David Jones, the chief bankruptcy judge for the Southern District of Texas, has requested to be reassigned from his cases — a week after Insider broke the news that he was in a romantic relationship with Elizabeth Freeman, a prominent Texas bankruptcy attorney.
He is now under investigation, according to audio from a hearing today in US Bankruptcy Court for the Southern District of Texas.
"As you all know I have been the subject of a fair amount of media attention over the past week," Jones told the court. "That media attention has prompted an investigation by the Fifth Circuit in doing their statutory duties. That investigation is ongoing." He goes on to say that he voluntarily agreed to be removed from his cases "pending the outcome of that investigation."
A representative of the Fifth Circuit's executive office declined to comment when asked about the investigation.
Jones and Freeman were both players in a controversial bankruptcy case involving a leading private prison healthcare provider, Corizon. Corizon split last year in a maneuver known as the Texas Two-Step, giving one company, YesCare, all the active prison contracts and saddling the other, Tehum Care Services, with most of Corizon's debt. Tehum was then filed into bankruptcy.
Jones oversaw settlement talks in that bankruptcy, helping Tehum and a committee of creditors reach a $37 million proposed settlement deal that would protect most of YesCare's assets, which court filings indicate total more than $173 million.
Freeman represented YesCare in those talks.
Freeman, Jones' former clerk and a former partner at Jackson Walker, signed off on Jones' appointment as mediator in May, according to a stipulation and agreed order submitted in the bankruptcy docket.
Neither party acknowledged their relationship at the time. Allegations of the relationship first surfaced in a suit filed last week by Michael Van Deelen, a pro se plaintiff who shared the complaint with Insider.
Jones did not respond to Insider's queries for that story. But he later confirmed to The Wall Street Journal that he and Freeman are in a romantic relationship and have shared a home for years. He said he didn't believe he had a duty to disclose because they aren't married and he didn't benefit economically from her legal work.
Jones said he'd only have to recuse himself from cases in which Freeman was appearing if they were married and owned communal property. He told the Journal that wasn't the case. He said he owns the Houston home that Freeman resides in, and he pays the home's utilities.
A quick search by Insider of Harris County's property records casts doubt on that assertion. A deed for their home lists Jones and Freeman as joint owners.
In the order submitted earlier today, marked "effective on entry," Jones requests to be reassigned from the complex cases and related proceedings assigned to him. Those cases will be reassigned to the two other bankruptcy judges in the court — Marvin Isgur and Christopher Lopez. (The Wall Street Journal was the first to report Jones' recusal.)
Lopez is the judge overseeing the Tehum bankruptcy; in May, he appointed Jones to act as mediator in the case.
Jones did not immediately respond to requests for comment.
The Office of the US Trustee intervenes
Today the Office of the US Trustee, the federal regulator that oversees bankruptcy cases, took the unusual step of intervening in the bankruptcy case.
The office filed multiple objections to the proposed settlement plan overseen by Judge Jones, including concerns about Jones' role as mediator.
That plan, released on September 29, would resolve more than $1.2 billion in Corizon debts, including tens of millions of dollars in unpaid invoices and hundreds of malpractice suits filed by prisoners and their families who have alleged negligent care. The deal would offer the malpractice claimants — even families suing on behalf of loved ones who they say died due to Corizon's neglect — just $5,000 each.
Hector Garcia Jr., the son of Hector Garcia, who died in August 2019 at the age of 55 after his perforated ulcer was left untreated by Corizon at a New Mexico jail, called the $5,000 "a slap in the face."
The trustee's office specifically references Jones, writing that "recent admissions by the judicial mediator may raise issues about the propriety of the mediation that serves as the basis for this global settlement — and thus the very propriety of the settlement and plan itself."
The trustee's office also objected in a variety of ways to the treatment of the imprisoned malpractice claimants. The objection says the plan fails to outline creditor options in "plain English" and fails to justify setting aside so little funds for the claims by current and former prisoners.
The bankruptcy plan breaks creditors down into several classes. The largest is the medical malpractice claimants, who collectively say they're owed almost $1.1 billion. Claims by a class composed of vendors such as hospitals amount to far less — around $111 million.
Yet the plan proposes giving the malpractice claimants only around a quarter of the total settlement. The trustee's objection raises questions about this "division of the proceeds" and the plan's failure to explain why those $1.1 billion in claims would effectively be reduced by up to 97%.
The trustee's office also objected to a lack of information regarding malpractice plaintiffs who reject the $5,000 payout offer. "Creditors who opt out will be left to recover from a barren estate, one that was stripped," the objection reads, "of all of its valuable assets as a result of the combination and divisional mergers that occurred prior to the bankruptcy filing."
In other words, Corizon's Texas Two-Step.
Research assistance: Lila Hassan.
