Moral Bankruptcy

This article appears in the February 2024 issue of The American Prospect magazine. Subscribe here.

One afternoon in March 2021, Mike Van Deelen found a letter in his mailbox with no return address. Inside was a single typewritten page with an explosive allegation: The Houston-area judge presiding over a lawsuit he had filed against a company he accused of defrauding him was in a romantic relationship with a partner at the company’s law firm, and his case was just part of a corruption scheme whereby companies would hire the girlfriend’s law firm with the expectation that the judge would go easy on them—and by extension, hard on small-time creditors like him.

The judge was not just any judge. It was David R. Jones, the Bankruptcy King of the Southwest, a legendary figure who presided over more corporate bankruptcies over the past decade than any other judge in America—well over a thousand in all—during which time bankruptcy became the biggest gravy train in the legal profession. At the time, Van Deelen mainly knew him as a guy who’d been a bigger jerk to him than any other judge he’d ever annoyed (and he’d annoyed quite a few).

Among Jones’s prolific caseload, which includes such household names as Neiman Marcus, JCPenney, and Chesapeake Energy, was the bankruptcy of an engineering firm called McDermott International, in whose stock Van Deelen, a longtime securities analyst, sometime math teacher and card-carrying member of Mensa, owned 30,000 now-worthless shares. The company had issued nothing but rosy projections and effusive pronouncements until word slipped out about three months before the bankruptcy filing that both the company and its bondholders had retained the dreaded phalanx of “restructuring advisers.” Van Deelen suspected that McDermott had filed for bankruptcy protection out of opportunism rather than insolvency, as a way for the C-suite to boost its own fortunes by wiping out investors and handing the company over to creditors, who would happily swap the debt for stock that was sure to pop once oil prices recovered.

When Michael Van Deelen feels he has been wronged, he is not afraid to exercise his civil rights in the U.S. court system. He’s filed dozens of lawsuits against everyone from the Kansas state tax assessor to school districts in three states, always representing himself pro se, and once appearing before a sympathetic appeals court judge named Neil Gorsuch.

But bankruptcy courts are not ordinary halls of justice. Bankruptcy brings all those other halls to a grinding halt, automatically staying not only all attempts to collect on monies owed, but all litigation pending in any court of any stature. Once a plan of reorganization is approved by relevant creditors, it cannot be amended, barring proof of deliberate fraud. And so Van Deelen had been showing up to the Houston federal courthouse to try and convince Judge Jones there had been a mistake, that the bankruptcy had been filed in bad faith and ought to be halted pending an investigation, perhaps through the appointment of a bankruptcy examiner, to ensure that justice had been served.

But that is not how Judge Jones worked.

Instead, he questioned Van Deelen’s sanity and threatened to have him arrested.

THE NATION'S BANKRUPTCY CODE, the constitutionally enshrined system by which Americans are theoretically afforded the chance to discharge unmanageable debts, has over the past decade or two quietly metamorphosed into a vast enabler of reverse wealth redistribution. Corporations have exploited the tremendous privileges of bankruptcy protection to abrogate union contracts, cram down unilateral wage and benefit cuts, eject lawsuits filed by customers and community members killed by toxic products and manufacturing processes, back out of funding pensions and zero out the savings accounts of workers they pressured into investing in company stock as a condition of keeping their jobs, settle wrongful death claims for less than a penny on the dollar, evade responsibility for cleaning up after oil spills or refinery explosions or poisoning groundwater with benzene, and, of course, discharge debt incurred in the process of defrauding vulnerable students into taking out tens of thousands of dollars in student loans they are practically barred by law from discharging in bankruptcy themselves.

Melissa Jacoby, a law professor whose forthcoming book Unjust Debts: How Our Bankruptcy System Makes America More Unequal synthesizes three decades of research into the system's frustrating contradictions, helpfully summarizes the crux of the issue as bankruptcy’s “structural bias in favor of artificial persons”—i.e., corporations, nonprofits, and constructed entities explicitly designed to shield rich and powerful owners from the consequences of their misdeeds.

While it’s difficult to say what Thomas Jefferson might have made of Citizens United or West Virginia v. EPA, it seems far less challenging to imagine that the Founders, for all their moral failings, would have been flabbergasted by modern bankruptcy courts. We can guess how they would react to granting the billionaire Sackler clan eternal legal immunity for siphoning $12 to $13 billion out of the family opioid empire while leaning on their sales team to push product on pill mill doctors—without even forcing them to declare bankruptcy themselves.

