As if the drama with Diamond‘s chapter 11 process isn’t crazy enough, now, there’s further issues in court when it comes to Diamond. Diamond has submitted a complaint against Ablaze to “determine the validity, priority or extent of a lien or other interest in property.” Ablaze is one of the publishers that are part of the Ad Hoc Committee that are fighting Diamond to determine who owns consigned inventory still in Diamond’s possession. Diamond wants to sell the inventory to raise money to pay back loans to JPMorgan Chase Bank while the publishers want the property back or be paid for it.

UDATE: As soon as we went to press with this, a similar motion against Action Lab was filed. Action Lab is not part of the Ad Hoc Committee. Since it went “AB” and now “AC,” we’re getting this in alpha order. We’ll keep a list of publishers below with each filing added as they’re released.

When it comes to Diamond’s plan to sell the consigned goods, a stay was put on that with another court date set for September 30. Diamond had a few options which was to see what happened on September 30, go with adversary proceedings against every consignor, aka publisher, or come to an agreement with the publishers.

It looks like Diamond will be going with adversary proceedings.

In Diamond’s motion they go through the history with Ablaze that they began a distribution agreement on April 1, 2023 where Ablaze supplied goods to Diamond on consignment. Ablaze then didn’t do the proper filing, UCC-1, which protects inventory if a distributor goes into chapter 11. Diamond began its chapter 11 proceedings in January. The lack of the UCC-1 Financing Statement is a regular argument that Diamond has made that they have the rights to the inventory. Diamond argues that due to bankruptcy code, and because Ablaze didn’t file the right paperwork, that Diamond has a superior interest to Ablaze when it comes to the inventory.

Diamond is asking the court to decide the inventory is theirs and they’re going publisher by publisher to do this.

In their filing they ask the court to declare that Diamond:

• it has an interest in the Defendant Supplied Consigned Inventory superior to the interest of the Defendant,
• the Debtor’s interest in the Defendant Supplied Consigned Inventory constitute property of the Debtor’s estate within the meaning of section 541(a) of the Bankruptcy Code, and
• the Debtors can sell or otherwise dispose of the Defendant Supplied Consigned Inventory pursuant to Bankruptcy Code section 363(b), without regard to the terms and conditions of the Agreement, free and clear of any alleged interest in the Defendant Supplied Consigned Inventory held or asserted by the Defendant pursuant to Bankruptcy Code section 363(f).

All of this was Diamond’s original argument to be able to sell the consigned goods, now they’re just making it at the publisher level instead of a blanket one for all. The questions are:

1. Is this serious and going to play out with the upcoming hearing regarding the publishers motion over consignment goods still coming?
2. Is this an attempt at leverage to try to get the publishers to settle and cut a deal with Diamond?

We’ll keep updating this as to which publishers Diamond has filed against. Publishers include: