District Judge Moses Finds U.S. Trustee’s Jackson Walker Professional Fee Challenge Better Heard at District Court to ‘Reestablish Public Trust in Court System’, Says Bankruptcy Judges Have Acted ‘Ably, Honorably’

Editor’s Note: This story has been updated to clarify the procedural posture of the case and to complete a quote from Judge Moses’ opinion.

Relevant Document:
Order

District Judge Alia Moses issued a memorandum opinion this evening granting the U.S. Trustee’s motion to withdraw to the district court the consolidated miscellaneous proceeding for the UST’s sprawling litigation. The action is against Jackson Walker and seeks to claw back professional fees awarded in 34 cases tainted by the law firm’s nondisclosure of its conflicts stemming from Jackson Walker attorney Elizabeth Freeman’s undisclosed relationship with former bankruptcy judge David R. Jones. Judge Moses finds that “uniformity, economy, and expediency” all weigh in favor of withdrawal.

The UST moved for the U.S. District Court for the Southern District of Texas to take over the litigation on April 2. The UST had initially asked the district court to oversee the fee challenge instead of the bankruptcy court in November 2023, but the court did not rule on the motion. The UST’s April 2 request asked the district court for a hearing or or status conference on its motion.

On Dec. 22, 2023, Bankruptcy Judge Eduardo Rodriguez issued a report and recommendation pertaining to the proper court to preside over the pending litigation. Judge Moses adopts Judge Rodriguez’s report and recommendation in part – adopting the procedural history of the R&R in which Judge Rodriguez urged the district court to turn the matters over “immediately” should it choose to withdraw the reference. However, Judge Moses rejects Judge Rodriguez’s recommendation that the case stay in bankruptcy court and grants the UST’s motion, resulting in withdrawal of the 34 bankruptcy cases to the district court.

In today’s opinion, Judge Moses emphasizes that “[t]he Court knows of no reason to think that after Nov. 15, 2023, the bankruptcy judges that have overseen the proceedings have not done so… ably and honorably,” and “to the highest standard of professionalism.” Further, Judge Moses stresses “[t]his Memorandum Order and Opinion should not be read to cast doubt on their services or any order or decision they have made in the proceedings to date.” “This unique case nevertheless requires stiff measures,” she noted, adding that the “need to reestablish public trust and confidence in the court system alone impels withdrawal in this highly unusual case.”

Judge Moses writes that the court must recognize the significant issues of the case, many of which do not concern a substantive Title 11 right, and “are not questions that, by their nature, could only arise in a bankruptcy case.” The district judge finds that in conjunction with the withdrawal, a status conference is necessary to “discuss what procedural avenues the case should follow moving forward.”’

Accordingly, the court adopts the R&R in part and rejects it in part, grants the UST’s motion for withdrawal of the reference and withdraws the reference for each of the 34 cases. An order scheduling a status conference is forthcoming.