McKinsey wins dismissal of Jay Alix's lawsuit over bankruptcy conflicts

By Jonathan Stempel

NEW YORK (Reuters) -A U.S. judge dismissed turnaround specialist Jay Alix's lawsuit accusing consulting giant McKinsey & Co of misleading bankruptcy courts about conflicts of interest when seeking permission to perform lucrative work on corporate restructurings.

U.S. District Judge Jesse Furman in Manhattan said Alix lacked standing to sue under the federal Racketeering Influenced and Corrupt Organizations Act ("RICO") because AlixPartners, the consulting firm he founded and partially owns, never assigned him that right.

"Alix has no one to blame but himself - or perhaps AlixPartners," Furman wrote in a 34-page decision on Wednesday.

The decision follows six years of often bitter litigation between Alix and one of his most powerful rivals, including a successful appeal by Alix in 2022 of an earlier dismissal.

"We're disappointed in Judge Furman's decision, and respectfully disagree with it," Jay Alix's lawyer, Sean O'Shea, said. "This is a nonsubstantive ruling on the case, and we fully expect the (appeals court) to see our way again."

'CRIMINAL ENTERPRISE' ALLEGED

Alix accused McKinsey of running a "criminal enterprise" by hiding its ties to lenders and competitors of its clients.

He said these conflicts should have disqualified McKinsey from 13 bankruptcies including American Airlines, food retailer Harry & David and coal producer Alpha Natural Resources, and potentially cost AlixPartners some assignments.

Alix also accused McKinsey of running a "pay-to-play" scheme in which McKinsey would arrange meetings between its consulting clients and bankruptcy lawyers, if those lawyers would refer their bankruptcy clients to McKinsey for restructuring work.

RICO lets people sue if they believe criminal enterprises caused them harm. Alix had sought triple damages.

McKinsey said in a statement: "We have said for years that Jay Alix's accusations are entirely meritless and we are glad the case has once again been dismissed."

AlixPartners was not a party to the case. The New York-based firm and its lawyers did not immediately respond to requests for comment.

'NO MERE TECHNICALITY'

Alix's assignment let him pursue claims against McKinsey over "illegal competitive activity in the crisis management and consulting business involving major bankruptcy cases."

But the judge said "illegal competitive activity" refers naturally to antitrust claims, and said the assignment did not mention RICO or terms such as racketeering and organized crime.

Furman said it was unclear whether the drafting was simply careless, or whether Alix and AlixPartners "tried to play fast and loose" by shielding AlixPartners from the burdens of litigation while preserving its ability to sue later.

The result "may smack of a technicality - especially in light of the lengthy history of this litigation," the judge wrote. "But it is no mere technicality."

Furman said the assignment did not surface in the litigation until January of this year, which explains why he did not rule on its validity sooner.

(Reporting by Jonathan Stempel in New YorkEditing by Matthew Lewis)