BANGOR – The developer of a proposed racetrack casino at Bangor Raceway and several of his affiliates are being sued in federal court by some shareholders in a New York racetrack.

The shareholders are accusing developer Shawn Scott, among others, of gross mismanagement that is stripping the facility of its value.

Mid-State Raceway Inc., based in Vernon, N.Y., is a public company with more than 500 shareholders. It is the parent company of Vernon Downs, the racetrack Scott is in the process of turning into a “racino,” much like the one the Hawaiian entrepreneur is working to create in Bangor.

Vernon Downs is among several New York racetracks eligible to operate gaming facilities featuring slot machines, subject to approval from the New York State Lottery. Mid-State has applied for a gaming license and expects to open a gaming facility called the Miracle Isle at Vernon Downs at the end of this year.

Attorneys acting on behalf of the New York plaintiffs – namely Mid-State shareholders Gary Greenberg and John Signorelli and Vernon Downs Acquisition LLC – filed a more than 30-page civil complaint this week in U.S. Court, Southern District of New York.

The complaint accuses Scott and several individual and corporate affiliates of “breaches of fiduciary duties, gross mismanagement and intentional, reckless and-or grossly negligent conduct” that have “resulted and will continue to result in a gross waste and [destruction] of Mid-State’s assets and injury to its and its shareholders’ interests.”

The plaintiffs said that they did not seek to resolve the dispute by working with Mid-State’s board of directors because a majority of the board’s members were appointed by Scott and have close personal or business relationships with Scott or John Baldwin, a co-defendant and business partner who shares Las Vegas office space with Scott.

The plaintiffs, who have requested a jury trial, said they are acting to protect the interests of Mid-State and its shareholders.

Also named defendants in the lawsuit are all of Scott’s board appointees, including his mother, Victoria Scott, a Mid-State director; her personal assistant-chauffeur-cook, John Stone; and Hoolae Paoa, Mid-State’s president and chief executive officer, whose 1984 felony theft conviction recently came to light in New York and in Maine.

The plaintiffs claim that Mid-State’s efforts to obtain a slots license could be adversely affected as long as Paoa remains a Mid-State principal.

Paoa represented Scott at several Bangor City Council meetings in his capacity as a consultant, Scott’s Connecticut-based legal counsel Martin Gersten said earlier this week. Gersten did not return a telephone call made to his office on Thursday.

Scott could not be reached for comment Thursday.

Several of the corporate defendants in the suit are limited liability companies, owned entirely or partly by Scott or his associates, that loaned money to Mid-State.

The court document alleges that since Scott and his affiliates gained control of Mid-State the corporation’s debt has quadrupled, losses have more than doubled and Mid-State has spent more than $7.5 million in commitment and loan fees and expenses and excessive interest payments, some allegedly in violation of New York’s criminal usury law.

The transactions include a January 2003 loan used to refinance a $15 million loan made less than six months earlier. The plaintiffs allege that Mid-State forked over $1.5 million in fees and expenses to an affiliate of Scott’s in order to obtain an additional $1.5 million in new loan proceeds.

Five months later, Mid-State borrowed another $3 million in new loan proceeds at a cost of nearly $2 million in fees and expenses.

In both cases, Scott or his affiliates benefited from the fees, according to the complaint.

The most recent loan, announced last Friday, provides a $3 million line of credit at an interest rate of 25 percent a year as well as a 25 percent loan fee.

The shareholders suing Scott allege that Scott and his affiliates sought to fraudulently obtain control of Mid-State by having Mid-State issue warrants entitling Scott to buy 1.7 million shares, or the equivalent of almost 80 percent of the total shares, for $3.4 million.

Last Friday, Victoria Scott exercised 450,000 of those warrants at a cost of $900,000, thereby becoming owner of more than 50 percent of Mid-State’s stock.

The legal action alleges that Scott’s warrants value Mid-State at $4.25 million despite the fact that Scott allegedly was aware that valuations had been prepared valuing Mid-State at more than $45 million.

The plaintiffs have asked the court to declare the warrants void and unenforceable. They also are seeking monetary damages, the amount of which would be proven at trial, and the removal of Mid-State board members appointed by Scott, among other things.

Last year, representatives of Capital Seven LLC, one of several companies owned by Scott, approached Bangor with plans to develop a $30 million “racino,” or racetrack casino, at city-owned Bass Park, home of Bangor Raceway and the Bangor Auditorium and Civic Center.

The year-round entertainment complex would combine harness racing with year-round entertainment, including up to 1,500 slot machines. Bangor voters authorized slots during a citywide vote in June. Maine voters did the same on Nov. 4.

Scott still must be licensed by the Maine State Harness Racing Commission, which will consider his application on Dec. 15 in Augusta.

A background check of Scott and his companies conducted by the Maine Attorney General’s Office is due to be released Nov. 26.