to be paid by bankruptcy estates disclose connections to other participants in the proceedings. 

In an interview with the Wall Street Journal before resigning, Jones admitted to the relationship with Freeman but said he did not believe a disclosure was required because the pair were not married and denied any resulting conflict. Freeman left Jackson Walker late last year to start her own firm.

Over the past decade, Jones has become one of the highest-profile bankruptcy judges in America, overseeing restructurings at retailers Neiman Marcus and JCPenney as well as at shale pioneer Chesapeake Energy. Jones had sought out blockbusters cases, telling the Financial Times last year of the unique expertise of his Houston-based court. 

If the US Trustee’s request is approved, other parties in the cases concerned would be able to request clawbacks of the fees they had paid to Jackson Walker.

In the cases, Jackson Walker represented companies that had filed for bankruptcy, allowing the Texas-based firm to be paid by the bankruptcy “estate” of their clients.

The US Trustee said in the filling that Jackson Walker and Freeman had breached their fiduciary duties to the companies they represented and also violated Texas state professional conduct standards for lawyers.

“Disclosure and transparency are critical to the integrity of every bankruptcy proceeding, where creditors are required to sacrifice significant rights to rehabilitate debtors and where confidence in the fairness of the proceeding is of paramount public importance,” the US Trustee wrote.

The US Trustee noted that after Freeman left Jackson Walker the firm had retained her as a contract attorney in some bankruptcies cases overseen by Jones.

A lawyer for Freeman declined to comment on the request by the US Trustee. Jackson Walker and Jones did not immediately respond to requests for comment.

The firm previously told the FT that it had begun investigating a potential intimate relationship between Freeman and Jones in early 2021 and that immediately after launching the investigation, she was kept out of cases in front of him as a matter of policy. The firm said it was confident it had acted responsibly.