Diamond Distributors Asks Bankruptcy Court For Ownership of Publishers' Consignment Inventory [UPDATED]

Diamond Comic Distributors--which filed for bankruptcy in January--has asked the bankruptcy court to allow it to sell its consignment inventory in order to pay off its creditors.

Consignment inventory is stock which the distributor stores but does not own (as opposed to stock which the distributor has purchased from the manufacturer). The distributor then sells the books via retail stores. The manufacturer or publisher does not get paid until the stock is sold at retail--typically receiving 30%-50% of the retail price (the rest going to the retail store and the distributor itself).

Diamond has listed 128 companies [see below] for which it currently holds consignment stock. Some of these are tabletop game companies, as well as many comic-book publishers, and include Goodman Games, Green Ronin, and Paizo Publishing. Others include comic-book publishers like Marvel and DC, along with a number of toy companies. Some publishers are saying that they are owed payments for retail sales from late 2024, just prior to Diamond's bankruptcy filing in January 2025, in addition to having stock currently in Diamond's possession.

Normally, unsold stock, which still belongs to the publishers, would be returned to them. Diamond has asked the bankruptcy court to allow it to take ownership of that stock and sell it for the benefit of its creditors.

One of Diamond's biggest creditors is Chase Bank, which will likely be at the top of the priority list of creditors to be reimbursed.

In its filing, Diamond says it is in possession of "significant inventory that was shipped… on a consignment basis" and that "consignors have not satisfied the requirements under applicable law to perfect their interests in this consigned inventory". Diamond claims that this gives them the right to "transfer title to this inventory free and clear of the consignor's interests". Essentially, some important paperwork (a 'U.C.C.-1 financing statement') was not filed by consignment vendors like Marvel, DC, and the tabletop gaming companies mentioned earlier prior to the bankruptcy in January, and this means that they forfeit their rights to the stock in question. Diamond's filing says "None of the vendors that provided consigned inventory to any of the Debtors filed a U.C.C.-1 financing statement against any of the Debtors prior to the Petition Date."

Following the closing of the sales of a substantial majority of their assets, the Debtors are in possession of significant inventory that was shipped to the Debtors on a consignment basis.

1. The consignors have not satisfied the requirements under applicable law to perfect their interests in this consigned inventory. As further explained below, this give the Debtors the right to transfer title to this inventory free and clear of the consignor’s interests.
2. The Debtors accordingly seek to sell or otherwise dispose of the consigned inventory free and clear of the interests, if any, of the consignors.
3. To that end, the Debtors seek approval of Consignment Sale Procedures (as described and defined herein) to permit them to market, sell, and/or otherwise dispose of consigned inventory expeditiously, minimizing costs and maximizing recoveries in order to generate the best result for the estates.

UPDATE -- Paizo Publishing has announced that its upcoming releases will not be available at major bookstores or at Amazon because the company has stopped shipping products to Diamond. This includes 12 August releases and 10 September releases, such as Starfinder Player Core, Starfinder GM Core, Pathfinder Battlecry, and more.

The court has scheduled a hearing on July 21 to hear objections from the affected vendors. The full list of vendors can be seen below.

