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

 

[aiouh]

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.

I guess the legal theory is that this is some really unintuitive and backwards way to assure new investors or creditors to Diamond that this stock is not really theirs.

 

[kenmarable]

I am curious though, why Paizo is making claims about not having products in Amazon related to this. They do not need a distributor to sell their goods on Amazon.

They can answer for themselves, but at a guess since they only said so far that August and September won't be at Amazon it's a matter of too fast of a turn around to get the August books to Amazon directly, but hopefully should be resolved soon after???

 

[Morrus]

I am curious though, why Paizo is making claims about not having products in Amazon related to this. They do not need a distributor to sell their goods on Amazon.

Presumably because they used Diamond for that service and their current Amazon bound stock is caught up in this situation. Just because they didn't need a distributor doesn't mean that they didn't use one. I imagine they prefer not to micromanage stock levels at Amazon if the distributor does it for them along with the big books stores.

 

[robertsconley]

I guess the legal theory is that this is some really unintuitive and backwards way to assure new investors or creditors to Diamond that this stock is not really theirs.

Keep in mind that the goal in bankruptcy is to pay off as many debts as possible. So whatever money is available gets divided proportionally among the creditors, based on how much they’re owed.

But some debts are tied to a specific asset, something the bankrupt person or company owns. For example, if someone owns a house but hasn’t fully paid off the mortgage, that mortgage is secured by the house itself. In bankruptcy, the mortgage holder gets priority, but only for the house. They don’t get first dibs on anything else.

For that to happen, however, specific legal steps must be taken. There needs to be a formal agreement, and the creditor must publicly file a lien, essentially a legal claim, against the property. If those steps aren’t followed, the debt is treated like any other and only gets a share of whatever money is left after priority claims are paid.

So, in the case of Diamond, there’s probably a consignment agreement in place. But to turn that into a debt tied to a specific asset, in this case, the inventory of books, the publisher would have had to take additional legal steps, including filing a UCC-1 notice in the state where Diamond is based. If they didn’t do that, the books aren’t legally “secured” and the publisher just becomes another unsecured creditor, stuck waiting in line like everyone else.

It sucks, but U.S. bankruptcy law is trying to be fair by being strict about who gets priority. If there’s blame to go around, it should start with Diamond and any other distributor that operates on consignment. They know how this works. They’ve done it hundreds of times, with hundreds of publishers. They have the legal edge.

Sure, you could say publishers should have hired attorneys. But let’s be honest: it’s Diamond who’s been through this process before. If they were actually committed to being ethical or supportive business partners, they’d give newcomers a heads-up: “Hey, we can’t give legal advice, but you might want to talk to someone about securing your consignment inventory.” That simple warning could save a small publisher from losing everything.

 

[Jd Smith1]

What a horrible gut-punch for the publishers. If Diamond is legally able to get away with this, I hope the publisher's lawyers would be able to force Diamond to offer the publishers first-buy rights (at pennies on the dollar) to get their stock back to attempt to resell through other avenues. That would at least give them a chance to recoup some of the loss.

That's not how it works. Firstly, legal fees would just be another burden, and secondly, the court will require efficient transformation of assets into cash. In bankruptcies, the courts tend favor lenders.

 

[aiouh]

Sure, you could say publishers should have hired attorneys. But let’s be honest: it’s Diamond who’s been through this process before. If they were actually committed to being ethical or supportive business partners, they’d give newcomers a heads-up: “Hey, we can’t give legal advice, but you might want to talk to someone about securing your consignment inventory.” That simple warning could save a small publisher from losing everything.

Yeah no I agree. Diamond definitely would know that not signing these forms is 100% in their favor. It's most definitely a scumbag (even if legal) move. Especially considering that a lot of their business partners are very small and don't have specialized legal teams for this.

That's not how it works. Firstly, legal fees would just be another burden, and secondly, the court will require efficient transformation of assets into cash. In bankruptcies, the courts tend favor lenders.

I don't think this is a case of courts favoring anybody over anybody else, lenders usually require the company to sign away priority creditor rights before they give you a loan. This information is usually made public in some way so new companies can see what they would be able to get out in the case of an insolvency. (This is how they do it in continental europe anyway, I can't imagine the US working much differently)

 

[doctorhook]

Keep in mind that the goal in bankruptcy is to pay off as many debts as possible. So whatever money is available gets divided proportionally among the creditors, based on how much they’re owed.

But some debts are tied to a specific asset, something the bankrupt person or company owns. For example, if someone owns a house but hasn’t fully paid off the mortgage, that mortgage is secured by the house itself. In bankruptcy, the mortgage holder gets priority, but only for the house. They don’t get first dibs on anything else.

For that to happen, however, specific legal steps must be taken. There needs to be a formal agreement, and the creditor must publicly file a lien, essentially a legal claim, against the property. If those steps aren’t followed, the debt is treated like any other and only gets a share of whatever money is left after priority claims are paid.

So, in the case of Diamond, there’s probably a consignment agreement in place. But to turn that into a debt tied to a specific asset, in this case, the inventory of books, the publisher would have had to take additional legal steps, including filing a UCC-1 notice in the state where Diamond is based. If they didn’t do that, the books aren’t legally “secured” and the publisher just becomes another unsecured creditor, stuck waiting in line like everyone else.

It sucks, but U.S. bankruptcy law is trying to be fair by being strict about who gets priority. If there’s blame to go around, it should start with Diamond and any other distributor that operates on consignment. They know how this works. They’ve done it hundreds of times, with hundreds of publishers. They have the legal edge.

Sure, you could say publishers should have hired attorneys. But let’s be honest: it’s Diamond who’s been through this process before. If they were actually committed to being ethical or supportive business partners, they’d give newcomers a heads-up: “Hey, we can’t give legal advice, but you might want to talk to someone about securing your consignment inventory.” That simple warning could save a small publisher from losing everything.

This is a helpful explanation of what the hell is actually happening here, thank you for that. I’m slightly less baffled now… though the whole situation still seems dodgy to me.

 

[dbolack]

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.

Just to expand on this - it is incredibly inefficient for both sides. Few retailers are going to order ( outside of launch ) enough product ( outside of a launch) to be worth a Publisher picking without waiting a rather long time to order that restock. Being able to order 1s and 2s of multiple publishers enables a Retailer to order in a more timely fashion, which in turn means (should) publishers get ordered from more frequently. It's much easier to hit a minimum order quantity that way as a retailer.

 

[Morrus]

Just to expand on this - it is incredibly inefficient for both sides. Few retailers are going to order ( outside of launch ) enough product ( outside of a launch) to be worth a Publisher picking without waiting a rather long time to order that restock. Being able to order 1s and 2s of multiple publishers enables a Retailer to order in a more timely fashion, which in turn means (should) publishers get ordered from more frequently. It's much easier to hit a minimum order quantity that way as a retailer.

And of course, while the occasional FLGS might be willing to do that, the likes of Barnes & Noble absolutely will not be chasing down ten thousand individual indie publishers to order their books.

 

[Koloth]

Presumably because they used Diamond for that service and their current Amazon bound stock is caught up in this situation. Just because they didn't need a distributor doesn't mean that they didn't use one. I imagine they prefer not to micromanage stock levels at Amazon if the distributor does it for them along with the big books stores.

Plus using a distributor means that Paizo and others don't have to have a separate contract and account with Amazon, Walmart, B&N, etc. and deal with the frequent changes to how each one operates. May also simplify taxes.

Seems likely that if Paizo is having issues getting inventory out, others will as well. May be a rather challenging summer on the new product front.