Former top US bankruptcy judge in the hot seat over relationship scandal

A former top bankruptcy judge is set to be questioned under oath next month over a secret romantic relationship with a lawyer whose fees he approved, as multiple investigations reveal the breadth of a judicial scandal that has gripped the world of distressed debt and corporate restructurings.

Judge Eduardo Rodriguez, now chief judge of the Southern District of Texas bankruptcy court, has ordered David Jones, his predecessor, to be deposed on September 19.

Complicating matters, Jones has also publicly confirmed he is under federal criminal investigation, which could constrict what he discloses in the sworn interview.

The Office of the US Trustee, a division of the Department of Justice that oversees the federal bankruptcy system, is seeking to claw back $18mn of legal fees paid in more than 30 cases to Texas law firm Jackson Walker, which the trustee says failed to disclose the relationship between Jones and its one-time partner, Elizabeth Freeman. Both the US trustee and Jackson Walker are expected to question the former judge.

Recent court filings and hearings have revealed an intense, multi-dimensional fight over accountability for the scandal in the court that dominated US restructurings.

Jones presided over many of the biggest corporate implosions of the past decade. He was a household name among top law firms and Wall Street houses until he abruptly resigned last fall after admitting that Freeman was his live-in romantic partner.

While judges can be disciplined for their conduct, they rarely face this kind of public investigation and litigation. Jones has repeatedly insisted his judicial status provided an immunity shield, and Rodriguez has painstakingly parsed what questions he can face without veering into his deliberations as a judge, which are off-limits.

The US Trustee litigation is casting a wide net in its efforts to nail Jackson Walker. According to court filings and courtroom discussion, it involves 33 deposition requests, including for several lawyers who are not affiliated with Jackson Walker. Among that group are lawyers for Kirkland & Ellis, Bloomberg Law has reported, the national firm that frequently appeared as co-counsel with Jackson Walker. It earned more than $150mn in fees in cases where Jones and Freeman were involved.

The US Trustee’s investigation has included the ex-spouses of both Jones and Freeman, who was first a colleague of Jones in private practice and then his judicial clerk before she joined Jackson Walker. Freeman has already been deposed.

Three current judges in the Houston bankruptcy court, including Rodriguez, may be witnesses because of their existing respective relationships with Jones, according to a Wall Street Journal report. Albert Alonzo, Jones’s close friend and his former case manager, has also been ordered to appear for a deposition.

Jackson Walker, Jones, Kirkland and the US Trustee declined to comment. Freeman did not respond to a request for comment.

The probe has delved deep into the parties’ personal lives, touching on Jones’s dogs, his former housekeeper and even an Emory University law student whose club had once given him a lifetime achievement award. The US Trustee obtained a photo of Freeman waterskiing with a man in an elf costume, which it first believed to be Jones but was instead shown to be Freeman’s brother.

“[M]y relationship has been the subject of misinformation everywhere,” Jones said during a hearing in August.

“It has caused — and I’m not asking for sympathy — it has caused an immense amount of embarrassment. It’s affected my relationship [with Freeman]. It’s done a lot of very negative things. And most of it is simply wrong.”

Jackson Walker and Jones have each complained that such efforts were unproductive and cost tens of thousands of dollars in legal expenses.

Lawyers for Jones also rejected any notions he is seeking to protect Jackson Walker. “We don’t care if Jackson Walker has to disgorge all these fees,” Ben Finestone, a lawyer for Jones, told Rodriguez at a hearing this month.

Jackson Walker contends that Freeman deceived firm management about her relationship with Jones. Rodriguez has also granted Jackson Walker the right to explore what the US Trustee knew about the relationship between Jones and Freeman — the law firm’s attorneys told Rodriguez that members of the US Trustee’s Houston branch may have been acquainted with Jones, attending courses he taught and even socialising with him.

The US Trustee says it remains to be determined when Jackson Walker learned of the relationship between Jones and Freeman, and that the law allows it to “impute” Freeman’s misconduct to her former employer. It noted that Jackson Walker has never amended filings in more than 30 cases before Jones to note the relationship.

Jones has said that since he and Freeman were not married, he determined the recusal rules did not apply to him. But he has received little sympathy from the judges he has encountered of late.

Last month Alia Moses, the chief judge for the Western District of Texas, harshly criticised Jones in a decision that dismissed a civil racketeering case against him, Jackson Walker, Kirkland and Freeman. While Moses ruled that the plaintiff, a creditor in one of the bankruptcies that Jones oversaw, did not state an adequate claim, she said Jones should have recused himself.

“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 obviously disqualified,” Moses wrote.

Jones’s lengths to avoid a formal deposition also landed him in hot water with Rodriguez. Jones sat for what he described as an informal “interview” with Jackson Walker, which he said was merely to give enough detail about his relationship with Freeman to avoid a more formal deposition.

Rodriguez was not placated by Jones’s explanation of the interview, which had not been authorised by the court — and ordered Jones to take additional ethics training, saying it had been done in “bad faith”.

Houston, once a magnet for complex Chapter 11 cases, has seen just a handful this year. Kirkland has taken much of its blockbuster practice to New Jersey.

Some creditors in cases involving both Jones and Freeman are also looking to reopen the proceedings, citing the conflict as a reason they were disadvantaged in the case.

“The confidence in that whole [Houston] court is at an all-time low,” said Nancy Rapoport, a law professor at the University of Nevada, Las Vegas. 

“At this point, what we need is discovery — we need to find out how wide this scandal has ranged. We need to know who might have been complicit.”