DEL RIO, Texas — A Texas federal judge expressed strong concerns on Thursday about a former bankruptcy judge's decision not to recuse himself from an engineering company's Chapter 11 proceedings due to a secret relationship with a then-partner at Jackson Walker LLP. However, the judge appeared uncertain about the viability of a lawsuit brought by a former shareholder over the concealed relationship.

Chief U.S. District Judge Alia Moses repeatedly questioned the fairness of keeping the relationship between former U.S. Bankruptcy Judge David R. Jones and attorney Elizabeth Freeman undisclosed during the McDermott International Inc. bankruptcy case. "How does anybody think that it's fair to keep this quiet?" she asked during the 4½-hour hearing.

Plaintiff Michael D. Van Deelen alleges that Jones, Freeman, Jackson Walker, and Kirkland & Ellis LLP conspired to push through a prepackaged bankruptcy plan for McDermott in 2020. Judge Moses examined Title 28 of the U.S. Code, which outlines judicial disqualification requirements, focusing on whether Jones should have disqualified himself from the case.

Judge Moses emphasized the mandatory nature of disqualification when a judge's impartiality might reasonably be questioned, stating, "It's not permissive, it's mandatory." Jones' attorney, John J. Sparacino of McKool Smith, argued for dismissal based on judicial immunity, but Judge Moses remained skeptical.

Judge Moses and Sparacino debated whether Jones' decision not to recuse constituted a judicial act, with the judge noting that Jones would have known "on day one" if disqualification applied. "Do you not have heartburn over that a little bit?" she asked Sparacino.

Despite her firm stance on Jones' need to recuse, Judge Moses was less certain about exceptions to judicial immunity applying to Van Deelen's claims. Van Deelen's attorney, Robert W. Clore of Bandas Law Firm PC, argued that Jones' concealment of his relationship and actions directing disclosures were nonjudicial acts, thus not protected by immunity.

Judge Moses also questioned Van Deelen's standing to sue, agreeing with Jackson Walker attorney Jennifer Elizabeth Brevorka of Rusty Hardin & Associates that Van Deelen's claims of harm to the bankruptcy estate failed the standing test. However, she was troubled by the handling of Van Deelen's motion to recuse Jones, which was referred to and denied by U.S. District Judge Andrew S. Hanen.

The defense argued that Van Deelen had not adequately pled his claims and pushed for sanctions against him and his attorneys for alleging Racketeer Influenced and Corrupt Organizations Act (RICO) violations without sufficient factual support.

Van Deelen's attorney, Mikell A. West of Bandas Law, maintained that the fraud was perpetrated through the bankruptcy court and involved millions in attorney fees funneled to Freeman. However, Kirkland's attorney, John Hueston of Hueston Hennigan, argued that Van Deelen failed to establish critical RICO elements.

Judge Moses noted the unusual retention of Jackson Walker as local counsel by Kirkland, a national firm with a Houston office. She questioned the necessity of this arrangement, implying a possible connection to Freeman.

Jones resigned from the Southern District of Texas in October. The case, initially filed there, was transferred to the Western District. Judge Moses indicated that future hearings might be conducted in Houston.

Van Deelen is represented by Mikell A. West and Robert W. Clore of Bandas Law Firm PC. Jones is represented by John J. Sparacino, Gary Cruciani, and Patrick Pijls of McKool Smith. Freeman is represented by Tom Kirkendall of the Law Office of Tom Kirkendall. Jackson Walker is represented by Jennifer Elizabeth Brevorka and Rusty Hardin of Rusty Hardin & Associates LLP. Kirkland is represented by John Hueston, Karen Ding, and Michael Todisco of Hueston Hennigan LLP, and David J. Beck and Jacqueline Moore Furlow of Beck Redden LLP.

The case is Van Deelen v. Jones et al., case number 4:23-cv-03729, in the U.S. District Court for the Southern District of Texas.