A lawsuit filed by the owners of the Atlanta Thrashers claims a "flawed" contract written by an esteemed Atlanta law firm has prevented the sale of the NHL franchise for six years.
Meanwhile the hockey team has lost more than $130 million in operating losses since 2005 – the year Boston-based partner Steve Belkin agreed to sell his 30 percent stake – and the franchise value has dropped by more than $50 million, according to a lawsuit filed Friday in Fulton County Superior Court.
None of this would have happened had the Thrashers been sold just after the 2004-05 NHL lockout was over, but the now seven-man ownership group, known as the Atlanta Spirit, says a “fatally flawed” and “botched” contract written by high-profile Atlanta law firm King & Spalding prevented that from happening.
The group also owns the Hawks and operating rights to Philips Arena, but they are not mentioned in the lawsuit.
The Spirit filed a $200 million malpractice lawsuit against King & Spalding Friday, saying the law firm’s negligence cost them millions of dollars and made them “unable to sell or otherwise dispose of the Atlanta Thrashers.” King & Spalding’s contract caused the buyout process to “quickly break down into chaos,” costing seven of the partners $14.5 million in legal fees and forcing them to shovel more than $130 million into the Thrashers to keep the franchise afloat, the lawsuit says.
“(The) Plaintiffs inability to buy out Belkin’s interest in a timely manner and the resulting cloud on their title created by the Maryland litigation interfered with operation of the franchises and specifically prevented Plaintiffs from selling the Atlanta Thrashers,” the filing says.
King & Spalding has more than 800 lawyers in major U.S. and international cities. The firm represents more than half of the companies listed on the Fortune 100, its website says. The firm's high-profile attorneys include the late Griffin B. Bell, former U.S. Attorney General.
A spokesman at King & Spalding referred calls to Steve Collins, a lawyer with Alston & Bird who will be representing the firm in this case.
"I have seen the complaint, and I am familiar with the plaintiff's allegations," Collins told the AJC. "King & Spalding and its lawyers acted appropriately, and the lawsuit is without merit. We look forward to presenting the firm's substantial defenses to the court at the appropriate time."
Michael Gearon, a managing partner in the Spirit, released a statement late Friday.
“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.”
Gearon continued to say that the case would "have no effect on the Hawks and Thrashers ... we will continue to focus on winning games and providing an exciting experience for our fans."
The protracted buyout process included two rounds through the Maryland court system, threats to financial institutions and one of the partners referring to the other one as “evil.” The legal dispute earned the group a reputation as the most fractious ownership in North American professional sports.
Meanwhile, the Atlanta Spirit has consistently told the AJC that they have been looking only for investors for the Thrashers and that the team is not for sale. The Thrashers had been targeted as a franchise that could possibly be relocated, with the Canadian cities of Hamilton, Quebec and Winnipeg among the list of possible new homes.
"As has been shared publicly for more than a year, we are interested in finding minority investors and have engaged a firm to assist us in that effort," the owners said in a June 2010 statement. "We have no plans to move either team, and remain committed to the Hawks, the Thrashers, Philips Arena and the city of Atlanta."
A Jan. 4 letter to fans said the following: As we look to the second halves of the 2010-2011 NBA and NHL seasons, our goals remain the same as when we bought these teams: to bring Stanley Cups and NBA Championships to the fans in Atlanta.
Thrashers President Don Waddell, speaking for the Spirit group in 2009, told the AJC: "In countless meetings with ownership, never once have we expressed any interest in selling the Thrashers or moving the Thrashers.”
Waddell was the team’s executive vice president and general manager at the time. Friday he declined to comment about the new lawsuit or the team’s $130 million in operating losses.
A Maryland court threw out King & Spalding’s contract in 2009, saying it was too vague and could not be enforced. The group settled in a non-disclosed agreement last December, buying out Belkin’s share and naming Michael Gearon and Bruce Levenson as managing partners.
The seven owners wanted to sell the Thrashers after the 2004-05 lockout was over, the new lawsuit says. According to the document, the labor contract after the 2004-05 lockout would be to the “financial benefit of smaller market franchise such as the Thrashers and thus increase their value. Plaintiffs expected that once the new labor agreement was finalized there would be substantial interest from potential buyers and that they would be able to sell the franchise.”
The seven partners talked with potential buyers while they were entangled in litigation with Belkin, the lawsuit says. Because Belkin still owned 30 percent of the teams, the seven other partners “could not convey free and clear title to the franchise and thus were not in a position to sell,” the lawsuit says.
Levenson told the AJC in an April 2010 interview that when the Spirit bought the teams, the group signed an agreement with the NHL that they not be moved.
“Even if we wanted to talk to somebody who wanted to move it, it's clearly stated in our agreements. We are forbidden from doing that. We've never had those discussions,” Levenson told the AJC.
The Spirit bought the Hawks, Thrashers and the operating rights to Philips Arena from Turner Broadcasting System in 2004. The fighting started almost right away. A year later, Belkin wanted out.
The seven partners hired King & Spalding to draw up a contract in August 2005 that would spell out the appraisal and buyout process. The group asked King & Spalding to negotiate a process that would: have a “fair and reasonable” value of Belkin’s 30 percent share; protect the remaining owners’ interests; and make sure those owners could select an appraiser to set the value for the teams, court documents say.
They also wanted the process to be completed “expeditiously,” the lawsuit says.
The exact opposite took place, the court documents point out. What’s more, the Spirit accuses King & Spalding of not telling them of the changes, the lawsuit says.
“Under the circumstances, King & Spalding knew or should have known it had committed malpractice. Yet, the firm did not advise Plaintiffs of its errors, tell Plaintiffs that had a malpractice claim, or withdraw from the representation so that Plaintiffs could obtain independent counsel,”
The contract stated that the price was to be set by up to three appraisals. Belkin was to hire the first appraiser. Whichever party objected to the findings of the first appraiser would hire the second one.
The contract didn’t say what the owners would do if both sides objected to the first appraisal – which is what happened.
Belkin hired CitiGroup Private Bank to do the first appraisal. When the bank’s 69-page valuation came in, he faxed in an objection and named J.P. Morgan as the second appraiser one minute later, court documents said.
The seven other partners faxed in their objection 12 minutes after receiving CitiGroup’s valuation, saying they were hiring Morgan Stanley to do the second appraisal.
Five hours later, Belkin filed a lawsuit. In court he testified that he objected first and had the right to pick the second appraiser. He testified to not trusting the other owners and that a lawsuit was the only answer.
Besides accusing King & Spalding of malpractice, the lawsuit also says the firm acted in bad faith by continuing to represent the seven members after recognizing they may have a malpractice claim. The Spirit also is accusing the firm of a conflict of interest. King & Spalding assigned as its lead litigator a person who is the board chairman of the law firm’s malpractice insurer, the lawsuit says. In other words, the main lawyer representing the Spirit also has a responsibility to reduce or eliminate the firm’s exposure to malpractice claims.
The lawsuit asks for a jury trial. The Spirit wants compensatory and consequential damages, as well as punitive damages, pre-judgment interest and attorneys fees, the lawsuit says.
The group has hired Robert Shields and Everette Doffermyre to represent them.
Staff writer Chris Vivlamore contributed to this article.
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