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

Tabletop game companies in danger of losing their stock. Pathfinder/Starfinder won't be in stores in August/September.
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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
 

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This is not good for the small publishers at all, nor is it good for anyone. At this point, stores should cease to do any business with Ad Populum forever. Also, if I'm a company selling products, I would push more and more for direct distribution to the stores and cut out the middlemen. If I was running a store, I would be trying to eliminate as many middlemen as possible because all they do is increase the costs to the stores and consumers. The middlemen are parasites on our industry.
 

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.
I did some digging and found several articles similar to this.


It appears that if you are going to commit a high value amount of inventory for consignment, there are some steps you should take before doing this beyond the basic contract.

There are a number of steps a seller must take to protect its interests in consigned goods under the UCC. First, a consignor must have a written consignment agreement with the consignee that grants the consignor a purchase money security interest (PMSI) in the consigned goods. The consignment agreement should also provide that title to and ownership of the consigned goods remain with the consignor until the goods are sold, but the risk of loss remains with the consignee. To protect the value of the consignor’s interests, the consignment agreement should also address other material terms such as inventory controls, sales and inventory reporting, insurance requirements, and payment terms. Second, the consignor must take a few additional actions to perfect its security interest in the consigned goods prior to their delivery to the consignee. These steps include: (1) filing a UCC-1 financing statement in the appropriate jurisdiction describing the consigned goods and (2) sending a written notice to all other parties with a liens in the consignee’s inventory that describes the consignment arrangement (including the fact that you will take a PMSI security interest in the consigned goods), describes the consigned goods, and indicates when you will begin delivery of the consigned goods. Third, every five years, the consignor must also file a continuation UCC financing statement and provide new notices to each party with a lien in the consignee’s inventory. Each of these steps is critical because the failure of the consignor to properly perfect its security interest prior to the bankruptcy filing may relegate the consignor to the status of a general unsecured creditor with no ownership interest in the consigned goods.
If a game company is sending books or games out on consignment, say to a distributor or retailer, they should be sure they file a UCC-1 financing statement in the state where the consignee is incorporated. This usually costs around $10–$30, and lasts five years (and it can be renewed if needed). What it does is give public notice that those boxes of books aren't theirs, they're still yours.

Why does this matter? Because in the U.S., when a company goes bankrupt, the court prioritizes secured debts, those that are on public record, over private contracts. That consignment agreement you signed? Doesn’t mean much if you didn’t file a UCC-1. Without that filing, your inventory can be treated like it belongs to the bankrupt company.

The system is built to reward people who follow the public notice rules, like a UCC-1.

Well, that is something I didn't know before that will get added to the to-do list if I ever get to that point, publishing-wise.
 

Also, if I'm a company selling products, I would push more and more for direct distribution to the stores and cut out the middlemen.
Unfortunately, that’s not really an option. Most publishers do offer that option, but it’s only a tiny percentage of their retail sales. The stores aren’t interested in managing their inventory on a per-publisher ordering basis. They just want a single point of contact to put periodical orders in. That’s a distributor.
 

I did some digging and found several articles similar to this.
Thanks for the additional information! I can see the law working that way, but also, if I am understanding that correctly, the proper procedure is all 128 of those companies should have filed UCC-1's in Maryland AND notified all 127 other companies in writing (or at least as many that have filed prior to them, so first in the door doesn't have to let anyone else know other than the Maryland public, but last person to file has to contact all 127) and refiled that paperwork (likely now with all 127 other lien-holders) every 5 years.

So that onerous law may be on Diamond's side, but also, if this is the case, they have been operating as a multi-million dollar consignment shop for decades that kept quiet about the proper paperwork (from small shops all the way up to Marvel) until it benefited them. Typical US business law of "may be legal, but shady as..." ;)
 

Unfortunately, that’s not really an option. Most publishers do offer that option, but it’s only a tiny percentage of their retail sales. The stores aren’t interested in managing their inventory on a per-publisher ordering basis. They just want a single point of contact to put periodical orders in. That’s a distributor.
That's partially because distribution generally offers order thresholds where shipping receives a discount or simply becomes free. It's easy (relatively) to reach those thresholds when you're ordering from scores of companies all at once through a distributor. When it's just one company, they may not eve offer free/discounted shipping, and if they do it's hard to scrape up a big enough order to qualify. Stores don't want to pay shipping, and the added hassle of dealing with multiple businesses is just another nail in the coffin of the "direct-to-retail" dream.

Which you know full well, but not everyone grasps why it doesn't work so it bears repeating.
 


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.

The damage is far more direct. The publishers all paid for these specific products to be printed, and the money that went into printing and shipping and warehousing the copies held hostage is possibly lost, with no hope of recovery. They are also directly losing out on money to be made when these specific products sell. If Diamond blows out these products to a remainder house, they will then be available at discount rates and will undermine sales of other copies of the work (if the publisher does not have all their stock held hostage at Diamond). The same if the publisher is tempted to go back to print (a very expensive proposition) in hopes of recovering some of the money they invested in creating the products in the first place. The discount products will undermine those new sales, too.

This direct damage will spread throughout the publishing ecosystem. For products where the creators receive royalties for sales, for example, they will likely receive nothing, since contracts generally specify payment is only owed after money is received for the sales. The publisher gets stiffed, they may not owe anything to the creators. Even if they want to pay creators, they may not have the funds to do so.

This also chokes off cash flow the publishers are counting on to pay for the next books they have on the schedule. Those projects may be delayed or cancelled, and freelancer rates lowered, and on and on.

Between the debt accrued by old Diamond and the smash-and-grab being run by new Diamond, I expect some publishers to close shop. The mid-tier places are the most vulnerable, as they have larger print runs and tend to invest more in creators when making their products. Tabletop has seen this before when other distributors in the market (Wizards Attic, Osseum, etc) failed. The tabletop market has been hollowing out in the middle for decades, and this will only accelerate that change.
 
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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.
 


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