Texas Judge Faces Call for Recusal From Hedge Fund Manager Who Was Cast as ‘Major Villain’ in Her Novel

A bankruptcy judge in Texas is facing calls for recusal after being accused of writing novels with a bias against hedge fund managers, particularly, a hedge fund manager who had business before her in court.

A motion filed by hedge fund manager Jim Dondero’s Dugaboy Investment Trust objected to more cases related to an ongoing Highland Capital Management bankruptcy proceeding being transferred to Chief Bankruptcy Judge for Northern District of Texas Stacey G.C. Jernigan, whose novels are accused of featuring characters that bear a striking resemblance to both herself and Dondero, the motion claims.

The newly filed objection includes an expert report from former federal appellate judge and law professor Steve Leben, who was asked by Dugaboy to review the novels and opine whether they would form a basis for recusal under the applicable standards.

“Courts have required disqualification when a judge displays hostility toward a type of party and when a judge chooses to speak publicly about issues that are pending before the judge,” the opinion letter by Leben stated, filed as an exhibit in support of the positions.

“Here, the protagonist in Judge Jernigan’s books, published while Jernigan presided over bankruptcies involving Dondero-related hedge funds, is closely modeled on Judge Jernigan, so a reasonable observer would associate the protagonist judge’s views with Judge Jernigan’s,” the opinion letter stated.

Judge Avery Lassiter, the protagonist in Jernigan’s first self-published novel, He Watches All My Paths, and its sequel, Hedging Death, makes “strong negative comments about hedge-fund operators in both books,” according to the motion to transfer the case, and a "major villain" in the second book bears a striking resemblance to Dondero.

The novels are stated as works of fiction, but according to the recusal motion, “there can be little doubt that the books are based upon Chief Judge Jernigan’s experiences as a sitting bankruptcy judge — and, in particular, from the experience presiding over the HCM and Acis bankruptcies.”

The motion states that the two novel’s protagonist named Judge Avery Lassiter “is closely modeled on Judge Jernigan. Both judges hear bankruptcy cases in Dallas; both judges worked at a large Dallas law firm before taking the bench; both judges are married to a police officer; both judges have two children, a girl and a boy; and both judges have a Cavalier King Charles Spaniel breed dog named Baxter. And like Judge Jernigan in the Acis and Highland Capital bankruptcies, "[t]he novel’s protagonist presents a starkly negative view of hedge funds and their operators.”

For her part, Judge Jernigan said that her novels were “entirely fiction” and “not about Mr. Dondero or the hedge fund industry in general.”

"She also emphasized that each book contains a preface stating that the books are 'work[s] of fiction' and that resemblance to actual events or real people “is entirely coincidental," the opinion letter said. "She added that 'there are no characters or entities in her books that have been inspired by or modeled after' Dondero or parties related to him that participated in the Highland bankruptcy case."

Highland Capital Management initially filed for bankruptcy in Delaware in 2019, per reports, but the petition was transferred to the U.S. Bankruptcy Court for the Northern District of Texas, where Jernigan presides.

"In the Highland Capital Management case, Judge Jernigan has twice found Dondero in civil contempt. Dondero and related parties have moved to disqualify Judge Jernigan; some motions to disqualify have been denied and at least one is pending," the statement reads.

Leben is quoted in the recusal motion as saying, “While it’s common for fiction authors to draw on their own lives, experiences, and viewpoints to varying degrees, Jernigan has made the similarities numerous and obvious. The reasonable observer would think — at least initially — that the books’ author has a negative opinion of the hedge-fund industry and that she may have based the Cade Graham character in the novel on the real-life James Dondero.”

Leben concluded, "Judge Jernigan should be disqualified from presiding over any remaining proceedings in either case or any other bankruptcy of a Dondero-related hedge fund.”