By withdrawing the reference, the mishegoss resulting from the bankruptcy judge in Houston cohabiting with a lawyer in his court has now been consolidated into the courtroom of District Judge Alia Moses, the Chief District Judge for the Western District of Texas.

Technically speaking, the matter remains in the Southern District of Texas because Judge Moses is sitting by designation in the Southern District of Texas to review matters involving former Bankruptcy Judge David Jones and the Houston-based law firm of Jackson Walker, or JW.

Withdrawing the reference to herself in an opinion on April 9, Judge Moses was already steeped in the alleged misdoings involving Jones, JW and former JW partner Elizabeth Freeman, who was Jones’s paramour. In an opinion on August 16, Moses reluctantly dismissed a lawsuit against Jones, Freeman, JW and a nationwide firm for which JW had served as local counsel in large chapter 11 cases in Houston.

In her opinion last year, Judge Moses dealt with a lawsuit filed by a shareholder of a large chapter 11 debtor whose case was pending before Jones. The defendants included Jones, Freeman, JW and the debtor’s general bankruptcy counsel. Judge Moses said she was dismissing the suit last year “with consternation.”

Withdrawal of the reference primarily means that Judge Moses will preside over 34 actions in which the U.S. Trustee is seeking to revoke JW’s retention and force JW to disgorge millions in fees paid while the relationship between Jones and Freeman was a secret. Before we describe the decision on withdrawal of the reference, we’ll hit some of the high points in Judge Moses’s opinion last year where she took “no pleasure” in dismissing.

The Reluctant Dismissal

After the relationship between Jones and Freeman became public, a former shareholder in a large case in Jones’s court sued him, Freeman and the debtor’s general counsel. The complaint stated claims based on RICO and Bivens, a theory based on a Supreme Court opinion recognizing an implied cause of action resulting from an unreasonable search and seizure.

Judge Moses recited the “serious” allegations in the complaint, saying “they remain only allegations.” She accepted them as true in deciding whether the suit could survive a dismissal motion. Granting dismissal in her 38-page opinion last year, she decided that the former shareholder lacked standing to pursue the RICO claims and that the Bivens allegations failed to state a claim. Van Deelen v. Jones, 2024 BL 289434, 2024 U.S. Dist. LEXIS 148920, 2024 WL 3852349 (S.D. Tex. Aug. 16, 2024). To read the opinion, click here.

Although dismissing, Judge Moses said that “nothing . . . redeems Jones’s misconduct” and that the relationship between Jones and Freeman was “a glaring appearance of impropriety.” She added, “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.”

Although obliged to dismiss the suit, Judge Moses said that the former shareholder’s “allegations, if true, show that he suffered injustice in Jones’s courtroom.”

Dismissing, Judge Moses said she “takes no pleasure in this result” and that the allegations, “if true, cast doubt on the integrity of numerous high-profile bankruptcy cases.”

The Bankruptcy Court Report and Recommendation

Withdrawal of the references was long in process. Having commenced 34 proceedings aimed at revoking JW’s retention and forcing the firm to disgorge fees it was paid, the U.S. Trustee filed motions to withdraw the references in November 2023. The following month, the Chief Bankruptcy Judge in the Southern District of Texas, Eduardo V. Rodriguez, issued a report recommending that the references remain with the bankruptcy judges.

If the district court were to withdraw the references, the Chief Bankruptcy Judge recommended that the matter remain in bankruptcy court until ready for trial. After trial in district court, the Chief Bankruptcy Judge recommended that the distribution of disgorged funds, if any, be determined in the “sound discretion” of the bankruptcy judges presiding over those cases.

Emphatic Withdrawal of the References

Ruling on the recommendation, Judge Moses noted that the U.S. Trustee did not contend that reference withdrawal was mandatory. Rather, Judge Moses was deciding whether withdrawal was for “cause” under 28 U.S.C. § 157(d). In the Fifth Circuit, the governing authority is Holland Am. Ins. Co. v. Succession of Roy, 777 F.2d 992 (5th Cir. 1985).

On the merits, Judge Moses decided to withdraw the references in two pages. She said that Holland calls for the court to consider whether the matter is core or noncore, along with consideration of the promotion of uniformity in administration, the reduction of forum-shopping, the fostering of economical use of debtors’ and creditors’ resources, and the expedition of the bankruptcy process.

Turning to the case at hand, Judge Moses said that many of the issues were not those that could only arise in bankruptcy, even though Jones was a judge. Already being “thoroughly acquainted with the facts,” she said that “uniformity, economy, and expediency all weight in favor of withdrawal.”

But Judge Moses was not through. The Holland factors, she said, “are not exhaustive. Beyond the Holland factors, the Court considers the fact that judicial proceedings must both be and appear impartial . . . . [T]he appearance of bias provides ‘cause’ to appropriately adapt judicial assignment processes to cure such concerns.”

Terminating references to the bankruptcy courts and calling for a status conference, Judge Moses added:

This unique case nevertheless requires stiff measures. The need to reestablish public trust and confidence in the court system alone impels withdrawal in this highly unusual case.

Observations

This writer reads the opinion by Judges Moses to mean that bankruptcy judges in Houston shouldn’t touch matters involving JW. No matter how Houston bankruptcy judges might rule, their decisions could be questioned.

If Houston judges were tough on JW, Jones and Freeman, some could say they were too tough because they felt betrayed by Jones. Or, if Houston judges were easy on Jones, some could say they were partial to someone who had been a friend and colleague.

It is well that the Chief District Judge in Houston selected the Chief District Judge from another district to preside.