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Powell Goldstein and Hunton & Williams argued Thursday morning in Fulton State Court over whether a one-time mutual client has the right to choose its own counsel in a legal malpractice claim. The two law firms are pointing fingers at each other over a $1 million mistake that led to EarthLink’s unknowingly selling unregistered securities as part of a 401(k) plan. Hunton represents EarthLink in its malpractice claim against Powell Goldstein. The problem, according to Powell Goldstein, is that Hunton is responsible for the mistake behind the malpractice claim. Hunton & Williams General Counsel Robert M. Rolfe said the “crux” of the disqualification matter has to do with his client being able to choose its own counsel. From Powell Goldstein’s perspective, Hunton is conflicted because it is acting as counsel in a legal malpractice case where it potentially could be held liable as a third-party defendant. EarthLink filed suit in November against Powell Goldstein, blaming the law firm for neglecting the filing of an important document with the Securities and Exchange Commission. In response, Powell Goldstein filed a third-party complaint against the law firm it says was responsible for the filing slip-up: Hunton & Williams. The two sides came to Judge Penny Brown-Reynolds’ courtroom Thursday to argue Powell Goldstein’s motion to disqualify Hunton as EarthLink’s counsel in the case. Rolfe told the judge that Powell Goldstein sought the disqualification to make the suit “more expensive and more difficult” for EarthLink. “That’s the only thing it’s going to do,” he said. Brown-Reynolds later said she’d take the disqualification matter under advisement. The attorney representing Powell Goldstein, Allen S.C. Willingham of Love Willingham Peters Gilleland & Monyak in Atlanta, said Hunton & Williams should not be allowed to represent EarthLink for several reasons. First, a judgment for the plaintiff could affect Hunton & Williams as the third-party defendant, he said. Second, Willingham noted that Hunton’s representation of EarthLink would force Powell Goldstein to prove collusion, not just negligence, as part of its third-party claim. Rolfe dismissed these potential problems, explaining that EarthLink is not a typical client because it has its own legal department and understands the issues created by Hunton’s being a third-party defendant. Lawrence A. Slovensky, assistant general counsel at EarthLink, sat alongside Hunton lawyers at the plaintiffs’ table during Thursday’s hearing. “Our client has made an informed choice,” Rolfe told Brown-Reynolds. He expanded on that statement by saying there is no conflict between EarthLink’s version of events and what the Hunton & Williams lawyers would say if called to testify. In response to the judge’s inquiry, Rolfe added that the Hunton lawyers called to testify would not play dual roles by appearing as advocates in the case. FILING FAILURE The dispute stems from the Feb. 4, 2000, merger of EarthLink, which was then based in Pasadena, Calif., with Atlanta-based Internet service provider MindSpring. The new company made Atlanta its headquarters and became known as EarthLink Inc. Prior to the merger, Powell Goldstein represented MindSpring in matters related to the company’s 401(k) plan. As part of that plan, MindSpring employees could invest a portion of their retirement savings in company stock. The Powell Goldstein attorneys who worked on the 401(k) plan were Steven G. Schaffer and David S. Thomas. Thomas now works at Kilpatrick Stockton. 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 that retirement-plan participants were able to purchase EarthLink common stock as part of their 401(k)s, the complaint says, the newly formed company was required by the SEC to file an S-8 registration statement. In addition, the company had to offer a prospectus to the potential employee-investors as part of the registration of the securities. In mid-April 2002, EarthLink Inc. discovered that Powell Goldstein “failed to file” the S-8, according to the suit. The company then instructed Hunton & Williams to complete the form and file it with the SEC. The name of the Hunton & Williams lawyer on the S-8 — which was included as an exhibit for the suit — is that of Atlanta-based partner Scott M. Hobby. EarthLink Inc. was later forced to make a rescission offer to the plan participants because the shares purchased through the 401(k) plan up to that point were not registered with the SEC. Along with Hobby, local Hunton partner David M. Carter is listed on the SEC form announcing the rescission offer. EarthLink, in its suit, says it incurred approximately $1 million in costs as a result of Powell Goldstein’s failure to advise it on the requirements for filing the S-8. Another Love Willingham lawyer representing Powell Goldstein, Daryll Love, said in a previous interview that EarthLink was forced to pay approximately $600,000 to the employee investors and about $400,000 in legal fees to Hunton & Williams and one other firm, Littler Mendelson, which also provided post-merger advice on the S-8. Powell Goldstein has claimed it maintained a limited role with respect to legal matters at EarthLink and was not responsible for the S-8 error. The firm previously represented MindSpring only “in connection with certain limited transactions and events associated” with the Internet service provider’s 401(k) plan. MindSpring’s primary outside counsel was Hogan & Hartson, according to the third-party complaint. Hogan & Hartson represented MindSpring in the merger, and Hunton worked on behalf of EarthLink. Those two firms, along with a host of consultants and advisers, “undertook the legal representation of the companies and the completion of the merger,”the third-party complaint says. The suit is EarthLink v. Powell Goldstein, No. 04VS074775 (Fult. St. filed Nov. 19, 2004).

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