MRT: Bombshell WSJ Story About Bankruptcy Court Chief Judge David Jones; New Tropical Threat for RGV This Weekend; ERCOT Passes ECRS Reform; A&M Seeks 1st NCAAB Title
Here's What You Need to Know in Texas Today.
BY: @MattMackowiak
FRIDAY || 6/21/24
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WSJ: “This judge made Houston the top Bankruptcy court -- then he helped his girlfriend cash in” Wall Street Journal's Andrew Gladstone, Andrew Scurria and Akiko Matsuda -- “An unsigned, one-page bombshell of a letter made the rounds at Kirkland & Ellis, the world’s largest law firm by revenue. It threatened havoc for the firm and others that did business before the most powerful bankruptcy judge in the U.S.
The letter alleged that U.S. Bankruptcy Judge David R. Jones, chief of the bankruptcy court in Houston, was in a romantic relationship with Elizabeth Freeman, a Texas attorney who as Kirkland’s co-counsel helped the firm shepherd multibillion-dollar cases in Jones’s courtroom.
The intimate relationship was the reason Freeman and her law firm, Jackson Walker, were often brought in to represent large corporations, knowing they would likely have “the judge in their favor,” according to the letter, which surfaced in March 2021.
Such a conflict of interest would sink Jones and upend his work elevating Houston’s bankruptcy court to the nation’s top tier. It also would taint judgments affecting hundreds of thousands of employees, investors, vendors and others.
Certain lawyers at Kirkland had already heard talk that Jones and Freeman were lovers, and some spoke about it with other lawyers, according to people familiar with the conversations. If the anonymous letter was true—and became public—Kirkland risked losing its favorite bankruptcy judge. Jones was known for ruling in favor of Kirkland and other firms representing corporate debtors, according to dozens of bankruptcy lawyers who worked on cases Jones oversaw.
Jones became the nation’s busiest bankruptcy judge after Kirkland, the top U.S. firm for advising financially-troubled companies, steered most of its largest chapter 11 cases to his court.
The anonymous letter first went to Michael Van Deelen, a former high-school math teacher with a history of filing lawsuits against people he believed had wronged him. He was angry over a bankruptcy plan from Kirkland—approved by Jones—that wiped out Van Deelen’s $146,541 investment in an oil-and-gas drilling company that had gone bust.
Van Deelen sent a copy of the letter to Jackson Walker, where Freeman was a partner, and the law firm questioned her. Freeman acknowledged a romantic relationship with Jones that she said had ended about a year earlier. Jackson Walker forwarded the letter to Jones and shared its allegations with Kirkland, according to court papers filed by both firms.
Van Deelen tried to submit the letter to court in his effort to disqualify Jones from the bankruptcy case involving his lost investment. In a court hearing, a Kirkland partner argued that the letter was unsubstantiated and moved to exclude it as evidence. U.S. Bankruptcy Judge Marvin Isgur, Jones’s former law partner and a court colleague, sided with Kirkland. He denied Van Deelen’s request. Jones later signed an order to permanently seal the letter from public view.
Jackson Walker didn’t publicly disclose what it learned about the Jones-Freeman relationship at the time. Kirkland also kept quiet about the allegation. Jones remained Houston’s chief bankruptcy judge, and Freeman continued to work on Kirkland cases involving Jones.
It might have stayed that way. But Van Deelen, a pugnacious 74-year-old graduate of Stanford University and Massachusetts Institute of Technology, refused to let it rest.
This account is based on interviews with lawyers and bankers who worked in the Houston bankruptcy court, people who knew Jones and Freeman, people familiar with Kirkland and Jackson Walker, court records, and data from Debtwire, a financial and legal information provider. Jones declined to comment. Freeman, Kirkland and Jackson Walker denied any wrongdoing in court filings.
Growth Spurt
Before Jones took the bench in 2011, most large corporate bankruptcies were filed either in New York or Delaware.
Jones set out to change that. After he became chief judge in 2015, Jones enacted rules that assigned the biggest chapter 11 cases to either himself or Isgur, who had been his mentor in private practice.
Jones contacted Kirkland’s top bankruptcy partners at the time, Jamie Sprayregen and Paul Basta. In December 2015, Sprayregen and Basta stopped by Jones’s chambers in Houston to meet with the judge, people familiar with the meeting said. A Kirkland representative described it as a brief meet-and-greet.
The following year, low oil prices pushed many Texas oil drillers to insolvency, and Kirkland began filing large energy-related bankruptcies in Houston. Later, when Covid-19 lockdowns triggered a rash of corporate defaults, Kirkland filed cases there for department-store chains JCPenney and Neiman Marcus.
Kirkland brought in Jackson Walker as co-counsel for most of its Houston cases, including clients from out of state.
Jones and Isgur forged social ties with Kirkland and its senior bankruptcy lawyers. Sprayregen shared food or drink with both judges, according to people familiar with the matter.
