Providence
County Superior Court
For
Plaintiff: See attached list.
For
Defendant: See attached list.
DECISION
SILVERSTEIN, J.
This
litigation was commenced by Plaintiff's filing of its
Complaint against a number of Defendants on November 1, 2012.
It arises out of actions by Plaintiff to assist a start-up,
electronic game company, 38 Studios, Inc., created by former
Boston Red Sox pitching star, Defendant Curt Schilling, to
obtain financing to complete its multi-player computer game,
Copernicus; to move its primary headquarters and facility to
Rhode Island. Plaintiff, as well as governmental and
political leaders, expected that 38 Studios would be the
nucleus for economic development in Rhode Island of similar
and related entities, and that such development would be a
catalyst for employment providing above-average paying jobs
in the State.
Ultimately,
Plaintiff issued $75 million in so-called moral obligation
municipal bonds, of which approximately $50 million of the
proceeds went to 38 Studios – the balance was used to
pay expenses and fees broadly related to the bond issue and
to fund reserve funds required pursuant to the legislation
authorizing Plaintiff to engage in this type of financial
assistance with respect to economic development.
The
Defendants originally sued by Plaintiff consisted of certain
of its employees, certain entities involved in the sale of
the bonds; Plaintiff's fiscal advisor, certain officers
of 38 Studios, 38 Studio's insurance carrier, as well as
attorneys and law firms for Plaintiff that functioned as
general counsel and as bond counsel in connection with the
bonds, not sued by Plaintiff because it had availed itself of
protection under the provisions of Chapter 7 of the
Bankruptcy Code less than six months following the issuance
of the bonds.
As
indicated, this litigation commenced in 2012 and has been
vigorously litigated by the parties ever since. A number of
Defendants have settled, including Plaintiff's outside
law firm, which acted as its general counsel, together with
the partner in that firm who functioned as its primary
counsel and was the Secretary of the EDC; the outside law
firm that functioned as bond counsel to the EDC in connection
with the $75 million bond issue hereinabove referred to,
together with the partner in that firm with primary
responsibility in connection with the bond issue. Also
settling were the Executive Director and the Deputy Executive
Director of Plaintiff, its two senior officers.
To
date, all payments due to the holders of the issued bonds
have been made in accordance with their proposed dates of
payment. The source of the payments, rather than being
payments to be made by 38 Studios pursuant to its agreements,
have come from the original reserve funds set aside from the
proceeds of the bond issue as aforesaid, together with funds
received by EDC from settlements obtained from the settling
Defendants, also payments authorized by the General Assembly
pursuant to the so-called moral obligation aspect of the bond
issue, and certain other miscellaneous funds held or paid
into the reserve accounts.
Recently,
after a lengthy investigatory process, the Security and
Exchange Commission, an agency of the United States, brought
suit against Plaintiff, Wells Fargo Securities, LLC (a
Defendant herein), Peter M. Cannova (an employee of Wells
Fargo and not a defendant in the instant action), and against
the former Executive Director and Deputy Executive Director
of Plaintiff herein. The SEC action is pending in the United
States District Court for the District of Rhode Island as
civil action number 1.16-cd-00107-JJM.
Certain
of the Defendants in this case, that is to say the case
pending in the Providence County Superior Court, have moved
that this Court stay all further proceedings pending final
resolution of the SEC litigation in the Federal Court system.
Defendants, Wells Fargo and Barclays Capital, Inc., argue,
inter alia, that the Federal Courts have more
familiarity with the statutory and regulatory scheme with
respect to securities law, that findings in the State Court
proceeding may be at variance from well-established
securities law jurisprudence and that certain findings in
this litigation might be inconsistent with findings in the
Federal proceedings. The Defendants point to the anomaly that
Plaintiff here is indeed a Defendant, together with Wells
Fargo, in the proceedings brought by the SEC as regulator.
The EDC
resists Defendants' motion arguing, among other things,
that the Federal litigation has just commenced, that its
response to that suit is not presently due, that there is no
assurance that a resolution of that proceeding will in any
way impact the disposition of this matter, that
Plaintiff's claims here are Rhode Island common law in
nature while the Federal litigation is incident to alleged
violation of Federal Securities law, and that while claims
under the 1934 Securities Act (against Wells Fargo) are
subject exclusively to suit in the Federal system, claims
under the 1933 Securities Act (such as those asserted by SEC
against the EDC) are cognizable both in the Federal and State
Courts.
Further,
Plaintiff correctly makes the point that the SEC action is to
acquit the rights of the investing public while the State
action is brought against the Defendants claiming a violation
of rights and of duties owed to Plaintiff by the Defendants
and by each of them.
In the
final analysis, this Court notes that the stay request is
addressed to the sound discretion of the trial justice. This
Court believes ...