The complex case panel had a unique selling point: Only Isgur and Jones were allowed to preside over it, so law firms knew what they were getting.

When Federalists and Republicans alike agreed at the Constitutional Convention to authorize Congress to draft a “uniform bankruptcy code,” it was not some theoretical concept or throwaway line. Hamilton, Jefferson, and Madison were all personally insolvent and would die that way. The new nation was brutally underwater. As much as half the European population had arrived in the New World as indentured servants. After the panic of 1797, when Congress made its first attempt to draft a bankruptcy code, some of the richest men in America, most notably Revolutionary War funder Robert Morris, were sentenced to debtors’ prison, having blown their fortunes on land speculation schemes.

A 1779 usury law written by Madison capping interest rates at 5 percent reasoned in its preamble that “the high interest of money has been found in all countries where it has prevailed, to impoverish the people, and a great discouragement to trade and industry.” Coherent laws enabling the periodic discharge of unmanageable debts for “honest but unfortunate” men—and the sanctioning of dishonest men who posed as such—was a widely accepted cornerstone of a functional and civilized economy.

Alas, the Founders had trouble concurring on the definition of “honest,” and so until the 20th century many unfortunates discharged their debts by skipping town, albeit with a modicum of candor: Impoverished tenant farmers scrawled “GTT” on their cabin walls when they abandoned their debts, denoting “Gone To Texas.” But the idea that a large institution might “GTT” and leave its workers and creditors holding the bag with no recourse was still more than a century off.

IT TOOK UNTIL 1898 FOR CONGRESS TO PASS a bankruptcy law that stuck, and another 40 years before the New Deal Congress, in conjunction with Joe Kennedy’s newly formed Securities and Exchange Commission, ironed out a protocol for extending bankruptcy protections to corporations.

The current derangement began with the Bankruptcy Reform Act of 1978, the first of many “reforms” designed to make bankruptcy protection easier for corporations and more punitive for individuals. Like most reforms of the 1970s to institutions formed in the 1930s, it seems in hindsight like a deregulatory scheme to enrich the powerful at the expense of ordinary people. At the time, however, the bankruptcy system was too overwhelmed to work for large public companies, whose reorganizations were explicitly overseen by a court-appointed trustee and overburdened SEC. The 1970 bankruptcy of the Penn Central railroad took about six years. Well-intentioned observers wondered if the system wasn’t killing viable companies.

The Bankruptcy Reform Act eliminated the SEC’s bankruptcy oversight over public companies, made trustees optional, and formed dedicated bankruptcy courts in every federal courthouse that were permitted to pay “market rates” for attorneys. Perhaps most fatefully, the law allowed failing companies to file for protection in whichever district they deemed most accommodating, so long as they had some technical presence—a WeWork will suffice, though WeWork does not appear to even have one of those in the district surrounding the Newark bankruptcy court in which it sought Chapter 11 protection last November.

The idea behind this early embrace of global nomadism was supposedly that overburdened judges could share their caseloads with those in sleepier districts. What happened instead is that troubled companies made a beeline for the friendliest judges.

New York’s Burton Lifland, appointed in 1980, was the first celebrity bankruptcy judge, overseeing eight of the 43 major large public company bankruptcies approved in the decade following the Bankruptcy Reform Act, according to a book by the law professor Lynn LoPucki. A statistician calculated that the odds Lifland would receive such a vastly disproportionate number of large cases under the random assignment system in place at the time were just under 1 in 1,000.

Fatefully, the 1982 bankruptcy of the Johns Manville asbestos manufacturer, which had been knowingly poisoning workers and covering up the evidence for a half-century by that point, landed in Lifland’s courtroom. Unlike an Illinois judge who had dismissed the bankruptcy of a healthy but lawsuit-beleaguered asbestos manufacturer in his own district a year earlier, Lifland embraced the impossible challenge of using his powers to force a settlement of not simply the 16,000 toxification lawsuits the Colorado company faced at the time, but the incalculable number of future suits likely to be filed. The bankruptcy ultimately concluded with the inception of a $2.5 billion trust to finance settlements with cancer-stricken victims. In the early years, the trust paid out 100 percent of the plaintiffs’ claims; today, that number has dwindled to 5.1 percent.

Lifland’s bold application of his new powers would inspire the nation’s peddlers of hazardous goods and services, but he didn’t remain their hero for long. As LoPucki tells it in his book Courting Failure, Lifland’s reign atop the bankruptcy world abruptly ended after he reluctantly acceded to union demands and appointed a trustee in the 1989 bankruptcy of Eastern Airlines. Delaware bankruptcy judge Helen Balick took the reins by successfully courting the bankruptcy of Continental Airlines—which happened to share an owner with Eastern—whereupon she and her Wilmington colleague Peter Walsh systematically built a bankruptcy machine so formidable it handled 13 of the 15 major public company filings in 1996.