Other large law firms, including Latham & Watkins and Weil Gotshal, also brought their big cases to Houston. Jones and Isgur became the first- and second-most active bankruptcy judges in the U.S., respectively, for cases involving more than $1 billion in debt. Kirkland accounted for more than half of such cases that passed through their court after Jones became chief judge.
Kirkland and Jackson Walker handled the 2020 bankruptcy filing by fracking-pioneer Chesapeake Energy. A group of unsecured creditors argued in court that Chesapeake was worth enough to allow them to own a piece of it after the restructuring. The co-author of a valuation guidebook for the American Bankruptcy Institute testified for those creditors, saying the company was likely worth $7 billion or so.
Jones decided Chesapeake was worth about $5.1 billion, a figure closer to the company’s preferred estimate. A lawyer representing the unsecured creditors asked Jones during a January 2021 court hearing to share his calculation.
“Not a chance,” Jones said. The ruling meant those creditors would be left with almost nothing. Chesapeake listed on the Nasdaq after emerging from bankruptcy the following month. The market valued the company at $7.7 billion.
Jones excoriated people in court for potential conflicts of interest. In the bankruptcy of coal producer Westmoreland, he criticized the company’s adviser, McKinsey, for failing to disclose its connections to clients with a financial interest in the case.
“The only thing I want to tell you all is the bankruptcy process itself is extremely, extremely fragile,” Jones said in court. “If I can’t trust the professionals that appear before me, then the process won’t work.”
Judge’s signature
Jones and Freeman were partners at Texas law firm Porter Hedges, where their romantic relationship blossomed. After Jones became a judge in 2011, Freeman joined him as his court clerk, taking a significant pay cut.
Freeman left the clerk job in 2018 to work as a bankruptcy partner at Jackson Walker.
As Jones’s caseload swelled with Kirkland bankruptcy cases, the judge’s signature routinely appeared on court orders granting Jackson Walker fees, including for Freeman’s work.
Over the years, Kirkland lawyers talked with each other and people outside the firm about romantic ties between Jones and Freeman, people familiar with the conversations said.
Jones first crossed paths with Van Deelen during the 2020 bankruptcy hearings for McDermott International, an offshore oil-and-gas engineering company. McDermott was represented by Kirkland, and Jackson Walker was co-counsel.
Van Deelen, an investor in the company, accused McDermott’s management of fraud. His frequent outbursts in court irritated Jones, who later dismissed Van Deelen’s claims.
After a hearing in March 2020, Jones said he overheard Van Deelen call him a “son of a bitch,” which Van Deelen denied, according to court papers. Kirkland lawyers said they also heard the remark. After that, Jones banned Van Deelen from the courtroom unless he was accompanied by a security officer. Jones also referred him to federal prosecutors for possible investigation.
Van Deelen filed a motion in July 2020 seeking to remove Jones from the case, alleging the judge made a false accusation and was biased against him.
In March 2021, an envelope with no return address arrived in Van Deelen’s mailbox. The unsigned letter inside had a title: Corruption Involving Judge David R. Jones.
Freeman told bosses at Jackson Walker in interviews that her relationship with Jones had ended by around March 2020. In August 2021, the firm prepared a memo saying so.
Jones never recused himself from overseeing cases that Freeman worked on, as required by federal law, court records show.
In February 2022, Jackson Walker was told by the friend of a firm partner that the Freeman-Jones relationship wasn’t over. Freeman acknowledged to the firm that she and Jones had rekindled their romance but denied they lived together. Freeman hired her own attorney, who suggested Jackson Walker disclose “a close personal relationship” between Freeman and Jones, according to court papers.
Jackson Walker declined to make any disclosure. The firm said in court papers that it told Freeman around June 2022 that her exit from the firm was the only path forward.
Around October 2022, Jones asked Matthew Cavenaugh, a colleague of Freeman’s at Jackson Walker, to come to his court chambers. Jones told Cavenaugh that his relationship with Freeman was casual “and no different from encounters with many other lawyers at many other firms,” according to court papers filed by Jackson Walker.
Jones gave Cavenaugh a proposed disclosure for Jackson Walker to use in bankruptcy filings. It said Jones and Freeman had “a close personal relationship,” according to court papers. Jones told Cavenaugh that Jackson Walker “needs to make this happen,” the court papers said.
Freeman continued to work on mediations conducted by Jones on behalf of Kirkland clients. In December 2022, she left Jackson Walker to start her own law office.
A Kirkland representative later said Jackson Walker never revealed why Freeman left Jackson Walker or told Kirkland that Freeman and Jones had a romantic relationship.
Confession
In January 2023, U.S. District Judge Andrew Hanen refused Van Deelen’s appeal to remove Jones from the McDermott case. Hanen ruled that Van Deelen’s “general accusation of corruption,” based on the letter, wasn’t supported by facts.
That same month, Jones mediated talks among stakeholders in the bankruptcy case of GWG, an alternative asset-management firm. To one party, Jones suggested three candidates for the job of liquidating trustee. Freeman was on the list.
