The recent recommendation by a federal bankruptcy judge approving settlements in proceedings in In re Professional Fee Matters Concerning the Jackson Walker Law Firm requiring the Jackson Walker law firm to return millions of dollars in professional fees serves as an important reminder that undisclosed personal relationships can create significant legal, financial, governance, and reputational risks for organizations.

The recommendations in In re Professional Fee Matters Concerning the Jackson Walker Law Firm arose after it was revealed that former Jackson Walker bankruptcy partner Elizabeth Freeman had engaged in a long-term romantic relationship with then-Chief U.S. Bankruptcy Judge David R. Jones while Jackson Walker regularly appeared before him in major Chapter 11 cases. Although federal bankruptcy law and Federal Rule of Bankruptcy Procedure 2014 require professionals seeking employment by a bankruptcy estate to disclose connections that could bear on their disinterestedness or present an appearance of a conflict, the relationship was not disclosed to parties or the court while Jackson Walker sought and received approval of millions of dollars in fees. After the relationship became public in 2023, the United States Trustee moved in numerous bankruptcy cases to vacate fee orders and seek disgorgement or other relief, alleging that the firm’s nondisclosure deprived the bankruptcy courts and parties of information material to evaluating the firm’s eligibility for employment and compensation. Those proceedings were consolidated before the U.S. District Court for the Southern District of Texas, which referred various issues to the bankruptcy court, ultimately resulting in recommendations approving negotiated settlements requiring Jackson Walker to return millions of dollars in fees while preserving unresolved issues concerning additional fee applications and other requested relief. 

While the underlying matter arose in a bankruptcy proceeding, the governance lessons apply broadly to employers of every size. The risks can become particularly acute when the undisclosed relationship involves dealings with government entities, as illustrated by the fallout from a private developer’s dealings with a municipality in United States v. Jordan, No. 22-40519 (5th Cir. Oct. 18, 2023). In that case, Mark Jordan, a real-estate developer and managing partner of entities developing the Palisades project in Richardson, Texas, entered into a sexual relationship with Richardson’s mayor, Laura Jordan, while she participated in votes and negotiations affecting his project. During the relationship, the developer provided the mayor cash, a $40,000 check, trips, luxury hotel stays and more than $24,000 in home renovations, and later hired her for a $150,000-a-year position despite her lack of relevant licensing or experience.   When a city ethics investigation examined her involvement with the developer, neither disclosed their sexual relationship or the financial benefits; the investigator consequently found no wrongdoing, after which the city agreed to reimburse the developer and his partners approximately $47 million for infrastructure work, with the mayor voting for the agreement.   A federal jury ultimately convicted both participants of bribery-related offenses under 18 U.S.C. § 666 and tax offenses, and the Fifth Circuit affirmed the bribery convictions.   The decision illustrates that an undisclosed intimate relationship becomes substantially more dangerous when accompanied by gifts, employment opportunities or other benefits and when the conflicted decision-maker participates in transactions benefiting the other participant or that participant’s business; the exposure can extend beyond employment discipline to criminal prosecution, invalidation or investigation of the affected transaction, restitution and significant reputational and governance consequences.

For employers, undisclosed sexual, romantic, familial, financial, or other close personal relationships involving employees, executives, board members, fiduciaries, or other decision-makers and individuals employed by or leading vendors, customers, regulators, professional advisors, competitors, governmental agencies, or other organizations doing business with the employer may create actual or perceived conflicts of interest that expose the organization to substantial risk. Even where conflicts don’t result in prosecutions, disqualification or other enforcement, actual or perceived conflicts of interest can fuel reputational damage and distrust harmful the employing business.

Disclosure Matters

In most cases, a personal relationship is not inherently improper. The legal and business risks generally arise when a relationship is undisclosed or compromises—or reasonably appears to compromise—the individual’s ability to exercise independent business judgment.

Failure to disclose relevant relationships may:

• Undermine confidence in contracting, procurement, hiring, promotion, compensation, or other business decisions.
• Create actual or perceived favoritism.
• Raise questions regarding compliance with fiduciary, ethical, or professional obligations.
• Trigger internal investigations, litigation, or regulatory scrutiny.
• Jeopardize contractual or governmental relationships.
• Damage employee trust and organizational reputation.

Even where no intentional misconduct ultimately is established, the resulting investigations, litigation costs, business disruption, and reputational harm may be significant.

Employers Should Review & Enforce Conflict-of-Interest Policies

Many employers maintain conflict-of-interest policies but focus primarily on financial interests. Organizations should consider whether existing policies adequately address personal relationships that could reasonably affect—or appear to affect—business decisions.

Particular attention should be given to relationships involving:

• Vendors and suppliers;
• Outside legal counsel, consultants, accountants, actuaries, and other professional advisors;
• Customers and clients;
• Government officials and regulators;
• Board members and corporate officers;
• Investors, lenders, or fiduciaries;
• Joint venture or strategic partners;
• Competitors; and
• Supervisory or reporting relationships within the organization.

Practical Risk Management Steps

Employers should consider:

• Carefully identifying all applicable conflict of interest and disclosure requirements arising under applicable statutes, regulations, policies and contracts;
• Maintaining comprehensive conflict-of-interest disclosure requirements;
• Requiring periodic conflict certifications by directors, officers, fiduciaries, managers, and designated employees;
• Providing confidential reporting mechanisms;
• Establishing procedures for reviewing disclosed conflicts and documenting mitigation measures;
• Requiring recusals where appropriate;
• Providing regular ethics and conflict-of-interest training; and
• Periodically reviewing governance, procurement, and compliance practices.