Her empire too would fall when the New York courts began to recapture some of their 1980s magic by nabbing what everyone predicted would be the first bankruptcy to generate $1 billion in fees, the 2001 Chapter 11 filing of Enron. This roused the competitive fires of another bankruptcy hotbed, deep in the heart of Texas.

THE TWIN CRASHES OF OIL AND REAL ESTATE that followed the savings-and-loan debacle and the Gulf War caused many ambitious young Houstonians to gravitate to bankruptcy law in the early 1990s. Marvin Isgur, an MBA who had managed a Houston rental property empire on behalf of his uncle in the 1980s, was one; he later hired a former engineer named David R. Jones.

During the Enron bankruptcy, Jones represented Andy Fastow’s successor as chief financial officer, Jeffrey McMahon. The case brought Lone Star litigators to New York to see how corporate bankruptcy was handled in the big leagues. At some point after Isgur was nominated to the federal bench in 2004, he and Jones began to talk about how the Southern District of Texas might compete with Delaware and New York for top-shelf cases. In 2011, Jones took a judgeship—and accompanying 85 percent pay cut—without even consulting his wife. The marriage soon ended, leaving the childless Jones, who later admitted he’d “screwed up two marriages pursuing the practice of law because I loved this a whole lot more than I did my family,” to pour his time into the pursuit of a top-tier bankruptcy court.

Jones was the right guy at the right time. The massive Chicago law firm Kirkland & Ellis had appointed a new chairman, Jeff Hammes, in 2009, who had a soft spot in his heart for both private equity, which would become the leading source of bankruptcy work in the decade that followed, and Texas, where he oversaw a massive expansion of the firm’s presence. Hammes poached top partners from Kirkland’s Wall Street competitors and encouraged his attorneys to aggressively court new business among middle-market private equity firms that, in the characterization of one partner, “no one has ever heard of.”

Over the next decade, Kirkland took on more than 450 private equity firms as clients, in part by pioneering a controversial practice by which those firms would agree to pay the legal fees of the banks that underwrote private equity buyouts, so long as they designated a company handpicked by the private equity firm’s attorneys at Kirkland & Ellis to do the job. (Other law firms engaged in this practice, but Kirkland was more famous for it.)

In early 2014, during which crude oil prices hovered around $100 a barrel for most of the year, Kirkland dispatched a Scotland-born partner poached from another elite law firm named Andy Calder to launch the firm’s inaugural Houston office. But oil prices began to crash in late 2014, bottoming out at $26 by early 2016, the same year Isgur and Jones debuted a new court-within-a-court called the “complex case panel” devoted to bankruptcies involving debts in excess of $200 million. Designed in concert with a board of advisers comprising restructuring specialists at more than a dozen of the most prestigious law firms, the complex case panel had a unique selling point: Only Isgur and Jones were allowed to preside over it, so law firms knew what they were getting. “I really had this idea that I wanted the courts to reflect all of the things I had seen that were good in courts all over the country,” Jones said in 2022. “But it really took a long time to sort of bring a consensus toward the view that I was trying to push forward. Predictability was one of those things I was really focused on, and I needed for [the court] to agree that this complex docket shouldn’t be every single judge in the district.”

“Elizabeth Freeman is the strategic link between JW attorneys and lawsuits received by Judge Jones,” the letter claimed.

Jones and Isgur were inadvertently assisted by Christopher Sontchi, a Delaware bankruptcy judge assigned in 2015 to the case of a Kirkland client called Samson Resources, an Oklahoma oil driller acquired less than four years earlier by the private equity giant KKR in a transaction that loaded the company with $4 billion in debt. In its first-day motions, Samson said it had worked out a deal to allow its biggest lenders to assume control of the company in exchange for a debt reduction it could only obtain if the reorganization was completed within three months. The plan called for wiping out billions of dollars in debt owed to unsecured creditors, many of them families who had allowed the company to frack on their land over the years in exchange for royalty payments they had never received.

In the first hearing of the case, Judge Sontchi rebuked Samson’s attorneys: “You’re saying you are going to kill the company if I don’t give you what you want … This was not the way to start our relationship.” The bankruptcy would drag on another two years, during which Sontchi would repeatedly (and sometimes using f-bombs) express exasperation with Kirkland and Samson’s impatient new ownership, for trampling over small-time creditors and making a mockery of good faith and due process. One family slated to get wiped out under the initial plan ultimately received $17.5 million. Kirkland would not file another bankruptcy in Delaware for two years.

