In February, the motion to extend time to “assume or reject executory contracts related to consigned goods” was denied by the court in regards to Diamond‘s chapter 11/chapter 7 process. This concerned the ongoing question regarding contracts between (old) Diamond and publishers handling consigned goods. Who “owns” those goods is a contentious issue with publishers wanting their product back while Diamond, and now their Trustee, want to be able to sell the consigned goods to pay back creditors.
The denial of the motion by the Trustee has caused a chain of rejections. Because the contracts were not assumed or rejected by the deadline, publishers have pounced citing law that saws the contracts default to rejected. You can read about that here and here. Because the contracts are rejected, there’s laid out steps in the contracts as to what happens to consigned goods, primarily the publishers can get them back for the cost of shipping.
Sparkle Pop has filed a response to the motions. Sparkle Pop is one of the companies that purchased some of the assets from Diamond in their chapter 11 and has been managing the storage of the consigned goods.
Adding more to it, Sparkle Pop was caught selling consigned goods they had no right to, were told by the court to stop, and ordered to deposit the money gained in an account controlled by the court. In recent filings, Sparkle Pop has been accused of breaking that order to not sell consigned goods raising questions of Diamond and Sparkle Pop’s ability to protect and care for the consigned goods while the process plays out.
Sparkle Pop’s motion raises the ongoing dispute claiming it’s between (old) Diamond and the publishers resulting in adversary proceedings between (old) Diamond and multiple publishers. While there’s been orders setting out what’s next in these proceedings, the discovery process (handing over documents to lawyers) hasn’t commenced.
Sparkle Pop is sort of staying neutral in it all, not taking sides as to who owns the consigned goods, but instead states that the adversary proceedings should be allowed to play out and that recent motions by publishers for a decision on consigned goods shouldn’t be approved. (Old) Diamond and its now trustee had a deadline to approve or reject agreements and that deadline passed, so publishers filed for a decision based on that saying it was defacto rejection of existing agreements and thus they should get the goods. The trustee has filed an appeal over the decision to reject the timeline extension.
Sparkle Pop does not contend that it has any ownership interest in the consigned goods other than as set forth herein. Sparkle Pop further does not take any position as to whether the Trustee or the Consignors has a superior interest in the consigned goods.
Sparkle Pop’s concerns are more focused on the impact of the goods on them.
(a) rent/storage fees are in arrears and there is no guarantee that future rent payments will be made;
(b) no payments have been remitted to Sparkle Pop for its processing fees for goods that have been sold; and
(c) it will be an extremely expensive and time consuming process for Sparkle Pop to organize, pack and move the consigned goods to the loading docks for whomever (whether it be the Trustee or the Consignors) ultimately is determined to be the owner of the consigned goods.
They go on to state they haven’t been paid for rent/storage by (old) Diamond for the goods since November 2025 and that rent owed exceeds $500,000 with $125,000 a month incurred. They’re also claiming they are owed 30% processing fees for any sales that have been processed.
They also state returning the consigned goods would be difficult:
Finally, it will be a very cumbersome and expensive process for Sparkle Pop to make the consigned goods available for retrieval whether that be by the Trustee or the Consignors. This difficulty exists because, among other things, (a) the consigned goods are not organized by consignor; and (b) the consigned goods are not packaged or otherwise ready to be retrieved. The market rate for these types of goods to be “Picked and Packed” and moved to the loading docks for retrieval will ultimately depend on how the owners of these consigned goods want the goods to be staged.
They wrap up claiming:
Sparkle Pop contends that it may have a warehouseman’s lien under Mississippi law with respect to these consigned goods and is exploring its legal options in Mississippi under Mississippi law.
There is no comments disputing the claims of goods being sold after the judge ordered them not to.
You can read the full response below:
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Source: Graphic Policy
