The World vs Todd McFarlane: Part Ten

The World vs Todd McFarlane 

Part Ten: Bankruptcy!

Faced with the insurance companies refusing to cover him for the full amount of any potential loss, as well as fighting a losing battle with Neil Gaiman, McFarlane placed Todd McFarlane Productions into the relative security of Chapter 11 bankruptcy in December 2004.

Unlike Chapter 7, which Eclipse Comics chose, Chapter 11 was the best, logical choice Mcfarlane could make. As Chapter 11 is for companies only it wouldn’t be seen as a shield for McFarlane, as an individual, to hide behind. Chapter 11 would allow him breathing time and also allow him to continue to publish and operate, albeit under the guise of the court. The downside was that by electing to ‘go Chapter 11’ McFarlane, his insurance companies, Twist, Gaiman and Image Comics would be tied to courts for nearly a decade to come, but that wasn’t to be known when the filings took place.

This move was able to be done due to the set-up of the McFarlane companies. In order for a Spawn comic to be published, Todd McFarlane Productions would commission the comic. It would then assign the work to the creative team, who would write and draw the comic and hand the work back to Todd McFarlane Productions, who would then pay the creators. Todd McFarlane Productions would publish the comic and then liaise with Image Comics, who would then distribute the final comic book.

In simple terms, Todd McFarlane Productions was the company that employed Todd McFarlane to write and draw. And, as the publisher of the offending comics, it was responsible for the work being published in the first place. Image was responsible for distributing the comics and McFarlane for writing and drawing them.

It is worth mentioning that at no stage did Todd McFarlane, as an individual, enter into bankruptcy. His parent company, Todd McFarlane Productions did. McFarlane, as an individual, was still very solvent and had assets to bolster him along the way.

THE COURT CASES 

There was another very real reason why McFarlane filed for Chapter 11 – Todd McFarlane Productions was haemorrhaging money. In 2006 a disclosure statement was drawn up, with a plan to liquidate the assets of Todd McFarlane Productions. The document gives an amazingly clear insight into what McFarlane was facing.

First and foremost, McFarlane was facing six major court cases that would have a direct impact upon the bankruptcy of Todd McFarlane Productions. These cases and their statuses as of March 2007 were as follows:

Doe v. TCI Cablevision, et al

A claim for violation of right to publicity. This was the first brought by Tony Twist (the ‘Doe’ in the case), and it included TCI Cablevision, HBO and McFarlane over the Spawn animated series. This was also pursuant to the Twist Settlement Agreement detailed below and, as with the next case; Twist was expected to file a notice of satisfaction of judgement.

Tony Twist v. Todd McFarlane and Todd McFarlane Productions, Inc.

Action to enforce foreign judgement of $15,000,000 and costs against McFarlane. This was pursuant to what was known as the Tony Twist Settlement Agreement. Twist was due to file a notice of satisfaction of judgment with respect to an appeal. In simple terms, a notice of satisfaction of judgement is as follows: Once a judgment is paid, whether in instalments or as a lump sum, a judgment creditor (the person who won the case) must acknowledge that the judgment has been paid by filing a Satisfaction of Judgment form with the court clerk. This means Twist was due to tell the court that he had his cash, along with a suitable resolution, and was happy for the case to be, finally, closed.

TMP International, Inc., et al., v. American International Specialty Lines Insurance Co.

A claim for wrongful denial of U.S. District Court, District insurance coverage. The case was pending, but a joint stipulation to stay litigation for 120 days had been approved by the Court in March, 2007.

Hanover Insurance Company v. TMP International, Inc., Todd McFarlane Productions, Inc., Todd McFarlane and Tony Twist

This was an action for declaratory judgement regarding coverage for litigation. As with all the open cases, this was pending. Also Pursuant to the Tony Twist Settlement Agreement, Twist was due to file dismissal with prejudice of all claims he filed in this case. In March 2007, McFarlane’s camp would file counterclaims against Hanover, Citizens, and General Star Insurance Companies due to the three companies’ failure to provide a defence, and thus finances, to McFarlane, over the Twist case.

Neil Gaiman et al. v. Todd McFarlane Productions, Inc. et al

Breach of contract, copyright for ownership, violation of right of publicity, among other claims. McFarlane didn’t need this one at all as it would prove to be the most damaging, in terms of reputation. The case was pending subject to litigation. To add insult to injury, Gaiman had indicated that he would be seeking a claim of at least $2,000,000.

Marvels & Miracles, LLC, v Todd McFarlane Productions, Inc.

