Two US Law Firms and Former Judge Win Dismissal in Bankruptcy Romance Suit

Kirkland & Ellis LLP, Jackson Walker LLP, and a former bankruptcy judge have successfully had a lawsuit dismissed that accused them of conspiring to conceal the ex-judge’s relationship with an attorney.

Chief District Judge Alia Moses of the US District Court for the Western District of Texas dismissed the case on Friday, stating that courts must “resist the temptation to bend existing frameworks to bring a vexing case to a palatable resolution.”

However, she noted that her decision was made with “consternation” and expressed dissatisfaction with the outcome.

The ruling represents a significant victory for the firms, former judge David R. Jones, and his girlfriend and former Jackson Walker partner, Elizabeth Freeman. The pair have been at the center of a scandal that has shaken the bankruptcy community since October.

Judge Moses emphasized that the dismissal does not exonerate Jones’s misconduct, pointing out that he violated judicial ethics by not recusing himself from cases where his impartiality could be reasonably questioned.

“The relationship presented a glaring appearance of impropriety,” she wrote. “Whether through hubris, greed, or profound dereliction of duty, Jones flouted these statutory and ethical requirements by presiding over dozens of cases from which he was clearly disqualified,”

Moses added. “The legal deficiencies in the plaintiff’s claims do not erase these failures.”
The lawsuit was initiated by Michael Van Deelen, a former shareholder in a contentious Chapter 11 case overseen by Jones when he served on the US Bankruptcy Court for the Southern District of Texas.

Van Deelen’s lawsuit led to the revelation of the secret romantic relationship between Jones and Freeman, who was once Jones’s clerk.

The case was dismissed against all parties, including Freeman. Judge Moses ruled that Van Deelen lacked standing to bring the claims but granted him 30 days to refile.

Failure to Disclose

Van Deelen’s lawsuit stemmed from the 2020 bankruptcy of McDermott International Inc., during which his stock in the company was wiped out. McDermott was represented by Kirkland and Jackson Walker in its bankruptcy, with Jones presiding over the case.

In a June hearing held in Del Rio, Texas, Moses stated that Jones should have disqualified himself from any case involving Freeman. Jones argued that he had judicial immunity from the lawsuit.

Van Deelen first brought the civil suit against Jones in October, accusing him of concealing his relationship with Freeman and co-owning a home with her while making rulings and approving fees in cases involving her firm. Jones eventually admitted to the relationship and resigned.

Jones, who was based in Houston, once handled more large Chapter 11 cases than any other bankruptcy judge in the United States.

In January, Van Deelen expanded his suit to include Freeman, Kirkland, and Jackson Walker, alleging they failed to disclose the relationship as part of a scheme to secure favorable bankruptcy rulings.

He claimed that this lack of disclosure constituted bankruptcy fraud, honest services fraud, mail and wire fraud, and obstruction of justice under the Racketeer Influenced and Corrupt Organisations Act (RICO).

Van Deelen accused Jackson Walker and Kirkland, the world’s largest law firm by revenue, of submitting “misleading and dishonest” court records without disclosing the relationship.

Kirkland frequently partnered with Texas-based Jackson Walker to represent large bankrupt companies in Jones’s courtroom.

Freeman argued that her “close personal relationship” with Jones had no bearing on the damages Van Deelen claimed to have suffered.

Kirkland maintained that it had no involvement in the conduct of Jones, Freeman, or Jackson Walker, stating it was “at worst, a bystander” in the controversy. Jackson Walker asserted that it was unaware of the full extent of the romance until after McDermott’s bankruptcy plan was confirmed.

Judge Moses rejected Kirkland’s request to sanction Van Deelen and his counsel at Bandas Law Firm, concluding that they had brought the case in good faith. Kirkland had argued that the allegations lacked a factual basis and that the firm should be penalised.

The question of who at Jackson Walker knew about the relationship and when is still being litigated in another court. Freeman left Jackson Walker in December 2022.

Moses’s ruling comes as the Justice Department’s bankruptcy monitor, the US Trustee’s office, continues its efforts to recover at least Dh13 million in fees earned by Jackson Walker in cases where the firm failed to disclose the relationship.

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