The Rhode Island Economic Development Corporation responded last week to motions filed by defendants including Curt Schilling, former CEO of defunct video game company 38 Studios, to dismiss charges in an ongoing lawsuit.
The EDC’s representation, led by attorney Max Wistow, issued a 200-page motion in response to the defendants’ original request for dismissal.
The lawsuit — initially filed in November 2012 — claimed the defendants were aware 38 Studios was destined to fail when the EDC approved a $75 million loan for the company. The loan was approved in 2010 as part of the General Assembly’s Job Creation Guarantee Program — legislation intended to increase economic growth and bring jobs to Rhode Island.
As a stipulation of the deal, 38 Studios relocated from Massachusetts and created hundreds of new jobs in Rhode Island. But in May 2012 the company officially laid off all employees and closed its offices. Five months later, in November, the EDC sued Schilling and several former employees of both the agency and 38 Studios, claiming they engaged in fraud, misrepresentation and conspiracy during the loan negotiations.
Last month, the defendants filed motions to dismiss these charges, claiming they were factually incorrect and 38 studios had repeatedly informed the EDC of its financial situation before the loan was approved.
“If the EDC wins the lawsuit, aside from paying the lawyers and other expenses, (the money) would be used to offset the possible debt incurred (by the loan),” said attorney Len O’Brien, University on-campus legal aid.
After the company filed bankruptcy, 38 Studios defaulted on its loan from the state, which it owed over $100 million —a burden that many have speculated will fall on Rhode Island taxpayers.
The EDC’s motion refers to the defendants’ filing as a “red herring” and states that the defendants “seek to get out from under the crushing evidence of their concealment of 38 Studios’ deficient finances.”
The motion was a formal response to the points introduced in the defendants’ dismissal request, Wistow said, adding that a judge will rule on the case in court May 22.
“We feel that we’ve addressed all the arguments,” said Wistow, who declined to comment further on the filing.
“Based on my general understanding of what is taking place right now, it is highly unlikely the court will throw out any major portion of the case,” O’Brien said.
The purpose of the defendants’ dismissal filing was most likely to narrow down the scope of the lawsuit, as well as to make the objection in case the suit is subsequently reviewed by a higher court, he added.
O’Brien said Schilling may be able to discharge the penalties he incurs if he is found guilty of negligence by going through bankruptcy court.
But if he is found liable of intentional charges — such as fraud — he will not be able to have them dispelled and will be obligated to pay the full amount.
“It’s really early to assess this case. It is really a very complex whirling cloud of dust right now that needs to settle down to principal areas of focus,” O’Brien said, adding that the next phases of the suit, including discovery, depositions and court hearings, will take a very long time.
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