This was a Notice of Opposition against McFarlane, filed by Gaiman, in the US Patent and Trademark Office. Gaiman was claiming that he was the rightful owner of the Miracleman trademark and had opposed McFarlane’s registration. Proceedings were suspended in 2006, pending the outcome of the above case. Ultimately, after losing the case, McFarlane would abandon the trademark, effectively handing it over to Gaiman.

This was the only time Miracleman would be the feature in a court case between McFarlane and Gaiman.

There have been at least seven other cases for McFarlane to contend with over the years.

Interleg Int'l V. Todd McFarlane. Copyright infringement. Filed 1994, settled 1995.

Vivid Impact Corp v. TMP Intl Inc. Breach of contract. Filed 1996, settled 1997.

TMP International v. NHL Enterprises Inc. Trademark infringement. Filed and settled 2000.

Kiss Catalog Ltd v. Todd McFarlane Prod. Breach of contract. Filed 2001, settled 2003.

New Line Cinema Corp, et al v. Todd McFarlane Prod. Breach of contract. Filed 2001, settled 2003.

Roth Estate of, et al v. TMP International. Copyright infringement, filed by Ed ‘Big Daddy’ Roth. Filed 2001, settled 2002.

TMP International v. Palisades Marketing. Copyright infringement, this time it was McFarlane on the right side for a change. Filed 2003, settled 2004.

THE CORPORATE McFARLANE

“There was an agreement between Todd McFarlane as the creator of Spawn which ruled royalties payable by TMP International, Inc., to Todd McFarlane. Todd McFarlane assigned his royalty rights to Todd McFarlane Productions.” (Alan Inglis Deposition. 22 August 2002)

Q: And did you have those kinds of discussions with Neil?

A: Just clarify. Who are you asking the question to? Are you asking it to Todd McFarlane the head of a toy company, the head of publishing, part owner of Image comic books or the individual? So will you ask your question and ask me which one of those people you just asked the question to?

Q: They are all sitting in front of me, so --

A: But they each have a different agenda during their day, a different task to accomplish during the day. I'm sure you do as a father and a lawyer.

----

Q: And I guess really what I'm looking for are the specific subjects of disagreement that you tried to work through this in your capacity as head of Todd McFarlane Productions and weren't able to. And I'm not limiting it. I'm just following up on your answer that you gave as the head of Todd McFarlane Productions. If a different hat is appropriate, put it on and tell me you're putting it on.

A: Right. Can I -- can I simplify this even more?

Q: Yes.

A: Can we assume that if I don't say anything it is as the head of Todd McFarlane Productions because 99.9 if not 100 percent of this is as Todd McFarlane Productions.

Q: Okay.

A: So, unless I stipulate something different, if I talk about myself I'm talking about myself as the person running Todd McFarlane Productions.

(McFarlane explaining himself, Deposition, 2 June 2002)

McFarlane had at least twenty different business names that he was operating under. The details of the various companies were presented to the court as follows, and I’ve added McFarlane’s own comments to each company, as relevant, from his 2002 deposition, and, where noted, I’ve also added in the comments from TMP International’s former Treasurer and CFO (1996 – 2001), Allan Inglis, who helped set these companies up.

Todd McFarlane Productions, Inc. Creates, publishes, and licenses books and film entertainment based on characters Todd McFarlane has created. Spawn being the major character. Todd and his wife, Wanda, own 50/50.

“Doing publishing, licensing, holding the trademarks, doing free-lance art work. I mean, the whole sort of gamut of creating ideas and stuff.” (McFarlane Deposition, 20 June 2002)

“Todd McFarlane Productions was not the publishing company. We would refer to it as a publishing company, but legally it was not. Todd McFarlane Productions wrote the stories and drew the pictures that went into the comics, but the comics were published by another company.” (Allan Inglis Deposition, 31 March 2006)

“There was an agreement between Todd McFarlane as the creator of Spawn which ruled royalties’ payable by TMP International, Inc., to Todd McFarlane. Todd McFarlane assigned his royalty rights to Todd McFarlane Productions.” (Inglis Deposition 22 August 2002)

TMP International, Inc. Toy manufacturer and distributor. Todd McFarlane owns 100%. Initially set up to manufacture toys and clothing apparel based on Todd's characters. They are now licensed to manufacture toys and clothing apparel for others. For example: Ford Motor Company to manufacture and distribute toy vehicles and related apparel; Sony Signatures to manufacture and distribute toy Kiss figures and apparel; 20th Century Fox to manufacture and distribute toy X-Files figures and apparel.

