A spate of mixed rulings involving a former bankruptcy judge and his once-secret relationship with a local attorney indicate his former colleagues on the bench are vexed by his ethical lapses, despite issuing decisions largely in his favor.
The recent findings highlight the complex legal questions arising from former judge David R. Jones’ longstanding romance with an attorney at Jackson Walker LLP, a law firm that regularly appeared before him in his Texas court.
With more legal hurdles for him to overcome—including lenders dissatisfied with a four-year-old bankruptcy deal and an appeals court’s revival of a recusal decision—the rulings provide a glimpse into potential avenues for other litigants to explore as they work to hold Jones accountable for various wrongs they say resulted from his failure to disclose a conflict of interest.
One of the decisions, issued Aug. 16 by Chief Judge Alia Moses of the US District Court for the Western District of Texas, dismissed conspiracy claims against Jones. But it was also highly critical of the once-prominent judge’s behavior.
Her opinion signals there’s a big problem that is still unresolved, said University of Texas bankruptcy professor Jay Westbrook.
“This is a boil that needs to be lanced,” Westbrook said.
The various court actions involving the romance come amid the shadow of a criminal investigation, in which investigators have asked the federal judicial officials in Houston to preserve records regarding Jones.
Personal Goals
Jones also was sanctioned Aug. 16 by US Bankruptcy Judge Eduardo Rodriguez, who now leads the Southern District of Texas bankruptcy court that Jones once presided over.
Even though Rodriguez’s and Moses’ rulings didn’t result in severe consequences, their admonishments are notable due to their positions as sitting judges who were once Jones’ peers.
Jones rose to prominence by taking “aggressive interpretations” of bankruptcy law and by implementing case management methods that primarily favored corporate debtors, said former Nevada bankruptcy judge Bruce Markell, now a professor of bankruptcy law at Northwestern Pritzker School of Law. That made Houston a desirable venue for large companies seeking debt relief.
“What he seems not to have realized, however, is that he cannot continue his aggressive nature and still have objectors brushed aside by those he favored,” Markell said. “Unlike the venue issue, only he stands to benefit from aggressiveness.”
Rodriguez ordered Jones to complete seven and a half hours of “ethics based continuing legal education” for acting in bad faith when he engaged in a private conversation with Jackson Walker attorneys about the broader romance scandal.
Though the sanction was relatively light, Rodriguez took Jones to task for his refusal to cooperate with Rodriguez’s prior orders. He said his former colleague “knew what his obligations were and devised a contrived reading of the Judiciary Regulations to try to justify his own personal goals.”
Jones, he said, “frankly, knew better.”
The contrast between the tone and practical implication of the rulings also speaks to the difficulty lawyers face as they pursue various legal actions against him.
Part of the “David Jones conundrum” is that lawyers have been struggling with finding a clearly defined claim for relief that fits the issues at hand, Markell said.
“Everyone’s trying to find a box in which they can put Jones’ activities and say ‘we’re in this box, here’s this remedy,’” Markell said.
‘Straight-shooter’
The Moses dismissal ended, for now, a suit accusing Jones, his girlfriend Elizabeth Freeman, and law firms Kirkland & Ellis and Jackson Walker of conspiring to keep the relationship under wraps for their own benefit. Moses held that the plaintiff, aggrieved former McDermott International Inc. shareholder Michael Van Deelen, lacked standing.
Nonetheless, she was highly critical of Jones’ behavior, saying he was “obviously disqualified” from dozens of bankruptcy cases and that he flouted both statutory and ethical requirements “whether through hubris, greed, or profound dereliction of duty.”
Van Deelen will have an opportunity to amend his claims.
It’s not legally surprising that the Van Deelen suit was dismissed given the difficulty of connecting the legal theories to the facts, said Melissa Jacoby, a law professor and author of “Unjust Debts: How Our Bankruptcy System Makes America More Unequal.” But it could serve as fodder for other litigants.