By contrast, the complex case panel worked speedily. In May 2016, Kirkland filed for bankruptcy protection on behalf of another midsized Oklahoma fracking client called SandRidge Energy, founded by Tom L. Ward, co-founder of fracking giant Chesapeake Energy. Jones got the case. SandRidge emerged five months later to a rapidly recovering energy market debt-free, after zeroing out all its existing shareholders and many small-time landowners, using similar nonpayment practices Samson had used. Additionally, Jones discharged lawsuits filed by a school district that claimed SandRidge had stiffed it on taxes, and shareholders who alleged that SandRidge didn’t actually appear to be insolvent. All told, Kirkland filed five bankruptcies in Houston in 2016, and that year Calder was the highest-paid lawyer in the state.

In the first two years of the complex case panel, Jones and Isgur presided over an impressive one-fifth of all large public company bankruptcies filed in America. In December 2018, Isgur presided over a reorganization of the oil exploration firm Parker Drilling in just 22 days. In 2020, the two judges finished eight large complex bankruptcies in fewer than 45 days, according to a database LoPucki kept until the end of 2022 on large public company Chapter 11 filings.

The panel succeeded despite (or maybe because of) the loss of Jones’s clerk Liz Freeman, who had followed him from their old firm Porter Hedges. Freeman had taken a partnership at Jackson Walker, a century-old Texas law firm where Isgur’s old clerk Matt Cavenaugh, a theater major turned lawyer who had worked as Kirkland & Ellis’s local counsel on the bankruptcy of Ultra Petroleum, had made a name for himself. In hindsight, Freeman’s career arc seemed full of anomalies. “No one works as a clerk for six years,” one attorney pointed out. And she’d actually been a partner before she’d been a clerk, an almost unthinkable transition.

Cavenaugh and Freeman established Jackson Walker as the preferred local counsel of the Houston bankruptcy business, as well as a de facto outgrowth of Kirkland & Ellis. What was not apparent to observers who read the gushing trade publication coverage of the unstoppable new power couple (JW and Kirkland) was that Freeman was one half of a different power couple, with Judge Jones, who despite describing himself in public appearances as a bachelor who lived alone with three rescue dogs, actually shared two million-dollar homes with the attorney. It’s not clear when Freeman and Jones, who was still married when he was nominated to the bench, became an item, but real estate records show they bought a house together in 2016, the year the complex case panel launched.

Jackson Walker and Kirkland & Ellis together represented debtors in at least 46 bankruptcies in the complex case panel since 2018, including 26 cases presided over by Judge Jones personally while Freeman was a partner at the firm. This conflict of interest is actually worse than it sounds, because bankruptcy judges must approve the legal fees charged by every attorney working for the estate, and it is their legal obligation to mind the budgets of the insolvent institutions that appeal to them for protection. But Jones regularly approved the four-figure hourly rates billed by Kirkland’s top-shelf lawyers, and Freeman’s $750-an-hour fees. Though he would later claim the two had agreed she would never actually appear in his court, she managed to make more than $1 million working on some 16 cases over which he presided during her four years at Jackson Walker; the firm made more than $12 million on those cases. Kirkland, for its part, billed an astonishing $162 million in bankruptcy cases assigned to Judge Jones in which it had enlisted Jackson Walker. And Jones approved every last dollar.

THE EVENING BEFORE MICHAEL VAN DEELEN was scheduled to testify in his lawsuit against McDermott, he received an amended bankruptcy plan on his doorstep, about which he grumbled the following day in court. “I would like to again enter my objection to having to respond to a plan, amended plan and other documents, several hundred pages I got last night at five o’clock,” he told Judge Jones.

“You’re a shareholder, correct?” Jones asked him.

“Not for long, but right now yes,” Van Deelen replied.

“Alright, and so the treatment of your interest has always been the same, correct? … You were not getting any distribution under the first plan. You’re not getting any distribution under the second plan, correct?

“I don’t know. I haven’t read the new plan, that’s the whole point.”

“So under the first plan they got nothing, correct? You did read that one?”

“That’s correct.”

“So it can’t get any worse, right?”

“I don’t know, judge, if it will get any worse or not.”

“Well how can it get worse than to get nothing for something that you had?”

“They’re going to come out to my house and shoot me, okay? Is that worse? This guy threatened me a minute ago.”

