Posted in: Ablaze Publishing, AfterShock, Comics, Comics Publishers, Fantagraphics | Tagged: Ad Hoc Committee, diamond

Ad Hoc Publishers Cite Precedents in Diamond Comics Bankruptcy Battle

Legal precedents cited in Diamond Comics Bankruptcy Battle, as the Ad Hoc Committee digs up the past

Published Thu, 14 Aug 2025 10:57:04 -0500

The Ad Hoc Committee of Consignors, a legal body made up of comic book publishers 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, have added to their case against Diamond Comic Distributors in the bankruptcy courts. The Committee has asked the bankruptcy courts to put a stay on Diamond's plans to liquidate the consignment stock belonging to hundreds of publishers and manufacturers to pay off the banks. Because they have a case to put forward, but they also want the chance to make it properly.

The Ad Hoc Committee point out that they have "not found a single case wherein the debtor was permitted to: sell consigned stock post-petition; fail to pay the amounts due to the consignor(s) in accordance with the underlying consignment agreement; (either knowingly or by failing to exercise proper diligence and care) a third party to sell consigned stock without paying the consignor(s); and then permitted to conduct a bulk sale of the consigned stock without being required to pay to the consignor(s) all amounts that would otherwise have been due and owning in accordance with the underlying consignment agreements."

And they argue Diamond is trying to do just that, sell the stock in bulk, ignore payment obligations, not give the publishers what's due them, and not having it out in court first, in an "adversary proceeding". The cases they have brought up include

Whitehall Jewelers Holdings "In Whitehall, the debtors sought to sell consigned goods… and certain consignors objected to the sale of their stock, arguing in part that the debtors were generally known and substantially engaged in the sale of the stock. In other words, the facts and procedural posture of the case in Whitehall is virtually identical to the case at bar. The court in Whitehall stated that it was "the Third Circuit's mandate in a recent decision . . . that interest in property can be extinguished only in an adversary proceeding." It involved debtors trying to sell consigned goods, jewelry in this case through a bankruptcy sale motion, and consignors objected, and forced the debtors to file over 120 adversary proceedings, stating: "the court 'cannot determine whether the Consigned Goods are property of the estate through a contested matter, such as a sale motion under Section 363'" and that "adversary proceedings are mandated and each Consignment Vendor is entitled to the protections of the law."
The Maryland Bankruptcy Court "has similarly held that a determination of whether property is property of the estate requires an adversary proceeding, stating "[t]he Bankruptcy Rules require the filing of a complaint to determine the nature, extent and priority of an interest in property of the estate, even when the allegation . . . is that its interest is not property of the estate."
Panache Cuisine "found support for its position in quoting In re Morabito Brothers… for the proposition that "the termination of colorable property interests will require the greater procedural protections of an adversary proceeding."

And they state that such arguments play out in "the substantial majority of bankruptcy courts". Continuing by naming;

Mushi: "That does not dispose of the ownership interest of the deposit itself. If the ownership interest is to be raised, it must be brought as an adversary proceeding in this court with the proper and necessary parties."
Fontaine v. Conn "The Ninth Circuit, furthermore, has held that it is error for the bankruptcy court to determine a party's interest in property without an adversary proceeding."
S.H. Leggitt, "material dispute over ownership of property cannot be adjudicated by motion as a contested matter, and instead should be adjudicated in an adversary proceeding"
Packer: "To the extent the Debtors desire a determination that the deposit account funds are not property of the estate . . . such determination would require an adversary proceeding."
TSA Stores v Wilmington Savings Fund Society, "the Bankruptcy Court for the District of Delaware permitted the sale of consigned goods, but only subject to (i) the filing of (and ruling on) an adversary proceeding to determine respective rights to the consigned goods; and (ii) a provision in the sale order that permitted the debtors to sell consigned goods only so long as the debtors complied with the terms of the consignment agreements, including all payment obligations to the consignors" and even then, "debtors in TSA promptly paid the consignor as stock was sold, and the ensuing litigation was with regard to a lien priority fight between the consignor and the secured lender."
Valley Media: "the court only permitted the Debtor to sell the consigned goods subject to the terms of the distribution agreements with its consignors, including all limitations to sale and protections afforded to the consignors with respect to their intellectual property and trademark license rights" and additionally, "the court refused to permit the debtor to sell consigned stock at auction without affording the consignors the rights and protections afforded to them under their executory contracts."

In short, this is the Ad Hoc Committee's way of saying to the Judge that Diamond Comics can't rush this sale without proving ownership properly, and they need to be made to slow down and do it properly — or not at all.