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Powell Goldstein and Hunton & Williams are battling in court over a $1million mistake. EarthLink Inc. filed suit Friday in Fulton County State Court againstPowell Goldstein, charging the law firm with causing a massiverepurchase of employee stock by neglecting to file an important documentwith the Securities and Exchange Commission. In response, Powell Goldstein filed a third-party complaint against thelaw firm it says was responsible for the filing slip-up: Hunton &Williams. For the time being, Richmond, Va.-based Hunton is representing EarthLinkin its suit against Powell Goldstein, although a motion to recuse isexpected to be filed in wake of Powell Goldstein’s third-party claim.The suit is EarthLink v. Powell Goldstein, No. 04VS074775 (Fult. St.filed Nov. 19, 2004). The Hunton partner working on the case, Sylvia King Kochler, declined toanswer questions about Powell Goldstein’s claims. “I’m not, at thispoint, able to comment beyond what’s in the complaint,” she said. A spokeswoman at EarthLink, Carla Shaw, said the company does notcomment on pending litigation. Daryll Love of Love Willingham Peters Gilleland & Monyak in Atlanta isrepresenting Powell Goldstein. In a bid to resolve the dispute withoutgoing to court, Love said he requested documents from EarthLink andHunton & Williams that prove Powell Goldstein was responsible for filingthe SEC documents. Neither party could provide documentation that provedhis client was culpable, he said. “It’s unfortunate it came to this,” Love added, “but Powell Goldsteinwill vigorously defend against the allegation made in the EarthLinkcomplaint and will demonstrate that Powell Goldstein was not responsiblefor the losses and attorneys’ fees sought by EarthLink.” 401(K) EXPANSION WENT WRONG The dispute stems from the Feb. 4, 2000, merger of EarthLink, which wasthen based in Pasadena, Calif., with Atlanta-based Internet serviceprovider MindSpring. The new company made Atlanta its headquarters andbecame known as EarthLink Inc. Prior to the merger, Powell Goldstein represented MindSpring in mattersrelated to the company’s 401(k) plan. As part of that plan, MindSpringemployees could invest a portion of their retirement savings in companystock. The Powell Goldstein attorneys who worked on the 401(k) plan wereSteven G. Schaffer and David S. Thomas. Thomas now works at KilpatrickStockton. After the merger, the new company wanted to allow all of its employees,those from MindSpring and EarthLink, to invest a portion of their 401(k)savings in EarthLink stock. Because it was the first time retirement-plan participants were able topurchase EarthLink common stock as part of their 401(k), the suit saysthe newly formed company was required by the SEC to file a Form S-8registration statement. In addition, the company was to offer aprospectus to the potential employee-investors as part of theregistration of the securities. The suit says that in mid-April 2002 EarthLink Inc. discovered thatPowell Goldstein “failed to file” a Form S-8. The company then instructed Hunton & Williams to complete the form andfile it with the SEC.The name of the Hunton & Williams lawyer on the Form S-8 — which wasincluded as an exhibit for the suit — was Atlanta-based partner Scott M.Hobby. EarthLink Inc. was later forced to make a rescission offer to the planparticipants because the shares purchased up to that point were notregistered with the SEC. Along with Hobby, local Hunton partner David M.Carter is listed on the SEC form announcing the rescission offer. According to the rescission offer, retirement-plan participants who hadlosses in company stock could voluntarily return their shares toEarthLink in exchange for the purchase price of the securities plusinterest. Anyone who made money on EarthLink’s stock was not eligiblefor the rescission offer, but presumably few investors saw gains sinceshare prices deflated from $24.56 per share immediately after the mergerto $6.09 per share at the close of trading on July 15, 2002 — the dayHunton & Williams filed the Form S-8. For employees who previously sold their shares for a loss, the companyoffered to credit their 401(k) accounts with an amount based on theoriginal purchase price of the stock minus the lower sales price. The company, in its suit, says it incurred approximately $1 million indamages as a result of Powell Goldstein’s failure to advise EarthLink onthe requirements for filing the Form S-8. Love said EarthLink was forced to pay approximately $600,000 to theemployee investors and about $400,000 in legal fees to Hunton & Williamsand one other firm, Littler Mendelson, which also provided post-mergeradvice on the Form S-8 requirements. POGO’S ROLE Powell Goldstein claimed it maintained a limited role with respect tolegal matters at EarthLink. The firm previously represented MindSpringonly “in connection with certain limited transactions and eventsassociated” with the Internet service provider’s 401(k) plan. Thecompany’s primary outside counsel was Hogan & Hartson, according to thethird-party complaint. As for the merger, Hogan & Hartson represented MindSpring, and Huntonworked on behalf of EarthLink. Those two firms, along with a host ofconsultants and advisers, “undertook the legal representation of thecompanies and the completion of the merger,” the third-party complaintsaid. A Jan. 4, 2000, SEC filing announcing the merger lists Hunton & Williamspartners W. Tinley Anderson III and Daniel O. Kennedy on one side andWashington-based Hogan & Hartson partners Joseph G. Connolly Jr. andJohn F. Gaul on the other. Gaul has since left Hogan and now serves asgeneral counsel at Sunrise Senior Living in McLean, Va. Powell Goldstein, according to the third-party complaint, did notperform material work for the corporate merger, nor was the firmincluded on the distribution list of merger documents, checklists,securities issues, SEC filings or other matters. In addition, the mergerplan and related documents were never shared with Powell Goldstein, thethird-party complaint says. While Powell Goldstein did not have a significant role in the merger, itnonetheless was called on to assist in the merger of the two companies’401(k) plans, Love said. The firm asserted, through correspondence withPowell Goldstein partner John T. Marshall, that it warned EarthLink’shuman resources department of the need to file an S-8 registrationstatement. “Powell Goldstein repeatedly advised EarthLink that an S-8 was requiredfor the new plan, and Powell Goldstein even prepared one for them in aneffort to move things along more quickly,” Love said. “But EarthLinkspecifically and repeatedly denied Powell Goldstein the authorization tofile the S-8 form because Powell Goldstein was not the company’ssecurity counsel. Security counsel was Hunton & Williams.” According to the affidavit filed with EarthLink’s complaint againstPowell Goldstein, the Internet service provider disputes the law firm’scontention that it warned of the need for the S-8.

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