Alix v. McKinsey & Co., Inc. et al

Filing 206

ORDER granting 201 Letter Motion to Stay re: 201 LETTER MOTION to Stay all discovery pending resolution of Defendants' Motion to Dismiss the Second Amended Complaint addressed to Judge Jesse M. Furman from John Gleeson date d September 12, 2022. The Court intimates no view on the merits of Defendants' motion to dismiss. But upon consideration of the relevant factors, see, e.g., HAHA Glob., Inc. v. Barclays, No. 19-CV-04749 (VEC) (SDA), 2020 WL 832341, at *1 (S.D.N .Y. Feb. 20, 2020), the Court concludes that discovery should indeed be stayed pending a decision on the motion to dismiss (if not a ruling on the pending petition for the writ of certiorari), substantially for the reasons provided by Defendants. I t is true that this case is "long in the tooth," ECF No. 205, at 2 (internal quotation marks omitted), but a delay of a few more months will not prejudice Plaintiff and, given the scope and nature of the claims, it is in the interests of all parties and the Court to know which, if any, of Plaintiff's claims will proceed. Accordingly, discovery is stayed pending a decision on the pending motion to dismiss. (Having said that, the Court notes that, if or when discovery does proc eed, it has no intention of staging discovery to prioritize the Rule 17 issue, as Defendants propose. That is the price of Defendants' request for a delay.) The Clerk of Court is directed to terminate ECF No. 201. SO ORDERED. (Signed by Judge Jesse M. Furman on 9/22/22) (yv)

Case 1:18-cv-04141-JMF Document 206 Filed 09/22/22 Page 1 of 7

September 12, 2022
BY ECF
Hon. Jesse M. Furman
Thurgood Marshall United States Courthouse
40 Foley Square
New York, NY 10007
Re:

Jay Alix v. McKinsey & Co., Inc. et al., 18-CV-04141 (JMF)

Dear Judge Furman:
Defendants respectfully request that the Court stay all discovery pending resolution of
Defendants’ Motion to Dismiss the Second Amended Complaint (“SAC”). A stay is warranted
in light of Defendants’ substantial arguments for dismissal, the breadth of discovery implicated
by the sprawling claims alleged in the 289-page SAC, and the absence of unfair prejudice to
Plaintiff from such a stay. If, however, the Court orders that discovery proceed, Defendants
respectfully request in the alternative that the Court prioritize and expedite discovery concerning
whether Plaintiff Jay Alix—who asserts claims purportedly assigned by AlixPartners LLP—is
the real party in interest to this litigation.
Background
The 707-paragraph SAC asserts sweeping claims under the Racketeer Influenced and
Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (“RICO”), alleging dozens of predicate acts
relating to fourteen bankruptcy proceedings spanning a nearly twenty-year period, against four
McKinsey entities and nine individuals currently or formerly employed by McKinsey.1
Defendants moved to dismiss the SAC on September 9, 2022. Dkt. 200 (the “Motion to
Dismiss”). The Motion to Dismiss presents grounds for complete dismissal of this case. It also
presents grounds to significantly narrow the scope of the case, even if some portion survives. As
just one example, Defendants demonstrate that claims relating to eight of the fourteen
bankruptcies at issue are barred as to all Defendants by RICO’s four-year statute of limitations,
and thirteen of those bankruptcies are untimely as to the two newly added Individual Defendants.
Dismissal of those claims would significantly limit the scope of discovery, for instance by
eliminating the need to take discovery into both McKinsey’s and AlixPartners’ connections with
the interested parties in those bankruptcies, as well as other factors that may have foreclosed the
retention of AlixPartners.
Prior to moving to dismiss, Defendants informed the Court that they intend to seek
discovery concerning whether AlixPartners, pursuant to Rule 17, is the real party in interest in
1

Defendants McKinsey & Company, Inc., McKinsey Holdings, Inc., McKinsey & Company Inc.
United States, and McKinsey Recovery & Transformation Services U.S., LLC are referred to
collectively as the “Corporate Defendants.” Dominic Barton, Kevin Carmody, Jon Garcia, Seth
Goldstrom, Mark Hojnacki, Virginia Molino, Alison Proshan, Robert Sternfels, and Jared Yerian are
referred to collectively as the “Individual Defendants.”

