A trial will begin in December over whether a Texas law firm can keep fees it earned in a former oil and gas company’s bankruptcy despite the firm’s failure to disclose an attorney’s relationship with a mediating judge.
The trial, to begin Dec. 16, will pit Jackson Walker LLP against the Justice Department’s bankruptcy monitor, the US Trustee, which is trying to claw back millions of dollars in fees earned by the firm while one of its former partners, Elizabeth Freeman, was secretly dating ex-bankruptcy judge David R. Jones.
US Bankruptcy Judge Marvin Isgur at a Monday hearing said the trial, which will occur in the case of Sanchez Energy Corp., will involve similar facts as a slew of other cases involving Jackson Walker, Freeman, and Jones that the US Trustee is pursuing.
“That’s going to focus on what did Jackson Walker know and do, and when did they know and do it,” Isgur said.
The trial is part of an expansive web of litigation related to Jackson Walker and Jones, who resigned as a Houston bankruptcy judge last year after admitting to a romance with Freeman. She left Jackson Walker at the end of 2022.
The US Trustee says Jackson Walker must disgorge fees from cases in which the firm failed to disclose the relationship. The firm has maintained that it acted appropriately when it learned of the relationship.
Sanchez filed for bankruptcy in August 2019 after facing pressure to rework its debt related to a 2017 acquisition that drove up leverage and failed to improve production. The company’s bankruptcy plan was approved in May 2020.
Isgur approved about $1.9 million in fees were for Jackson Walker, which served as local counsel to Akin Gump Strauss Hauer & Feld LLP in the bankruptcy. Jones was tapped as judicial mediator in the case while Freeman was a bankruptcy partner at the firm.
‘Adopted Son’
Isgur, who served with Jones in private practice and later on the bench, has previously called the ex-judge his “adopted son” and resisted calls to recuse himself from cases involving the scandal.
The US Trustee has asked for all 33 of the cases in which it’s seeking fee disgorgement from Jackson Walker, including Sanchez’s case, to be moved out of the Southern District of Texas bankruptcy court. Its request was denied by a Houston bankruptcy judge last year, and has yet to be ruled on by a district court judge.
Money clawed back from Jackson Walker should go to creditors as part of a any bankruptcy plan, the US Trustee has said. Isgur on Monday reiterated his position that he doesn’t think the US Trustee has standing to seek monetary sanctions or claw back fees meant for others, but asked for legal legal briefing on the issue.
“I don’t think you have standing to seek relief that belongs to somebody else,” Isgur said at Monday’s hearing.
Isgur also declined the US Trustee’s request on briefing over whether Isgur himself could sanction Jackson Walker.
Apollo Global Management and Fidelity Management & Research Co., which were part of a group of lenders to Sanchez before and during its Chapter 11, have also weighed in. They’ve questioned a key 2020 bankruptcy settlement brokered by Jones, which the lenders say cost them hundreds of millions of dollars.
The trial in Sanchez is scheduled to occur the week after several similar trials overseen by bankruptcy Judge Christopher M. Lopez.
Jackson Walker is represented by Rusty Hardin & Associates LLP and Norton Rose Fulbright US LLP.
The case is Sanchez Energy Co., Bankr. S.D. Tex., No. 19-34508, hearing 9/16/24.
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