Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
A federal court on Friday dismissed a racketeering lawsuit against a former US bankruptcy judge and two prominent law firms that arose from the judge’s admission of a secret romantic relationship with one of the firm’s attorneys.
Alia Moses, the chief judge for the US Western District of Texas, ruled Michael Van Deelen, who held a small number of shares in energy company McDermott and brought the suit, had not suffered financial hardship as a result of a relationship between the judge overseeing the group’s restructuring and his girlfriend who was a partner at Jackson Walker, one of the law firms representing McDermott.
McDermott filed for bankruptcy in 2020, and Van Deelen’s shares were wiped out in its reorganisation plan, which was approved by David Jones, who was at the time one of the country’s most prominent bankruptcy judges, overseeing some of the biggest and messiest Chapter 11 cases in the US.
Van Deelen sued Jones, his girlfriend Elizabeth Freeman and the two law firms working on the case: Kirkland & Ellis and Texas firm Jackson Walker, which appeared frequently in cases as local counsel, often working alongside Kirkland.
He alleged a conspiracy to bring blockbuster cases to Jones’s court in Houston, accusing the judge of approving large fees for both law firms. Kirkland & Ellis had earned more than $160mn in fees awarded by Jones in cases where Freeman appeared for Jackson Walker as co-counsel, according to the plaintiffs review of court filings.
Jones resigned from the bench in October 2023 after admitting to his relationship with Freeman. Van Deelen had supplied housing records, sent to him by an anonymous individual, to prove the existence of the relationship between Jones and Freeman.
The four defendants had argued Van Deelen could not show he had suffered losses in the McDermott case. In a June court hearing, lawyers for Jones and Freeman also said recusal decisions were at the judge’s discretion and that because the couple was not married, the standards for stepping aside may not have applied to Jones.
Moses on Friday ruled Van Deelen had “not shown that the defendants’ actions deprived him of anything he had not already lost before Jackson Walker and Kirkland had requested fees”.
Nevertheless she criticised Jones for not recusing himself in the McDermott case. “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. The legal deficiency of the plaintiff’s claims does not erase these failures,” she wrote.
Kirkland & Ellis had sought to impose sanctions on Van Deelen for bringing the case. But, “it was the plaintiff’s audacity that brought this scandal to light”, the judge wrote. “Had the anonymous letter arrived in anyone else’s mailbox, perhaps Jones would still be on the bench, awarding millions of dollars to Kirkland and Jackson Walker.”
A lawyer for Van Deelen declined to comment. The defendants did not immediately return requests for comment on Friday.
Moses noted the office of the US Trustee, the Department of Justice agency that represents the public’s interests in bankruptcy court, was still seeking to claw back $13mn in fees awarded to Jackson Walker from cases in which Jones was the judge and Freeman had appeared as a lawyer.
Jones was on Friday separately ordered to undergo seven-and-a-half hours of “ethics related continuing legal education” in the US Trustee action. The judge found Jones had in “bad faith” sat for a July “interview” with Jackson Walker without the court’s permission.
Read the full article here
