The joint owners of the company that owns the Atlanta Hawks, the Atlanta Thrashers and holds the operating rights to Philips Arena is suing King & Spalding for malpractice, claiming that the law firm drew up a “fatally flawed” contract that was intended to buy out the interest of one of the teams’ co-owners but was ultimately found to be unenforceable.

The suit also claims that the contract flaws caused the plaintiff companies – which own 97 percent of Atlanta Spirit, the company that owns the Hawks and the Thrashers – to be sued in Maryland where, the suit alleges, King & Spalding “improperly represented them despite serious and undisclosed conflicts of interest.”

As a result, the plaintiffs have spent more than $14.5 million defending their interests, clouded the title to the sports franchise and prevented them from selling the Atlanta Thrashers, the suit claims.

The suit, filed Friday in Fulton County Superior Court, identifies $194.5 million in alleged damages and losses that the plaintiffs claim resulted from the flawed contract and King & Spalding’s subsequent actions to hide what the suit describes as the law firm’s mistakes. The suit also seeks unspecified punitive damages.

On Friday, King & Spalding’s counsel, Alston & Bird partner Steven M. Collins, said: “King & Spalding and its lawyers acted appropriately, and the lawsuit is without merit. We look forward to presenting the firm’s substantial defense to the court at the appropriate time.”

The suit is the latest chapter in a five-year long dispute among the co-owners of Atlanta Spirit and the 2005 efforts of majority owners SSG Group and LPF Atlanta to oust partner Steve Belkin after a falling out stemming over a proposed trade for NBA player Joe Johnson, to which Belkin had objected.

The plaintiffs are SSG Group, LPF Atlanta and HTPA Holding Co., which owns Atlanta Spirit. They are represented by Everette Doffermyre and Robert Shields at the Atlanta firm Doffermyre, Shields, Canfield & Knowles.

The contract at the heart of the malpractice allegations against King & Spalding is a voided purchase and sale agreement that was intended to buy out Belkin’s interest in Atlanta Spirit after establishing a fair and reasonable appraisal of his holdings, according to the complaint.

It says the contract that King & Spalding drafted placed the investors attempting to buy out Belkin at a disadvantage in negotiating a buy-out price with Belkin, included language that “greatly favored” Belkin and that would result in a wildly inflated price for his share, and was so ambiguous that a judge eventually declared it legally void and unenforceable.

But King & Spalding attorneys “repeatedly assured” Belkins’ co-investors that their interests were being protected, according to the suit.

The suit claims that King & Spalding attorneys eventually realized their errors and that the flawed contract could constitute malpractice but hid them from the plaintiffs while the firm defended them in a lawsuit Belkin had filed in Maryland.

In what the suit describes as a clear conflict of interest, King & Spalding assigned partner Ralph Levy—at the time the chairman of the board of directors of King & Spalding’s malpractice insurance carrier and an experienced litigator in defending professional malpractice actions—as its lead litigator in the Belkin litigation.

As the malpractice insurance company’s board chairman, Levy owed “a fiduciary duty to reduce if not eliminate the insurer’s exposure to a malpractice claim. As attorney for the plaintiffs, Levy owed a duty to zealously represent their interests, even if those interests compelled the assertion of arguments that might expose [King & Spalding’s malpractice insurer] to financial loss,” the malpractice suit claims.

King & Spalding eventually assumed a subordinate role in the Maryland litigation and subsequently withdrew as the plaintiffs’ attorneys after the Maryland court ruled for Belkin and gave him the right to purchase LPF and SSG’s interest in Atlanta Spirit for what the malpractice suit alleges “was a fraction of the then fair market value of their interests.”

“As a result of the trial court’s ruling, and five years after King & Spalding had been hired to negotiate an agreement to expeditiously buy out Belkin’s interest, Belkin remained a co-owner and the parties had no agreement in place allowing HTPA [the holding company of Atlanta Spirit] to acquire Belkin’s ownership interest,” the malpractice complaint states.

J. Michael Gearon Jr., one of the co-owners of the Hawks and Thrashers, issued a statement Friday saying, “My partners and I regret having to file a lawsuit. But King & Spalding made egregious errors that caused us to be tied up in litigation for five years and cost us an enormous amount of money, time, and anguish.

“The malpractice case will have no effect on the Hawks and Thrashers. We are very pleased with their performance so far this season, and we will continue to focus on winning games and providing an exciting experience for our fans.

“Because of the pending lawsuit, our lawyers have requested that we not comment on specific facts and allegations.”

Read the complaint »

Contributor: R. Robin McDonald in Law Firms, Litigation | subscribe to rss |   share