At the end of August, Diamond submitted a motion with the court going after Sparkle Pop for selling consigned goods that it did not own. Those goods are part of a battle between Diamond, comic and game publishers, and now Sparkle Pop as to who owns the inventory and who should receive any money from the sale of them.

In their motion, Diamond asked the court to enforce a stay that prevented the sale of the consigned goods while other legal matters were being decided and Diamond felt there should be damages paid for it too.

Now, the Ad Hoc Committee of Consignors, which represents some of the publishers, have submitted a “limited objection” to Diamond’s motion. While that might seem odd, it is limited and an objection to certain aspects.

The Ad Hoc Committee of Consignors is making an objection as to certain aspects. The Consignors support the relief requested by the Debtors so long as:

1. it is without waiver of their argument as to ownership of the stock and legal ramifications thereof;
2. any order granting the Motion requires that any proceeds of Sparkle Pop’s sales of the consigned inventory are held in escrow by a third party or in the court registry (and not held by the Debtors), pending a further ruling on ownership of the stock at issue and claims by the Consignors and/or Debtors to recovery of those proceeds; and
3. without prejudice to the Consignor’s right to recover any additional claims against Sparkle Pop to the extent allowed under applicable law.

The short version is that they don’t want this court decision to impact other decisions as to who actually owns the inventory, the money gained from the sales should go into an account not controlled by Diamond or Sparkle Pop until things are decided as to who owns what and who owes what to who, and they still want to be able to go after Sparkle Pop if they choose to do so.

In Diamond’s original motion it included the words “for purposes of this motion” which we took as to ease the concerns of the Ad Hoc Committee. But, that’s clearly not the case and there’s more to worry about and raise to make sure everything is covered.

They Ad Hoc Committee is protecting their previous arguments and trying to prevent Diamond from using this to help its claim it has a right to sell consigned inventory.

What stands out also is this nugget:

Although the Chief Restructuring Office, Robert Gorin, testified in August that the Debtors’ Transition Services Agreement (“TSA”) permits the Debtors to sell consigned stock and then require Sparkle Pop to “pick, pack and ship” that stock at Debtors’ cost, in reality no provision exists in the TSA that gives Sparkle Pop the right to sell the consigned stock.

The Ad Hoc also believes Diamond’s motion would:

…permit Sparkle Pop to continue selling consigned goods absent a Court Order authorizing the Debtors to assign the consignment contracts to Sparkle Pop after first curing any defaults thereunder.

Reading the transcript, what seems to be in question is Diamond’s “hiring” of Sparkle Pop to ship and pack any consigned goods Diamond sells.

We fully expect publishers to step in with their own lawsuits and court motions against Sparkle Pop for the sale of the consigned goods and this might be the first step in exactly that.

You can read all of the documents below: