Florida faces tough fight to reclaim $20 million from bankrupt firm

Call it another unfortunate plot twist in an already upsetting script.

State taxpayers, who handed out $20 million in incentives to a now bankrupt movie studio, are being asked to dig back into their pockets to pay lawyers to try to get the money back.

The state Department of Economic Opportunity has hired bankruptcy attorneys Sean Cork and Albert del Castillo at $540 per hour to try to reclaim money awarded in 2009 to Digital Domain Media Group — the animation company behind Titanic and founded by popular director James Cameron.

The $20 million in incentives helped lured Digital Domain to Port St. Lucie. But the company filed for bankruptcy in September, closed its offices and laid off 300 Florida workers.

The Department of Economic Opportunity, an office under Gov. Rick Scott, has asked the Legislature for $500,000 to help recoup the state’s original $20 million investment.

“The department will take any steps possible to seek the return of taxpayer dollars,” said Monica Russell, spokeswoman for the Department of Economic Opportunity.

Lawyers for the state say Digital Domain broke its contract by failing to notify the state it had filed for bankruptcy.

Whether or not taxpayers will get some, none or all of their money back is unknown. On average, it takes about 16 months to clear up a bankruptcy case, according to the U.S. Courts Statistics Division.

The episode, however, raises clear questions about Florida’s process of luring companies to the state with up-front cash on the hope that they will create high-paying jobs here. Scott has asked the Legislature for more freedom to recruit businesses to the state with cash incentives.

In total, Florida has disbursed about $4 billion in business incentives — which translates to about 16 percent of the state budget or $212 per taxpayer, according to database by the New York Times. Only a handful of states give more.

State officials say they have a vetting process to make sure companies that get state money are a good bet. Enterprise Florida, a public/private business partnership that screens the companies, did not recommend funding for Digital Domain because the company predicted too low a return on investment.

But lawmakers handed over the money anyway.

“The best safeguard is the state’s vetting and approval process currently in place,” Russell, the state spokeswoman, said. “Digital Domain was not approved through the normal vetting and approval process and was the only unrecommended funded project included that year.”

Scott has ordered an investigation into how the company received state funding.

In September, the Herald/Times reported that state Rep. Kevin Ambler, R-Tampa, tucked the funding into the 2009 state budget. Ambler later got a $20,000 position on Digital Domain’s board, and the company hired Ambler’s son.

Neither Ambler nor Digital Domain could be reached for comment.

Even with vetting, the state has not always accurately predicted which companies will go bust, forcing Florida to litigate them in-house or hire outside counsel. If a company survives but doesn’t meet certain benchmarks — such as creating the promised number of jobs — state contracts have “claw back” provisions to help them retrieve their money.

State officials say Florida has retrieved about $20 million in the past two years.

Although Digital Domain Media Group is now defunct, federal bankruptcy law allows creditors to go after the money in the company’s estate, said Jeffrey Davis, a bankruptcy attorney and faculty member at the University of Florida.

Digital Domain sold the firm’s assets for $30.2 million within 12 days of filing for bankruptcy.

But the state is in line with local governments and investors who contributed a total of $135 million in cash, land and tax credits.

Digital Domain, which declared bankruptcy in Delaware, is named hundreds of times in the states’s court filings.

“If the state has a claim for a breach of contract, it can submit its claim in bankruptcy along with all the other creditors and get a share of what the company pays out, which is usually cents on the dollar,” Davis said.

The problem is not just money.

Florida State University created a film school in partnership with Digital Domain. The school, which has 25 students paying $28,000 tuition, is grappling with whether to maintain a standalone campus in South Florida without the assistance of Digital Domain, or pay an estimated $3 million to move the facility in Tallahassee.

Provost Garnett Stokes said students and faculty want to stay in South Florida and the school has an obligation to finish the program for current students — who began just last fall.

“Our primary focus is on making sure we deliver the same rigorous content and learning outcome we have promised to our students,” she said.