WSJ: Houston Bankruptcy Triangle — Federal Judge, Local Attorney, And Kirkland & Ellis

Wall Street Journal, This Judge Made Houston the Top Bankruptcy Court. Then He Helped His Girlfriend Cash In.:

Law firm Kirkland & Ellis brought multibillion-dollar cases to David R. Jones’s court, aided by a local attorney who lived with the judge; ‘Why did no one look into it?’

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. ...

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. ...

On June 6, Van Deelen got his day in court.

Lawyers for Jones, Freeman, Kirkland, and Jackson Walker appeared at a hearing at the federal courthouse in Del Rio, Texas. They were called to address Van Deelen’s allegations that Kirkland and Jackson Walker knew about the Jones-Freeman relationship and conspired with Jones to get favorable rulings.

Jones, now a former judge, sat in the back of the courtroom.

U.S. District Judge Alia Moses wanted to know why the law firms didn’t seek to verify or debunk the anonymous letter that exposed the conflict of interest.

“Why did no one look into it?” Moses asked. “Everyone is coming into court with not-so-clean hands.”

Moses asked a lawyer representing Kirkland why the firm, out of due diligence, didn’t investigate whether its co-counsel had a conflict in cases before Jones. The lawyer responded that the letter was unsubstantiated at the time.

“Kirkland was, at worst, a bystander here,” he said.

Moses will decide whether Van Deelen’s case can move forward.