Posted in: Comics | Tagged: Ad Hoc, diamond

Bankruptcy Court Denies Diamond Trustee's Publisher Contract Motion

Bankruptcy court finds against the Chapter 7 Diamond Comics trustee request to extend time to assume or reject publisher contracts.

Published Sun, 08 Mar 2026 10:57:07 -0500

by Rich Johnston

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Morgan W. Fisher, the appointed trustee of Diamond Comic Distributors Inc., going through Chapter 7 bankruptcy, applied to the Maryland bankruptcy court last month with two emergency motions. The first application to extend the court-mandated deadline, either to accept or reject the distribution contracts between Diamond and comic publishers, is tied to what the debtor claimed is $47 million in consigned goods. These are the comic books and other merchandise stored in Diamond warehouses that have been held for over a year, owned by the publishers but claimed under bankruptcy by the Diamond debtors, and then mistakenly partially sold by Sparkle Pop, which bought the Diamond distribution business, now known as Diamond II. The second application was to hurry up that decision. The court agreed to expedite it, but denied the appeal to extend the deadline. What went into this decision, and what are the implications?

The Motion of the Diamond Trustee

Well, in the end of the year, Diamond Comic Distributors, Inc, the debtors in this bankruptcy, moved from Chapter 11 bankruptcy, to Chapter 7. In a recent filing, Fisher argued "the Bankruptcy Code requires that the Court fix a time within the 60-day period post-conversion for the Trustee to assume or reject executory contracts. For the reasons set forth below, the Trustee, in an abundance of caution, requests that the Court preserve the status quo regarding the consigned goods in his possession to allow the process the consignors requested to complete. Although the Consignors' position regarding the impact of rejection is misplaced, preserving the status quo at this juncture is in the best interests of the estate and its stakeholders and will avoid potential immediate and irreparable harm to the estate's interests in the consigned goods."

The application received objections from the two main groups of comic publishers, the Ad Hoc Committee and the Consignment Group, who argued that the trustee was prioritising costly litigation over resolution, potentially dragging out the fate of their inventory indefinitely. And that a breach of the contract terms means the entire contract is invalid. As the Trustee themselves said, "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." Basically, if that holds, they would get their stuff back.

Last year, the publishers successfully argued that the debtors would have to serve each of them with legal papers regarding the dispute over the consigned inventory, rather than all at once. The Trustee now argues, "The Debtors, at the Consignors' insistence, initiated over 30 adversary proceedings to determine the estates' rights in the Consigned Goods. There are counterclaims and third-party claims pending therein. All the relevant parties have expended hundreds of thousands of dollars in resources in reliance on that outcome. Indeed, one of the tactical hurdles the Consignors are now discovering in having "fished their wish" of process is that they bear the heavy evidentiary burden in that litigation. It is pretty clear that the Consignors are now displeased with that outcome and are looking to end-run a process they set in motion."

The Trustee also argued that it may say 60 days, but he'd only been doing this for the last 14. "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. He has endeavored to meet with all interested stakeholders in these proceedings as expeditiously as possible. However, the pendency of litigation against the chapter 11 professionals that administered the chapter 11 bankruptcy estates has presented a unique circumstance here. While those professionals have been cooperative, the flow of information requires the presence of other professionals that are not commonly present at such meetings. In addition, much of the information regarding the Consigned Goods, including their present location and condition, exists with Sparkle Pop and access to books and records concerning those same Consigned Goods is also within Sparkle Pop's control."

The Objections of the Ad Hoc Committee

The objections of The Ad Hoc Committee of Consignors, representing Ablaze, American Mythology, Avatar, Battle Quest, Action Lab, Drawn & Quarterly, Fantagraphics, Green Ronin, Hermes Press, Living the Line, Paizo, Udon and Zenescope, restated the background of the bankruptcy timeline. They stated that for the first five months, they "operated under those agreements and required the Consignors and other distributors to continue supplying product to the Debtor while the Debtor negotiated a sale that would ultimately exclude the Consignor's products. For the first five months of this proceeding, there was no question that the Consignors owned title to their products and the Debtors were only selling the product as a distributor pursuant to the respective Distribution Agreements. Then, on June 25, 2025, the Debtors filed a Motion… seeking Court authority for the Debtor to sell all consigned "inventory" free and clear of the Consignors' interests, which collectively has a resale value of several million dollars, along with the stock owned by other publishers not included in the Consignors' committee. The Sale Motion proposed to give 100% of proceeds of such a sale to the DIP lender, JPMorgan Chase Bank… without any adherence to the Debtor's various contracts with the Consignors governing the Debtor's sale of the stock. Those Distribution Agreements provided that the Consignors are the owners of the Stock, and that the Debtor must pay to the Consignors a negotiated percentage of each sale, among other material terms required of both parties." And these are the agreements being argued that must be executed or rejected.

And as to the action after Chapter 11 moved to Chapter 7, the Ad Hoc Committee stated that "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" and that extending the deadline would "extend the time 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 Ad Hoc Committee also stated "The Debtor is not distributing the Stock; is not ordering new Stock; is not paying the Consignors in full for the Stock that has been sold since the Petition Date; and as this Court the Debtor permitted Sparkle Pop to sell the Stock without an assignment of the Distribution Agreements without paying any
amounts to the Consignor… the rent on the warehouse in Olive Branch Warehouse where their Stock is held is not current. When asked by the Consignors in a virtual meeting on February 10, 2026, the Trustee was not sure when rent was last paid… there are also hundreds of thousands of dollars of ongoing "storage fees" owed by the Debtor to Sparkle Pop, in addition to unpaid rent" and "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."

