Digital Domain Sets Tentative Sept. 21 Date for Auction of VFX Biz

Digital Domain (DD) clearly faces an uphill struggle to reorganize its operations, refocusing on its core VFX business in California and Vancouver while making sure it can pay its employees. Even in bankruptcy court, it seems, the company's swift downfall makes for a highly unusual story.

A judge scolded the company yesterday for waiting until its financial situation was truly dire to file for Chapter 11 protection —  it had only $50,000 in the bank on Tuesday, according to Reuters — and threatened to block the proposed September 21 auction of its Digital Domain Productions subsidiary. DD argued that Hollywood studios would start abandoning it if it didn't have financial backing by then, but the judge complained that DD's proposed timetable, which is tied to debtor-in-possession funding that will keep the company afloat during bankruptcy, was "unprecedented." Testimony from an executive at Marvel Studios reportedly helped convince the judge to let plans for the auction proceed, with the caveat that it could still be delayed during a scheduled September 20 hearing.

One of the judge's concerns was that the accelerated schedule wouldn't allow potential buyers time to prepare offers for the company, but Digital Domain officials said 20 potential buyers had already signed confidentiality agreements. It's rumored that Prime Focus World is a potential suitor. Searchlight Capital Partners has offered to start bidding for the animation studios at $15 million; presumably, they are worth quite a bit more than that.

Meanwhile, The Palm Beach Post reported yesterday that the Digital Domain Institute (DDI), the for-profit educational program introduced in a partnership between DD and Florida State University, had suspended classes in its 10-week course indefinitely, affecting the 16 students who had enrolled directly in that "essential skills" program. Another 27 FSU students who transferred to DDI's West Palm Beach campus for the fall semester are still in class, the newspaper reported.

Meanwhile, investigations are promised down in Florida, where taxpayers and city and state officials are demanding to know more about the process through which Digital Domain Media Group was awarded lucrative grant packages for its Florida expansion. Notably, the nonprofit agency Enterprise Florida recommended against an economic development grant for the venture but was overruled by state lawmakers. As Variety reports, the tense situation could have ramifications for production tax credit programs in Florida as well as in other states.

Last but not least, a class-action lawsuit has been filed, according to the Post, seeking to recover 60 days of pay and benefits for workers who were fired when the Port St. Lucie animation studio was abruptly shuttered last week. The lawsuit cites the federal Worker Adjustment and Retaining Notification Act, otherwise known as the WARN Act, which bars company from shutting down large facilities without warning in the majority of cases. But even if the unemployed workers make a good case in court, it's unclear where they would stand in line with the company's other creditors.