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EDC Buried in Legal Fees over 38 Studios

Thursday, November 29, 2012


The Rhode Island Economic Development Corporation has been buried in legal fees stemming from the 38 Studios debacle, causing its current budget for attorneys and related expenses to balloon to five times more than what it is usually is, GoLocalProv has learned.

The skyrocketing legal fees stem in large measure from a glut of public information requests that has flooded the EDC as the embattled state agency has come under a storm of scrutiny and criticism.

Under normal circumstances, the EDC fields approximately six requests under the Access to Public Records Act in a given year. Since May 2012, however, when the 38 Studios story broke, the quasi-public agency has received 64 public records requests, 37 of which were directly related to 38 Studios, according to Michael Blazek, a spokesman for the EDC.

Responding to those requests has involved the review of tens of thousands of pages of documents, Blazek said.

There has also been a corresponding dramatic increase in its budget for legal expenses. For fiscal year 2012, the EDC planned on spending $200,000 on legal fees. In the current fiscal year, it has set aside $1,045,000 for such expenses, according to figures provided in response to a public information request submitted by GoLocalProv.

So far, between early May and mid-November, all legal fees related to 38 Studios amount to $115,124.

“RIEDC budgeted more for FY13 than FY12 in order to be prepared for any potential increase in legal expenses as a result of events surrounding 38 Studios and a significant increase in access to public records requests due to heightened public interest,” Blazek said in an e-mail. “Both of these circumstances are outside the usual course of business for the RIEDC, therefore additional funds were budgeted.”

‘Budgeting for a blizzard’

Legal experts yesterday questioned why the EDC has budgeted so much for legal expenses, saying that it shouldn’t take a million dollars to deal with all the legal fees arising from 38 Studios.

Bob Craven, a former a former state prosecutor and a newly elected state rep from North Kingstown, said he would have expected the EDC to perhaps double its legal budget. An increase of five times the normal amount struck him as excessive.

“The number sounds very high,” Craven said. “Municipalities budget for storms, but no one budgets for the Blizzard of ’78.”

The EDC is in the process of mounting a lawsuit against a slew of individuals involved in the failed $75 million loan guarantee to the failed video game company—including company founder and former Red Sox pitcher Curt Schilling, former EDC executive director Keith Stokes, and a number of attorneys. But the law firm that is handling the suit, Wistow & Barylick, has taken the case on a contingency basis, meaning that is has agreed to be paid a share of the damages awarded in the case if they prevail rather than charge upfront fees.

That leaves public records requests as apparently the main driver of legal costs at the EDC.

The law firm that is serving as general counsel to the EDC and that is handling some, if not all, of the records requests is Shechtman, Halperin, Savage, LLP. One of the firm’s attorneys now working for the EDC is Jonathan N. Savage, the former receiver for the Landmark Medical Center as well as Central Falls, where he was paid $250,000 for his work.

  A partner at that firm yesterday did not respond to a request for comment in time for publication.

One source in the legal profession said public records requests shouldn’t be too costly. “Open records is not rocket science,” the source said, saying the bulk of the work should be handled at the paralegal level.

Citizens group fights for more transparency

One activist with a citizens group is questioning whether the increased budget for legal expenses is actually translating into greater transparency. The group, Direct Action for Rights and Equality, or DARE, first contacted the EDC via e-mail on May 10, seeking information on tax breaks to companies that came with local hiring requirements—just days before the 38 Studios crisis hit the news.

DARE was interested in the information because it had been working with the City of Providence to implement and update its First Source Ordinance, which institutes local hiring requirements for local businesses benefiting from a loan, tax break, or other form of economic development assistance.

“Our first attempt was basically ignored,” said Judith Reilly, a member of DARE. “They didn’t realize that we were serious.”

What followed was a months-long battle to obtain the sought-after information.

DARE sent a second request on June 19, requesting “copies of the local hiring requirement sections” of all EDC agreements with companies that it had assisted in one fashion or another. The group also asked who at the agency has the responsibility for making sure companies fulfill their hiring commitments.

Reilly said the question was a critically important one, especially in light of the 38 Studios story that had come to light. “It’s another piece of evidence that maybe RIEDC has not been fulfilling their mission,” she said, adding that she was expressing her personal opinions on the matter, rather than speaking for DARE.

‘Adversarial relationship

Eventually, in mid-October DARE received the requested documents, totaling more than 90 pages.

But the EDC declined to answer the second question. Instead, it sent a letter from an attorney at Shechtman, Halperin, Savage, LLP, explaining that the state public records law only requires that documents be provided. “It is not required to provide answers to questions,” the letter stated.

“I think that’s appalling,” Reilly said. “You can’t tell us who’s in charge of monitoring these things? Is it because no one is actually doing it? What is the possible rationale for stonewalling the public?”

She questioned why the EDC needed to spend so much on attorney fees rebutting simple citizen requests.

“I think it’s fair to say this adversarial relationship with the public is not good for the RIEDC. It’s not good for the public and it’s causing unnecessary legal bills,” Reilly said, pointing to the increase in the legal budget. “That’s $800,000 that’s not being used for Rhode Island job creation. That’s money that could be used for businesses or job training.”

Officials at the EDC yesterday did not immediately responds to requests to comment on Reilly’s criticisms.

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