There’s a lot of balls in the air when it comes to Diamond‘s chapter 11 process. Wednesday, September 10 is the next hearing, this one having to do with Sparkle Pop having sold consignment goods when they weren’t supposed to.

The short version, Diamond still has a lot of inventory in its possession that are on consignment. Diamond wants to sell the inventory to raise money so it can pay back its lender, JPMorgan Chase Bank. But, publishers don’t want them to and have filed been fighting to stop their motion. During that, it was revealed that Sparkle Pop had sold a bunch of the goods on consignment when they shouldn’t have.

Diamond filed a motion at the end of August to force Sparkle Pop to stop selling the inventory and also asking for some sort of damages. Sparkle Pop has said they have stopped selling the inventory and have the money set aside and waiting to be told what to do with it by the court and blamed Diamond for the issues. Then, there’s publishers who have some issues with Diamond’s motion against Sparkle Pop.

In the lead up to Wednesday’s hearing, Diamond has released its witness and exhibit list and responded to Sparkle Pop’s objection to the whole thing. And Diamond responds with some big swings and drops some emails.

In its reply, Diamond doesn’t mince words calling Sparkle Pop’s objection “self-serving misdirection.” They mock Sparkle Pop’s framing that it was “trying to do the right thing for all parties.”

In their response they say Sparkle Pop’s objection doesn’t explain and leaves out:

• The purchase agreement provided Sparkle Pop reimbursement for the cost and expenses in connection to the consigned inventory when the sales were at the direction of the debtors.
• Diamond is paying Sparkle Pop for the storage of the consigned inventory and instead says Sparkle Pop criticized Diamond for “failing to remove such consigned inventory.”
• The consigned inventory is distinguishable from the “owned” inventory by the coding system that was handed over to Sparkle Pop by Diamond when Sparkle Pop purchased Diamond’s assets.
• Sparkle Pop has provided information as to what consigned inventory was sold showing it knows what is consigned inventory.
• Sparkle Pop didn’t respond to Diamond’s demand to stop selling the consigned goods and hand over all of the proceeds to Diamond. Nine emails were sent that are part of the exhibit filed with this motion.
• Sparkle Pop asked Diamond if the consigned inventory should be included on its website and ignored the response by Diamond’s counsel to remove the inventory from the website.
• Sparkle Pop never told Diamond it was segregating the proceeds from the sale of consigned inventory.
• Sparkle Pop doesn’t seem to get the impact of the automatic stay that’s in place concerning consigned goods.

It also highlights some agreements:

• Sparkle Pop has stopped selling the consigned goods.
• The proceeds from the sale should be held but there’s disagreement as to who should manage it until it’s decided what to do with it.
• The inventory should be removed from Sparkle Pop’s website.

Diamond feels that the court should still tell Sparkle Pop to stop selling the inventory and remove it from their website and marketing materials. The gross proceeds should be handed over to Omni Agent Solutions which is managing already as an escrow agent connected to funds dealing with the sale process. Finally, Diamond will figure out damages at a later date.

The emails are interesting and reveal some new info, but also seem to be missing responses from Sparkle Pop:

• Sparkle Pop was late in some of its payments owed to Diamond
• Sparkle Pop put forth a scenario where it would purchase the consigned goods but Diamond thought it was too low.
• From May 16 to July 8 $1,353,364 was the amount of sales of consignment inventory.
• After that amount there was an additional $31,258.60 sold for a total of $1,384,622.60.
• There was disagreement of who would pay customs of goods shipped before purchase but didn’t get through customs until after.
• “I am following up since we never heard back from you after our conversation last evening. Have you had an opportunity to discuss our proposal with your client?” <- What was this proposal about?

Wednesday should be an interesting one!