List of Consignment Vendors

1. 12 Gauge Comics LLC
2. 801 Media Inc
3. A Wave Blue World Inc
4. Ablaze
5. Abstract Studios
6. Ack Comics (Amar Chitra Katha)
7. Action Lab Entertainment
8. Aftershock Comics
9. Ahoy Comics
10. Ait/Planetlar
11. Albatross Funnybooks
12. Alien Books
13. American Mythology Productions
14. Antarctic Press
15. Ape Entertainment
16. Apex Publishing LLC
17. Archaia Studios Press
18. Archie Comic Publications
19. Artists Writers & Artisans Inc
20. Aspen Mlt Inc
21. Avatar Press Inc
22. Bad Egg LLC
23. Bandai Entertainment Inc
24. Battle Quest Comics
25. Bedside Press
26. Behemoth Entertainment LLC
27. Benitez Productions
28. Black Mask Comics
29. Black Panel Press
30. Blind Ferret Entertainment Inc
31. Boom Entertainment
32. Bundoran Press Publishing House
33. Chizine Publications
34. Clover Press LLC
35. Cryptozoic Entertainment
36. Dark Horse Comics
37. DC Comics
38. Desperado Publishing
39. Diamond Comic Dist.-Stock
40. Difference Engine Pte LTD
41. Digital Manga Distribution
42. Drawn & Quarterly
43. Dstlry Media
44. Dynamic Forces
45. Eros Comix
46. Eureka Productions
47. Fairsquare Graphics
48. Fantagraphics Books
49. Fiery Studios Inc
50. Frank Miller Presents LLC
51. G T Labs
52. Gemstone Publishing
53. Gen Manga Entertainment
54. Gold Key Entertainment
55. Good Trouble Productions LLC
56. Goodman Games LLC
57. Graphic Mundi – Psu Press
58. Graphitti Designs
59. Green Ronin Publishing
60. Gungnir Entertainment
61. Heavy Metal Magazine
62. Hermes Press
63. Humanoids Inc
64. Idw – Top Shelf
65. Idw Publishing
66. Image
67. Image Comics
68. Joe Books Inc.
69. Laguna Studios
70. Les Editions Pix’N Love
71. Lev Gleason
72. Lion Forge
73. Lionwing Publishing LTD
74. Living The Line
75. Locust Moon Press
76. Mad Cave Studios
77. Magma Comix
78. Magnetic Press Inc.
79. Manga Classics Inc.
80. Marvel Comics
81. Marvel Prh
82. Massive
83. Moonstone
84. Nbm
85. Netcomics
86. Night Shade Books
87. Norma Editorial S.A.
88. Oni Press Inc.
89. Opus Comics LTD
90. Paizo Inc
91. Panini UK LTD
92. Papercutz Inc
93. Pegamoose Press
94. Prime Books LLC
95. Rabbit Publishers
96. Radical Publishing
97. Red Giant Entertainment
98. Renaissance Press
99. Roll For Combat
100. S7 Games
101. Scout Comics
102. Sea Lion Books
103. Seven Seas Ghost Ship
104. Slave Labor Graphics
105. Soaring Penguin Press
106. Source Point Press
107. Starburns Industries Press
108. Storm King Productions Inc
109. Sumerian Comics
110. T Pub
111. Th3Rd World Studios
112. Titan Comics
113. Tokyopop
114. Toonhound Studios LLC
115. Twomorrows Publishing
116. Ubiworkshop
117. Udon Entertainment Inc
118. Valiant Entertainment LLC
119. Vault Comics
120. Wicked Cow Studios LLC
121. Wildside Press LLC
122. William M Gaines, Via Gemstone
123. William M. Gaines Agent, Inc.
124. Wyrm Publishing
125. Yaoi Press LLC
126. Z2 Comics
127. Zenescope Entertainment Inc
128. Zombie Love Studios

 

[Nikosandros]

Is there anyone here with sufficient legal knowledge and sufficient patience to explain what is going on? Why can Diamond just confiscate those goods? If they liquidate them are the previous owners among the creditors to be refunded?

 

[Morrus]

Is there anyone here with sufficient legal knowledge and sufficient patience to explain what is going on? Why can Diamond just confiscate those goods? If they liquidate them are the previous owners among the creditors to be refunded?

I don't have any insight into Diamond's accounts, but typically in a bankruptcy scenario not every creditor will get everything they’re owed. There won’t be enough to go round. There will be a priority list, and the creditors will be a longer list than the list of consignment vendors--it will also include banks, landlords, tax agencies, and other entities with which a company does business and folded owing money.

The vendors whose stock is being liquidated won’t get paid for that stock. But they are creditors if they are owned previous money from retail sales in 2024.

This is just an application at this stage. The court will need to approve it.

 

[jdrakeh]

Diamond has absolutely earned their reputation as one of the most hated wholesalers.

