Westmoreland Coal Company – Senior Judge Appointed to Mediate Deepening Jay Alix vs McKinsey Dispute, Forewarns a No Nonsense Approach

January 16, 2019 – The Court hearing the Westmoreland Coal case appointed U.S. Bankruptcy Court Judge Marvin Isgur as a mediator and ordered that (i) Mar-Bow Value Partners, LLC and Jay Alix (collectively, Mar-Bow), (ii) McKinsey Recovery and Transformtion Services (“McKinsey”) and (iii) the Debtors to appear before Judge Isgur for mediation [Docket No. 1088].  Mar-Bow, McKinsey and the Debtors were directed by Judge Isgur to appear with one client representative and one attorney, with each representative not only required to arrive with full authority to resolve ALL disputes between Mar-Bow and McKinsey, but also required to provide a certified resolution as to that authority. Don’t mess with Texas judges.

Also on the guest list are the Alpha Natural Resources reorganized debtors (“Alpha Resources”) who are invited, but not requuired to attend. The U.S. Trustee for Region 7 (assigned to the Westmoreland case) was issued a discretionary invite while the U.S. Trustee for Region 4 (assigned to Alpha Resources case) was given a diplomatic, if obligatory, “shall appear” invitation, the latter invite also stipulating that the Region 4 U.S. Trustee must arrive in a position to resolve all disputes with McKinsey in the Alpha Resources case. Both of the Trustees’ invitations are “plus one (only),” ie allowing for a single lawyer each. 

Judge Isgur, who sits on the U.S. Bankruptcy Court for the Southern District of Texas is just finishing up his work with on the iHeart Media case, with that Company set to emerge from bankruptcy after a deeply difficult and contentious bankruptcy. He is most certainly game ready, he s also fully vested with his powers as a sitting federal judge, so the stakes will be high and the appetite for gamesmanship very low.

The inclusion of Alpha Resources and the Region 4 U.S. Trustee is clearly significant, indicating that Judge Isgur wants to settle the Mar-Bow/McKinsey grudge match, an increasingly bitter rivalry that continues to spread across cases and courtrooms, on a holistic basis. 

The decision to appoint amediator follows On January 10, 2019, Judge Kevin R. Huennekens of the United States Bankruptcy Court for the Eastern District of Virginia in Richmond granted a motion by Mar-Bow Value Partners to reopen the Alpha Natural Resources after being reviewing Mar-Bow’s allegations of court violations, conflict of interest and fraud.  Judge Huennekens commented, “These are some of the most serious allegations that I have ever seen… We’ve got to get to the bottom of it.” 

Possibly buoyed by this apparent invitation to setlle things once and for all with McKinsey, and the possibility that the fight is to be mediated by a senior, sitting no-nonsense bankruptcy judge in an important district; on January 21, 2019 Jay Alix widened the conflict further still. Spilling the conflict into a third court sytem (Southern District of New York), Jay Alix levelled a series of misconduct allegations against McKinsey, including that McKinsey had improperly received and concealed tens of millions of dollars in fees from a client (SunEdison) on the verge of bankruptcy.