Most of a state agency's lawsuit against former Red Sox pitcher Curt Schilling and executives at his failed video game company can move forward, a Rhode Island judge ruled Wednesday.
Superior Court Judge Michael Silverstein issued a 99-page decision that allows the state Economic Development Corp. to go ahead with its lawsuit against Schilling, former 38 Studios executives, former EDC officials and others. The suit alleges fraud, negligence, breach of fiduciary duty, racketeering and conspiracy and says the board was misled into approving a $75 million US state loan guarantee for the company in 2010.
38 Studios filed for bankruptcy last year, leaving the state on the hook for more than $100 million.
With the decision, the EDC has now cleared the first major hurdle in pursuing potential claims against Schilling and others. Among other things, the lawsuit claims the defendants knew the company would run out of money by 2012, but concealed that from the EDC board, which made the final decision to back the deal.
The agency had used the loan guarantee to lure 38 Studios from Maynard, Mass., to Rhode Island, which has struggled for years with a bad economy and high unemployment.
The EDC sued in November, naming 14 defendants. Nine of those worked for the agency, including former Executive Director Keith Stokes and former Deputy Director Michael Saul, as well as its attorneys and financial advisers. Four of the defendants were executives or on the board at 38 Studios, including Schilling. The final defendant issued an insurance policy to 38 Studios.
All the defendants moved to dismiss the lawsuit, and the judge turned most of them down.
Seeking triple damages
The suit doesn't seek a specific dollar amount but wants repayment of the $75 million in bonds that supported the deal. It seeks triple damages from some of the defendants, including Schilling.
In his ruling, Silverstein said the state can't immediately seek damages of the entire $75 million because it has not yet lost that much. The bonds are being repaid over time. But the judge said the state might have a claim for future losses once the money has been spent. He also said the EDC could sue for fees and salaries paid to the defendants and damage to its reputation and credit.
The General Assembly this year appropriated $2.5 million in payments on the bonds.
Max Wistow, a lawyer for the EDC, told The Associated Press he was "quite pleased" by the decision and was looking forward to moving ahead with the case. In court, Wistow has described a "fraudulent scheme" in which the defendants both withheld information and provided false information.
Schilling attorney Jeffrey Schreck declined to comment. Schilling has previously called the lawsuit political and denied any wrongdoing. He said at the time the suit was filed that the EDC's approval of the loan guarantee was made "with its eyes wide open and with full understanding of any risks."
Attorneys for Stokes and Saul argued they should be immune from liability under the "public duty" doctrine because they were public officials who were doing their jobs and following orders, but the judge ruled the doctrine doesn't apply in a case where an employer is suing an employee.
The next hearing in the case is scheduled for Sept. 13.