Case 1:18-cv-04141-JMF Document 206 Filed 09/22/22 Page 2 of 7
The Honorable Jesse M. Furman

September 12, 2022

this case. Dkt. 183. The Court subsequently ordered that “a discovery and briefing schedule for
Rule 17 motion practice is contingent on discovery proceeding in general,” and deferred decision
on an expedited schedule until discovery is set to proceed, if at all. Dkt. 189.
Argument
I.

There Is Good Cause to Stay Discovery Pending Resolution of Defendants’
Motion to Dismiss.

Discovery may be stayed upon a showing of “good cause.” Negrete v. Citibank, N.A.,
2015 WL 8207466, at *2 (S.D.N.Y. Dec. 7, 2015). Here, good cause exists to stay discovery
pending resolution of Defendants’ Motion to Dismiss because (i) Defendants have raised
“substantial arguments” for dismissal; (ii) conducting discovery into Plaintiff’s sprawling
allegations prior to ruling on Defendants’ motion would be unduly burdensome, waste judicial
and party resources, and impose unnecessary burdens on third parties, particularly when it
remains to be seen what, if anything, will be left of the SAC after the Court rules; and (iii) a stay
will not unfairly prejudice Plaintiff. See id.; see also In re Term Comms. Cotton Futures Litig.,
2013 WL 1907738, at *5 (S.D.N.Y. May 8, 2013) (Fox, M.J.).
A.

Defendants Have Raised Substantial Arguments for Dismissal.

Defendants’ Motion to Dismiss demonstrates that Plaintiff’s claims should be dismissed
entirely—or, at a minimum, substantially narrowed—for numerous reasons, including:


Plaintiff fails to adequately plead that McKinsey’s disclosures were false or misleading.
The SAC claims that McKinsey’s disclosures fell short of what Rule 2014 supposedly
requires. But because McKinsey’s disclosures openly stated what was—and was not—
being disclosed, any supposed deficiency is not nearly sufficient to plead a fraud claim.
This compels dismissal of the claims against all Defendants related to those disclosures
and Defendants’ bankruptcy court conduct. See Motion to Dismiss § I.A.



Plaintiff fails to plead facts supporting a strong inference of scienter. McKinsey’s
detailed and transparent disclosures defeat any inference of fraud. And while the crux of
the SAC is that Defendants supposedly violated Rule 2014, Alix has not adequately pled
a knowing violation of Rule 2014—much less actions taken with the intent to defraud.
This compels dismissal of the claims against all Defendants related to those disclosures
and Defendants’ bankruptcy court conduct. See Motion to Dismiss § I.B.



RICO’s statute of limitations bars Plaintiff’s claims in their entirety as to certain
Individual Defendants, and in large part as to all other Defendants. The limitations
period has expired as to the earliest eight bankruptcies for all Defendants, as to all
bankruptcies for Defendants Goldstrom, Yerian, and Garcia, and as to all but one
bankruptcy for Defendants Molino and Hojnacki, who were only added as defendants in
the SAC. See Motion to Dismiss § II.



Plaintiff has not adequately alleged a RICO enterprise distinct from McKinsey and its
corporate affiliates, or an association-in-fact enterprise comprised of McKinsey and its
debtor clients. This compels dismissal of all claims against the Corporate Defendants,

2

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The Honorable Jesse M. Furman

September 12, 2022

including the “pay-to-play” allegations, and the dismissal of Count 3 against all
Defendants. See Motion to Dismiss § IV.


Plaintiff fails to adequately plead that the Individual Defendants committed any
racketeering acts or operated or managed any of the alleged RICO enterprises. Alix
fails to allege facts sufficient to establish that any Individual Defendant committed any
acts of racketeering or played a part in directing, operating, or managing any of the
alleged RICO enterprises. This requires dismissal of all claims against all Individual
Defendants. See Motion to Dismiss §§ I.A, I.B, I.C, I.D, I.E, V.



Plaintiff’s alleged injury is not within the applicable zone of interests for his statutory
claim. Plaintiff is not a victim protected by the bankruptcy disclosure provisions that
form the basis of the alleged predicate acts underlying his RICO claims. This compels
dismissal of the RICO claims against all Defendants related to those disclosures and
Defendants’ bankruptcy court conduct. See Motion to Dismiss § VI.