“Most of it is the manufacturing and selling of action figures. I think we have done like the odd vehicle or, you know, a box or something that's a little off centre, but, you know, still plastic goods, if you will, plastic toys.” (McFarlane Deposition, 20 June 2002)

McFarlane Toys Spin-off of TMP, wholly owned subsidiary entity used to specifically distribute and sell Todd McFarlane’s characters and apparel.

“It's the name on all the toys, McFarlane Toys, not TMP International.” (McFarlane Deposition, 20 June 2002)

“McFarlane Toys, Inc. says a spin-off of TMP. In fact, TMP International, Inc. wasn't his toy company.  McFarlane Toys is a d/b/a, and McFarlane, Inc. was not an incorporated company.” (Inglis Deposition, 31 March 2006)

McFarlane Toys Collectors Club, Inc. Direct mail marketing sales of toys and apparel.

TMP Asia, Ltd. Distributes and sells toys in Asia, mostly Japan and handles manufacturing arrangements with China. Office located in Hong Kong.

“That helps us have an office in Hong Kong. It helps us with our international sales to our various distributors internationally outside of North America.” (McFarlane Deposition, 20 June 2002)

McFarlane Toys Canada, Inc. The worldwide holding company for all sales and distribution of toys apparel in Canada.

“That essentially does the same business as McFarlane Toys. It's just that again there are different rules and regulations when you are distributing products up in Canada, so you need another company to sort of abide by certain tax laws and rules.” (McFarlane Deposition, 20 June 2002)

McFarlane Worldwide, Inc. Distributes and sells toys and apparel outside of North America.

“You know what; I don't know (what the company does). I've got a lot of accountants and a lot of lawyers and a lot of tax reasons for doing stuff.” (McFarlane Deposition, 20 June 2002)

McFarlane Design Corporation. Design Studio.

Todd McFarlane Entertainment, Inc. Todd McFarlane owns 90%, Terrence Fitzgerald owns 10%. Mr Fitzgerald is pursuing movie, video, games opportunities.

“That is a company that takes ideas into Hollywood and sees if anybody will bite on any of those.” (McFarlane Deposition, 20 June 2002)

The McFarlane Collection. Sports memorabilia collection (Mark McGuire's 70th Homerun baseball, etc.)

The McFarlane Foundation. Charitable Foundation set up for Todd McFarlane.

McFarlane Global Operations, B.V. Distributes and sells toys and apparel in Europe.

McFarlane Europe, B.V. Sales and distribution company set up in Rotterdam for European sales. Tax vehicle to hold retained earnings outside of North America.

“Another channel of being able to distribute our toys into Europe.”

TMP Ventures. Inc. Initially set up to funnel Todd's $3,000,000 investment in NHL Team Edmonton Oilers. However, due to taxes, not used and investment was funnelled through McFarlane Toys Canada, Inc.

“In fact, I don't recall if it was even created.” (Inglis Deposition, 31 March 2006)

Someone, ANYONE, tell me you saw this thing in action and have photos!

McFarlane Sports Ventures. Inc. Ford Motor made a special Spawn pickup truck. Todd was going to get into spec Racing SCCA Circuit. Todd lost interest.

“In fact, again, I don't believe it was established as it says. It's a dead deal. I mentioned earlier that a license agreement was discussed with Ford Motor Company and that never came to pass. There were no toy cars made from -- as a result of that – under that agreement.” (Inglis Deposition, 31 March 2006)

TMP Equities, Inc, TMP Toys, Todd Toys, McFarlane Motorsports, TMP Hockey Association.

It is important to note that not all those companies were actively trading at the time of the bankruptcy, but all had money tied up in them. Certainly, by 2004, those companies had been whittled down to a few, namely TMP International and Todd McFarlane Productions.

ASSETS & LIABILITIES 2004

Immediately before he filed for bankruptcy, McFarlane took total ownership of Todd McFarlane Productions. For the duration of the bankruptcy period, he would be 100% liable for all the debt, taking the 50% from his wife Wanda. This was probably done to protect his personal assets and to shield Wanda from any penalties or personal debt that might arise. Wanda was still listed as Vice President and Director, but no longer held any common stock in the company.