According to a legal brief Van Deelen filed shortly after the hearing, “this guy” was a $2,045-an-hour Kirkland partner named Joshua Sussberg, who had been seated across the aisle from him throughout the hearing. According to Van Deelen’s filing, Sussberg had grown “more and more agitated” as the hearing dragged on, until finally the attorney, “without any cue,” loudly told him: “You are disgusting.”

After the hearing, Van Deelen asked Sussberg what his name was. Instead of answering, according to Van Deelen’s account, Sussberg told him again that he was “disgusting” and also “a fool.” Sussberg walked slowly away, only to suddenly turn back “rushing back down the hall” to “angrily charge” Van Deelen. Shaken, Van Deelen asked security guards if they had surveillance footage of the encounter and was told that they didn’t. That night, he scoured the Kirkland website in search of the attorney he alleges bullied him, found Sussberg’s photo, and emailed him asking him to confirm that he was, indeed, the attorney who had confronted him. (Sussberg did not respond to a request for comment.)

Sussberg responded with force, producing an affidavit claiming Van Deelen had called him a “pasty white fuck” and pledged to “have [his] way” with Sussberg’s wife, which Isgur’s old clerk Cavenaugh then attached to an emergency motion asking Jones to hold Van Deelen in contempt. Van Deelen called the allegation ludicrous, but Cavenaugh also included in the filing a recording he had uploaded to YouTube of the aforementioned hearing, onto which someone had overlaid subtitles purportedly transcribing the dialogue. According to the subtitles, Van Deelen concluded his testimony by calling Judge Jones a “son of a bitch.” The words are not audible, though; there is certainly nothing on the tape that could plausibly be considered a public statement. Van Deelen denied saying it.

Jones sided with the lawyers in an order issued the following week, stating that the phrase “son of a bitch” was discernible on the “original recording”—which he did not furnish—an assertion he used to discredit Van Deelen as a perjurer of questionable “mental stability,” deserving of significant sanctions. The order banned Van Deelen from returning to the courtroom, requested both the U.S. Marshals office and the assistant U.S. attorney launch investigations into his conduct, and issued a permanent injunction prohibiting Van Deelen from making contact with Sussberg lest he face arrest.

Incredulous, Van Deelen filed a response asking for a hearing, and after that request was denied, asking the Fifth Circuit Court of Appeals, which oversees Texas federal courts, for a writ of mandamus—essentially an imposition upon Judge Jones to do his job—and a separate motion the following month in the bankruptcy court, calling on Jones to recuse himself from his case on the basis that he had “shredded Plaintiff’s constitutional rights” out of apparent “personal animosity.” Van Deelen also filed a defamation case against Bloomberg for its coverage of his conflict with Jones and the legal team, a suit filed in Alabama for reasons that remain unclear. (The suit was settled favorably for Van Deelen.)

By this point, as the pandemic hit, Jones’s courtroom was in the throes of an unprecedented onslaught of insolvencies: oil and gas companies that were its bread and butter, but also private equity–gutted retailers like Neiman Marcus and JCPenney. Even Chesapeake Energy was preparing a filing to contend with more than $9 billion in debt, along with hundreds of millions more in claims stemming from litigation related to its practice of unilaterally slashing legally mandated royalty payments to landowners by as much as 90 percent when it faced a cash crunch years earlier. Chesapeake’s plan called for negotiating a global settlement to all claims. Dozens of small-time landowners filed objections, arguing they would be lucky to get pennies on the dollar, and the Fifth Circuit would ultimately throw out the settlement (blessed by Jones) as improper, remanding certain cases back to lower courts. But the complex case panel plowed ahead, handling an astonishing 48 percent of all major corporate bankruptcies filed in 2020.

The court, meanwhile, finally got around to scheduling a hearing for Van Deelen’s motion to recuse Judge Jones in February 2021, when Van Deelen received the letter he thought would change everything, revealing Jones’s relationship with Freeman.

Though Freeman had billed the McDermott estate in excess of $100,000 for her work on the bankruptcy, Van Deelen had never crossed paths with her. But the letter claimed that Freeman was not the only link between Jones and Jackson Walker; Isgur’s old clerk Matthew Cavenaugh, who had filed the original motion for Jones to sanction Van Deelen, was also a critical part of the puzzle, though it didn’t explain exactly how. “Elizabeth Freeman is the strategic link between JW attorneys (specifically Matthew Cavenaugh) and lawsuits received by Judge David Jones,” the letter claimed. “The romantic relationship between Judge Jones and Elizabeth Freeman is publicly known and because of that, the largest corporations and clients willingly choose to work with JW lawyers knowing they will likely have the court and judge in their favor.”