When other lawyers in the case also suggested Freeman, Jones said she would be a good choice, according to people familiar with the matter. GWG and its stakeholders went along. In April 2023, Jones signed an agreement for the company to hire Freeman at $700 an hour.
Even though Freeman had failed to tell Jackson Walker the truth about her relationship with Jones, she remained in good standing with the firm.
In March 2023, Jackson Walker told a prospective client, pharmaceutical developer Sorrento Therapeutics, that the firm “strongly recommends the engagement of the Law Office of Liz Freeman” to help identify and address potential conflicts of interest in the company’s bankruptcy case. She later appeared in billing records for work in the case, which was heard in Jones’s court.
Months later, Van Deelen found the evidence he wanted on a website that searches public records for personal information. “All I had for proof was that anonymous letter,” he said. “Then I asked TruthFinder.” He learned from property records on the Harris County website that Jones and Freeman had bought a home together in Houston in 2017 and still owned it.
Armed with that information, Van Deelen filed a lawsuit against Jones in October. This time, he included the property records with the anonymous letter. In an interview with The Wall Street Journal shortly after, Jones confirmed the relationship.
The Fifth Circuit Court of Appeals was alerted and initiated an investigation against Jones. After a little more than a week, the court’s chief judge said she found probable cause that Jones had committed misconduct regarding his intimate relationship with Freeman. Jones resigned days later.
A Kirkland representative said the firm and its lawyers didn’t know Jones had a relationship with Freeman until it became public last October.
Following Jones’s departure, a civil division of the Justice Department filed a series of motions challenging roughly $13 million in fees that Jackson Walker had billed and which were approved by Jones. That included more than $1 million billed by Freeman in 17 cases, court filings show. During the time Jones was approving Freeman’s fees, she paid property taxes on the house they owned together." WSJ
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>> MACKOWIAK ANALYSIS: I've never like the methodology of the UT polls (online only). Even with weighting, they skew toward a VERY online audience and I think the real margin of error is higher. Any poll that does not have live calls to cells is unserious, in my view. I've had the belief that the U.S. Senate race in Texas will be both close and competitive in 2024. Allred will overperform with black voters and in DFW, and has raised more money than Beto at this point in 2018. Cruz may be growing his lead currently, but Trump's Texas margin will determine the race. How tight will it get when Allred and his allies unload their cash advantage with negative TV? And how long can they afford wait?
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> VALLEY CENTRAL: "Hidalgo County assesses damage caused by Alberto" Valley Central
> MY RGV: "Third suspect charged in $80M Valley-wide healthcare fraud scheme" My RGV
> MY RGV: "Feds find nearly 3,000 pounds of meth in cabbage shipment after Pharr traffic stop" My RGV
> AAS: "Round Rock shooting survivors gather to begin healing process" AAS
> COMMUNITY IMPACT: "A potential tax increase, $41M deficit and no staff pay raises: What you need to know about Austin ISD's budget" Community Impact
> COMMUNITY IMPACT: "Grapevine sells $36.7M in bonds for infrastructure, facility projects" Community Impact
> ELP TIMES: "South Fork, Salt fires: 1 dead, about 1,400 structures destroyed" ELP Times
> TX TRIB: "Fewer Texas students seek financial aid for college after this year’s bungled FAFSA rollout" Tx TRIB
> DMN: "Texas Senate will again pass bill on Ten Commandments in classrooms, Dan Patrick vows" DMN
> ODESSA A: "Border Patrol reports arrests are down 25% since Biden announced new asylum restrictions" Odessa A
EXTRA POINTS
Last night's Texas sports scores:
> 12pm: WNBA: Dallas at Chicago
> 2:10pm: MLB: Astros at White Sox
This weekend's Texas sports schedule:
Fri
> 7:05pm: MLB: Kansas City at Texas
> 7:10pm: MLB: Baltimore at Astros
Sat
> 2pm: WNBA: Washington at Dallas
> 3:05pm: MLB: Kansas City at Texas
> 3:10pm: MLB: Baltimore at Astros
> 6:30pm: NCAAB: #3 Texas A&M vs. # Tennessee (ESPN)
> 6:30pm: MLS: Houston at DC
> 6:30pm: NWSL: Houston at San Diego
> 7:30pm: MLS: Austin at Minnesota
> 9:30pm: MLS: Dallas at Seattle
Sun
> 1:10pm: MLB: Baltimore at Astros
> 1:35pm: MLB: Kansas City at Texas
TEXAS A&M BASEBALL: “Texas A&M rolls into first MCWS finals, gets No. 1 Tennessee" AP
UH ATHLETICS: “UH athletics: Chris Pezman out as athletic director" Houston Chronicle ($)
TEXAS RANGERS: “Troubling trends: These 4 Rangers veterans are at the heart of Texas' offensive ineptitude" DMN ($)