Complaint and Jury Demand Boies Schiller Flexner
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Case 1:18-cv-04141 Document 1 Filed 05/09/18 Page 1 of 150 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK JAY ALIX, Plaintiff, -against- Case No. __________ MCKINSEY & CO., INC.; MCKINSEY HOLDINGS, INC.; MCKINSEY & COMPANY INC. UNITED STATES; MCKINSEY RECOVERY & TRANSFORMATION SERVICES U.S., LLC; DOMINIC BARTON; KEVIN CARMODY; JON GARCIA; SETH GOLDSTROM; ALISON PROSHAN; and ROBERT STERNFELS, Defendants. COMPLAINT AND JURY DEMAND Sean F. O’Shea Michael E. Petrella BOIES SCHILLER FLEXNER LLP 575 Lexington Avenue, 7th Floor New York, New York 10022 (212) 446-2300 Case 1:18-cv-04141 Document 1 Filed 05/09/18 Page 2 of 150 TABLE OF CONTENTS NATURE OF THE CASE ..............................................................................................................1 THE PARTIES.............................................................................................................................. 11 JURISDICTION AND VENUE ................................................................................................... 12 FACTS .......................................................................................................................................... 12 I. Background of Jay Alix and AP ....................................................................................... 12 II. Bankruptcy Consulting Services Is a Multibillion Dollar Industry. ................................. 13 III. As the World’s Largest Consulting Firm, McKinsey Knows That a Professional Providing Bankruptcy Consulting Services Must Be Transparent About Its Connections and Have Undivided Loyalty to Its Debtor-Clients ..................... 14 IV. From 2001 through 2013, McKinsey Engaged in a Pattern of Racketeering Activity that Involved Crimes Relating to Submitting False Statements in Order to Evade Disqualification.................. 20 A. McKinsey Unlawfully Concealed Its Connections and Affirmatively Misrepresented That It Was Disinterested ..................................... 21 i. Hayes Lemmerz .................................................................................................... 22 ii. UAL (United Airlines).......................................................................................... 23 iii. Mirant.................................................................................................................... 24 iv. Lyondell Chemical................................................................................................ 26 v. Harry & David ...................................................................................................... 27 vi. AMR ..................................................................................................................... 29 vii. AMF Bowling ....................................................................................................... 30 viii. Edison Mission Energy......................................................................................... 31 B. McKinsey Has Unlawfully Concealed All of Its Connections to Interested Parties through Its Investment Arm, MIO.......................... 32 V. Alix Confronts Barton and Sternfels, and McKinsey and AP Reach an Agreement .......................................................................... 33 A. Barton Admits McKinsey’s Pay-to-Play Scheme................................................. 36 B. McKinsey and AP Agree to a Resolution............................................................. 36 VI. Despite Barton’s Representations to Alix, i Case 1:18-cv-04141 Document 1 Filed 05/09/18 Page 3 of 150 McKinsey Unlawfully Concealed Its Disqualifying Connections in NII Holdings ............................................................................................ 39 VII. Defendants Continued Their Racketeering Activity in Standard Register ........................................................................................... 41 VIII. Defendants’ Racketeering Activity Continues in Alpha Natural Resources.............................................................................................. 47 A. McKinsey’s Failure to Disclose Its Connections in Alpha Natural Resources.................................................................................. 48 B. McKinsey Simultaneously Represented the Debtor and United States Steel, a Concealed McKinsey Client, in Contract Negotiations.......................................................... 54 C. McKinsey Misled and Fraudulently Induced the United States Trustee to Withdraw Two Separate Motions Challenging Its Disclosure Declarations ................................................ 57 IX. McKinsey Committed Bankruptcy Fraud and Other Crimes in SunEdison........................................................................................ 59 A. McKinsey Unlawfully Concealed Its Connections in SunEdison......................... 60 B. McKinsey Unlawfully Concealed Fraudulent Pre-Petition Payments That It Orchestrated from SunEdison Affiliates .................................................................................... 68 C. McKinsey Unlawfully Concealed Pertinent Facts Regarding its “Business Arrangement” with the Former CEO of SunEdison ..................................................................... 72 X. McKinsey Unlawfully Concealed Its Connections and Committed Bankruptcy Fraud in GenOn.......................................................................... 76 A. McKinsey Unlawfully Concealed the Fact That NRG Energy Was a Current or Former McKinsey Client While It Was Investigating GenOn’s Claims against NRG Energy ................................................................. 77 B. McKinsey Unlawfully Concealed the Fact That NRG Energy Was a McKinsey Client While It Was Negotiating on Behalf of GenOn for GenOn’s Separation from NRG Energy............................................................................... 80 C. McKinsey Unlawfully Concealed the Depth of Its Connections to NRG Energy and to the Transactions and Bankruptcies that Created GenOn ............................................ 80 ii Case 1:18-cv-04141 Document 1 Filed 05/09/18 Page 4 of 150 D. McKinsey Received Avoidable Preference Payments from GenOn in Order to Avoid Disqualification as a Creditor of GenOn, Thereby Concealing an Interest Adverse to the Estate ....................................................... 83 E. McKinsey’s Declarations Unlawfully Concealed Numerous Connections in GenOn, Including GenOn Creditors and Possibly Competitors......................................................... 85 FIRST CAUSE OF ACTION (VIOLATIONS OF RICO, 18 U.S.C. § 1962(c)) Against All Defendants Except McKinsey RTS........................................................................... 94 A. The RICO Enterprise and Its Effect on Interstate Commerce...................................... 94 B. Pattern of Racketeering Activity.................................................................................. 97 C. Scienter....................................................................................................................... 120 D. Causation.................................................................................................................... 125 SECOND CAUSE OF ACTION (VIOLATIONS OF RICO, 18 U.S.C. § 1962(c)) Against Defendants Barton, Sternfels, Proshan, Garcia, Carmody, and Goldstrom .................. 125 A. The RICO Enterprise.................................................................................................. 126 B. Pattern of Racketeering Activity................................................................................ 129 C. Scienter....................................................................................................................... 133 D. Causation.................................................................................................................... 133 THIRD CAUSE OF ACTION (VIOLATIONS OF RICO, 18 U.S.C. § 1962(c)) Against All Defendants............................................................................................................... 133 FOURTH CAUSE OF ACTION (CONSPIRACY TO VIOLATE RICO, 18 U.S.C. § 1962(d)) Against All Defendants............................................................................................................... 136 FIFTH CAUSE OF ACTION (BREACH OF CONTRACT) Against McKinsey ...................................................................................................................... 141 SIXTH CAUSE OF ACTION (PROMISSORY ESTOPPEL) Against McKinsey ...................................................................................................................... 142 iii Case 1:18-cv-04141 Document 1 Filed 05/09/18 Page 5 of 150 SEVENTH CAUSE OF ACTION (TORTIOUS INTERFERENCE WITH BUSINESS EXPECTANCY UNDER VIRGINIA LAW) Against McKinsey, McKinsey Holdings, Inc., McKinsey & Company, Inc. United States, and McKinsey RTS.............................................. 143 PRAYER FOR RELIEF ............................................................................................................. 144 DEMAND FOR JURY TRIAL .................................................................................................. 145 iv Case 1:18-cv-04141 Document 1 Filed 05/09/18 Page 6 of 150 Plaintiff Jay Alix, as assignee of AlixPartners LLP (“AP”), by and through his attorneys Boies Schiller Flexner LLP, for his Complaint against Defendants McKinsey & Co., Inc. (“McKinsey & Co.”); McKinsey Holdings,