Diamond Bankrutpcy Update: Publishers argue they should get their inventory back due to Chapter 7

It’s been a while since I updated the Diamond bankruptcy but a lot has been happening. Unfortunately, it’s been extremely technical legalese, and not the kind of juicy fisticuffs we’ve been “enjoying” for the last year. In many ways, publishers have moved on: it’s pretty clear that they aren’t going to get any money out of this, and everyone is doing pretty good without Diamond. But they still want their comics back! 

So, there have been some dramatic back and forths, some accusatory filings, and now, a startling accusation: has Sparkle Pop been selling comics from the consignment inventory even though they told the court many months ago that they were stopping? IF you don’t want to read the blow by blow, skip to the bottom where I sum things up. But if you’re still invested, get yourself a hot beverage and settle in. 

A quick refresher: Back on December 13th, “OLD” Diamond converted the bankruptcy from a Chapter 13 to a Chapter 7, because Chase Bank would no longer lend them any money and they already owed them $41 million. However, there were still several adversary proceedings ongoing, including Alliance suing Old Diamond, and Ad Populum suing Alliance, and 32 separate suits from Old Diamond against publishers to establish ownership of the consignment inventory. 

The consignment inventory remains the outstanding matter that people are still squabbling over. And we’re not talking pennies here. According to a court filing, reported by ICv2, that inventory has a value of $47,395,014 at book value and $113,737,037 at retail. Way back in June, Diamond announced a plan to sell this inventory and two separate publishers groups (each with their own lawyers) sprang up to contest this:

The Ad Hoc Committee of Consignors, consisting of  Ablaze, American Mythology Productions, Avatar Press, Battle Quest Comics, Action Lab, Drawn & Quarterly, Fantagraphics, Green Ronin, Hermes Press, Living the Line, Paizo, Udon and Zenescope. 

The Consignment Group: consisting of Aspen, Black Mask Studios, DSTLRY, Dark Horse, Dynamic Forces/Dynamite, Heavy Metal, Magnetic Press, Massive Publishing, Oni-Lion Forge Publishing, Panini UK, Punk Bot Comics/Alien Books, Titan Publishing, and Vault Comics. 

Since I did a “One Year Later” report in January, my colleague Brett Schenker at Graphic Policy has continued to report regularly on the latest filings and motions. I’ve been reading them but they have made my head hurt. So I’m much indebted to Brett and his in-house legal consultant for sorting through this. While I urge you to follow along at GP, here’s a consolidated version. 

§ On January 27th, Old Diamond filed its final Chapter 11 report, showing an outstanding $2,899,302 in Chapter 11 debts, including $126,506 in “consignment storage.” Remember that, because we’ll be getting back to that! 

Then things got quiet….very quiet….until on February 19th, ALL HELL BROKE LOOSE AGAIN! Although it didn’t really seem like it at the time, 

§ Morgan W. Fisher, the Chapter 7 Trustee, filed a motion asking for more time “extending the deadline to assume or reject executory contracts related to certain consigned goods, including without limitation distribution agreements (collectively, the “Distribution Agreements”) and any related transition services agreements, through the conclusion of the pending adversary proceedings concerning the competing interests in such goods.”

Although seemingly procedural, the above filing lays out all the arguments over who actually should get the consigned goods, including the Consigners belief that if the distribution agreements were terminated 

“In those motions, the Consignors take the position that, if rejected, the Distribution Agreements should be deemed terminated immediately, and that, pursuant to the Distribution Agreements, the Consignors should be permitted to reclaim the Consigned Goods.”

Fisher argued that more time was needed to sort all this out, because, rejecting the contracts would go against the debtors interest, and also, basically, it is a gigantic shit show. 

In addition to the foregoing legal and equitable principles, there are also practical considerations for extending the deadline in these cases. While the Trustee has done his best to get up to speed in these chapter 7 cases as quickly as possible, there is no hiding the fact that he inherited converted chapter 11 cases with substantial history and pending litigation. He only became the permanent trustee less than two weeks ago. 

“I’ve only been here for two weeks!” Buddy, I’ve been reading all this stuff for more than a year!  I can see how it would take more than a couple of months to get up to speed and the poor guy seems to be flummoxed by all the adversary proceeding and countersuits. Still, that’s his job! 

In addition, there was a time factor involved: there was only a 60 day window following conversion of the case to Chapter 7 to assume or reject the contracts. 

