A lot of stuff has been happening in the Diamond Bankruptcy Case. A lot of tedious legal things. I took some time off to rest my brain so I missed some episodes. Consider this a big catch up. But one thing to know is that today, September 10th, is a big day! Judge Rice, the judge presiding over all these shenanigans, will hear testimony in Debtor Diamond’s motion to compel Sparkle Pop (New Diamond) to stop selling consignment inventory, hand over the money, and maybe even some damages while they’re at it. So we should have some big news in that squabble by the end of the day.
In the meantime, here’s a rundown of what’s been happening. For details on arguments and more commentary I refer you to Brett Schenker at Graphic Policy who did not take time off, and has been diligently and accurately reporting on this right along.
As we previously reported, on August 26th, Debtor Diamond filed a motion against Sparkle Pop alleging “brazen and unauthorized actions” which must be stopped: namely after Sparkle Pop (a subsidiary of Ad Populum) purchased Diamond Comic Distributors on May 15th, they started selling consignment inventory out of the Diamond Warehouse, to the tune of $1,353,364 up through July 8th. Debtor Diamond contends that this consignment inventory (from more than 31 publishers) is their property and they intend to sell it off to raise money to pay their debt to Chase Bank. Publishers contend they still own this inventory, and that has led to many legal maneuvers, as we’ll get to. Debtor Diamond wants Sparkle Pop to give them the money, stop selling the inventory and pay damages.
Here’s what’s happened since:
SPARKLE POP FIRES BACK
On September 5th, Sparkle Pop filed their answer to Debtor Diamond’s motion. This was an aggrieved statement that they were being “scapegoated” in Diamond’s dispute with publishers:
The Debtors’ instant Motion is procedurally improper and is nothing short of an attempt to circumvent their ongoing dispute between Debtors and the consignors in hopes that the Court will award Debtors damages with respect to the Consigned Inventory prior to any determination that Debtors even hold a valid ownership interest in the Consigned Inventory.
To do so, Debtors have thrusted Sparkle Pop in the middle of their dispute with the consignors to use as a scapegoat and to obtain interim monetary relief without any basis and without providing the proper procedural safeguards and due process to which all interested parties are entitled.
Well, Sparkle Pop is certainly in the middle of all this of that there is no doubt. You can read a breakdown of the arguments here, but basically Sparkle Pop blamed Diamond for not letting them know what was the consignment inventory! Their argument is a lot of “We didn’t know!”
Despite having identified the Consigned Inventory as an Excluded Asset under the APA, Debtors made no effort to remove the Consigned Inventory from their website prior to Closing. After the Closing, through no fault of Sparkle Pop, the Consigned Inventory remained listed for sale on the website, which Sparkle Pop acquired in connection with the APA.
Sparkle Pop also says they continued to fill orders from retailers because they were aware that some of the inventory lost value the longer it sat there, and they owed it to publishers to continue to sell it, lest the consignees become concerned. And yet:
In recognition that the continued sale of Consigned Inventory through passive fulfillment of orders through the website may later be subject to claims by Debtors and/or the consignors, Sparkle Pop immediately began tracking sales of Consigned Inventory and segregating all proceeds from such sales with the intent of preserving the funds received for the rightful party.
So basically even though they say they didn’t know what was consigned inventory, they immediately started tracking its sales. And withholding payment on it because it was in legal limbo at that point. Furthermore, they argue that they didn’t violate the TSA (Transition Services Agreement) – which definitely said that Sparkle Pop had not purchased the consignment inventory – because they were just filling orders:
Sparkle Pop’s actions do not rise to the level of a breach of the automatic stay. The TSA, which was negotiated with and agreed to by Debtors and entered by the Court as part of the Sale Order, permits the “Processing” of Consigned Inventory. That is exactly what Sparkle Pop’s actions amount to, and nothing more.
I’m not a lawyer but…: It seems curious that Sparkle Pop only found out from debtor Diamond that the consignment inventory was in dispute on June 8, but hadn’t been paying publishers since May16th.
Anyway, Sparkle Pop says they have been holding on to the money from the sales, $1,567,441 to be exact, to give to whoever wins the larger legal battle.
