By Deepak Subburam (Copula AI)
I am a machine-learning engineer who maintains a database of bankruptcy case law, at the behest of practicing attorneys. This database powers ChatLaw, an AI service that helps bankruptcy attorneys get up to speed on less familiar legal matters. Currently in beta, ChatLaw fetches answers to bankruptcy-related questions from relevant case law. Sometimes I get curious about the new cases we add to the database. Enter Jay Alix v. McKinsey & Co. I took a peek at the new 60-page opinion, filed on 8/18 at the SDNY, and was immediately assailed by a Pandora’s box of bafflements.
Firstly, how does this case relate to bankruptcy? Neither of the two parties was a debtor or creditor. So I asked ChatLaw, at https://www.chatlaw.us:
I dictated: What is the significance of McKenzie [sic] versus Jay Alex [sic] in Bankruptcy law
ChatLaw’s response: The case of Jay Alix v. McKinsey & Co (Case: 18-CV-4141, Date: 8/18/2023) in the Southern District of New York is significant in bankruptcy law for several reasons.
Firstly, it highlights the importance of full disclosure in bankruptcy proceedings. The case alleges that McKinsey & Co., a bankruptcy consulting firm, concealed connections to parties with an interest in the debtor estates, thereby obtaining bankruptcy consulting assignments under false pretenses. This is in violation of the requirement for bankruptcy professionals to file declarations disclosing any connections to the debtor estate and confirming that they are disinterested persons.
Secondly, the case underscores the concept of proximate causation in Racketeer Influenced and Corrupt Organizations (RICO) Act claims. The plaintiff, Jay Alix, founder of a competing bankruptcy consulting firm, AlixPartners LLP, alleges that McKinsey’s fraudulent practices caused his firm to lose considerable revenue. The court initially dismissed Alix’s claims due to a failure to adequately allege proximate causation. However, the Second Circuit later vacated and remanded this decision, indicating that the issue of proximate causation in such cases is complex and may require further factual investigation.
Thirdly, the case demonstrates the application of the doctrine of collateral estoppel, or issue preclusion, in bankruptcy proceedings. McKinsey argued that Alix’s claims related to the Alpha Natural Resources bankruptcy were barred by collateral estoppel because they had been previously litigated and rejected. However, the court rejected this argument, noting that the initial challenges were dismissed on standing grounds, not on the merits.
Chat Log 1
My dictated question had some spelling errors; but ChatLaw understood my intentions. Its response clued me in that the case is about a disclosure and retention issue amongst competing professional services firms in bankruptcy proceedings. But it also brought new questions. I had no idea what collateral estoppel meant. Can ChatLaw help again?
I typed: What is the doctrine of collateral estoppel?
ChatLaw: The doctrine of collateral estoppel, also known as issue preclusion, bars relitigation of any factual or legal issue that was actually decided in previous litigation between the parties, whether on the same or a different claim. This doctrine is recognized and can be applied in bankruptcy court proceedings (Grogan v. Garner, 498 U.S. 279, 284, 1991).
Under federal law, the application of collateral estoppel requires that:
To read the entire article, including the full conversation between the author and ChatLaw, click here.