The Impact Of "Special Considerations" On A New Civil RICO Causation Standard: The Second Circuit's Decision In Alix v. McKinsey Co.

• Published date: 19 August 2022
• Law Firm: Jenner & Block
• Author: Mr Reid J. Schar and Philip B. Sailer

Causation is a crucial factor when determining liability in cases involving civil RICO claims. Courts have long held that plaintiffs must show both factual ('but for') causation and proximate causation to sufficiently allege a civil RICO claim and that there must be 'some direct relation between the injury asserted and the injurious conduct alleged.' ¹

Yet, in a recent case out of the Second Circuit, a three-judge panel unanimously endorsed an altered causation standard in a case involving an alleged fraud and federal bankruptcy proceedings. The court's new standard would hold a defendant liable for harm indirectly caused by his or her conduct if the case involved certain 'special considerations,' which would expand traditional notions of causation and liability in similar cases. While the Supreme Court has not yet agreed to hear the case, it provides the Court with an opportunity to either reinforce long-standing precedent that direct causation is a necessary aspect of a civil RICO claim or endorse the idea that causation is a 'flexible concept,' applying the Second Circuit's broaden standard nationwide.

Background

The Second Circuit case at the heart of the issue, Alix v. McKinsey Co., involves two well-known consulting firms, AlixPartners ² and McKinsey, that provide bankruptcy advising services during federal bankruptcy proceedings. Historically, both firms have sought court approval to assist parties involved in bankruptcy cases, which generates substantial fees for the firms. Court approval requires that the consulting party demonstrate that it 'do[es] not hold or represent an interest adverse to the estate' and is a 'disinterested person[]' within the meaning of the Bankruptcy Code. ³ The party seeking approval must also disclose any 'connections with the debtor...