Van Deelen did not waste time, immediately composing an addendum to his motion to recuse that included the letter as an appendix, and emailing Cavenaugh to inquire about its veracity. But Cavenaugh was quicker, filing a preemptive motion to seal all communications past and future with Van Deelen, which Jones used to seal Van Deelen’s amended recusal motion as soon as he filed it.

Isgur presided over the hearing, denying the motion to recuse on the basis that “anonymous pieces of mail aren’t admissible in federal court,” and Jones ultimately dismissed Van Deelen’s case seven months later in a withering 13-page ruling threatening to “revisit the issue of compensatory and coercive sanctions necessary to protect the sanctity of the Court’s orders, the bankruptcy process, and the rule of law” in the event Van Deelen elected to continue “the current pattern of behavior.”

But rumors about the affair and the pro se creditor who had almost blown the lid off the whole thing began to swirl.

AS BUSY AS 2020 WAS FOR JONES AND KIRKLAND, the pandemic was far leaner for the bankruptcy system than anyone had predicted at the outset. Cheap money was abundant; rampantly insolvent companies like Carvana and Uber raised billions of dollars in cash at rock-bottom rates, and consumer bankruptcies screeched to a halt. Luckily for the Chapter 11-industrial complex, the headline-commanding Sackler family and its opioid manufacturer Purdue Pharma was showcasing one of the bankruptcy code’s theretofore less appreciated clauses.

Section 524(g) was added in 1994 to codify Judge Lifland’s aforementioned asbestos trust fund, which had indemnified certain insurance companies against liability for future victims in exchange for their participation in the fund. Purdue’s lawyers had deployed Manville’s precedent to reason that opioid litigation could be dealt with the same way, with the bankruptcy judge immunizing hundreds of Sackler family members, advisers, friends, and companies and trusts under their control from liability for their roles perpetuating the opioid crisis, in exchange for a substantial monetary contribution to a global opioid settlement.

It was a ballsy move, and it opened the floodgates to an even more audacious twist when Johnson & Johnson, whose talc-based baby powder had contained toxic amounts of asbestos until 2020, decided to transfer its baby powder business along with all its asbestos cases into a new subsidiary it called LTL, then fully divest LTL and file for bankruptcy protection. The move had been quietly perfected by Kirkland archrival Jones Day, which had used a special Texas state statute enabling so-called “divisional mergers” to divest and bankrupt asbestos subsidiaries from Georgia-Pacific, Trane Technologies, and the construction firm Saint-Gobain. Divisional merger mania spread, with Kirkland & Ellis adapting the so-called “Texas Two-Step” to a 3M unit that had been sued by thousands of American soldiers who’d lost hearing after relying on its defective earplugs during combat missions, along with a Mexican Kimberly-Clark subsidiary that had sold toxic hand sanitizer throughout the pandemic.

The YesCare settlement was designated to Judge Jones. YesCare’s counsel was none other than Liz Freeman.

This was something LoPucki, the pre-eminent expert on corporate bankruptcy abuse, had attempted to warn the legal community about. Decades earlier, LoPucki had written a 1996 law review article that used game theory to predict that deregulation, cultural shifts, and the cheapening costs of data storage would soon bring about the “death of liability” for corporations savvy enough to move their assets out of the reach of money judgments.

LoPucki would later grow especially leery of Jones and Isgur’s court, deconstructing Isgur’s record-setting one-day prepackaged bankruptcy proceeding of the private equity–controlled department store chain Belk, whose flimsy reorganization plan barely reduced the chain’s interest expenses and left the chain under the control of the same private equity firm whose looting had bankrupted it in the first place. (Credit rating analysts seem to regard another Belk default as inevitable.) LoPucki described the proceeding as the natural “culmination of four decades of competition among the bankruptcy courts for big cases,” in which judges had proven willing to “routinely bend and break the law” to attract big “case placers,” just as the anonymous letter had accused Judge Jones and Jackson Walker of doing. LoPucki titled his analysis “Chapter 11’s Descent Into Lawlessness.”

He had no idea.

CORIZON HEALTH CARE EMPLOYS PHYSICIANS, nurses, and other health care professionals to administer primary care in state prisons and county jails. For the past decade or so, the company has been passed around from one middle-market private equity firm to another, and nearly 500 lawsuits from inmates and ex-inmates and dead inmates’ family members suggest that it tended to drastically understaff facilities, leading to often fatal acts of negligence.