THE AD HOC COMMITTEE SAYS NOT SO FAST
Meanwhile the Ad Hoc Committee of publishers which has been battling to get their inventory back, filed an objection against Diamond’s Motion against Sparkle Pop. This was basically a reminder that whatever happens today in Diamond vs Sparkle Pop, publishers are not giving up their rights, and the money should be held in escrow until the NEXT hearing on September 30th, which will decide the question of who owns the consignment inventory.
The Consignment Group, another collection of publishers, eventually filed a motion saying that they were going in on the Ad Hoc Committee’s objection.
DIAMOND FIRES BACK AGAINST SPARKLE POP’S SELF SERVING MISDIRECTION
On Monday, September 8th, Diamond filed their response to Sparkle Pop’s response. Again a longer version of the arguments can be found on Graphic Policy, but of all the filings we’ve read this is the one dripping with the most sarcasm.
Sparkle Pop would have this Court believe, in essence, that this is all a big misunderstanding – that Sparkle Pop somehow had (or thought it had) rights to sell consigned inventory under the parties’ underlying agreement (notwithstanding that it was not sold to Sparkle Pop), that Sparkle Pop was merely trying to do the right thing for all parties by selling consigned inventory and that Sparkle Pop segregated the sale proceeds pending resolution of the various issues pending before the Court regarding consigned inventory. With all due respect, this is all self-serving misdirection.
Diamond points out that the APA (Asset Purchase Agreement) specifically mentioned the inventory and that Diamond would pay Sparkle Pop for storing it. All of which was agreed to. They also pointed out the logical flaw I mentioned above:
The fact that owned versus consigned inventory can easily be distinguished is clear from the fact that Sparkle Pop has in the past and can now, provide specific information that allegedly discloses what specific consigned inventory sales have taken place.
By far the most “entertaining,” at least to those of us who can find entertainment in this tedious slog, aspect of this is the nine separate emails, from June 17th to August 18th, in which Diamond asks Sparkle Pop “Hey buddy what are you doing? You need to stop right now.” A sample:
“. . . Sparkle Pop has not responded to my email of July 14th, in which I requested, on behalf of the Debtors, that Sparkle Pop immediately pay over to the Debtors the proceeds (totaling $1,353,364) of Sparkle Pop’s unauthorized sale of consigned inventory in the period from May 16 – July 8, 2025. As you and your client have acknowledged, consigned inventory was not sold to Sparkle Pop as part of our transaction and Sparkle Pop has no right to sell consigned inventory or retain these funds. Since my July 14th email, the Debtors have discovered that Sparkle Pop has continued to sell consigned inventory. Again, Sparkle Pop has no right to do this; it should cease all consignment sales immediately.”
Variations on that for two months.
Some other interesting tidbits arise in the emails however. Apparently Sparkle Pop actually discussed buying the consignment inventory from Diamond! The offer amount is redacted, but whatever it was, Diamond thought it was too low. The Ad Hoc Committee is going to love this.
With respect to your client’s hypothetical scenario of purchasing the Debtor’s consignment inventory for $ , the Debtor requests that a formal written detailed proposal be presented to the Debtor regarding such a scenario. As a starting point, please be advised that the Debtor views the hypothetical $ purchase price as being far too low. With that in mind, please provide a written proposal for the purchase of the Debtor’s consignment inventory that is premised upon the following: (i) the transaction would be for the purchase of all the consignment inventory that is the subject of the Consignment Motion, (ii) the purchase would be an as-is where-is transaction, (iii) the purchase price must be all cash at closing of the sale, (iv) the transaction would be approved by the bankruptcy court pursuant to a free and clear sale order, and (v) the sale order would include good faith findings.
Debtor Diamond also found it curious that an Ad Populum representative had made a statement to Blding Cl, something which we also found curious. On July 5th, it was reported that:
An executive at Ad Populum, the company that purchased Diamond Comic Distributors, has confirmed to Bl**ding C**l that Ad Populum has been restricted from dealing directly with any consignment vendors and has had to go through the bankruptcy estate for everything, including any correspondence. And that Ad Populum sincerely hopes that this changes very soon.