The Ad Hoc Committee argues, "many of the publishers have exclusivity with the Debtor as their sole distributor of product. For the past nine months, these publishers have been unable to sell their product anywhere else – many of the smaller ones are facing grave financial distress due to this case. Even the larger publishers are held hostage without the ability to sell product elsewhere for some or all of the items included in the titles that the Debtor had been selling. Next, much of the Consignors' Stock is significantly diminishing in value each day it sits undistributed in the Olive Branch Warehouse, and more than a year has already passed since the Stock has been consistently and reliably distributed. The Consignors still are required to pay property taxes on the Stock, a fact that the Trustee is aware of and has declined to respond to. And, since the Debtor has failed to pay rent and storage fees to the current lessee of the Olive Branch Warehouse (Sparkle Pop), the Consignors cannot be certain that the Stock is secure". And time is of the essence, "The Debtor's financial condition is worsening, not improving. The Trustee knows this. Because the ability of the Trustee to assume the Distribution Agreements is nonexistent, an extension of the time to do so is unnecessary and unjustified."

They also took a technical route, saying "the Trustee therefore had until February 17, 2026, 60 days from the entry of the conversion order on December 19, 2025, to file a motion
accepting or rejecting the Distribution Agreements or seeking an extension of the time to do so… the Trustee did not file his Motion until February 19, 2026"

Behind-The-Scenes Emails

January saw counsel Catherine Hopkin acting for the Ad Hoc Committee raise the issue with the Trustees saying that "my clients are receiving the annual property tax reporting forms from De Soto County, Miss. Pursuant to the existing agreements with my clients, they are the owners of the stock that is in the Diamond Comics Olive Branch warehouse and thus are currently responsible for reporting and paying taxes on this stock… If the contracts are not assumed and the Trustee seeks to prosecute the pending adversaries, then the publishers will likely ask the court to compel the trustee to take over the property tax reporting and payments; and to provide payment on administrative claims arising from payment of these personal property taxes postpetition." And in February, she asked;

Is the consignment stock located at the Mississippi warehouse insured? If so, what is the amount of coverage and does UST have a copy of the policy if insured by Diamond Distributor?
When was rent last paid to Sparkle on account of the $30,000 that is due each month per the TSA? If rent is not current, how many months are currently outstanding?
Has anyone been to the location recently (in the past month) to inspect the goods? Please ask Sparkle to confirm that the warehouse is climate controlled and that the stock is not at risk of damage from the elements.
How is the warehouse secured? I am unsure if there is an alarm system or anything other than simply a lock on the door(s).
Is it monitored in any way, either with surveillance video or other monitoring that would detect smoke, water, or other potentially damaging conditions?
And finally, is anyone in the warehouse on a regular basis? We are unsure if there are workers at the warehouse or if the warehouse has remained unattended (in which case we would ask for an inspection)."

Silver responded by proposing a short interim extension to avoid an emergency hearing, noting differing views on the rejection of contracts between Diamond and the publishers, saying, "Understand your position set forth in the motion to compel is that rejection amounts to termination… but our position is that rejection is just a breach."

The Objections of the Consignment Group

The Consignment Group, representing Aspen, Black Mask, Dstlry, Dynamite, Heavy Metal, Magnetic, Massive, Oni, Panini, Alien, Graphic Mundi, Titan, Vault and Dark Horse echoed much of this, adding "If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease" and stated that according to the last reports, Diamond Comic Distributors, Inc still had $1,308,292 in cash reserves, enough to pay their publishers claims totalling $1,241,450.29 right now, But as they state, these are only 14 of the 128 publishers and producers whose product is claimed by Diamond and so they state that the bankruptcy estate "has no current means by which to assume the executory contracts without exhausting all of the estate's cash on hand and is asking to Court to extend the deadline to assume or reject executory contracts without the intention or means or ever being able to do so." As well as stating that "The consigned goods have been stored at the Olive Branch Warehouse since the Debtor's sale of substantially all of its assets to Sparkle Pop in May of 2025, effectively holding the property of the Consignors hostage. The Debtor has no employees or means of conducting any ongoing business. The Trustee has further not sought permission from the Court to operate the Debtor's business. The Trustee is unable to run a consignment based distribution business for comic books, graphic novels and collectibles under these circumstances." Also the storage costs have not been paid, adding more debt with every day, and there has been no assurances as to whether the stock is insured or not."

The Judge's Decision

However, after reviewing objections and holding the hearing, Judge David E. Rice denied the extension outright, citing the Ad Hoc Committee's technical claim that it was filed too late, saying "having held a hearing on February 26, 2026, and considered the objections thereto, and for the reasons stated on the record at the conclusion of the hearing the Court having determined that the Motion was untimely filed".

Which means the 60-day time limit ran out on the 2nd of March. The denial potentially allows consignors to reclaim their goods, but not without further fights, as the Trustee's position is that rejection of contracts merely constitutes a breach, not termination. You can use this Diamond tag to keep up with the latest on Bleeding Cool. Here's a timeline if you want to catch up…