Racketeering lawsuit against McKinsey revived by U.S. appeals court

By Jonathan Stempel

NEW YORK (Reuters) – A U.S. appeals court docket on Wednesday revived a racketeering lawsuit accusing the consulting agency McKinsey & Co of concealing potential conflicts when looking for permission from chapter courts to carry out profitable work on company restructurings.

The three-0 choice by the 2nd U.S. Circuit Court docket of Appeals in Manhattan was a victory for retired turnaround specialist Jay Alix, who accused McKinsey of working a “felony enterprise” by hiding its ties to lenders and its shoppers’ opponents.

Alix mentioned McKinsey’s conflicts ought to have disqualified it from 13 bankruptcies together with American Airways, meals retailer Harry & David and coal producer Alpha Pure Assets, inflicting his former agency AlixPartners to lose assignments.

He additionally accused McKinsey of working a “pay-to-play” scheme during which it organized conferences between shoppers and chapter legal professionals in alternate for referrals from these legal professionals.

The appeals court docket mentioned a decrease court docket choose erred find that Alix alleged no “proximate” hyperlink between McKinsey’s alleged wrongdoing and hurt to AlixPartners, during which Alix reported proudly owning a 35% fairness stake.

The appeals court docket additionally mentioned the choose gave “inadequate consideration” as to whether McKinsey undermined the integrity of federal judicial proceedings, during which litigants are entitled to know that the foundations are being adopted.

“If McKinsey’s conduct has corrupted the method of partaking chapter advisors, as Alix plausibly alleges, then the unsuccessful individuals in that course of are immediately harmed,” Circuit Decide Barrington Parker wrote.

The court docket didn’t rule on the deserves of Alix’s case. Alix has battled McKinsey in a number of courtrooms since 2016.

“Mr. Alix has misplaced all six of his lawsuits in opposition to McKinsey, and we’re assured the proof will finally present that this lawsuit is equally meritless,” McKinsey mentioned in an announcement.

Alix’s legal professionals had no speedy remark.

The appeals court docket returned the case to U.S. District Decide Jesse Furman in Manhattan, who had dismissed it in August 2019.

Alix has sought triple damages underneath the federal Racketeer Influenced and Corrupt Group Act, which lets individuals sue in the event that they imagine felony enterprises triggered them hurt.

The case is Alix v McKinsey & Co et al, 2nd U.S. Circuit Court docket of Appeals, No. 20-2548.

(Reporting by Jonathan Stempel in New York; Modifying by Leslie Adler)