This is odd because Ad Populum/Sparkle Pop had not been communicating anything about any of this to either publishers or its own employees. Diamond also found this troublesome at the time:
One other matter regarding your client has come to the Debtor’s attention with respect to consignment inventory. Please see below from Bl**ding C**l News. While we are not certain whether the unnamed executive at Ad Populum made the statement attributed to it below, the Debtor is troubled that someone from Ad Populum may have miscommunicated regarding the Debtor’s consigned inventory. As we noted above and as you and your client are aware, Ad Populum/Sparkle Pop has not purchased consignment inventory pursuant to its APA with the Debtor or otherwise. To the extent Ad Populum is suggesting otherwise or leading others to believe otherwise, the Debtor requests that such incorrect and inaccurate messaging stop immediately.
Another big item is the Olive Branch warehouse, site of all this consignment inventory drama. As we previously reported, Diamond is only leasing this facility, and they have repeatedly filed motions to extend the assignment of the lease to Sparkle Pop. The emails from Diamond’s lawyer to Sparkle Pop’s suggest this was delayed because Sparkle Pop hadn’t been getting back to the landlord about taking over the lease.
We were recently informed by counsel to the Olive Branch landlord that a draft lease amendment was sent to Sparkle Pop/Ad Populum one month ago, that the landlord has reached out to Ad Pop/Sparkle Pop repeatedly regarding the Lease Amendment, and that the landlord has heard nothing back. Where does this stand? In order to effectuate an assumption/assignment of this lease (as amended) as of August 1st, we need to move promptly to get something on file with the Bankruptcy Court.
FINALLY, there is this little Edwin Drood mystery in an email to yet another Sparkle Pop lawyer:
I am following up since we never heard back from you after our conversation last evening. Have you had an opportunity to discuss our proposal with your client?
What proposal was this? Alas, we may never know.
DIAMOND FILES 31 ADVERSARY CASES AGAINST PUBLISHERS
And that brings us to yesterday’s blockbuster news. At the hearing the week of August 18th to decide whether Diamond could sell the consignment inventory, Judge Rice decided that there just wasn’t enough information and Diamond hadn’t made what they were asking for clear. In order to sell the inventory Diamond needed to say exactly what they were selling, and would have to file an “Adversary proceeding” (a lawsuit in a bankruptcy) against each and every publisher.
And that is what they have done.
Diamond filed 31 separate adversary proceedings against 31 publishers, including Ablaze, Action Lab Entertainment, Aftershock, Alien Books, American Mythology Productions, Aspen, Battle Quest Comics, Black Mask Studios, Boom Entertainment, Dark Horse Comics, Digital Manga, DSTLRY, Dynamic Forces, Fantagraphics, Goodman Games, Green Ronin Publishing, Heavy Metal Media, Hermes Press, Humanoids, Living the Line, Magnetic Press, Massive Publishing, Netcomics, Oni Press, Paizo Inc., Panini UK, Titan Comics, Udon Entertainment, Valiant Entertainment, Vault Comics and Zenescope.
The suits are generally boilerplates that include the date of the consignment agreements, and rely heavily on the fact that none of these publishers filed a U.C.C.-1 form which would have staked their claim on the inventory. You can see that form here, and it’s no more complicated than a tax form, so an expensive lesson here should Diamond prevail.
Each suit also includes a complete listing of the inventory that Diamond holds – Judge Rice will be pleased – and while this looks like a lot of work, it was really just spitting out a report from Diamond’s database, which we do know, is very thorough. As with many of these filings, it’s grim reading to know that they had 28,792 copies of The Art of Atari in their warehouse, and if you want to do a deep, deep dive on comics sales, there is a lot of information here.
While putting together all these suits was an expensive undertaking (can’t wait to see the line item on their lawyer’s expense submission), it will also be expensive for these publishers to individually defend against each case.
I’m not a lawyer but…: this definitely seems to be a game of attrition seeing who will blink first against the rising costs of all this.
To put it all into perspective, on August 29th, Saul Ewing, Diamond’s lawyer, filed for their compensation for the period from April through June, and the total was $1,608,826.75. That’s more than they’re trying to get Sparkle Pop to pay them.
I guess it’s the principle of the thing.
As mentioned, today’s hearing will decide the Diamond v Sparkle Pop of it all – which more and more resembles the classic situation of two rats thrown into a burlap sack together. Diamond is calling a couple of witnesses: Robert Gorin, the co-Chief Restructuring Officer, and his colleague Ramy Aly, who has spent many many billable hours working on this case, as revealed by filings. Sparkle Pop has no witnesses identified.
Oh, to be a fly on the wall.
English (US) · 