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

 

[sevenbastard]

Sounds like a pretty clear cut case with legal presedent datting back to the landmark 1831 Supreme Court Case of F. Keepers v. L. Weepers.

 

[rknop]

If the goal of this bankruptcy is really to try to keep the distributor in business, it will backfire. No publisher in their right mind would trust this distributor again with consignment stock.

However, I suspect its real goal is to extract some money from the process for the new owners, not to try to keep any business really alive.

 

[kenmarable]

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.

At least from that other article (just one source so far, tho), it is not that Diamond is claiming publishers were given ample time or notice to claim their stuff. They are not alleging that. Apparently, the filing states that publishers didn't file a "U.C.C.-1" form to basically put a lien on their own goods sent to Diamond for consignment sales prior to the bankruptcy, so Diamond is now claiming the consignment contracts are voided due to bankruptcy and that not only releases them from obligations for those products to the publishers, it transfers ownership of those products to Diamond, and this is despite publishers previously asking for their products and Diamond openly refusing to hand them over.

So, I'm sure there's a lot of very complicated legal technicalities involved, but at least from a layperson perspective, I'd say since publishers claim that Diamond give no notice whatsoever and even refused to return requested products prior to this filing, it is hard to see any interpretation at all that involves "ample time and notice."

Of course, the case will be decided on the technical details of the law and the exact consignment contracts, but I think a fairly high-level, common sense view, most people would call this theft (and publishers are basically calling it that). But US bankruptcy laws are a mess, so who knows.

 

[Nylanfs]

Here's the part that gets me, why would the publishers know they needed to file that document on their OWN products that were in Diamonds warehouses.

A UCC-1 financing statement serves as a formal notice by a secured party asserting a claim against specific personal property of the debtor in accordance with the Uniform Commercial Code

 

[Jd Smith1]

I wonder why Diamond cares?

Because they will have, or be operating under the threat of, a court order to liquify all assets as efficiently as possible.

Failure to do so will open them as specific individuals for a charge of contempt of court, and in many states, fraud. The two reality TV stars recently pardoned are examples of what happens if the court does not feel they were acting in good faith.

 

[Jd Smith1]

If the goal of this bankruptcy is really to try to keep the distributor in business, it will backfire. No publisher in their right mind would trust this distributor again with consignment stock.

However, I suspect its real goal is to extract some money from the process for the new owners, not to try to keep any business really alive.

It is not to keep the distributor in business, it is to extract as many funds as possible, with which to pay creditors.

 

[Cordwainer Fish]

I guess theft is legal now.

 

[Doctor Depravo]

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.

Bleeding Cool (who has been covering all the Diamond drama since the beginning) reported a while back that Diamond suddenly changed a long-existing policy about the return of merchandise.

Formerly, Diamond would send back unsold merch.

Yet recently and suddenly, NuDiamond said publishers were responsible for paying to have their own stuff shipped back.

Not only have publishers balked, but apparently it’s also been impossible to find out exactly how one is supposed to request the privilege of paying to get one’s stuff back. Many folks In The Biz have lamented dead phone lines, unresponsive emails, clueless reps, etc.

It’s a nightmare, particularly for small publishers that have their stuff being “ransomed”.

 

[Ruin Explorer]

This seems pretty bad, RPG industry-wise.

Diamond dumping a bunch of inventory on the market at low prices is probably not great period, but that the money it makes will then likely not actually go to any of the companies who they took that inventory from, but will compete directly with the sales of those companies, and undermines those sales, is kind of a double-hit. As people have pointed out, small creditors and real businesses (let alone individuals) get absolutely screwed in this sort of bankruptcy case (and this is a feature not a bug for the people who designed the system - it's about allowing big creditors to survive and keep making risky investments, not about protecting the people actually losing the most).

If what @Doctor Depravo says is right, and this is a recent and poorly-communicated change, it seems like this is probably active bad faith, but will the court realize that? So many supposed to "come with clean hands" do not, yet face no consequences.

 

[Umbran]

Apparently, the filing states that publishers didn't file a "U.C.C.-1" form to basically put a lien on their own goods sent to Diamond for consignment sales prior to the bankruptcy, so Diamond is now claiming the consignment contracts are voided due to bankruptcy and that not only releases them from obligations for those products to the publishers, it transfers ownership of those products to Diamond, and this is despite publishers previously asking for their products and Diamond openly refusing to hand them over.

From the link you provided:
"The UCC-1 publicizes the creditor's legal right to seize collateral if the borrower fails to make payments on a loan. It also establishes the creditor's priority over other creditors for that collateral."

So, it sounds to me like the UCC-1 is exactly that - the way for the publishers to claim the goods in the bankruptcy.