Law firms Kirkland, Jackson Walker face new lawsuit over judge's secret romance

By David Thomas

Jan 16 (Reuters) - An investment firm has sued law firms Kirkland & Ellis, and Jackson Walker over their work representing Chesapeake Energy, claiming the firms hid a romantic relationship between a Jackson Walker attorney and the federal judge who presided over the U.S. oil and gas producer's bankruptcy.

EJS Investment Holdings, a private investment firm, alleged in a proposed class action filed Thursday in Houston federal court that its $150 million stake in Chesapeake Energy was unfairly diminished by the company's Chapter 11 exit plan, which was formulated by the law firms and approved by former U.S. Bankruptcy Judge David Jones.

The lawsuit alleged the plan benefitted Chesapeake's institutional investors while harming junior creditors like EJS, resulting in $64 million in damages.

"To be sure, no judge without ulterior motives would have approved the plan that Jones did," EJS said in its lawsuit.

Jones, who once oversaw the busiest bankruptcy docket in the U.S., resigned from the bench in October 2023 after admitting to sharing a home with then-Jackson Walker partner Elizabeth Freeman. EJS's lawsuit also names Jones, Freeman, and law firm Brown Rudnick as defendants.

A Kirkland spokesperson said in a statement that EJS's lawsuit is meritless.

" As Kirkland has repeatedly made clear, and as the U.S. Trustee’s proceeding against Jackson Walker has demonstrated, the firm and its lawyers had no knowledge of the relationship between Judge Jones and Ms. Freeman until it became public in October 2023," the spokesperson said.

A spokesperson for Jackson Walker declined to comment. A spokesperson for Brown Rudnick did not immediately respond to a request for comment, nor did attorneys for Jones and Freeman.

EJS said it came up with an alternative recovery plan in the bankruptcy but that Robert Stark of Brown Rudnick, who represented the Chesapeake creditors' committee, refused to advocate for it. "According to Stark, defying Jones would have been disastrous," the lawsuit said. Stark, who is not named as a defendant, did not immediately respond to a request for comment.

EJS alleged that Brown Rudnick; Kirkland; and Jackson Walker all knew of Jones' relationship with Freeman but failed to disclose it. The company sued on behalf of other Chesapeake Energy creditors and is seeking an unspecified amount of money based on claims made under the federal anti-racketeering law known as RICO, as well as claims of common-law civil conspiracy, unjust enrichment and others.

Jones had in January 2021 approved a plan that allowed Chesapeake to emerge from bankruptcy with about $3 billion in new financing, a $7 billion reduction in debt, and $1.7 billion cut from gas processing and pipeline costs.

Jones signed off on more than $32 million in fees for Kirkland, more than $900,000 in fees for Jackson Walker, and more than $15 million in fees for Brown Rudnick.

EJS is represented by the Bandas Law Firm, which has filed three previous lawsuits against Jones, Freeman and Jackson Walker. The firm is representing other shareholders who said their investments in certain companies were wiped out in bankruptcy cases where Jones was involved before he resigned. Two of the lawsuits are still pending, while the other was dismissed.

Mikell West and Robert Clore of the Bandas Law Firm did not immediately respond to a request for comment.