Posted in: Comics | Tagged: Ad Populum, bankruptcy, diamond, Sparkle Pop

Sparkle Pop: Diamond Debtor "All But Abandoned" Consigned Inventory

In a recent Diamond bankruptcy filing, Sparkle Pop explains a "choice between two evils" in the unfolding consignment inventory saga.

Published Sat, 06 Sep 2025 09:57:04 -0500

by Rich Johnston

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Ad Populum/Sparkle Pop, which bought Diamond Comic Distributors comic book business at the Chapter 11 auction, has filed a new legal objection to Diamond Comic Distributors, Inc, the debtor in this bankruptcy action. It's over Sparkle Pop's selling of consigned comic book stock, owned by the comic book publishers, but claimed by the Debtors. And states that Sparkle Pop acted in good faith when fulfilling customer orders for consigned inventory after the bankruptcy sale.

Steven Bieg, Chief Financial Officer of Ad Populum, Sparkle Pop's parent entity, stated that part of Diamond's operations involved selling goods on behalf of third-party consignors. And that while Sparkle Pop did not acquire this inventory under the Asset Purchase Agreement as part of the bankruptcy auction, Diamond had failed to remove or delist the consigned goods from its retailer website, or relocate them from its Olive Branch, Mississippi storage facility, before the close of sale. And that "after Sparkle Pop took ownership of the Debtors' assets, the goods in storage for distribution and sale at the Olive Branch Facility contained both Consigned Inventory and non-consigned inventory mixed together."

Beig stated that the Diamond Debtors initially did not inform Sparkle Pop of any intent to claim interests in the consigned inventory for a period of time following the Diamond asset sale closing. And that Sparkle Pop made no affirmative efforts to market or sell it but continued to receive orders through the website, as a matter of course, where the items remained listed. "Without knowledge of whether Debtors possessed any ownership or legal interest in the Consigned Inventory, Sparkle Pop became concerned that failing to fulfil the orders received through the Website in the ordinary course of business could subject Sparkle Pop to liability," Bieg said. "Indeed, in this industry, the longer Consigned Inventory remains for sale, the greater likelihood that the value of the Consigned Inventory will decrease over time." As a result, Sparkle Pop fulfilled the sales while tracking them and segregating proceeds, intending to distribute the funds to whichever party, Diamond or the consignors, was determined by the courts to hold ownership. But at the beginning of June, Diamond debtor representatives contacted Sparkle Pop, demanding consent before any further sales and instructing them to cease.

In a separate filing, Sparkle Pop further asserts that these sales are allowed under the Transition Service Agreement in force during the post-sale transition period. "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. Following the Closing, Sparkle Pop continued to honor sales earned through the Debtors' website (which would not have arisen but for Debtors' failure to remove the Consigned Inventory from the website prior to Closing). Sparkle Pop did so based on the TSA's language, which permits, but does not require, Sparkle Pop to undertake efforts to process, package, ship or dispose of the Consigned Inventory."

Sparkle Pop further explains that, "any failure by Sparkle Pop to continue Processing orders and honoring orders passively fulfilled through the website for Consigned Inventory could have subjected Sparkle Pop to liability from consignors, or even Debtors themselves. Debtors' Motion essentially traps Sparkle Pop with a choice between two evils; refuse to Process Consigned Inventory and risk claims from consignors (for which Debtors would ultimately be liable through the TSA's indemnification obligations) or continue to Process Consigned Inventory (as is permitted by the TSA and Sale Order) and risk claims by Debtors for breach of the automatic stay."

Perhaps most interestingly, the filing also notes that, "Importantly, Debtors made no effort to remove the Consigned Inventory from either the website or the Olive Branch, Mississippi facility. Sparkle Pop therefore reasonably believed that the remaining inventory listed for sale on the website or remaining at the Olive Branch, Mississippi facility were either abandoned by the Debtors or not part of the estate. Sparkle Pop's actions in this regard merely retained the status quo of the estate's property as of the time of the filing of the petition." They later added along this theme that, "Debtors' lack of any action in moving or transferring Consigned Inventory (all but abandoning the Consigned Inventory) following the Closing all support the fact that Sparkle Pop undertook reasonable efforts to honor post-Closing sales of Consigned Inventory for the benefit of both Debtors and the consignors."

Sparkle Pop states that it has generated over a million dollars in revenue from consigned inventory received before the sale date of the 15th of May, and over half a million from inventory received afterwards, but that all proceeds were segregated. In fulfilling these orders, Sparkle Pop incurred almost half a million dollars in costs for distributing them, including shipping and packaging. Bieg noted that Diamond Debtors had agreed to reimburse such costs but expressed concerns about this point at the current stage of the bankruptcy proceedings, stating: "In connection with fulfilling such sales of Consigned Inventory, Sparkle Pop incurred approximately $251,897 in costs, including shipping, packaging, and other costs associated with honoring sales of Consigned Inventory received prior to Closing and $181,373 in costs, including shipping, packaging, and other costs associated with honoring sales of Consigned Inventory received after the Closing, respectively. I understand that, pursuant to the TSA, Debtors agreed to reimburse Sparkle Pop for all such costs incurred in connection with Processing Consigned Inventory. Given the current status of the Debtors' chapter 11 proceedings, Sparkle Pop has concerns over its ability to recoup any payments it may be required to turn over to the Debtors."

As for the current motion, Bieg stated that prior to filing, "Sparkle Pop had removed all Consigned Inventory from the Website and Sparkle Pop has ceased all sales of Consigned Inventory." The separate Sparkle Pop filing concludes that, "Debtors' instant Motion, which seeks an award of compensatory and punitive damages for sales of the Consigned Inventory, is a blatant attempt to circumvent the Court's order requiring commencement of adversary proceedings by which Debtors seek to obtain the sale proceeds from Consigned Inventory that they may ultimately not be entitled to, depending on the outcome of the forthcoming adversary proceedings between Debtors and the consignors. "