A trial is set to commence in December to determine if Texas law firm Jackson Walker LLP can retain fees accrued during a former oil and gas company’s bankruptcy, despite not disclosing an attorney’s relationship with the mediating judge. The trial, slated for December 16, pits Jackson Walker against the US Trustee, the Justice Department’s bankruptcy monitor, which is attempting to recover millions in fees collected by the firm while one of its former partners, Elizabeth Freeman, was clandestinely dating ex-bankruptcy judge David R. Jones.
The trial’s presiding judge, US Bankruptcy Judge Marvin Isgur, indicated that the proceedings in the Sanchez Energy Corp. case will parallel other ongoing cases involving Jackson Walker, Freeman, and Jones. Judge Isgur noted, “That’s going to focus on what did Jackson Walker know and do, and when did they know and do it”. This legal battle forms part of a larger litigation web surrounding Jackson Walker and Jones, who resigned as a Houston bankruptcy judge last year after admitting to a romantic relationship with Freeman.
The US Trustee argues that Jackson Walker must return fees from cases where the firm did not disclose the relationship. The firm, however, insists it acted appropriately once the relationship became known. Sanchez Energy Corp. filed for bankruptcy in August 2019 and its reorganization plan was approved in May 2020. Isgur had approved approximately $1.9 million in fees for Jackson Walker, which served as local counsel to Akin Gump Strauss Hauer & Feld LLP in the bankruptcy case. Freeman was a partner at Jackson Walker while Jones served as the judicial mediator.
Isgur, who has referred to Jones as his “adopted son”, has previously resisted calls to recuse himself from related cases. In a related development, significant stakeholders like Apollo Global Management and Fidelity Management & Research Co., prominent lenders during Sanchez’s Chapter 11 proceedings, have also expressed concerns about a key 2020 bankruptcy settlement mediated by Jones, which they claim incurred them significant financial losses.
The US Trustee has requested that all 33 cases demanding fee returns from Jackson Walker be relocated out of the Southern District of Texas bankruptcy court. While a Houston bankruptcy judge denied this request last year, a district court judge has yet to make a final ruling. Judge Isgur has also expressed doubts about whether the US Trustee possesses the standing to seek monetary sanctions or recover fees destined for others, but has yet to make a definitive decision.
The trial in the Sanchez Energy case is scheduled for the week following several similar trials administered by Judge Christopher M. Lopez. Jackson Walker’s defense is being managed by Rusty Hardin & Associates LLP and Norton Rose Fulbright US LLP.
For further information, the case is Sanchez Energy Co., Bankr. S.D. Tex., No. 19-34508.