Lawsuit over 38 Studios returns to court
The two top former executives at Rhode Island's economic development agency want immunity from liability over its failed $75 million investment in Curt Schilling's video game company because they were public officials who were doing their jobs and following orders, their lawyers said Tuesday.
Former Economic Development Corp. Executive Director Keith Stokes and Deputy Director Michael Saul are seeking protection under what their attorneys concede would be an unprecedented expansion of the "public duty" immunity doctrine.
Saul's attorney, Bruce Gladstone, told Superior Court Judge Michael Silverstein that Saul was following the directions of his superiors, including former Gov. Don Carcieri and Stokes, when he helped craft a loan guarantee for 38 Studios that the EDC's board approved.
If the case against Saul is allowed to go forward, Gladstone said, it would damage public agencies' ability to attract top talent because potential employees would fear they could be sued "by the very agency they are trying to help" after a new governor comes in and the political climate changes. Gov. Lincoln Chafee, Carcieri's successor, opposed the loan guarantee in 2010 but has said he did everything he could to help the company succeed once he took office.
David Martland, an attorney for Stokes, said his client should be protected under the same immunity.
The EDC, a quasi-public agency in charge of economic development, sued Stokes, Saul, Schilling, other 38 Studios executives and several others involved in the deal last year after the former Boston Red Sox pitcher's startup video game company went bankrupt. The agency accuses the defendants of withholding information and providing false information to the board. The suit alleges fraud, racketeering and conspiracy, among other things.
Stephen Sheehan, an EDC attorney, told the judge Tuesday that 38 Studios executives intentionally "duped the board" and that the case should be allowed to proceed.
38 Studios' collapse left the state on the hook for some $100 million related to the deal.
Lawyers for Schilling and the other 38 Studios executives argued last month during a daylong hearing that the suit should be dismissed because, they said, officials at the company disclosed everything about its finances, including how much it needed to develop a video game after it relocated from Maynard, Mass., to Providence as part of the loan guarantee deal. The money it got from the EDC was tens of millions less than it needed.
The defendants' attorneys also argued that the EDC can't bring a legal claim based on alleged nondisclosure of information that even it admits top agency employees including Stokes and Saul knew.
On Tuesday, a lawyer for Schilling, Sarah Concannon, argued that the EDC's complaint doesn't contain sufficient evidence that anyone at 38 Studios made misrepresentations to the board. She said the suit against all of them should be tossed.
William Dolan, an attorney for former EDC lawyer Robert Stolzman, said the agency is seeking a "self-pardon" for a deal it crafted that went bad.
"They want to be able to wash their hands of every decision made by their senior management," he said.
On the issue of immunity for Stokes and Saul, EDC lawyer Sheehan said that no such immunity exists for public employees like them and that to create it would be outside the court's jurisdiction. He likened the argument that Saul was just following orders to that of Nazi officers in Germany during World War II. He said no one has immunity if they have committed fraud.
"If he wants to protect himself," Sheehan said of Saul, "don't commit fraud."
Carcieri and the EDC held up the deal to lure 38 Studios to Rhode Island as a boon for the economically struggling state because it would create hundreds of high-paying jobs and bring much-needed tax revenue. Critics maintained at the time that the investment was too big and too risky.