Alix v. McKinsey & Co., Inc.

Background

Jay Alix brought federal Racketeer Influenced and Corrupt Organizations Act (RICO) claims against McKinsey & Co., Inc., its relevant subsidiaries, and certain executives. He claimed to sue as an assignee of AlixPartners LLP, which he alleged was the direct victim of McKinsey’s conduct. The claims alleged that McKinsey obtained bankruptcy-consulting engagements through deceptive disclosures about conflicts of interest.

The case had been litigated for years, including two motions to dismiss, an appeal, and a remand. During discovery concerning who was entitled to sue, Alix produced the assignment on which his lawsuit was based. The assignment transferred to Alix claims against McKinsey and its affiliates for “illegal competitive activity in the crisis management and consulting business involving major bankruptcy cases.” It did not specifically mention RICO, racketeering, organized crime, or the federal crimes that formed the basis of Alix’s RICO claims.

McKinsey moved to dismiss under the federal rules governing the real party in interest and subject-matter jurisdiction. Two Individual Defendants filed a separate partial motion, arguing that the assignment did not cover the claims against them. Alix submitted a ratification from AlixPartners and argued that it cured any defect in the assignment.

Assignment and standing

The Court held that federal law governed the validity of the assignment. Because the assignment concerned federal RICO claims, the Court declined to apply New York champerty law. The Court did not reach McKinsey’s separate argument that the assignment was collusive or made for an improper purpose.

The Court explained that a RICO claim must be expressly assigned. An assignment may satisfy that requirement by specifically naming the claim or by using unambiguous language that clearly encompasses it. The assignment here did neither. The phrase “illegal competitive activity” was naturally understood as referring to antitrust claims, while the RICO claims rested on alleged bankruptcy fraud, mail and wire fraud, obstruction of justice, witness tampering, inducement to interstate or foreign travel, and money laundering. The Court therefore held that AlixPartners had not assigned the RICO claims to Alix.

Because AlixPartners allegedly suffered the injury and Alix had not received the claims through a valid assignment, the Court held that Alix lacked Article III standing—the constitutional requirement that a plaintiff have a sufficient personal stake in the dispute. The Court also held that the Individual Defendants’ claims were not validly assigned.

Rule 17 ratification

Federal Rule of Civil Procedure 17(a)(3) can allow a real party in interest to ratify, join, or substitute into an action after an objection. The Court held that the rule could not cure the problem here. This was not merely a caption or technical error involving the correct name of a party. Alix never possessed the specific claims he asserted, and allowing ratification would effectively expand or create his substantive rights rather than simply correct the identity of the party prosecuting an existing claim.

The Court distinguished cases in which Rule 17 allowed a real party in interest to be substituted without changing the substance of the lawsuit. It also relied on the principle that procedural rules cannot enlarge substantive rights or allow parties to create subject-matter jurisdiction by consent. The Court rejected Alix’s alternative argument that his ownership interest in AlixPartners gave him standing because he had sued only as AlixPartners’s assignee and had disclaimed personal claims for his own injuries.

Other claims and sealing rulings

After dismissing Alix’s federal claims for lack of subject-matter jurisdiction, the Court held that it could not exercise supplemental jurisdiction over state-law defamation counterclaims brought by Seth Goldstrom and Kevin Carmody. Those counterclaims were dismissed without prejudice to refiling in state court.

The Court also ordered the assignment unsealed because it played a central role in deciding the motions and the parties had not shown a sufficient reason to keep it confidential. The remaining sealed or redacted materials could remain sealed or redacted, subject to future review. The Court granted the related sealing requests accordingly.

Disposition

The Court granted McKinsey’s motion to dismiss. Alix’s claims were dismissed for lack of subject-matter jurisdiction. The Individual Defendants’ motion to dismiss and Alix’s and AlixPartners’s motion to dismiss the counterclaims were deemed moot. The state-law counterclaims were dismissed without prejudice to refiling in state court. The Court directed the Clerk to enter judgment for Defendants and close the case.