PROVIDENCE, R.I. (WPRI) – The Chafee administration has reached a tentative settlement with two of the parties the state has sued for their role in putting together the controversial 38 Studios deal, WPRI.com has confirmed.
The draft settlement with Moses Afonso Ryan Ltd., a law firm that was bond counsel in the 38 Studios deal, as well as Antonio Afonso Jr., one the firm’s partners, calls for them to pay $4.4 million to settle the suit, according to court filings obtained by WPRI.com. The payment would be made by their insurance company, Liberty Insurance Underwriters Inc.
The proposed settlement is the first such deal reached in the 38 Studios litigation, though it still needs to win final approval from R.I. Superior Court Judge Michael Silverstein, who is overseeing the case. He has scheduled a July 7 hearing on the matter. A spokesman for Moses Afonso Ryan declined to comment, noting that Silverstein hasn’t ruled yet.
“I hope this is going to be the first in a series” of settlements, Max Wistow, the lead lawyer for the state in the 38 Studios suit, told WPRI.com on Friday. He declined to comment further because the litigation is ongoing.
The R.I. Commerce Corp. board of directors voted Monday evening to approve the settlement agreement, and the two sides finalized it on Tuesday, the documents show. “The proposed settlement is a step in the right direction, and I hope this is the beginning of a positive resolution to the 38 Studios saga,” Gov. Lincoln Chafee said in a statement.
In the court documents, lawyers for the two sides explained their rationale for moving to settle the suit.
Moses Afonso Ryan and Antonio Afonso himself “deny any liability for the allegations made against them,” the lawyers wrote. “Nonetheless, they are consenting to have their insurance carrier pay the remaining policy limits of [$4.4 million] to put this matter behind them and avoid the risk of a judgment after the trial that is larger than whatever might remain (if anything at all) as available insurance proceeds.”
Similarly, lawyers wrote that the Commerce Corp. “could possibly lose its case against the [Moses Afonso Ryan] defendants and get nothing” or alternatively “obtain a much larger judgment after trial, but there would be little if anything left in the [Moses Afonso Ryan] insurance policy to pay such a judgment.”
The Commerce Corp., known then as the R.I. Economic Development Corp., guaranteed a $75-million loan to lure 38 Studios, a video-game company founded by Curt Schilling, to Rhode Island in 2010. The company collapsed into bankruptcy in May 2012, and the Chafee administration sued the architects of the deal for alleged negligence the following November.
Moses Afonso Ryan and Antonio Afonso Jr. are two of the 14 defendants in the lawsuit. Others include Schilling and additional 38 Studios executives, Wells Fargo & Co., Adler Pollock & Sheehan and former EDC executive director Keith Stokes. Depositions are still being taken and a trial date hasn’t been set.
38 Studios’ demise left Rhode Island taxpayers on the hook to repay roughly $89 million in principal and interest payments to the 38 Studios bondholders, which has triggered a heated debate over whether lawmakers should repay them. Chafee, a strong advocate of paying back the bonds, has said he hopes taxpayers will recoup some or all of the money through the courts.
The General Assembly passed a law earlier this year specifically authorizing the administration to enter into legal settlements with the various parties in the 38 Studios suit if necessary.
Tim White and Dan McGowan contributed to this report.