Digital Domain heads for auction as first suit filed

Deposits expected from at least six bidders

Digital Domain heads for auction Friday with a handful of bidders lined up and the first lawsuit is filed against the bankrupt company in Florida, where officials defended their dealings with the special effects house that won an Academy Award for work on “Titanic.”

The company filed for bankruptcy Sept. 11 and CEO Ed Ulbrich argued that a quick sale was the only way to keep it alive and viable. An exec from Marvel also testified at a hearing that the studio, and other clients, would drop Digital Domain without a speedy resolution. The official Committee of Unsecured Creditors agreed to the auction in a filing on Wednesday.

Attorney Robert Feinstein told the Wilmington, Delaware bankruptcy court at a hearing Thursday that he had received deposits from two bidders and expected at least four more, according to a report by Bloomberg. The opening bid of $15 million will come from Searchlight Capital Partners, which served as a so-called stalking horse to get the process rolling. Feinstein didn’t name the interested parties.

Stephen Castor, CEO of 3D conversion company RocketScience, told Variety his company is interested in buying Digital Domain Productions, although Digital Domain Media Group’s 3D division and its patent portfolio is not included in this action.

Digital Domain creditor Technicolor told the court it may bid. According to published reports, Technicolor Creative Services objected to the accelerated auction schedule, complaining it didn’t allow time for them to do their due diligence. Technicolor might also benefit should DD collapse, as its Moving Picture Company subsidiary would be in line to pick up vfx work studios take away from DD.

OddLot Entertainment said it hasn’t decided. Oddlot is the company behind sci-fi film “Enders Game,” in which Digital Domain invested $17 million.

Former Digital Domain CEO Scott Ross told Variety he wasn’t planning to bid since the quick time frame ended up being unfeasible for his Chinese investment partner.

Separately, the law firm of Berman DeValerio filed a class action suit against former CEO John Textor and several directors on behalf of investors who lost money on Digital Domain stock. Such suits are par for the course in bankruptcies. It alleges that DD misled the public about its ability to raise capital and fund its business.

The Chapter also threw Florida for a loop. The Mayor of West Palm Beach, Jeri Muoio, said at a news conference this week that the city thinks it will be able to reclaim downtown land valued at $10 million that it deeded to Digital Domain.

It also gave the company $2 million to partner with Florida State University on a digital animation program.