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Law360 (April 6, 2020, 7:29 PM EDT ) A Texas bankruptcy judge Monday said he will keep the half-done trial over consulting giant McKinsey & Co.'s disclosures in the Westmoreland Coal Co. Chapter 11 in a holding pattern in the name of fairness because of the COVID-19 pandemic.
Following an hour-long telephonic hearing, U.S. Bankruptcy Judge David Jones said he would not ask longtime McKinsey foe Jay Alix to make his case to deny Westmoreland's request to retain McKinsey in its Chapter 11 case electronically after McKinsey has had weeks to make its case in a more conventional manner.
"We have to be fair about that. It is not the same," he said. 'I'm not going to have half the case done in person and half done remotely."
Acting through the purpose-built entity Mar-Bow Value Partners LLC, Alix — the retired founder of turnaround consultancy and McKinsey competitor AlixPartners LLP — has filed actions in multiple bankruptcy cases accusing McKinsey of failing to disclose business and financial connections to interested parties in the cases.
The latest round concerns Westmoreland's November 2018 application to hire McKinsey to assist in its now-completed $1.4 billion restructuring. McKinsey is seeking to be approved retroactively and paid for the work they did.
In the trial, which opened Feb. 5, McKinsey claimed it disclosed every relevant connection the firm has to parties with an interest in the Westmoreland case, while Alix and the U.S. Trustee's Office repeated their allegations that McKinsey is still holding back information from the court.
On March 18, following eight days of testimony from and cross-examination of witnesses called by McKinsey, both sides asked Judge Jones to adjourn the trial until April 29, citing COVID-19 travel restrictions.
However, on Thursday McKinsey asked Judge Jones to resume the trial under a March emergency protocol enacted by the Southern District of Texas' Houston Division allowing use of video and audio technology in hearings.
At Monday's hearing, McKinsey counsel Jennifer Selendy argued that restrictions on travel and gatherings are likely to be a long-term situation, and that both the court and McKinsey need to resolve the case as soon as possible to make time to deal with a likely rise in bankruptcies.
"The situation has not gotten better, it's only gotten worse," she said.
She argued McKinsey had trimmed its case so that it only had a single video deposition left to present. She argued this could be done electronically, along with a hearing on a pending motion for additional findings under Rule 7052. Mar-Bow could conduct its entire case remotely afterward, she argued, saying most of Mar-Bow's listed witnesses are McKinsey employees that Mar-Bow has already extensively cross-examined.
However, Mar-Bow counsel Sean O'Shea argued this was a "transparently tactical" move by McKinsey to put Mar-Bow at a disadvantage, with attorneys stuck in different locations, unable to meet or collaborate and with only the technology they have on hand. He said technical problems could create a "logistical nightmare" and noted glitches in Monday's hearing, which included a few minutes of silence after Judge Jones accidentally muted all of the participants in an attempt to deal with audio feedback.
O'Shea also argued the Fourth Circuit denied McKinsey's request to skip oral arguments in an appeal of a different disclosure case and that the Westmoreland case was not urgent enough to merit an electronic hearing, saying the claims and trial had not prevented McKinsey from being hired in the PG&E and Puerto Rican bankruptcy cases.
"The world is facing a real emergency. McKinsey is not," he said.
Judge Jones decided McKinsey could present its last witness remotely and that the Rule 7052 hearing could be conducted electronically, saying he had done so on multiple previous occasions. He said he would not force Mar-Bow to make its case remotely, saying he agreed that "something is lost" in the process.
McKinsey is represented by Faith E. Gay, Jennifer M. Selendy, Maria Ginzburg, David S. Flugman and Joshua S. Margolin of Selendy & Gay PLLC, Zack A. Clement of Zack A. Clement PLLC and M. Natasha Labovitz, John Gleeson and Erica Weisgerber of Debevoise & Plimpton LLP.
Mar-Bow is represented by Sean O'Shea, Michael E. Petrella and Amanda Devereux of Cadwalader Wickersham & Taft LLP, Steven Rhodes of Steven Rhodes Consulting LLC, Daniel L. Lemisch of Lakeview Capital Inc. and Christopher R. Murray and Erin E. Jones of Jones Murray & Beatty LLP.
The U.S. Trustee's Office is represented by Hugh M. Bernstein of the U.S. Department of Justice.
Westmoreland is represented by Matthew D. Cavenaugh, Jennifer F. Wertz and Vienna Flores Anaya of Jackson Walker LLP.
The case is In re: Westmoreland Coal Co. et al., case number 4:18-bk-35672, in the U.S. Bankruptcy Court for the Southern District of Texas.
--Additional reporting by Ryan Boysen. Editing by Amy Rowe.
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