#USA #Houston #J.C. Penney #Jackson Walker LLP #Barnett Capital

Barnett Capital Advisors Takes Action in J.C. Penney Bankruptcy

In a significant move, Barnett Capital Advisors has officially joined the fight in the J.C. Penney bankruptcy case, targeting the law firm Jackson Walker LLP in a claim for damages exceeding $1 billion. The company, which holds a first and second lien on the retailer's debts, filed a motion to intervene in the proceedings taking place in the Southern District of Texas.

This bold action follows the revelations made by another creditor, Eric Moore, who initially filed a motion alleging severe misconduct relating to a secretive relationship between Judge David Jones and Elizabeth Freeman of Jackson Walker. According to the allegations, this hidden connection contributed to preferential treatment being granted to certain creditors, with billions in cash and assets being allocated disproportionately while others, even those in the same creditor class, were left empty-handed.

Andrew Carrillo, CEO of Barnett Capital Advisors, expressed strong sentiments about the case, stating, "What occurred in this Chapter 11 case is far from typical. The court needs to thoroughly investigate the extent of harm caused to creditors and investors." The motion cites several eye-opening allegations against Jackson Walker:

1. Surreptitious Payments: The Uptier Group, a select cohort of creditors, reportedly received over $3 billion while claiming they were owed only $900 million, with no disclosure of such payments to the U.S. Trustee.
2. Lack of Liquidation Analysis: Jackson Walker allegedly failed to conduct a required liquidation analysis, concealing billions in assets from secured creditors. This omission is in violation of federal bankruptcy statutes and permitted a disproportionate wipeout of first and second lien secured bondholders.
3. Omitted Sale Process Details: It is further claimed that the firm misrepresented the asset sale process, presenting it as an auction while prominent aspects indicated it was a private sale.
4. Misleading Financial Updates: Significantly, Jackson Walker purportedly signed off on reports that inaccurately stated only $1 billion was available for distribution, while later, over $8 billion was actually allocated.
5. Selective Judicial Process: Their behind-the-scenes maneuvering allegedly included selectively choosing Judge Jones to oversee the bankruptcy due to fears he was a more favorable decision-maker compared to other possible judges.

Carrillo did not hold back in his accusations, labeling the withholding of a liquidation analysis as an intentional effort to obfuscate the actual financial situation and harm creditors who were under the firm’s fiduciary duty.

Raul Ferrer, a bond investor and fiercely dedicated J.C. Penney creditor, echoed Carrillo's concerns, arguing the firm's failures contributed to a lack of transparency that hinders trust in the bond market. "When crucial asset information is not disclosed or analyzed, it puts our rights as secured creditors in serious jeopardy. This breach has shaken my confidence in investing in bonds moving forward."

The current lawsuit against Jackson Walker filed by the J.C. Penney Plan administrator is seeking a mere $1 million for the breach of fiduciary duty, an amount Barnett Capital and other parties deem alarmingly inadequate relative to the alleged damages. The motion to intervene is recorded under Dkt. 4 in the relevant adversary proceeding path at the U.S. Bankruptcy Court.

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