Judge allows most of EDC’s 38 Studios suit to proceed

A superior court judge Wednesday allowed the bulk of Rhode Island’s lawsuit against the architects of the 38 Studios LLC loan deal to proceed, dismissing only a few portions of the complaint. More

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Judge allows most of EDC’s 38 Studios suit to proceed

BLOOMBERG FILE PHOTO/TONY AVELAR
SUPERIOR COURT JUDGE MICHAEL A. SILVERSTEIN has allowed most of the state's lawsuit against those involved in the 38 Studios loan guarantee, including founder Curt Schilling, to proceed.
Posted 8/28/13

PROVIDENCE – A superior court judge Wednesday allowed the bulk of Rhode Island’s lawsuit against the architects of the 38 Studios LLC loan deal to proceed, dismissing only a few portions of the complaint.

Judge Michael A. Silverstein rejected a motion to dismiss the entire R.I. Economic Development Corporation lawsuit against 14 defendants - including 38 Studios founder Curt Schilling and former EDC Executive Director Keith W. Stokes - involved in the failed $75 million state loan guarantee that lured the now-bankrupt video game company to Rhode Island.

Silverstein did dismiss six of 16 total counts in the suit against Barclays Capital Inc., two counts against Starr Indemnity and Liability Co., and two against Wells Fargo Securities LLC.

One count was dismissed for all 14 defendants in the case, but the other 15 remain for most of those sued.

The lawsuit accuses the defendants of conspiring to push the loan through by hiding key information from the quasi-state agency’s board of directors.

The defendants - who include former 38 Studios executives, former officials at the EDC, lawyers and financial firms involved in the deal - moved for the entire case to be thrown on arguments that, even if the EDC proved its allegations, it lacked the standing and legal basis to collect the damages it seeks.

Instead, Silverstein scaled back the EDC’s suit in three ways.

He ruled that the state agency cannot recover the full $75 million value of the bonds issued for 38 Studios, but only the amount that the General Assembly has to appropriate to cover losses from the transaction.

The agency also cannot sue for damages from its reduced ability to make future guarantees under the Job Creation Guaranty program, because that program has been eliminated.

And it cannot seek damages for potential future claims from bondholders for debt service payments unless there is an actual default.

In addition to General Assembly appropriations, Silverstein said the EDC can sue for damage to its reputation and the salaries and fees paid to defendants.

Gov. Lincoln D. Chafee released a statement following the release of the 99-page document that states, in part, that the ruling “allows the important claims to proceed and is a significant first step to recovering the taxpayers’ losses.”

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