The news that Diamond Comic Distributors was seeking to seize and sell consignment inventory in its warehouse instead of returning the inventory or selling it and paying the consignors (see "Diamond Seeks to Take Consignment Inventory") was a big blow to the 182 suppliers affected by the potential move. It would also have a negative impact on retailers that depend on access to the inventory, or may have inventory that would be devalued by a liquidation sale of the titles.

A tipster sent us a bankruptcy case in the Fourth Circuit (which includes Maryland, where the Diamond bankruptcy was filed), that was decided in favor of the supplier, which shows a path to possible success for publishers in the Diamond case.  The bankruptcy court can order the return of the inventory to the supplier if the supplier can show "that the person conducting the business is generally known by his creditors to be substantially engaged in selling the goods of others."

In Leake v. Khaliq, related to a 1995 bankruptcy by two people surnamed Gregory, a Virginia bankruptcy court decided that the burden of proof had been met and ordered the inventory returned to the supplier.  To determine what the creditors thought, a survey was conducted, which showed that a majority of the creditors understood that the company was typically selling the goods of others. The number of creditors in the 1995 case was very small, but it seems that the principal applies to the Diamond case regardless.

Diamond's consignment suppliers are rushing to block the move to seize their inventory (see "Diamond Consignment Suppliers Uniting to Fight Inventory Seizure"); this case seems to point one way forward in their effort.