In 2004 McFarlane Productions listed its assets at approximately $1,029,438 with $740,000 of that tied up in pre-paid legal expenses. He owed $500,000 in a secured loan, had another $71,819 owed to various creators for work done on Spawn, two unsecured debts of $247,688 and $703,688. Then there was the $15,000,000+ to Tony Twist and a potentially unknown, yet an estimated at seven figure amount which would be due if Gaiman won the (then) forthcoming court case (which he did). McFarlane also listed thirty three trademarks as assets, they were: Spawn, McFarlane’s Evil Prophecy, Miracleman, Tremor, Medieval Spawn, Spawn Mobile, Spawn Alley, Violator, Curse of the Spawn, Angela, Overt-kill, Violator Monster Rig and The Clown. Some of these trademarks had been filed more than once, and most were considered to be dead, meaning they were inactive, but those which were live were, Spawn, McFarlane’s Evil Prophecy, Miracleman, Curse of the Spawn and Angela.

McFarlane Production’s main creditors were Tony Twist ($15,000,000 plus costs and interest), law firm Riezman Berger ($3,000,000 for legal services rendered to Twist), Solano Holdings and Investments (a $500,000 loan), Neil Gaiman, McFarlane Toys ($683,901 or monies loaned and advanced, and for administrative fees), Brian Haberlin ($13.600), Comicraft ($2,200), Brian Holguin ($8,800 outstanding for writing Spawn #144 and #145) and Tom Orzechowski ($2,200), Others listed on his service list included artists Greg Capullo ($18,250), Angel Medina ($3,960), Jay Fotos (5,600), Greg Scott ($1,700) and Danny Miki ($4,070).

In total, McFarlane owed $20,668,827 as of 17 December, 2004. And it wasn’t going to stop there.

McFarlane was forced to list everyone that he owed money to, including an outstanding check of $60 owed to the Register of Copyrights at the Library of Congress.

In 2004, Todd McFarlane Productions had posted a net loss of $283,254. This was down on 2003 where he posted a net loss of $423,976. McFarlane Productions total assets, in 2006, were valued at $1,238,722, against total liabilities of $2,594,489.

More people jumped onto the case as time rolled on, notably Film Roman, the company who had developed and produced the Spawn Animated series. They claimed $1,208,651 in 2005 for the total costs incurred in making the series.

Among the down valued assets that McFarlane had paid big for were two Mark McGwire baseballs. These baseballs were ones that McGwire hit for his 1^st and 69^th home run of 1998, which had cost him $219,550 and were now valued at $20,000.

McFarlane still owned the 1998 70^th home run ball, which had cost him $3,000,000, along with the outfit that Madonna wore in the film A League of Their Own, which he had purchased for $9,000 in 1992.

As for July, 2006, McFarlane’s assets had a book value of $1,255,187, yet had an estimated liquidation value of $248,017.

McFarlane owns all the original art that he drew for the Spawn series. Nowhere in his assets did McFarlane list this artwork. This was due to the art belonging to Todd McFarlane personally, and not Todd McFarlane Productions. At the time, McFarlane’s personal wealth was valued at in excess of $75,000,000, so Todd McFarlane, the individual, was far from destitute.

Todd still owns a little piece of Madonna, but he'll never get Rosie

ASSETS & LIABILITIES 2005

It got slightly better for Todd McFarlane Productions. In January, 2005, the United States Bankruptcy Court finally got a formal Asset/Liability list from the company.

The assets amounted to $1,565,199 in total. This was made up of $50,722 cash in hand, $345.309 in security deposits for legal retainers, $219,550 for, “Collectable baseballs. The debtor also has a property interest in other miscellaneous items depicting characters and/or events relating to the comic and entertainment businesses whose value is unknown such as posters and other memorabilia. Located in premises,” $176,720 in royalties due, $764,266 in claims against insurance companies, the infamous Spawnmobile, now worth $7,310, a computer valued at $180 and warehouse shelving valued at $1,092.

The list of creditors was damning.

Stephen A. McConnell: $500,000 for a secured debt. The loan, taken out in November 2004, was against the following, “Accounts receivable including all replacements, renewals and extensions of the Collateral, additions and accessions, proceeds of every kind, every right in proceeds of insurance and related books and records.”

Angel Medina: $3,960, Anna Brooks: $1,000, Atwell, Curtis & Brooks, Ltd: $8,399 – a collection agency, Brian Haberlin: $13,600, Brian Holguin: $8,800, Comicraft: $2,200, Danny Miki: $4,440, Greg Capullo: $18,250, Greg Scott: $1,750, Jay Fotos: $5,600, Kim Kolomyjec: $1,560, McFarlane Toys, Inc: $703,688 (an intercompany debt), Register of Copyrights: $60, Tom Orzechowski: $2,200 and Tony Twist: $15,000,000.

In total, McFarlane Productions had liabilities of $16,275,507.

