There are few bankruptcy courts in America busier than the one in Houston. The top judge there, David R. Jones, has handled more than 1,000 corporate insolvencies in his time on the bench and routinely oversees the nastiest debt fights that come out of Wall Street.
(Bloomberg) — There are few bankruptcy courts in America busier than the one in Houston. The top judge there, David R. Jones, has handled more than 1,000 corporate insolvencies in his time on the bench and routinely oversees the nastiest debt fights that come out of Wall Street.
So when Jones resigned on Monday following revelations that he has dated and lived with a top Houston bankruptcy lawyer since 2017, it rocked the insolvency world. Beyond the shock felt by those who have come to know him as a towering figure in restructuring, the move has cast a pall over cases he was overseeing — like that of Platinum Equity-backed Incora — and ones he ruled on in the past.
At a minimum, Jones’ departure will delay by weeks or months decisions about how much creditors can recover from the companies under his purview. It also makes way for challenges to past rulings in some of the world’s most contentious bankruptcy disputes and may cause big firms to take their restructurings elsewhere.
“This is a nightmare for the bankruptcy bench there,” said Nancy Rapoport, a law professor at the University of Nevada, Las Vegas. “At best, the judges are divvying up all those cases now. At worst, there are going to be more inquiries.”
Jones came under fire for failing to disclose that his girlfriend, Elizabeth Freeman, was a high-ranking bankruptcy attorney at a prominent Texas law firm with frequent business before his court. He approved fees in dozens of cases for her firm, Jackson Walker, which she left in late 2022. His resignation ended a formal judicial inquiry into the matter.
But the fallout has only just begun. The court is working to redistribute cases and come up with a plan until it can appoint a replacement, which it hopes to do quickly, according to Chief US District Judge Randy Crane. Not only did Judge Jones oversee around 1,100 corporate bankruptcies, but he also presided over 3,000 cases for individuals — what amounts to a Herculean case load.
Jones and Freeman didn’t immediately respond to requests for comment.
Jackson Walker conducted its own inquiry and hired outside ethics counsel when it first learned in March 2021 that Freeman was in a potential relationship with Judge Jones, a spokesman said. The law firm instructed Freeman to stop working or billing on any case that had been assigned to Judge Jones, a Jackson Walker spokesman said. Freeman left to start her own law firm in late 2022.
“We are confident that we acted responsibly,” the spokesman said.
Jones was overseeing head-spinning bankruptcies like that of Incora, also known as Wesco Aircraft Holdings. There, a fight among lenders has pitted the likes of JPMorgan Chase & Co., BlackRock Inc. and other bondholders against the company and its allies, including Silver Point Capital, Carlyle Group and owner Platinum Equity.
A key facet of the bankruptcy is a disputed 2022 rescue financing that has become a leading example of a controversial legal maneuver known as priming. The deal rearranged more than $2 billion in debt and provided the company with $250 million of fresh cash, but also pushed a group of disfavored bondholders down the repayment line.
Jones’ approach to the deal would have added to a currently thin body of law blessing — or rejecting — aggressive financing transactions that cropped up in the era of weak covenants and low interest rates.
Incora, its allies and detractors last week spent hours pleading before Jones and submitted hundreds of pages of arguments related to the disputes in the case. The company will also need to talk to the lenders funding its reorganization because the financing has deadlines that are now under threat, according to a person familiar with the situation, who wasn’t authorized to speak publicly.
“In the grand history of American bankruptcy law, he was a seminal figure,” Jared Ellias, a law professor at Harvard University, said of Jones. “And to have his time on the bench unravel in the way that it did — with the speed that it did — is shocking.”
Also on the table are moves to reexamine Jones’ past rulings. Jackson Walker — Freeman’s former firm — has represented bankrupt companies in about one-third of the large Chapter 11 cases he has presided over in the last few years, according to court records. The firm in most cases served as local Texas counsel in collaboration with powerhouse law firm Kirkland & Ellis.
The Texas bankruptcy court currently lists 93 mostly completed or pending large cases assigned to Judge Jones, of which roughly 30 involve companies that were represented by Jackson Walker. Most of those cases were commenced before 2023, when Freeman still worked at the firm, and include the restructurings of major retailers Neiman Marcus and JC Penney and energy companies Gulfport Energy Corp. and Whiting Petroleum Corp.
A critical case is that of Serta Simmons Bedding LLC. Jones this year blessed a hugely controversial debt deal made by the mattress maker, finding it was made in good faith. That case’s outcome is still being appealed by well-heeled lenders including Apollo Global Management and Angelo Gordon & Co.
In the years leading up to the pandemic, Judge Jones drew some of the biggest national bankruptcies away from the classic venues of Delaware and New York. In recent years, that flow sped up and established Houston — and Jones in particular — as a top destination for messy bankruptcies in need of a steady hand.
“It calls into question the popularity of the venue going forward because he was the preferred judge for these cases,” said Greg Gartland, a bankruptcy attorney based in Chicago. “It opens up other venues again.”
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