 

[Koloth]

IANAL but some will depend on the bankruptcy laws in the State where filed. They can vary and are one of the reasons companies will pick one state over another to be their corporate HQ. A big part will be how the consignment contracts are written. But bankruptcy often lets the company get out of contracts. Chapter 11 is a reorganization bankruptcy where the intent is often to keep the company operating in some fashion. Often used to get out of contracts like labor, loans and such and to close facilities and fire people while bypassing the normal processes. If it was a publicly traded company, stockholders normally lose all stock value. Judges have wide latitude in how things get handled.

 

[EternalDungeonMaster]

Looking at that list of Consignment Vendors, there are quite a few small, vulnerable companies there. It's a shame they have get hurt in this by losing product that is sitting on Diamond's shelves. From a lay perspective, it would seem more fair for the court to order Diamond to sell the consigned product and use only their share of the profits to pay creditors. But so it goes.

 

[kenmarable]

This article has more detail:

Consignment or Confiscation? Diamond’s Bankruptcy Leaves Publishers Guessing

Diamond Comic Distributors, once the main supplier for comic book shops across the United States, is now at the center of a major bankruptcy case. The company has filed a plan to sell off inventory…

bleedingfool.com

IANAL either, but at least from the details provided it sounds like Diamond is claiming since the companies selling on consignment didn't file a claim against Diamond's property before the bankruptcy they are out of luck and all that inventory (which is the publisher's property not Diamonds???) is magically Diamond's now (and this is even after they started refusing to send that inventory back to publishers who requested it).

Considering the official statement included in that article from Fantagraphics uses terms like "ransom note" and "held hostage" and tells retails to not buy even existing back stock through Diamond anymore, it sounds like publishers are as furious as you would think.

And as for prioritizing creditors with the bankruptcy, it sounds like the list is likely going to be:

1. Chase bank
2. Giants like Pokemon, Marvel, and DC
3. Good luck everyone else

(Oh, and edit to add - Diamond has new owners as of May 16, and they don't owe anything to previous creditors since they are technically a new business entity. So any money made since then and going on into the future will not help anyone owed by the bankrupt former business.)

 

[Jd Smith1]

Is there anyone here with sufficient legal knowledge and sufficient patience to explain what is going on? Why can Diamond just confiscate those goods? If they liquidate them are the previous owners among the creditors to be refunded?

In the USA, in most states, the court sides with creditors. While Diamond will liquidate the inventory, they will not keep the money except for certain overhead costs; the bulk will go to creditors, with institutions with outstanding loans generally getting first shot at compensation.

The former clients will have a shot at getting some money back, but it will be pennies on the dollar, and probably after yet more waiting. They will also have to weigh legal fees against possible returns. Banks have legal staff on the payroll for just this sort of thing.

The real damage, IMO, is the sudden flood of 'priced-to-move' product onto the market. You are going to see smaller companies competing for sales with their own goods. This could create a very bad year for these companies.

 

[LordEntrails]

I wonder why Diamond cares?
If the money from the sales goes to Diamond creditors then it's not like the Diamond owners are going to benefit from it.
Unless somehow through interesting means the Diamond owners are also the creditors and therefore are hoping to gain more money from their own bankruptcy than they otherwise would.
My money is on the Diamond owners being substantial creditors.
Maybe legal, but certainly shady.

 

[Umbran]

Is there anyone here with sufficient legal knowledge and sufficient patience to explain what is going on? Why can Diamond just confiscate those goods?

Diamond has stuff in warehouses, holding it for the publishers, and Diamond is probably paying for that storage - and when they are already bankrupt, ongoing costs suck. Diamond wants to end that ongoing cost.

It looks like Diamond is asserting that the owners have not stepped up to claim their goods, that the publishers have, legally speaking, abandoned this merchandise.

Whether or not they are correct that the owners of the merch have been given ample time and notice to claim their stuff, I couldn't say.

If they liquidate them are the previous owners among the creditors to be refunded?

It would go to creditors.

You can be pretty sure that the publishers are pretty far down the list of creditors who will benefit from sale of this merchandise. They're hoping to sell that merch at cut-rate prices, and the money will go to some bank or financier company.