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

 

[MSWallack]

I am a lawyer, but very definitely not a bankruptcy lawyer. I did a very quick bit of research, and it appears that this is an area of law in which there has been quite a bit of confusion. The two things that stood out to me about the definition of "Consignment" in UCC Section 9-102(20) are the requirement (in subsection (A)(iii)) that the merchant (Diamond) "is not generally known by its creditors to be substantially engaged in selling the goods of others" and the requirement (in subsection (C)) that the "the goods are not consumer goods immediately before delivery". Here, there can't be any real dispute that Diamond's creditors knew that it was in the business of selling the goods of others; that was Diamond's core business. And the goods that Diamond had and sold for others were consumer goods. Thus, I'm not sure (again, this isn't my area of law...) that the transaction actually qualifies as a consignment under UCC Section 9-102(20) for which a UCC-1 financing statement was necessary. You can't fault Chase and other creditors of Diamond from trying to get as much money from the bankruptcy estate as possible, but I think (again, recall the caveat) that the publisher's have strong arguments against the loss of the property due an unsecured consignment transaction.

Also, I thought that this was a good article on the subject (from 2019): https://www.mayerbrown.com/-/media/...ents/publications/2019/07/070081901-mayer.pdf.

 

[Nylanfs]

Hmmm, here's an idea, what if some of the publishers filed a stolen merchandise police report in the State / County where the wearehouse(s) are, & then tried rolling up to the warehouse with said report and the local PD to retrieve their product?

 

[Cordwainer Fish]

Hmmm, here's an idea, what if some of the publishers filed a stolen merchandise police report in the State / County where the wearehouse(s) are, & then tried rolling up to the warehouse with said report and the local PD to retrieve their product?

"The Machinery of Justice will not serve you here - it is slow and cold, and it is theirs, hardware and soft-. Only the little people suffer at the hands of Justice; the creatures of power slide out from under with a wink and a grin." - Quellcrist Falconer

 

[Jd Smith1]

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)

US case law and statutes show a distinct lean towards loan sources in bankruptcy proceedings. Yes, loan paperwork is normally a lot tighter than business agreements, but the banking lobby swings a lot of weight over here.

 

[lynnfredricks]

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.

Right, it is possible. I imagine that Diamond could have 'hosted' much larger blocks of inventory at Amazon for some savings and so ate it on their margin because they were making enough on other sales. I see that in tech often enough.

But it does make me wonder, given that game distribution (and the book market) eats a bigger % than tech, if the over reliance on distribution isn't a major contributor to a lot of the increases in cover prices and PDFs over the last few years.

 

[Morrus]

But it does make me wonder, given that game distribution (and the book market) eats a bigger % than tech, if the over reliance on distribution isn't a major contributor to a lot of the increases in cover prices and PDFs over the last few years.

A lot of it is that companies are finally starting to try to pay their creators properly. Even so, the industry is nowhere close to that yet, as folks are resistant to paying creators the actual value of their work.

 

[Von Ether]

Until recently, professional ttrpg writers were not even making professional rates compared to journalism or professional writing groups like SFWA (Science Fiction Writers Association.)

 

[dbolack]

Until recently, professional ttrpg writers were not even making professional rates compared to journalism and professional writing groups like SFWA (Science Fiction Writers Association.)

And let's not discuss art rates.

 

[Yenrak]

TL;DR version: 1) If Diamond's creditors knew this stuff belonged to the publishers, its UCC argument is wrong. The merchandise belongs to the publishers and isn't part of the bankruptcy estate.

2) If they didn't know, then the stuff is part of the bankrutpcy estate if the publishers didn't file a UCC-1 perfecting their security interest (basically, letting the rest of the world know that they were the owners of the stuff).

3) The publishers might not realistically be able to get their stuff back and resell it themselves because that would be expensive and complicated. Might be better off letting Diamond sell it and accepting the pennies on the dollar as general creditors.

Longer Answer:

Diamond’s legal argument is that the publishers never filed the paperwork (a U.C.C.-1 financing statement) needed to perfect their legal claim to that inventory. Without that filing, Diamond argues, the books legally became part of its bankruptcy estate and can be sold "free and clear" of the publishers' interests.

But under the Uniform Commercial Code, consignors (games publishers, for example) don’t have to file that paperwork if the consignee (Diamond) was "generally known by its creditors to be substantially engaged in selling the goods of others." That might sound technical, but it’s actually the heart of the dispute.

Diamond has been the central distributor in the comics and tabletop industry for decades. Their entire business model involved moving goods they didn’t own—everyone in the industry knew this. And Chase Bank isn’t some rinky-dink lender—they’re a global financial institution with vast due diligence capabilities. If they extended credit to Diamond, they likely reviewed its inventory practices and understood it operated largely on consignment. That could mean this consignment exception applies—and that the publishers’ rights to their unsold stock are still intact.

So while Diamond is using the absence of U.C.C.-1 filings to try and claim ownership of that inventory, it’s very possible a court could rule that the publishers don’t need to have filed them—because Diamond’s business model was no secret to its creditors.

That said, it’s also worth considering that even if some publishers can reclaim their unsold inventory, it might not actually be in their best interest to do so. For many small- and mid-sized publishers, especially in the tabletop and indie comics space, Diamond wasn’t just a distributor—it was their only real pipeline to retail. Without Diamond, they might have no easy way to get those goods back into stores, or even into the hands of customers.

Reclaiming physical inventory from a bankrupt company is logistically messy. And it can be costly. Diamond is not going to pay for the return of the merchandise. The publisher would likely have to pay for warehousing, shipping, and possibly even legal fees to retrieve it—and once they’ve got it back, they may not have the infrastructure or channels to resell it. Worse still, the value of that inventory might have already decayed—books tied to specific release windows or marketing pushes could be hard to move in today’s market.

In that light, taking a fractional payout as an unsecured creditor—what bankruptcy lawyers call "pennies on the dollar"—might be the least bad option. Especially if the alternative is sitting on pallets of unsellable product or absorbing the cost of getting it back. This is a hard pill to swallow, but it reflects a brutal truth of a market in which the major distributor goes bankrupt while holding lots of merchandise.

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[cbwjm]

Pretty wild that your company can go bankrupt and decide you can just claim all the stock in your warehouse which you haven't paid for.