Westmoreland Coal Company – Court Approves Settlement between U.S. Trustee and McKinsey as Mar-Bow/Jay Alix Press Fight

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April 18, 2019 – The Court hearing the Westmoreland Coal Company cases issued an order [Docket No. 1763] approving a $15.0mn settlement reached between the U.S. Trustee Program (the "USTP") and McKinsey Recovery and Transformtion Services ("McKinsey"); a settlement which will see (i) the $15.0mn allocated in three $5.0mn tranches to the reorganized debtors in the Alpha and SunEdison cases and (ii) McKinsey released as to any potential USTP claims in 14 cases. The order further notes that, "This Order will not bind or prejudice the rights and claims of any non-party [ie, Jay Alix affiliate Mar-Bow Value Partners LLC or 'Mar-Bow']."

As previously reported [Docket No. 1589], on March 8, 2019, each of (i) McKinsey and (ii) Mar-Bow responded to the "Mediator's Notice" [Docket No. 1406] filed by the Court appointed mediator, Judge Marvin Isgur on February 19, 2019. The Mediator's Notice updated the bankruptcy Court on mediation efforts amongst (i) the USTP, (ii) Mar-Bow, (iii) McKinsey and (iv) the Debtors. Further to Judge Isgur’s mediation efforts several proposed settlements were reached, including amongst the (i) U.S Trustee and McKinsey, a settlement which incorporates the Alpha and SunEdison cases, and (ii) McKinsey and the Debtors. What is perhaps the most contentious dispute, a deeply acrimonious fight between Mar-Bow and McKinsey that has raged across cases and courts, was not resolved.

McKinsey Support

In a joint motion filed by McKinsey and the U.S. Trustee [Docket No. 1589], those parties filed a proposed order which incorporated the core terms of a term sheet attached as Exhibit A to the Mediator’s Notice.  The joint motion stated, "The Acting United States Trustee and McKinsey have incorporated the terms of the USTP/McKinsey Agreement into a proposed agreed order (the 'Agreed Order') and hereby request that the Court enter the Agreed Order. A true and correct copy of the Agreed Order is attached as Exhibit “A” and incorporated by reference. Among other things, the Agreed Order provides:

  1. An aggregate payment of $15 million by McKinsey for distribution in the Alpha, SunEdison and Westmoreland cases [$5mn as to each case];
  2. As specifically described therein, a mutual release of claims by the United StatesTrustee Program and McKinsey in certain identified cases.
  3. Specific reservation of certain objection rights in the Westmoreland case by the Acting United States Trustee for matters not related to the adequacy of McKinsey’s past retention disclosures;
  4. Deferral of McKinsey’s retention in the Westmoreland case pending additional disclosures;
  5. Specific language preserving rights of the United States, the right of the United States Trustee Program to share information with other  agencies of the United States, and an acknowledgement that the Agreed Order does not impact the rights of non-parties; and
  6. The Agreed Order and the Term Sheet (and their contents) are not and shall not be used as an admission of liability, violation, or wrongdoing by McKinsey, and all of its agents, directors, officers, attorneys, partners and employees acting on  its behalf, solely with respect to actions taken in the course and scope of their duties with McKinsey, to any person or entity or on any legal or equitable theory."

Mar-Bow "Objection"

On March 28, 2019, Mar-Bow filed a limited objection to the USTP's settlement motion [Docket No. 1663]. Mar-Bow's limited objection (it actually expressly states that it does NOT object to the USTP's settlement efforts as long as any settlement expressly states that it does not bind third parties…language clearly already in the settlement agreement as filed) is largely a pretext to continue to aggressively press forward a visceral and long-running battle between Mar-Bow (ie Jay Alix) and McKinsey that has continued to capture rubber-necking attention from the financial services community in what has been a long, violent, slow-motion, car crash. Mar-Bow's "objection" (i) states that it is only objecting in order to obtain affirmative language in the settlement that its own rights are not in any way curtailed and (ii) after noting that it is not actually objecting to the substantive content of the settlement (given its irrelevance to Mar-Bow as a non-party), provides a long, detailed list of all the failings of the settlement agreement. Mar-Bow's objection effectively advising, "Dear Court, It may not be our settlement or our business, but just in case you missed just how terrible it is…here you go."

For those looking for more ascerbic, verbal fireworks from Mar-Bow's counsel Cadwalader (and enjoying the guilty pleasure of watching this steel-cage, grudge match) the current objection does not disappoint; with Mar-Bow stating that it will "continue to press forward on its independent objections to McKinsey’s employment in this case until McKinsey is held fully [emphasis theirs] accountable for its wrongful conduct." That conduct principally revolves around accusations that McKinsey has concealed equity interests in Debtors and interested parties in at least 14 cases where it has been engaged as an advisor (Mar-Bow points out that the settlement includes only three of those parties). The Mar-Bow objection continues, "Through its pending Objections, Mar-Bow  will  continue to press for transparency and full public disclosure of McKinsey’s 'confidential clients” as required by Rule 2014. 

Background

On January 16, 2019, the Court hearing the Westmoreland Coal cases appointed Judge Isgur as a mediator and ordered that Mar-Bow, McKinsey and the Debtors (collectively, the "Parties") appear before Judge Isgur for mediation [Docket No. 1088]. The Parties 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.

The decision to appoint a mediator follows a January 10, 2019 order by Judge Kevin R. Huennekens of the United States Bankruptcy Court for the Eastern District of Virginia in Richmond granting a motion by Mar-Bow motion to reopen the Alpha Natural Resources. Having reviewed 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.”

In his February 19, 2019 Mediator's Notice, Judge Isgur commented, “McKinsey and Mar-Bow have not reached a settlement. They have agreed to suspend the mediation, with my renewed involvement as a mediator, as appropriate from time­ to-time, Subject to any contrary orders, I have agreed to that proposal.
I am pleased to report that the United States Trustee and McKinsey have reached a definitive settlement of all issues between those parties. Based on my observations, the proposed settlement between the United States Trustee and McKinsey resolves the parties' good faith disputes concerning the application of Banlcruptcy Rule 2014. A copy of the definitive term sheet is attached as Exhibit "A". I anticipate that the motion to approve the settlement will be filed shortly."

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