In late 2021, a health care investor named Isaac Lefkowitz offered to take the whole company under the auspices of something called Geneva Consulting, in turn a wholly owned subsidiary of the nursing home chain Genesis HealthCare. Lefkowitz fired the company’s CEO, and hired a Wall Street veteran (and failed New York mayoral candidate) named Sara Tirschwell, who had impeccable elite bankruptcy credentials. She’d spent a decade at the hedge fund Davidson Kempner, once even lobbying the Senate to set up an asbestos trust fund, and her campaign disclosure statements are the proverbial “who’s who” of the elite restructuring world. But after spending months toiling on her abortive mayoral campaign, she may have needed the money: She told the New York City Campaign Finance Board in February 2022 that she might have to file for bankruptcy, according to a document obtained by Business Insider.

With the assistance of Tirschwell and a Miami law firm she retained under the auspices of something called “Project Orange,” Corizon moved to Texas and split in two. YesCare would be the “new” company that would “buy” Corizon’s contracts (and $19.9 million cash) for $100, and the “old” Corizon would be renamed Tehum Care Services, which would emerge from the divorce with its vendor and employment contracts, and hundreds of outstanding wrongful death, negligence, and fraud claims. Meanwhile, Lefkowitz opened a new account at Signature Bank for Corizon, which according to a lawsuit he used to siphon some $40 million out of the company, unbeknownst to its management. He initially earmarked $15 million for a vehicle that was supposed to provide the debtor-in-possession financing to Tehum when it filed for bankruptcy protection.

In February 2023, a Boone County, Missouri, judge gave Tehum/Corizon 24 hours to come up with a proposal for repaying a hospital system it owed more than $12 million. Corizon responded by maneuvering to extend its deadline by a weekend, then filed for Chapter 11 protection, staying the lawsuit and forcing the hospital system to come to the table alongside Corizon’s hundreds of other angry creditors, who together were owed hundreds of millions of dollars. A team of civil rights lawyers who represented inmates who’d been injured, diseased, and deprived of even medieval-caliber medical care by Corizon began to sniff around, discovering that Lefkowitz had been involved in dozens of corporate bankruptcies, and had been sued by a close friend’s son for allegedly embezzling millions of dollars out of his ailing father’s real estate portfolio. More relevantly, Lefkowitz had been sued by the CEO he had fired, who alleged he’d been terminated in retaliation for reporting Lefkowitz’s suspicious wire transfers of millions of dollars to shady LLCs he controlled. The former CEO described Tehum in a federal lawsuit as an “old-fashioned bankruptcy scheme.”

The Tehum bankruptcy came before the complex case panel last February, with an almost comically amateurish eight-page form. Its bankruptcy attorney later testified he had gotten the job the night before the filing, when a colleague called him during the Super Bowl with the offer. But at the first hearings, Judge Christopher Lopez, who’d assumed Isgur’s spot on the panel earlier that year as part of what the veteran judge dubbed “long-term succession planning,” politely allowed Tehum’s lawyer and chief restructuring officer to ramble about what “upstanding” citizens they were, evincing no signs he found anything unusual or alarming about the case.

The case morphed into an inscrutable dispute between Tehum and YesCare over the amount of cash each had been allocated in the divorce. As Tehum’s chief restructuring officer explained it in the dry jargon of corporate bankruptcy-ese, an entity called M2 had graciously agreed to fund the Tehum estate to the tune of $15 million to settle its disputes with dozens of vendors and hundreds of patients, but YesCare might potentially agree to pony up more funding—if creditors agreed to release YesCare from liability for any fraudulent transfers that might have transpired.

What the case needed, Judge Lopez decided, was for YesCare to come to the table and negotiate a settlement to their “dispute” with Tehum under the supervision of an official court “mediator”—a task he designated to none other than Judge Jones. YesCare’s counsel, as it happened, was Liz Freeman, newly solo after a departure from Jackson Walker in late 2022.

At this point, a bankruptcy attorney retained by one of Tehum’s creditors let slip to one of the civil rights lawyers that Jones and Freeman were rumored to be ex-lovers, and that a pro se creditor who’d had a confrontation in a hallway had somehow gotten involved, but all the legal filings on the matter had been sealed. The civil rights lawyer shared the rumor with the Business Insider reporter Dakin Campbell, who had heard similar rumblings from other sources. 

As it happens, Van Deelen had just come across a bombshell while helping a friend with an unrelated background search: Freeman and Jones co-owned two million-dollar homes, and appeared to live together. He typed up a new lawsuit including the fresh information and drove back to the Southern District of Texas courthouse to file it on October 4, delivering it personally to Judge Jones, who was eating a sandwich and reportedly “turned white” at the sight of his old gadfly.

