Another grueling June debate over whether the state should repay 38 Studios bondholders gave way to something unexpected: good news in the state’s lawsuit against architects of the failed deal.
Two defendants in the case, the R.I. Economic Development Corporation’s bond counsel on 38 Studios and his law firm, agreed to pay the state $4.37 million to avoid the potential risk of a trial.
The proposed settlement by defendants Antonio Afonso Jr. and firm Moses Afonso Ryan Ltd. includes no admission of wrongdoing in the suit, which alleges the $75 million loan to Curt Schilling’s video game company was a vast fraud. The payment to the state would be covered by the firm’s insurance company. A Superior Court hearing to approve the settlement was scheduled for July 7.
But while $4.37 million puts only a minor dent in the state’s roughly $90 million 38 Studios liability, the settlement raises hope that a lawsuit many described as a long shot when it was filed in November 2012, holds real potential to save tax dollars.
After all, of the 14 defendants named in the suit, several have deeper pockets than Afonso and his firm.
“You can’t guarantee anything, but with multiple defendants, when a rather substantial settlement is reached with one, it is a sign progress is being made with the whole group,” said Michael St. Pierre, a partner at Revens, Revens & St. Pierre in Warwick. “Sometimes there is hesitancy in these cases to be the last one standing. So after a settlement they reassess, and that threat may motivate them to come to the table.”
St. Pierre said as a trial drags on and defendants settle, those who remain risk bearing the brunt of a jury’s judgment, even if it ends up disproportionate to their responsibility in the matter. The legal costs of defending against a lawsuit also mount the longer a case stays alive.
At minimum, even if the state’s case doesn’t end up being strong enough to convince a jury, the settlement should remove concerns that it is frivolous.
“You are not going to come forward with more than $4 million on a frivolous claim,” St. Pierre said. “And this is one defendant when you look at the panoply of defendants who could potentially have more exposure.”
R.I. Economic Development Corporation,
government¸ Moses Afonso Ryan Ltd.,
Revens & St. Pierre,
R.I. Commerce Corporation,
Sheehan & Loveley PC,
Roger Williams University,