Neil Gaiman was added to that list for an as yet unknown amount.

On the positive side, McFarlane was doing his best to pay as many people as possible. He had reduced debts and/or made payments to Comicraft, Greg Scott and Chance Wolf, along with hundreds of thousands to various lawyers. He was also meeting his payroll obligations, paying a total of $71,455 to his stable of artists and writers from the end of September to the end of November 2004.

This was not a good time to be Todd McFarlane, although you’d barely know it from his public persona. He kept up a brave face, kept giving interviews and talking up Spawn along with his sporting hobbies.

WHO OWNED WHAT

The key to sorting through McFarlane’s bankruptcy came with establishing who owned what, especially when it came to copyrights on his various books, both comic books and trade paperbacks. As best as can be established, this is how the copyright ownership looked for characters and books, as of January 2005.

Angela Owned by Todd McFarlane Productions, Inc. and/or Todd McFarlane. This was in dispute, pending the Gaiman case.

Blood Feud Owned by Todd McFarlane Productions, Inc. and/or Todd McFarlane.

Boof and the Bruise Crew. Owned by Todd McFarlane Productions, Inc. and/or Todd McFarlane.

Book of Souls. Owned by Todd McFarlane Productions, Inc. and/or Todd McFarlane.

Case Files: Sam & Twitch. Owned by Todd McFarlane Productions, Inc.

Curse of the Spawn Owned by Todd McFarlane Productions, Inc.

Cy-Gor Owned by Todd McFarlane Productions, Inc.

Hell Spawn Owned by Todd McFarlane Productions, Inc. and/or Todd McFarlane.

Kiss – Psycho Circus Copyright owned by Todd McFarlane Productions, Inc. and/or Todd McFarlane. The trademark was owned solely by Kiss Catalog Ltd, who had engaged Todd McFarlane Productions on a work-for-hire basis. Gene Simmons would learn of the copyright claim and take action against McFarlane, resulting in a quick handover.

Miracleman Ownership claimed by Todd McFarlane Productions, Inc, but in dispute. As has been seen, McFarlane never actually owned Miracleman as he never bought the character from Eclipse.

Ozzy Magazine Boof Owned by Todd McFarlane Productions, Inc. and/or Todd McFarlane.

Sam & Twitch Owned by Todd McFarlane Productions, Inc.

Spawn Owned by Todd McFarlane and/or Todd McFarlane Productions, Inc for the first 78 issues.

Spawn Owned by Todd McFarlane Productions, Inc from issue 79 onwards.

Spawn Simony Owned by Todd McFarlane Productions, Inc.

Spawn Bible Owned by Todd McFarlane Productions, Inc.

Spawn: Blood and Shadows Owned by Todd McFarlane Productions, Inc.

Spawn Impaler Owned by Todd McFarlane Productions, Inc. and/or Todd McFarlane.

Spawn Movie Adaptation Owned by Todd McFarlane Productions, Inc.

Spawn Undead Owned by Todd McFarlane Productions, Inc.

Spawn The Dark Ages Owned by Todd McFarlane Productions, Inc.

Violator Owned by Todd McFarlane Productions, Inc. and/or Todd McFarlane.

The Trademarks weren’t as complicated as McFarlane had registered, or assigned, them all under the Todd McFarlane Productions umbrella. These now included Angela, Eclipse Comics, Curse of the Spawn, Medieval Spawn, Miracleman, Spawn, Spawn Alley, Spawn Mobile, McFarlane’s Evil Prophecy, Tremor, Violator, Violator Monster Rig, Circular Design Horz, Clown, Manga Spawn, McFarlane Toys, Ninja Spawn the Spawn Image Logo, the Spawn Logo, the Spawn movie title and Spawn in Chinese.

McFarlane Productions also held trademarks in Europe, China, Hong Kong, Canada, Japan and Taiwan. Naturally the ownership of these copyrights and trademarks, in particular Miracleman and Angela, were now in dispute with the Gaiman case.

It was in McFarlane’s best interests to settle with as many of his creditors as possible before the courts were forced to intervene and start stripping him of his trademarks and copyrights. If this didn’t happen then McFarlane was in real danger of losing Spawn. It wouldn’t be a voluntary move, the court could order that the assets be sold at auction, ala Eclipse, to resolve the debts.

But there was a lot to happen before things reached that stage, and there was no way known that McFarlane was going to lose his baby.

 

Nobody files for bankruptcy on two cases

NEXT INSTALMENT: Tony Twist finally settles and Neil Gaiman wins a Miracle(Man)