Jackson Walker Settlement Trial to Test US Trustee Enforcement

A trial stemming from the once-secret romance between a onetime Jackson Walker LLP partner and a bankruptcy judge will help determine whether the Texas law firm can use private settlements to “short-circuit” government enforcement.

The trial is the first since the judge, David R. Jones, resigned from the Houston bankruptcy bench after his relationship with attorney Elizabeth Freeman was revealed in 2023. It pits the Justice Department’s bankruptcy watchdog against the firm, which has settled with nine bankruptcy estate administrators to resolve allegations that it intentionally kept the relationship under wraps while representing clients before Jones.

Bankruptcy Judge Eduardo V. Rodriguez is overseeing the trial, which will determine whether the settlements should be approved before a separate trial over the US Trustee’s broader effort to unwind Jackson Walker’s employment orders and disgorge fees the firm collected in those bankruptcies.

Rodriguez may also consider whether alternatives would allow for settlement approval first without precluding the US Trustee’s actions, whether the deals are reasonable, and whether the estate representatives exercised proper business judgment.

The US Trustee said its efforts would be significantly curtailed if the settlements are approved first, undermining its push for monetary relief.

The public should be able to count on lawyers and judges to disclose potential conflicts, said Nancy Rapoport, a University of Nevada, Las Vegas law professor.

“THAT’s the ultimate damage caused by these disclosure failures, and figuring out the ramifications of these failures should go before any adjudication of the settlements,” Rapoport said in an email.

Freeman owned a home with Jones and worked at Jackson Walker while Jones approved the firm’s fees for cases he oversaw. She left the firm in late 2022.

What’s In Store

Rodriguez will begin hearing evidence Tuesday over whether private settlements worth about $4.8 million between Jackson Walker and bankruptcy estates, including JCPenney, are fair and equitable.

Rodriguez will make a recommendation to Chief Judge Alia Moses of the US District Court for the Western District of Texas, who will decide if or when to approve the deals. Rodriguez will have to weigh public interest and transparency against the rights of individual estates to settle.

The US Trustee argues private parties can’t bargain away the court’s independent authority to sanction a professional or interfere with the judicial system.

The government is seeking disgorgement of at least $23 million in Jackson Walker’s professional fees and expenses as a sanction for professional misconduct.

Jackson Walker argues that because it’s settled with the bankruptcy estates—which it says are the real parties in interest—any additional monetary relief sought by the US Trustee would be moot.

The firm also says the US Trustee’s role as a “watchdog” doesn’t grant it automatic control over estate property or the right to seek monetary recovery once the estate has released claims.

The Justice Department and Jackson Walker declined to comment.

Settlement Issues

For some of the estates, the funds that Jackson Walker would pay are the final asset they have to administer. If the deals aren’t approved, some administrators say they would face protracted litigation that could cost more than any recovery they might receive.

Randy Williams, the Chapter 7 Trustee for Brilliant Energy, defended his decision to settle for $100,000 with Jackson Walker.

Williams said in a Feb. 10 deposition that although Jackson Walker is a large firm, he has reservations about its ability to pay if it’s hit with tens of millions of dollars in exposure from dozens of cases.

He settled because he’s concerned Brilliant Energy would be paid after multimillion-dollar claims in larger cases. Williams criticized what he said was the government’s refusal to consider the economic reality for creditors.

Rapoport noted that the estates could potentially collect all of the disgorged money if the US Trustee succeeds later in its case.

Allowing the settlements to move forward ahead of a trial on the US Trustee’s motions could undermine the public’s trust in a working justice system.

“It’s all too easy to go from adjudicating the settlements to thinking, ‘well, the estates got money, so who cares about the behavior for any other reason?’” Rapaport said.

Big Picture

The case is important because it involves one of the largest breaches of public trust in the judicial system in recent memory, said former Nevada bankruptcy judge Bruce Markell, now a Northwestern Pritzker School of Law professor.

He said it would be “outrageous” if the settlements could stop the bankruptcy watchdog’s more general pursuits.

“Jackson Walker’s effort to mask the professional ethics concerns with claims that it is paying for its sins rings hollow,” Markell said.

Meanwhile, the case has continued to be “mired in a procedural morass” that’s unresolved two and a half years after the US Trustee filed its motions, said Clifford J. White III, a former US Trustee’s office director.

The case is different because it’s the first time Jackson Walker has faced consequences over its involvement in the Jones matter other than reputational damage, Markell said.

The settlements could be approved without prejudice to the US Trustee’s rights to maintain its actions against the firm. If so, the consequences of the settlements won’t be as far-reaching, White said.

Lawrence Friedman, another former US Trustee executive director, said the the core issue is whether bad actors can avoid regulatory scrutiny by settling with the victims.

“Jackson Walker is saying, ‘We don’t need the US Trustee Program. We’ve settled this ourselves,’” Friedman said via email. “If allowed to stand this would be a return to pre USTP days.”

The US Trustee Program was created, in part, to address scandals in the bankruptcy world, he added.

“To say you can circumvent Congress’ clear intent by negotiating your own remedy is just nonsense,” Friedman said. “That said, they may well get away with it.”

Jackson Walker is represented by Norton Rose Fulbright US LLP and Rusty Hardin & Associates LLP.

The case is In re Prof’l Fee Matters Concerning Jackson Walker Law Firm, S.D. Tex., No. 23-04787, 3/17/26.