Soon, Campbell got a tip that the apocryphal pro se had filed a new lawsuit against Jones. But the complaint was not accessible on the federal court database Pacer, where it appears to have been automatically sealed without an order. But the new lawsuit created a docket entry containing Van Deelen’s name and contact information, and Campbell was the first reporter to call. Van Deelen sent him a copy of his complaint for Business Insider to post; the original version remains unavailable on Pacer to this day. 

TWELVE DAYS LATER, JONES RESIGNED, following the circuit court’s finding of “probable cause that Judge Jones has engaged in misconduct.” Jones transferred some 3,500 cases to Lopez and Isgur, who graciously returned to his old job to mitigate the damage to their beloved complex case panel. The Office of the U.S. Trustee, a watchdog agency described by one small creditor’s attorney as “beaten down” by the clout of the Houston bankruptcy court, filed a motion to claw back up to $13 million in fees from Jackson Walker’s 26 cases before Jones’s court while Freeman was a partner. In an almost literary flourish, Jones’s gig mediating the charade of Tehum’s “dispute” with itself has been transferred to Chris Sontchi, the Delaware bankruptcy judge whose exasperation with the Kirkland Ellis bankruptcy triggered the firm’s Delaware boycott that enabled Jones and Isgur’s rise to Chapter 11 dominance in the first place.

Van Deelen got a practicing lawyer, who filed an amended complaint alleging a racketeering scheme between Jones, his girlfriend, her law firm, and Kirkland & Ellis, at the expense of “protesting creditors and investors.” The complaint describes both law firms as almost farcically complicit in the scheme, with Jackson Walker conducting a sham “inquiry” into the relationship in 2021 and multiple Kirkland partners telling the Financial Times they had been “long aware” of the Jones-Freeman romance and simply “assumed” the couple had received “clearance from a superior court”—because that’s how appeals courts work for the types of lawyers who bill $2,000 an hour, apparently.

Jones, for his part, filed a motion to dismiss Van Deelen’s case on the audacious grounds of judicial immunity, citing a 1978 Supreme Court ruling about a judge who ruled in favor of allowing a mother to secretly sterilize her daughter. SCOTUS ultimately determined youth sterilization to be outside the judge’s jurisdiction, but he was a mere circuit court judge; as I have labored to detail above, the jurisdiction of the modern corporate bankruptcy court is virtually limitless.

The nation’s bankruptcy code has quietly metamorphosed into a vast enabler of reverse wealth redistribution.

I reached out to everyone involved in this spectacle—Jones, Isgur, Freeman, Cavenaugh, Sussberg, Jackson Walker, Kirkland & Ellis—and the only person who got back to me was Freeman’s attorney Tim Kirkendall, who in another example of the insularity of the whole thing is Isgur’s former law partner and Judge Jones’s former boss. He declined to comment.

Bankruptcy is not the only area of law in which public rights have been hijacked by corporations and their legal counsel to serve their interests; corporations are people, my friend. But given its awesome power to summarily deprive stakeholders of their due process rights, it is probably the most powerful. “Almost all of law is enforced through civil liability, and bankruptcy supersedes civil liability,” notes LoPucki. But the lawlessness celebrity bankruptcy judges have normalized behind the scenes may be due for some law and order.

Last December, I sat in the Supreme Court gallery and watched an attorney representing Purdue Pharma, Greg Garre, attempt to convince the justices that the Sackler bankruptcy and its serial liability releases were part of a storied centuries-long tradition, on the basis of two purported cases from 1619 and 1620 in which then-Lord Chancellor Francis Bacon is said to have granted some kind of discharge. (Bacon was, incidentally, charged with 23 counts of corruption and run out of office the very year following his alleged ruling.) When Garre pointed out that victims would have “serious issues about being able to collect” damages from the Sackler family if they refused to release them from liability, Ketanji Brown Jackson shot back, “Only because the Sacklers have taken the money offshore, right?”

Neil Gorsuch then picked up the derision, suggesting bipartisan revulsion. “When we look at historic equity practice, I think you got a couple of cases from the 1600s and a couple of district court cases more recently and pretty much nothing else,” he told the Purdue lawyer. “You got a lot running against you, don’t you?”

UPDATE: This story has been updated to further explain how Business Insider reported its story on Judge Jones. It also clarifies that Van Deelen’s lawsuit against Bloomberg was settled favorably, and that he is indeed a card-carrying member of Mensa.