Former 38 Studios Execs Fight To Keep Private Documents Out of Court Case

Four former top executives at 38 Studios are fighting in federal court to keep more than a half-million documents tied to the bankrupt video-game company 38 Studios. The former executives are being sued in state court by the EDC and the state of Rhode Island. Company founder Curt Schilling, former CEO Jennifer MacLean, former CFO Richard Wester, and 38 Studios board director Thomas Zaccagnino claim that "privileged communications between 38 Studios and its attorneys had been released to the [R.I. Economic Development Corporation}… might number in the tens of thousands," according to federal court papers.

The complex legal issues involving 38 Studios currently are divided between two courts — the U.S. Bankruptcy Court in Delaware and R.I. Superior Court. On June 7, 2012, 38 Studios filed for bankruptcy protection in that Delaware court. Most of the case subsequently was transferred to Superior Court, where it was converted to a state receivership case, or a federal case. In November 2012, the EDC separately filed a Superior Court lawsuit against the four 38 Studios executives and 10 other people or entities, seeking money to pay the bonds sold to fund the $75-million loan guarantee.

Lawyers for the former executives argued in Superior Court that Rhode Island officials have not been forthcoming about documents held by the state that are related to the case, but have made the opposite argument in Delaware. People working on the cases found about 550,000 documents related to the company, which were then transferred to 50 computer discs, including 28 discs of documents just from 38 Studios. Communications between the executives and their lawyers, which are normally private, may be among those documents.

"The procedure for screening out those documents was flawed," the 38 Studios’ lawyers assert.

The lawyers for the former executives are worried that the EDC’s lawyers could use those private documents to win the lawsuit and have asked a federal judge for permission to "claw back" those specific materials. Jeoffrey L. Burtch, the Wilmington, Del., lawyer appointed by a federal judge to oversee 38 Studios holdings in the bankruptcy case, objected to those assertions. The executives’ case has "fatal flaws," according to Burtch, because they have not identified specific documents subject to attorney-client privilege.

Obviously the legal wrangling on these documents could prove to slow down the state's case – at least in the short term. We will have more on this story as it develops.

Source: Providence Journal

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