A Texas bankruptcy judge threatened potential sanctions against Jackson Walker after discovering another chapter 11 case in which it didn't disclose a former partner's romantic ties with ex-Judge David R. Jones.

Jackson Walker was ordered to explain why it didn't divulge the relationship between Jones and its former partner Elizabeth Freeman in its application to work on the 2023 chapter 11 case of automated teller manufacturer Diebold Nixdorf, opening a new front in the legal fallout from their undisclosed relationship.

Chief Judge Eduardo Rodriguez of the Southern District of Texas on Friday criticized both the Texas law firm and the Justice Department's bankruptcy division for failing to flag that Freeman had been involved in the Diebold case alongside her former firm.

Freeman had served as Jones's law clerk until she joined Jackson Walker and worked on dozens of major corporate bankruptcy cases he oversaw while they were romantically involved and living together. After Jackson Walker's management confirmed an ongoing romance with Jones, she left the firm in November 2022 to start her own solo law practice, although she kept working on cases in the Houston bankruptcy court with her old colleagues without any disclosure of her relationship with the judge.

Jackson Walker worked with Freeman to prepare Diebold for chapter 11 after she had opened the Law Office of Liz Freeman, court records show. Jackson Walker served as local counsel to the company's primary bankruptcy firm, Jones Day.

Jones confirmed his relationship with Freeman to The Wall Street Journal in October 2023 and resigned soon after, touching off one of the highest-profile judicial ethics scandals in recent years. The U.S. Trustee then sought to claw back $23 million in fees that Jackson Walker charged in 33 cases in which Jones was either the presiding judge or the mediator. The Diebold case, which Jones oversaw before his resignation, wasn't one of them.

But Judge Rodriguez questioned on Friday whether Jackson Walker had complied with its disclosure obligations by mentioning Freeman in its engagement letter with Diebold while omitting what it knew about her and Jones.

Rodriguez also questioned why the Justice Department's Office of the U.S. Trustee, which polices the nation's bankruptcy system, hadn't objected to Jackson Walker's application to be retained and paid by Diebold.

"Most troubling to the court is the unanswered question of how many other cases like this may be lurking on the dockets of the Southern District of Texas bankruptcy courts," Rodriguez said in his order. He ordered Jackson Walker to explain why he shouldn't issue sanctions against the firm "for its failure to bring this and potentially other similar matters to this court's attention earlier."

Rodriguez invited the U.S. Trustee to investigate potential disclosure violations in Diebold and possibly other cases. Freeman was paid $27,000 by Diebold for her prebankruptcy work, court records show.

The judge also said he would consider recommending the appointment of a special master to determine whether more cases should be folded into the U.S. Trustee's clawback proceedings against Jackson Walker.

Jackson Walker and the U.S. Trustee have agreed to settle the clawback claims for $15 million. In a separate filing Friday, the U.S. Trustee indicated it was pausing efforts to finalize that agreement because of uncertainty over whether it has legal standing to challenge prior court orders approving Jackson Walker's fees.

A Jackson Walker representative didn't immediately respond to a request for comment Monday.