Plaintiff fails to adequately plead that AlixPartners was actually injured or lost profits
as a result of McKinsey’s alleged conduct. Alix makes only conclusory allegations that
McKinsey’s allegedly omitted connections were disqualifying and fails to allege that, in
such case, the bankruptcy courts would have approved AlixPartners’ retention. (In fact,
public filings make clear that AlixPartners had a disqualifying conflict in SunEdison that
would have precluded its retention.) This requires dismissal of all claims, including the
“pay-to-play” allegations, against all Defendants. See Motion to Dismiss § VII.



Plaintiff’s claims related to ANR are barred by collateral estoppel. This requires
dismissal of claims based on ANR against all Defendants. See Motion to Dismiss § III.



Plaintiff fails to plead any details of a conspiracy agreement. This compels dismissal of
the § 1962(d) conspiracy claim against all Defendants. See Motion to Dismiss § VIII.

Defendants’ motion clearly raises “substantial arguments” for dismissal, Negrete, 2015
WL 8207466, at *1, and will likely either be dispositive or render the SAC a shadow of its
former self. This weighs heavily in favor of a stay. See, e.g., Alpha View Ltd. v. Prodigy
Network, LLC, 2021 WL 1893316, at *2 (S.D.N.Y. May 10, 2021) (granting stay based on
“potentially dispositive” motion); HAHA Global, Inc. v. Barclays, 2020 WL 832341, at *1
(S.D.N.Y. Feb. 20, 2020) (where “disposition of the dismissal motions may significantly narrow,
if not eliminate, the issues remaining in this case . . . proceeding with discovery while the motion
is pending would waste the parties’ resources” (citations omitted)); Johnson v. New York Univ.
Sch. of Educ., 205 F.R.D. 433, 434 (S.D.N.Y. 2002) (“[A] stay of discovery is appropriate
pending resolution of a potentially dispositive motion where the motion ‘appear[s] to have
substantial grounds’ or . . . ‘do[es] not appear to be without foundation in law.’” (citation
omitted)).
B.

Discovery Would Impose Considerable Burdens on Defendants and
Third Parties and Waste Judicial Resources.

A stay is also warranted because the anticipated discovery is, to say the least, “significant
in scope and expensive to comply with.” Negrete, 2015 WL 8207466, at *2; see Alpha View,
2021 WL 1893316, at *2 (stay of discovery is especially appropriate where the alleged conduct

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The Honorable Jesse M. Furman

September 12, 2022

in a case spans “multiple years,” numerous parties, and “countless transactional documents”).
Plaintiff is likely to seek wide-ranging and expensive discovery. His allegations span two
decades, fourteen corporate bankruptcies, and 43 declarations submitted on behalf of McKinsey
in those cases. Discovery on Plaintiff’s full allegations could implicate enormous amounts of
information and voluminous privileged materials, particularly because Plaintiff has sued
attorneys, including McKinsey’s former General Counsel. Such discovery would impose
substantial burden and expense on Defendants and third parties. These third parties include the
still-unidentified professionals and law firms that are necessarily implicated by Plaintiff’s fraud
and pay-to-play allegations; the interested parties in the fourteen bankruptcies at issue; and
AlixPartners’ own leaders, investors, and employees.
Defendants and third parties should not incur the substantial expense and burden of
discovery where the RICO claims fail as a matter of law or, at a minimum, should be
significantly narrowed. See, e.g., HAHA, 2020 WL 832341, at *1 (where disposition of motion
will “significantly narrow” scope of discovery, “proceeding with discovery . . . would constitute
an undue burden on Defendants”); Spinelli v. Nat’l Football League, 2015 WL 7302266, at *2
(S.D.N.Y. Nov. 17, 2015) (granting stay because resolution of motion could “simplify[] and
shorten[]” discovery on remaining claims). Indeed, given that Plaintiff’s allegations center on
14 distinct bankruptcy cases, even a partial dismissal could narrow discovery significantly.2
Finally, discovery in this case—both between the parties and on third parties—will
undoubtedly result in disputes requiring the attention of this Court (and where third parties are
implicated, potentially other courts). If Defendants are successful on their Motion to Dismiss, or
even partially successful, a stay will promote judicial economy as it will obviate or reduce the
need for judicial resolution of discovery disputes in this case.
C.

Plaintiff Will Suffer No Unfair Prejudice If Discovery Is Stayed.

