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When Carl R. Johnston joined Red Hot Law Group, he knew he’d be making less money than at a traditional firm. He says he stood to earn $100,000 to $120,000 at Red Hot, located in Atlanta. After 16 years in practice at firms including Wilmer, Cutler & Pickering and Robins, Kaplan, Miller & Ciresi in Washington, D.C. and a stint as general counsel at Hitachi Electronics, he figured he was worth more. He thought he’d get more from his share in a stock incentive plan Red Hot told him it was creating to invest in some of its high-tech clients. The problem: Red Hot didn’t implement the plan while he was there, and didn’t intend to, he says. So he sued Red Hot and its founder, Evelyn A. Ashley. He alleged, among other things, that he was defrauded by misleading promises of an ownership share in that stock plan. The fraud, he alleges, rises to the level of a state Racketeering Influenced Corrupt Organizations Act (RICO) claim. What’s more, his complaint, filed in a Georgia state court, says that he was fired for refusing to perform illegal and unethical acts. Johnston v. Red Hot Law Group of Ashley, (Case No. 2001CV34424) (Fult. Super. Feb. 27, 2001). Red Hot’s lawyer, James D. “Dart” Meadows of Meadows, Ichter & Trigg in Atlanta, sums up the suit in one word: “Ludicrous,” he says. Ashley, Red Hot’s founder, denies any wrongdoing. Allegations in this suit, and interviews with eight current and former Red Hot lawyers, paint a picture of a highly individualistic, marketing-savvy, nontraditional firm. Red Hot attracts lawyers from top, traditional firms and companies. But the lawyers tend to move on in a matter of months, heading back to the same type of employer they came from. Red Hot is a place where clients are young, firings are frequent and traditional law firm mores are anything but sacred. Ashley acknowledges that the stock incentive plan didn’t exist while Johnston was there — from March to August 2000. But the firm did set one up in December of that year, and all eligible employees may participate. Johnston, she says, just didn’t stay long enough. Of course, one reason for that is she fired him — that’s one point on which Ashley and Johnston agree. They just disagree about why. Ashley says she fired Johnston for overbilling clients and for attitude problems. She says his claims that his employment was conditioned on illegal acts are flat wrong. As for the RICO claim, when Red Hot partner Michael R. Siavage jokes, “I’ve told Evelyn to stop her racketeering activities on many occasions,” both he and Ashley burst out laughing. ‘IRREVERENT’ LAW GROUP It might not be the traditional, sober denial many law firms would offer. But then Red Hot isn’t a traditional law firm. That’s clear from its name, which even the firm’s Web site says may “seem irreverent.” Ashley founded Red Hot in 1998 and modeled the firm loosely after West Coast shops such as Venture Law Group in Menlo Park, Calif. Her idea for the firm came when she was a paralegal at the Coca-Cola Co. While there she helped negotiate contracts with mom-and-pop bottlers and realized that these small companies didn’t know how to value, increase or protect their assets. She designed Red Hot to serve small, startup technology companies. In 1999, Ashley’s husband, Alan McKeon, founded the Red Hot Technology Accelerator, which operates out of the firm’s offices. The accelerator isn’t a venture fund. Its goal is to guide young companies toward funding or strategic partnerships, according to Red Hot Law Group’s Web page. Johnston’s main claim is that he didn’t receive promised access to equity in some of those companies. Meadows, Red Hot’s lawyer, says the firm didn’t treat Johnston any differently than anyone else at the firm. Everyone had to wait for the stock plan. He says Johnston’s offer letter made the parameters of the plan clear. Reading from the letter, he says, ” ‘You will participate in the stock incentive plan from your first day with us. The plan has yet to be approved and adopted by the partners.’ “ Johnston says he knew the plan didn’t exist, but thought the firm would implement it quickly. It was discussed at the firm’s weekly meetings, but fell off the agenda after two months, according to Johnston. Of course, even if Johnston had been able to participate in that plan, there was no guarantee that any of the fledgling companies in it would make money, much less become the next Amazon.com. ASSESSING THE DAMAGES There are two ways to look at damages, says Johnston’s attorney, Atlanta sole practitioner Richard S. Alembik: the actual value of the stocks in the plan and lost opportunity cost. Johnston says he passed up an offer to join Atlanta’s Morris, Manning & Martin as of counsel at a salary of $165,000 a year. Though he didn’t have a fixed salary at Red Hot — his pay was based on a percentage of billings, originations and client accounts he managed — he says that after discussions with Ashley, he expected to make about $40,000 less than the Morris Manning offer. Johnston says he discussed the offer with Ashley, who assured him the stock plan would make up the pay differential. Ashley says she knew nothing about Morris Manning’s offer. Though Johnston is the only plaintiff in this suit, his complaint lists the names of four other Red Hot alumni who also were “victimized by the fraudulent scheme” in the stock incentive plan. Those attorneys are William R. Asbell Jr., who recently left a job helping Professional Transport Group Inc. wind up its business; Jonathan H. Klapper and Michael E. Rubinger, now at Smith, Gambrell & Russell in Atlanta; and Brooks L. Porch, now in-house with Porsche Cars North America Inc. Asbell, Klapper and Rubinger