§ On February 25th, the Consignment Group and the Ad Hoc Committee struck back! In strongly worded filings, they objected to dragging things on with yet more legal fees and delays. As the Adhoc Committee put it:

Rather than taking the time to build consensus and explore settlement opportunities, the Trustee has used the first sixty days of this case to hire a litigation team based in Florida and initiate yet further litigation with no end in sight. By filing a request to indefinitely extend the time within which he can assume or reject contracts, the Trustee has signaled that he intends to use remaining estate assets on litigation and attorney’s fees rather than paying creditors. The request is completely without merit and without precedent in a chapter 7 liquidation of a non-operating entity and should be denied. 

As the Consignment Group put it:

The Trustee Has No Ability to Assume Due to the Estate’s Inability to Cure Defaults, and Rejection Is the Only Possible Outcome – No Extension Is Needed to Delay an Inevitable Rejection. 

The Ad Hoc Committee filing is a lot more forceful in stating that there are  no ongoing activities at the Debtor (Old Diamond); it’s a chapter 7, and things need to be settled. In addition, the state of the Olive Branch warehouse, where that $47 million in inventory is being stored, is also in question, as the rent hadn’t been paid, Old Diamond was being changed storage fees and the Trustee, Fisher, had no idea when the rent had been paid. Also: 

Consignors have not been properly compensated for the portion of their Stock that has been sold post-petition. While the Consignors received a bargained-for payment prior to conversion, it was insufficient to pay the Consignors in full for what they are owed on account of post-petition sales; and, they have received nothing from the sales of the Stock that Sparkle Pop made without authorization. The Debtor is benefitting from holding the Consignors’ Stock indefinitely, to the detriment of the Consignors. 

For good measure, the Consignment group pointed out that Old Diamond had  $1,308,292.00 cash on hand, and still hadn’t paid anyone. 

In a letter, Catherine Hopkins, the Ad Hoc lawyer, also asked if anyone had actually SEEN all that inventory. Is anyone monitoring it? 

§ On February 26th, Judge Rice DENIED Fisher’s motion for an extension. Without judging it on its merits, it turns out it wasn’t filed in time:

Upon consideration of the Emergency Motion to Extend Time to Assume or Reject Executory Contracts Related to Consigned Goods [Docket No. 1156] (the “Motion”) filed by the Morgan W. Fisher, the Chapter 7 Trustee, and the Court having held a hearing on February 26, 2026, and considered the objections thereto [Docket Nos. 1163 & 1164], and for the reasons stated on the record at the conclusion of the hearing the Court having determined that the Motion was untimely filed under 11 U.S.C. §§ 348(c) & 365(d), it is, by the United States Bankruptcy Court for the District of Maryland;

ORDERED, that the Motion is hereby, DENIED.

This seems like a pretty big win for the consigners. BUT THERE’S MORE!

§ As I have pointed out before, the world of bankruptcies seems to be a clubby one, and the number of lawyers and trustees and so on who are qualified to advise in Maryland bankruptcy court are even smaller. So as Graphic Policy reported, a seemingly routine motion to “employ Stearns, Weaver, Miller, Weissler, Alhadeff, & Sitterson, P.A. as bankruptcy counsel” ran into a snag when Goodman Games raised the old spectre of INSIDER FUNNY BUSINESS. 

Goodman Games understands that there may be an arrangement between the Trustee and one or more secured creditors concerning the payment of the Trustee’s fees and expenses, whether in the form of a carve-out from collateral, a sharing of recoveries, or another similar agreement.

To the extent such arrangement exists, Goodman Games respectfully submits that it should be fully disclosed so that the Court and all creditors are aware of the nature and terms of the agreement.

Goodman Games has requested this information from the Applicant. As of the filing of this Response, the Application does not describe any such arrangement.

Goodman Games therefore respectfully requests that, to the extent any such agreement or understanding exists concerning the funding or payment of the Trustee’s professionals’ fees, the Trustee and/or Applicant provide appropriate disclosure so that the Court and parties in interest are fully informed in connection with consideration of the Application.

And the court agreed that a supplemental memorandum needed to be filed regarding these arrangement. Interesting. 

§ But MEANWHILE, Trustee Morgan J. Fisher announced that he’d reached a tentative agreement with Sparkle Pop! You can read the whole thing here but this seems to me to be the nut graph – After Sparkle Pop paid the Trustee $1 million…

4. Sale and Assignment of the Bankruptcy Estates’ Rights in the Consigned Inventory. In consideration of the mutual promises, undertakings and agreements of the Parties set forth in this Agreement, Trustee Fisher shall sell and assign all of the Bankruptcy Estates’ rights in the Consigned Inventory to Sparkle Pop including (i) the Bankruptcy Estates’ causes of action asserted in the Consignment Adversary Proceedings, (ii) the Bankruptcy Estates’ rights to designate any Consignment Agreements for assumption and assignment, and (iii) the Bankruptcy Estates’ rights in the Escrowed Proceeds, subject only to subject to the rights of the consignors and any other party (with the exception of JP Morgan Chase Bank, N.A.) (collectively, the “Acquired Assets”). 

