Legendary Pictures Sues Former Digital Domain CEO Over $3 Million Debt (Exclusive)

There's fallout from the bankruptcy of Digital Domain Media Group, including a new lawsuit and a coming patent auction.
Andrew H. Walker/Getty Images
John Textor

Last month, Digital Domain, the visual effects studio co-founded by James Cameron, was reported by the Los Angeles Times to have emerged from bankruptcy after selling assets to Galloping Horse America and Reliance MediaWorks for $30.2 million.

It would be a remarkable turnaround for a company that once won Academy Awards for visual effects in Titanic, created the famous Tupac Shakur hologram, and is now co-producing Ender's Game. After all, parent Digital Domain Media Group filed for bankruptcy on Sept. 11, and while prepackaged bankruptcies with a negotiated sale aren't unprecedented, taking less than three weeks to resolve $214 million in reported debt would be quite extraordinary.

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In fact, while the sold assets might be out of bankruptcy, the DDMG is still a debtor in possession as the creditors continue to seek what they believe is owed.

One of the creditors is Legendary Pictures, which had the third largest unsecured claim, according to court papers. Legendary, whose credits include The Hangover and The Dark Knight, is owed $3 million --- and shouldn't be expected to just walk away from the debt.

Legendary is now stepping up efforts to collect on the money.

On Wednesday, Legendary filed a lawsuit in Florida federal court against ex-DDMG CEO John Textor, looking to hold him personally responsible for the $3 million plus interest at 8 percent, plus legal expenses. UPDATE: The lawsuit was dismissed without prejudice.

According to the complaint, the insolvency of DDMG represented a default on a $3 million convertible note dated March 19, 2012.

Earlier this month, Legendary demanded payment from Textor, who allegedly hasn't paid.

The reason why Legendary is going after Textor personally is because he acted as a guarantor on the debt.

This is just one piece of litigation facing Textor at the moment. He's also being sued by someone who is reported to be his "lifelong friend" over a promissory note worth $986,707. He's also reportedly facing a fraud lawsuit from a shareholder.

There's also the matter of the $20 million of state funds that DDMG received from the state of Florida. The state's Department of Economic Opportunity poured money into the company to persuade it to set up local operations, and is now demanding money back and exploring all avenues for recovery.

"The payable in question is, by federal court order, now an obligation of the new owner of Digital Domain," says Textor in reaction to the lawsuit. "I am really not sure why they would be calling on me.  This matter was resolved."

Now that DDMG is in bankruptcy -- still -- it is seeking ways to raise more money. The sale of some assets to Galloping Horse and Reliance represented one part of the plan, but it's not the only avenue to generate funds.

Last week, DDMG sought a bankruptcy judge's approval to sell other assets, including rights and interests to prospective films including The Legend of Tembo, The Art Project, Birds of a Feather and the The Lightning Catcher. Additionally, DDMG is looking to sell its animation studio in Port St. Lucie, its post-secondary education institute in partnership with Florida State University and its intellectual property assets.

The latter could be of particular interest. Although the technology that was used to create the Tupac hologram appears to be traced to a patent held by Musion Systems -- not DDMG -- DDMG looks to auction six patents, two patent applications and one trademark relating to the technology of converting two-dimensional image data to three-dimensional image data.

Once asked who was infringing those patents, Textor answered, "Everybody that has an interest in a 3D film, from the content creators to the production companies to the distributors, the exhibitors, the projector companies … the theaters, down to the television sets and the videogames."

The assets would seem to be a prime target of patent holding companies (often known as "patent trolls"), who might seek to buy them up with the purpose of suing those in the movie industry doing 3D.

The creditors will likely have until Dec. 21 to submit claims. At the time being, this bankruptcy of DDMG has a little more depth than meets the eye.


E-mail: eriq.gardner@thr.com; Twitter: @eriqgardner