By contrast, Plaintiff will not suffer any unfair prejudice if the Court stays discovery.
“[W]ith the viability of [a c]omplaint unresolved, a delay in discovery, without more, does not
amount to unfair prejudice.” Spinelli, 2015 WL 7302266, at *2. And where, as here, Defendants
have already filed their Motion to Dismiss, “any stay would last briefly” and “would not unfairly
prejudice [the] Plaintiff.” See HAHA, 2020 WL 832341, at *1.
That is particularly true here, where Alix principally seeks monetary damages and makes
no credible allegations of ongoing harm or imminent loss of evidence. See Straight Path IP
Grp., Inc. v. Verizon Commc’ns Inc., 2016 WL 6094114, at *3 (S.D.N.Y. Oct. 18, 2016) (no
prejudice to plaintiff from a stay where there is no “ongoing harm” and “monetary damages” are
available); Term Comms. Cotton Futures Litig., 2013 WL 1907738, at *7 (fact that “the potential
exists” for evidence to be lost is a “usual litigation risk” and does not constitute “unfair
prejudice” to the party opposing a stay pending outcome of motion to dismiss).

2

Defendants’ pending petition for certiorari could also ultimately obviate any need for discovery.

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Case 1:18-cv-04141-JMF Document 206 Filed 09/22/22 Page 5 of 7
The Honorable Jesse M. Furman
II.

September 12, 2022

If a Stay Is Denied, Rule 17 Discovery Should Be Prioritized.

If the Court nevertheless concludes that discovery should proceed, Defendants request
that, as a matter of sound case management, the Court expedite Rule 17-related discovery and
briefing before the Rule 26(f) conference and the commencement of full case discovery.
Requests for expedited discovery are considered under a flexible standard of
“reasonableness” and “good cause.” Ayyash v. Bank Al-Madina, 233 F.R.D. 325, 326–27
(S.D.N.Y. 2005) (collecting cases). Where (as here) good cause exists, such expedited discovery
should proceed on a targeted and limited basis before the Rule 26(f) conference and “full and
normal discovery” in the case. Stern v. Cosby, 246 F.R.D. 453, 457 (S.D.N.Y. 2007). There is
good cause here to expedite discovery to determine whether Alix is authorized to pursue this suit
before proceeding with full and normal discovery. Doing so will protect Defendants from
incurring the unnecessary expense and delay of litigating against a person without authority to
bring this action in the first place. Cf. Fed. R. Civ. P. 1 (providing that the rules “should be
construed, administered, and employed by the court and the parties to secure the just, speedy,
and inexpensive determination of every action”). Moreover, Defendants and third parties should
not incur the expense and burden of responding to Alix’s merits-based discovery unless the
Court finds that he is authorized to proceed as the plaintiff.
Staging discovery in this manner is particularly appropriate here because the existing
record already strongly supports a finding that the purported assignment was improper. See
Stern, 246 F.R.D. at 457 (finding good cause for expedited discovery where documents already
before the court supported underlying motion). In a declaration filed in this case, Alix stated that
AlixPartners assigned him these claims to avoid “the risk, burden, and expense of litigation”
while enabling it “at the same time [to] benefit from” the suit. Dkt. 106 (Alix Decl.), ¶ 22. In
other words, Alix has admitted, under penalty of perjury, that this assignment was designed to
convert AlixPartners from a party (subject to party-specific discovery obligations and evidentiary
rules) to a non-party, while still trying to achieve for AlixPartners the “benefit” of the litigation.
This is not a legitimate business purpose, see Dkt. 139 at 17, and cannot convert Alix into the
real party in interest. See Dkt. 183 at 2.
Accordingly, if the Court declines to stay discovery in its entirety, Defendants
respectfully request that the Court order expedited discovery on whether Alix is the real party in
interest to proceed before full case discovery, pursuant to the schedule proposed in Defendants’
July 20, 2022 letter to the Court, see Dkt. 188, and set forth again below:



Document discovery regarding real party in interest: 8 weeks, starting from the
start of any Court-ordered discovery; and
Fact depositions (including under Fed. R. Civ. P. 30(b)(6)) regarding real party
in interest: 4 weeks, starting from the close of Rule 17-related document discovery.
Conclusion

For the foregoing reasons, Defendants respectfully request that the Court stay all
discovery pending disposition of the Motion to Dismiss. If a stay is denied, Defendants
respectfully request that the Court order expedited discovery on and briefing of Defendants’ Rule
17 motion prior to the Rule 26(f) conference and the commencement of full case discovery.

