Risk Update

Conflicts & Concerns — Conflict-challenged Firm Faces Fee Clawback, Continued Looks at Litigation Funding

Posted Dan Bressler

“DOJ Watchdog Seeks to Reverse Some Fees Paid to Law Firm Jackson Walker” —

  • “The Justice Department division that oversees the nation’s bankruptcy courts is seeking to reverse prior court orders granting fees to a Texas law firm that employed a lawyer who had an undisclosed romantic relationship with the presiding judge.”
  • “Former Houston bankruptcy judge David R. Jones awarded about $13 million to law firm Jackson Walker for its work in more than two dozen chapter 11 cases over recent years, including about $1 million in fees billed by Elizabeth Freeman, his intimate partner, without either of them disclosing their relationship, the U.S. Trustee’s office said in legal motion filed Thursday. The trustee noted that Jones first confirmed his relationship with Freeman in an interview with The Wall Street Journal last month, and resigned days later after an ethics complaint from a federal court found probable cause to believe that the judge had committed misconduct.”
  • “Jackson Walker previously told the Journal that the firm in March 2021 first learned of an allegation that Freeman was in a relationship with Jones. Jackson Walker declined to comment at the time on when it verified that the relationship was real. The firm added that it was either by or before December 2022, when Freeman left Jackson Walker to start her own firm, the Law Office of Liz Freeman.”
  • “‘The bankruptcy system was significantly compromised in this and other bankruptcy cases by the undisclosed intimate relationship between Jones and Freeman,’ the trustee said. ‘Jackson Walker’s misconduct in this and other bankruptcy cases risks the public’s confidence in the integrity that is vital to the very legitimacy of the bankruptcy process.'”
  • “The secret relationship created an unlevel playing field for every party in interest in every case Jackson Walker had before Jones, as well as Jackson Walker cases in which Jones served as mediator instead of as presiding judge, the trustee said. ‘Judge Jones’s, Freeman’s, and Jackson Walker’s actions have injured the court and cast a cloud on dozens of bankruptcy proceedings.'”
  • “The trustee filed similar motions in at least three bankruptcy cases seeking to vacate all orders in which Jones approved fees to Jackson Walker, which would mean that the orders would be nullified. ‘Vacating all orders granting fees and expenses in this case would allow parties in interest, including the United States Trustee, to object to, and to seek the return of, fees and expenses awarded to Jackson Walker under that tainted process,’ the trustee said.”

“China Firm Funds US Suits Amid Push to Disclose Foreign Ties” —

  • “A Chinese firm is financing four intellectual property lawsuits in US courts as Congress members scrutinize the role of foreign investment in American litigation and seek to ban the practice in some instances.”
  • “Purplevine IP, a Shenzhen, China-based company that touts itself as a provider of one-stop patent solutions, is paying the cost of the lawsuits against Samsung Electronics Co. and a subsidiary, said Daniel Staton, chairman of private equity firm Staton Capital. Boca Raton, Fla.-based Staton Capital is the majority owner of a tech firm, Staton Techiya, bringing the four suits.”
  • “Litigation finance is estimated to be a $13.5 billion industry in which investors pay up-front costs of lawsuits in return for some of the proceeds if cases are successful. While UK and Australia firms have been investing in US lawsuits for years, the disclosure of a Chinese company paying for American litigation is rare.”
  • “House Speaker Mike Johnson (R-La.) and two other lawmakers in September introduced legislation (H.R. 5488, S. 2805) that would require disclosure of foreign entities funding lawsuits in US courts. The proposal would ban sovereign wealth funds and foreign governments from engaging in the practice.”
  • “‘Leaving our courts unprotected from foreign influence—such as from China—poses a major risk to US national security,’ Sen. John Kennedy (R-La.) said in a statement at the time of the bill’s introduction. Sen. Joe Manchin, (D-W.Va.) is also an author of the bill, which is backed by the US Chamber of Commerce and pro-market policy group R Street Institute.”
  • “The extent of the role domestic or foreign funders play in US litigation is mostly unknown, as few states and courts require disclosure of the practice. Purplevine’s role was revealed because a Delaware federal judge, Colm F. Connolly, issued a standing order in April 2022 insisting that litigation finance be disclosed for cases in his courtroom. The case was transferred to another judge on Nov. 3.”
  • “Purplevine has 400 people in 10 offices worldwide, according to its website. The company’s chief executive officer, Victor Yang, is also vice president/group general counsel for Chinese consumer electronics giant TCL Corp., according to his LinkedIn profile and a September TCL news release that quotes him.”
  • “When asked about the relationship between TCL and Purplevine in the case in Judge Connolly’s courtroom, Yang responded via a TCL email address that ‘Purplevine is a management controlled IP firm. It funded the case out of its own decision, which has nothing to do with TCL.'”
  • “The disclosure of a litigation funder tied to China ‘is our worst fears confirmed,’ said Joe Matal, former acting director of the US Patent and Trademark Office. ‘Anything China does is concerning because nothing over there is really independent,’ said Matal, who founded intellectual property firm Clear IP.”
  • “But Gary Barnett, executive director of the International Legal Finance Association, said national security concerns around litigation finance are ‘pure speculation.'”