say they consented to have their names listed; Porch says he didn’t, and that his name will be removed in an amended complaint. Their names are in the suit, according to Alembik, because they were wronged by Red Hot’s promise of a stock incentive plan that didn’t materialize while they were at the firm. The wrongs against them, he says, were necessary to support Johnston’s RICO claim. Asbell says he came to the firm to practice with friends Klapper and Rubinger. The stock incentive plan wasn’t his main motivation for joining Red Hot, but he says that because of the value the plan was to generate, his budgeted income from Red Hot was about half what it had been when he was a partner at Nelson Mullins Riley & Scarborough in Atlanta. But he says that even in his short tenure there — he stayed barely a month, leaving after Klapper and Rubinger did — he began to doubt whether the stock plan would materialize at all. Rubinger drafted a plan, he says, but, “[i]t was our collective judgment that the plan didn’t exist and probably wouldn’t exist based on the comments Mike got on it.” The other factor delaying implementation of the plan, according to Asbell, was the decline in the dot-com market. He says that even if the plan came into being, he doubted that there’d be much value to it in the near term. Ashley says dot-com devaluation had nothing to do with the length of time it took to get the plan running. As for its current value, she says, “The equities we have that underlie that plan, they’re all doing very well.” Ashley says companies in the fund include Service Central Technologies, Online Insight, Technofinity and five to 10 others. If Johnston had stayed for the six months required to become vested in the plan, Ashley says, he would have had a stake in it. But she fired him after five months. One former lawyer, who asked not to be named, says, “She has this theory that you have to fire people every now and then to shake up an organization.” Ashley doesn’t dispute that she gets rid of people whom she doesn’t think fit in. During an interview, she names six lawyers she’s fired. Three of those are listed in Johnston’s complaint: Rubinger, Klapper and Porch. Those lawyers were terminated because of their attitudes, according to Ashley. “We’re not going to deal with egomaniacs or people who don’t play nice,” she says. Rubinger and Klapper, both of whom stayed seven months, say they were not terminated or asked to leave. Both say they resigned. Asbell and Ashley both say Asbell left of his own accord. Asbell calls Ashley’s statement that she fired Klapper, “A … lie.” When Klapper resigned, Asbell says, “She wasn’t even in the office. She was on vacation.” Porch says he worked at the firm for about a year, and acknowledges that he was let go. He declines further comment on Red Hot or the suit. Through firings or resignations, the firm — which started out with four lawyers and now lists 12 on its Web site — has lost at least nine attorneys. Asked to describe the firm’s culture, Rubinger will say only, “I think the volume of turnover speaks for itself.” CULTURE CLASH Ashley is unapologetic about her management style. She explains that Red Hot follows the same core values it recommends for its startup clients. If people are not working out, “Get rid of them,” she says. “That’s not the way lawyers are treated, generally. If you’re an asshole, they put you in an office and make you a partner.” Red Hot partner Siavage adds that the firm had an objective reason for firing Johnston. At least five clients complained about Johnston’s overbilling, Siavage says. An Oct. 27 letter from Red Hot’s attorney, Meadows, to Johnston claims that one of Johnston’s clients initially requested a $9,000 write-down and used a PowerPoint presentation to detail the overbilling. “We’ve been working really hard to repair that relationship with them,” says Siavage. “They severed our representation as a result of their experience with him.” Johnston says he never billed for hours he didn’t work, but acknowledges that he did get overbilling complaints, though no more than other lawyers at the firm. His complaint alleges that the firm unnecessarily wrote-down his bills, and says he’s owed $5,500. Johnston says the real reason for his firing was his refusal to perform illegal and unethical activities for the firm, including offering kickbacks to a client. For example, he says, Red Hot was helping a client wind up business at one company. The client had in the meantime joined a new company as its chief technical officer. “Evelyn told me, quote, ‘Pay him a couple of thousand dollars if he’ll bring their business to us,’ ” says Johnston. “That’s absolutely wrong,” says Ashley. According to Ashley, they did discuss giving the new company a discount in exchange for the referral, but “nothing ever happened there,” she says. The applicable State Bar of Georgia standards of professional conduct in effect when the action allegedly took place are Standards 12 and 13, which forbid lawyers from soliciting employment and from compensating or giving anything of value to a person who refers business to them. Ashley and Siavage say they don’t know yet whether they will file counterclaims against Johnston. Johnston’s suit requests damages for breach of the employment agreement, fraud, treble damages through the RICO claim and punitive damages. Johnston says he filed the suit as much for the money he’s lost as to remedy damage to his reputation. “My feeling is that the people at Red Hot are going to keep doing this until they get their hands slapped or worse,” he adds. Says Red Hot’s attorney, Meadows, “Obviously, there’s some bad blood there.”

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