5

Case 1:18-cv-04141-JMF Document 206 Filed 09/22/22 Page 6 of 7
The Honorable Jesse M. Furman

September 12, 2022

Respectfully submitted,3
/s/ John Gleeson
John Gleeson
Mark P. Goodman
Andrew J. Ceresney
Erica S. Weisgerber
Nathan S. Richards
Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
[phone]
[e-mail]

/s/ Jonathan D. Cogan
Matthew I. Menchel
Jonathan D. Cogan
Danielle L. Rose
Benjamin Sirota
Christen M. Martosella
Benjamin F. Cooper
Kobre & Kim LLP
800 Third Avenue
New York, New York 10022
[phone]
[e-mail]

Counsel for McKinsey & Company, Inc.,
McKinsey Holdings, Inc., McKinsey & Company
Inc. United States, and McKinsey Recovery &
Transformation Services U.S., LLC
/s/ Ariel N. Lavinbuk
Ariel N. Lavinbuk
Jennifer S. Windom
Brandon L. Arnold
Kramer Levin Naftalis & Frankel LLP
2000 K Street NW, 4th Floor
Washington, D.C. 20006
[phone]
[e-mail]

/s/ Reid M. Figel
Reid M. Figel
Bradley E. Oppenheimer
Robert C. Klipper
Kellogg, Hansen, Todd, Figel & Frederick
P.L.L.C.
1615 M Street, NW, Suite 400
Washington, D.C. 20036
[phone]
[e-mail]

Counsel for Jon Garcia, Alison Proshan,
and Robert Sternfels

Counsel for Kevin Carmody and Seth
Goldstrom

/s/ Catherine L. Redlich
Catherine L. Redlich
Driscoll & Redlich
110 West 40th Street, Suite 1900
New York, New York 10018
[phone]
[e-mail]

/s/ Micah E. Marcus
Micah E. Marcus
Christopher Dean
McDonald Hopkins LLP
300 North LaSalle Street, Suite 1400
Chicago, Illinois 60654
[phone]
[e-mail]

Counsel for Dominic Barton

Counsel for Jared D. Yerian

3

All signatories have authorized the use of their e-signatures.

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Case 1:18-cv-04141-JMF Document 206 Filed 09/22/22 Page 7 of 7
The Honorable Jesse M. Furman

September 12, 2022

/s/ Linda Imes
Linda Imes
Christopher W. Dysard
Reed M. Keefe
Spears & Imes LLP
767 Third Avenue
New York, New York 10017
[phone]
[e-mail]

/s/ Jed I. Bergman
Jed I. Bergman
Olga Lucia Fuentes-Skinner
Richard C. Ramirez
Glenn Agre Bergman & Fuentes LLP
1185 Avenue of the Americas, 22nd Floor
New York, New York 10036
[phone]

Counsel for Mark Hojnacki

Counsel for Virginia “Jean” Molino

The Court intimates no view on the merits of Defendants' motion to dismiss. But upon consideration
of the relevant factors, see, e.g., HAHA Glob., Inc. v. Barclays, No. 19-CV-04749 (VEC) (SDA),
2020 WL 832341, at *1 (S.D.N.Y. Feb. 20, 2020), the Court concludes that discovery should indeed
be stayed pending a decision on the motion to dismiss (if not a ruling on the pending petition for the
writ of certiorari), substantially for the reasons provided by Defendants. It is true that this case is
"long in the tooth," ECF No. 205, at 2 (internal quotation marks omitted), but a delay of a few more
months will not prejudice Plaintiff and, given the scope and nature of the claims, it is in the interests
of all parties and the Court to know which, if any, of Plaintiff's claims will proceed. Accordingly,
discovery is stayed pending a decision on the pending motion to dismiss. (Having said that, the Court
notes that, if or when discovery does proceed, it has no intention of staging discovery to prioritize the
Rule 17 issue, as Defendants propose. That is the price of Defendants' request for a delay.)
The Clerk of Court is directed to terminate ECF No. 201.
SO ORDERED.

September 22, 2022

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