In other words…Sparkle Pop would buy all the inventory from Old Diamond, but not that which the consignors owned? I’m not exactly sure what this all meant but I’m pretty sure it did not go over well. 

AND NOW FURTHER HELL BROKE LOOSE. 

§ On March 4, the big one landed from the Consignment Group, a motion to dismiss all the adversary complaints against the publishers and to give them back their inventory due to the agreements effectively being rejected because of the Chapter 7 filing. As Graphic Policy summed it up:

Because the agreement has been rejected, they are now terminated the Consignment Group argues and the agreement is now in breach and the next steps due to that breach need to be determined.

The Consignment Group feels the agreement has answers to that and as per a Supreme Court case, the publishers would then retain the rights it has received under the agreement. The motion lists out the various ways the agreement can be terminated (something we have mentioned before) and then goes on to state since the Consignors are owed money still and no proof of claim has been filed, the agreement has been terminated by its own terms.

In short, the Buyer (aka Diamond) needs to return the goods to the Seller (aka publishers) with the Sellers paying for shipping. The Buyer can also destroy the material if the Seller wants, with the Seller paying for that.

The Consignment Group’s motion then concludes that due to all of that, the consigned goods are now clearly owned by the publishers and the Adversary Complaints should be dismissed.

In addition, another filing laid out the plans for discovery should the adversary cases against the publishers proceed, with a court date expected by (gulp) November or December, as reported by Graphic Policy. 

§ If you’re still reading this, we’re almost current, with just on Friday, yet another bombshell filing, this time from the Ad Hoc Committee, with a shocking accusation: that Sparkle Pop was still selling some of that consigned inventory! 

In the filing, the Ad Hoc Committee repeated the argument that the contracts were now void because of the Chapter 7 filing, but also because Old Diamond had failed to prevent Sparkle Pop from selling the consignment inventory all the way back in May and June. And in a passage that will resonate with anyone whose old comics have been in storage for a while, the Ad Hoc Committee wondered, just what is going on in that warehouse?

36. The Consignors have growing concerns that their Stock is being stored securely. Section 3 (c) of the Distribution Agreements require that, “Buyer will warehouse Products on consignment in a clean, dry, secure, and fire-protected facility.” Section 8(c) further provides, “[Diamond] shall maintain all insurance with respect thereto in amounts sufficient to fully cover all of [Consignor’s] Products stored there.” 

37. However, according to statements made by the Trustee at the hearing held before this Court on February 26, 2026, the Debtors’ insurance coverage on the Consignors’ Stock has lapsed, in breach of their requirements under the Distribution Agreements. 

And then there is the matter of ongoing sales from Sparkle Pop:

41. One of the Consignor’s, Drawn & Quarterly Books, Inc. (“Drawn & Quarterly”) has a store in Canada. Drawn & Quarterly placed an order in 2025 with Diamond that included the Stock from another Consignor, Fantagraphics Books, Inc (“Fantagraphics”). Recently, on February 26, 2026, Drawn and Quarterly received an email, a true and accurate copy of which is attached hereto as Exhibit B informing them that their order for Fantagraphics’ product had just been shipped. 

42. This is concerning as the Consignors have been given no access to, or oversight of, their Stock since the commencement of this bankruptcy case. The continued fulfillment of orders, without the Consignor’s ability to verify proper control, safeguarding, and accounting of their Stock is extremely prejudicial to their interests and the preservation of its value. 

43. Another Consignor, Living the Line, reports that at least 800 copies of a single title are not accounted for in any prior inventory report provided by Sparkle Pop. Thus, it is imperative that the Consignors regain possession and control of their goods because no party is accountable for missing items that are causing ongoing losses to the Consignors

And that brings us up to date! So shorter where things stand now:

• None of the publishers know where their inventory is or who is taking care of it or if the rent is being paid on Olive Branch. 
• Sparkle Pop might still be selling some of the inventory. 
• The Chapter 7 trustee wants to sell the remaining inventory to Sparkle Pop but might also be getting paid by a secured creditor. 
• The publishers who have filed motions seem to have a pretty good case for getting their inventory back, but it’s all still up in the air.  

I hate to say it but there is…….more…..to…..come.