Takeaway

Recent federal court proceedings demonstrate that undisclosed personal relationships can undermine confidence in decision-making and expose organizations to substantial legal and business consequences. Regardless of industry, employers should periodically review conflict-of-interest policies, disclosure procedures, governance practices, and training programs to ensure they address both actual and perceived conflicts before they become costly disputes or inflict other damage.

For Help or More Information

The author of this update, Cynthia Marcotte Stamer is an attorney Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization with decades of experience advising and assisting health industry and other employers to design, audit, and defend their employment and other risk management and compliance practices, including conducting audits and investigations, designing and updating compliance and risk management programs, responding to government investigations, conducting transaction, governance, and other due diligence, and assisting with other legal and operational compliance and risk management and legislative and regulatory affairs. She is available to assist your organization in assessing the impact of these developments and navigating the compliance and strategic steps that follow. For more information about these concerns or Ms. Stamer, contact Ms. Stamer via e-mail or via telephone at (214) 452 -8297.

About the Author

Cynthia Marcotte Stamer is an American College of Employee Benefits Counsel and a Martindale-Hubble “AV-Preeminent” (Top 1%) attorney and advisor board certified in labor and employment law by the Texas Board of Legal Specialization peer peer celebrated as “Top Rated Lawyer” and “LEGAL LEADER™ “Top Rated Lawyer” and “Best Lawyer” for her work in ERISA & Employee Benefits Law, Health Care Law, Labor and Employment Law, and Business and Commercial Law.

Nationally recognised for her decades of leading edge workforce, health and other employee benefits and insurance, compensation, regulatory affairs and compliance, and other human resources and other management work, public policy leadership and advocacy, coaching, teachings, and publications, Ms. Stamer’s work throughout her career has focused heavily on working with health care and managed care, health and other employee benefit plan, insurance and financial services and other public and private highly regulated and performance dependent organizations and their technology, data, and other service providers and advisors domestically and internationally with legal and operational compliance and risk management, performance and workforce management, regulatory and public policy and other legal and operational concerns.  As a a key focus of this work, she has continuously and extensively worked with domestic and international health plans, their sponsors, fiduciaries, administrators, and insurers; managed care and insurance organizations on workforce and performance management, employee benefits, compensation, regulatory and operational compliance, and other related concerns.

Her experience includes more than 35 years of leading edge work experience helping health care systems and organizations, group and individual health care providers, government contractors and other performance dependent employers; health plans and insurers, and a broad range of other businesses design and administer workforce, compensation and benefits, compliance and risk management and other practices and policies, and operate and defend organizations and practices to prevent, investigate, manage and resolve performance and behavior; manage civil rights, discrimination and accommodation, and other regulatory, contractual and other compliance responsibilities and risks; vendors and suppliers; conducting and defending investigations, audits, investigations, and other actions; crisis preparedness and response; to establish, administer and defend workforce and staffing, quality, and other compliance, risk management and operational practices, policies and actions; comply with requirements; investigate and respond to Department of Insurance, Board of Medicine, Health, Nursing, Pharmacy, Chiropractic, trucking, alcohol and firearm, and other licensing agencies, Department of Aging & Disability, FDA, Drug Enforcement Agency, OCR Privacy and Civil Rights, Department of Labor, IRS, HHS, DOD, FTC, SEC, CDC and other public health, Department of Justice and state attorneys’ general and other federal and state agencies; JCHO and other accreditation and quality organizations; private litigation and other federal and state health care industry actions: regulatory and public policy advocacy; training and discipline; enforcement;  and other strategic and operational concerns.

Former lead advisor to the Government of Bolivia on its Social Security Privatization reform, Ms. Stamer also has extensive international, federal and state legislative and regulatory affairs experience on federal, state and international workforce, employee benefits, healthcare, education, insurance, data privacy and security, antitrust, and other regulations and reforms.

In addition, Ms. Stamer also is widely celebrated for her leadership in the American Bar Association (“ABA”) and a multitude of other policy, professional, civic, educational, community and other organizations. Ms. Stamer currently or previously served as the the American Bar Association (“ABA”) Joint Committee on Employee Benefits (“JCEB”) leadership council, Scribe leading the Department of Health and Human Services annual agency meeting and a representative to other annual agency meetings, speaker, author and faculty; the ABA International Section International Employment Law Committee and International Life Sciences Committee Chair; the ABA Tort Trial and Insurance Practice Section Medicine and Law Committee Chair, SCOPE member, and Employee Benefits and Worker’s Compensation Committees Vice Chair; the ABA Health Law Section Managed Care & Insurance Interest Group Chair and Risk Management Interest Group Vice Chair; the ABA RPTE Employee Benefits & Other Compensation Group Chair and Welfare Benefit, Fiduciary Responsibility, and Plan Terminations and Transactions Committees Chair; the North Texas Health Care Compliance Professionals Association Vice President and Executive Director; a Southwest Benefits Association Board Member, Treasurer and Continuing Education Committee Chair; a SHRM Consultants National and Region IV Board Chair; a WEB National Board Member and Dallas Chapter President; the National Kidney Foundation of North Texas Board Member and Compliance Chair; the Richardson Development Center (now Warren Center) for Children Early Childhood Intervention Agency Board President; a North Texas United Way Long Range Planning Committee Member; and in many other leadership roles in a broad range of other professional and civic organizations.

Along with these activities, Ms. Stamer also has earned national recognition for her authorship of thousands of highly regarded works, presentations as a knowledgeable speaker, testimony and other input of regulators and legislators, and media interviews on health and other benefits, human resources and other workforce, health care, insurance, data privacy and security and other related concerns. 

For more information about Ms. Stamer or her health industry and other experience and involvements, see www.cynthiastamer.com or contact Ms. Stamer via telephone at (214) 452-8297 or via e-mail here.