“Stakeholders in a variety of cases that the former judge mediated and presided over are likely to pay careful attention to the language of this decision and cite it frequently,” Jacoby said.
Moses also somewhat vindicated Van Deelen’s tenaciousness, even as she tossed the suit. Van Deelen discovered the relationship after an anonymous letter led him to records showing the pair owned property together.
“It was the Plaintiff’s audacity that brought this scandal to light,” Moses said. “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.”
Moses’ decision in the Van Deelan case reflected “by-the-book judicial decision-making,” but declined to vindicate Jones or anyone who may have known about Jones’ conduct, said Clifford J. White III, a former director of the US Trustee’s office.
“Her condemnation of former Judge Jones’s conduct may be the beginning of restoring some public confidence in the bankruptcy system,” White said.
Yet the dismissal still raises questions of whether the system itself is equipped to handle the unique legal problems raised by the ethics scandal.
“This decision depresses me, though I understand why Chief Judge Moses had to write it this way,” said Nancy Rapoport, a University of Nevada, Las Vegas law professor who has written about the defendants’ duties to disclose. “Moses is a fair judge and a straight-shooter, but the system clearly doesn’t work when those who blatantly violate the law get to skate at the discovery stage.”
Van Deelen scored another win against Jones in a separate case just a few days later. The US Court of Appeals for the Fifth Circuit on Tuesday threw a wrench into the mix by reviving Van Deelen’s recusal motion against Jones in the McDermott bankruptcy, despite the case being closed in October 2022.
Markell noted that finality is an important principal in bankruptcy, saying it’s not clear why the recusal issue isn’t moot as a result of Jones’ resignation. Rapoport questioned whether the ruling could be used by other litigants as a way to reopen issues in closed bankruptcy cases.
Proving Misconduct
Despite the dismissal of the conspiracy case, other actions brought against Jones could still have legs, Rapoport said.
Apollo Global Management and Fidelity Management & Research Co. said in an Aug. 15 court filing that Jones, as a judicial mediator, steered an oil and gas company’s 2020 bankruptcy deal that cost them, as lenders, hundreds of millions of dollars. Jackson Walker represented the company, Sanchez Energy. Freeman was still employed by the firm at the time.
The two financial titans are the most high-profile players to step into the ring since Jones admitted to the relationship last year. Though they haven’t taken any formal action yet, they said they may have claims for damages against Jones, Freeman, and Jackson Walker for concealing the romance.
Their filing brings renewed focus on Jones’ work mediating cases for fellow bankruptcy judges while on the bench, and indicates that his legal troubles may extend beyond his work adjudicating Chapter 11 cases. Jones often was tapped by fellow judges to mediate disputes, a fairly common practice in bankruptcy courts.
The allegations are a reminder, Jacoby said, that some judges exercise considerable power while serving as mediators and are subject to the same ethics rules as when they preside over cases.
“Given the frequency of judges serving as mediators in that district, that practice magnifies the effect of the ethical breach,” Jacoby said.
Jones, Kirkland, Jackson Walker, Freeman and others also continue to face a suit making allegations, similar to Van Deelen’s, of hiding the romance. That case was brought by Morton S. Bouchard III, the former CEO of a petroleum barge company. Jones is represented by the litigator David Boies in that suit.
“I think that the Bouchard case and the Van Deelen case had very different postures,” Rapoport said. “And the Apollo motion, like Bouchard, rests on allegations that, if proven, are clearly identifiable and traceable to the bad conduct.”
Moses’ opinion won’t necessarily provide an unobstructed path to victory for Jones’ foes.
“Certainly other parties that have similar complaints will have to work around the legal reasoning of Judge Moses’s opinion,” said Andrew Wirmani, a white collar defense attorney with Reese Marketos LLP. “The Judge seems to be saying this is a terrible, unethical situation, but federal court might not be the right forum in which to find relief.”
But White, the former US Trustee, said the Moses opinion could bolster the position of the Sanchez lenders.
“Judge Moses’ decision may be instructive to Apollo and Fidelity if they pursue damages,” White said.
