The Firms

January 24, 2011 9:30 PM

King & Spalding Hit with Malpractice Suit by Hawks, Thrashers Owners

Posted by Tom Huddleston Jr.

As reported by the Fulton County Daily Report, a sibling publication, the joint owners of Atlanta Spirit--an ownership group whose holdings include the Atlanta Hawks, the Atlanta Thrashers, and the operating rights to Atlanta's Philips Arena--filed a $194.5 million malpractice claim against King & Spalding on January 21 in state court in Atlanta, just a month after settling a six-year legal battle with former Spirit co-owner Steve Belkin.

The battle with Belkin began after he went against the rest of the ownership on a trade that eventually brought NBA guard Joe Johnson to the Hawks in 2005. The remaining investors set about ousting Belkin from the group and embarked on what would become a six-year legal battle to buy out his shares.

King & Spalding partner Raymond Baltz, Jr., was tapped by the ownership group when it was looking to buy out Belkin's stake in 2005. According to the groups' complaint, the contract the firm drafted five years ago to outline the terms of the buyout was "fatally flawed." The contract is a voided purchase and sale agreement meant to buy out Belkin's interest, but the other Spirit investors claim that the contract's language put Belkin at an advantage in negotiating a buy-out price far above fair value.

Among the damages sought by the ownership group is a $50 million claim for loss of franchise value for the Thrashers. The plaintiffs also say they lost more than $130 million in team operating costs since 2005 as a result of the ownership group's inability to sell the team while it was involved in the Belkin litigation.

The plaintiffs--SSG Group, LPF Atlanta, and HTPA Holding Co.--claim that the contract's flaws and the firm's conflict of interest cost them $194.5 million in financial losses. The suit also claims the contract exposed the group to legal vulnerability, and it was subsequently sued by Belkin in state court in Maryland. That action, the Thrashers owners say, added $14.5 million in legal fees to their liabilities. The complaint alleges that King & Spalding, which represented the group of owners in that Maryland suit, tried to hide mistakes in the contract after identifying them in order to avoid the malpractice allegations.

"King & Spalding and its lawyers acted appropriately, and the lawsuit is without merit,"  Alston & Bird partner Steven Collins, who is defending King & Spalding in the current claim, told the Daily Report. "We look forward to presenting the firm's substantial defense to the court at the appropriate time."

Everette Doffermyre and Robert Shields, partners at Atlanta firm Doffermyre, Shields, Canfield & Knowles, are advising the investor group.

The group alleges that King & Spalding also had a clear conflict of interest with partner Ralph Levy, the firm's lead litigator in the Belkin case. Levy also is chairman of the board of directors of King & Spalding's malpractice insurance carrier. The investors say that Levy could not simultaneously fulfill both his duty to represent their best interests and his duty to the firm's insurer to reduce the likelihood of a malpractice claim. The complaint states that the firm discovered its errors in the contract, which allegedly gave Belkin an advantage in negotiations of his share price, but hid them from the plaintiffs and proceeded with the lawsuit in Maryland.

The Maryland court eventually ruled for Belkin and afforded him the right to purchase LPF and SSG's interest in Atlanta Spirit for a price that the lawsuit claims "was a fraction of the then fair market value of their interests." By that point, King & Spalding had taken on a lesser role in the Maryland litigation, and withdrew as counsel after that ruling. 

As a result of the court's ruling, and five years after the owners hired King & Spalding for a quick way out of the relationship with Belkin, the complaint claims, Belkin remained a co-owner and no agreement existed that would allow the holding company of Atlanta Spirit to acquire his ownership interest.

J. Michael Gearon, Jr., one of the co-owners of the teams, declined to comment on the specific facts of the case in public statements Friday. "My partners and I regret having to file a lawsuit," he said. "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 ownership group finally settled with Belkin in December. The terms of the deal were not disclosed.

Spokespeople at King & Spalding and Doffermyre, Shields, Canfield & Knowles did not immediately respond to requests for comment.

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