Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 1 of 23
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`HANSON BRIDGETT LLP
`MICHAEL F. DONNER (SBN 155944)
`mdonner@hansonbridgett.com
`ANTHONY J. DUTRA (SBN 277706)
`adutra@hansonbridgett.com
`425 Market Street, 26th Floor
`San Francisco, California 94105
`Telephone:
`(415) 777-3200
`Facsimile:
`(415) 541-9366
`
`Attorneys for Plaintiff
`BLUE DIAMOND GROWERS,
`a California corporation
`
`UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF CALIFORNIA
`SACRAMENTO DIVISION
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`Plaintiff,
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`BLUE DIAMOND GROWERS, a California
`corporation,
`
`
`v.
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`FREEDOM FOODS PTY LTD., an
`Australian proprietary limited company,
`
`Defendant.
`
`
`
`
`
` PLAINTIFF BLUE DIAMOND GROWERS'
`COMPLAINT FOR:
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`(1) FRAUD;
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`(2) BREACH OF CONTRACT;
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`(3) SPECIFIC PERFORMANCE;
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`(4) BREACH OF COVENANT OF GOOD
`FAITH AND FAIR DEALING; AND
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`(5) DECLARATORY RELIEF
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`DEMAND FOR JURY TRIAL
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`PLAINTIFF BLUE DIAMOND GROWERS' COMPLAINT
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`Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 2 of 23
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`Plaintiff Blue Diamond Growers, a California corporation ("Blue Diamond"), hereby
`alleges as follows:
`
`JURISDICTION AND VENUE
`This Court has jurisdiction over the subject matter of this action pursuant to
`1.
`28 U.S.C. Section 1332 because diversity of citizenship exists between Blue Diamond, a
`corporate citizen of California with its principal place of business in Sacramento,
`California, and Defendant Freedom Foods Pty Ltd. ("Freedom"), a corporate citizen of
`Australia with its principal place of business in Taren Point, New South Wales, Australia,
`and the matter in controversy exceeds the sum or value of $75,000, exclusive of interest
`and costs. For the purpose of diversity jurisdiction, an Australian proprietary limited
`company is treated as a corporation because its "corporate form is akin to a corporation
`in the United States." Glob. Dairy Sols. Pty Ltd. v. BouMatic LLC, 523 F. App'x 421, 423
`(7th Cir. 2013).
`2.
`This Court has personal jurisdiction over Freedom because Freedom
`established the required minimum contacts with California and purposefully availed itself
`of the laws of California. Among other things, (a) Freedom negotiated and entered into
`the contract that is the subject of this action in California; (b) the contract itself was to
`have been performed, in part, in California; (c) Freedom has, at all relevant times
`mentioned herein, maintained significant commercial and other contacts with California
`and with Blue Diamond, a California corporate citizen and domiciliary; and (d) Freedom
`already submitted to the jurisdiction of this Court in prior litigation with Blue Diamond.
`3.
`Venue in this Court is proper pursuant to 28 U.S.C. Section 1391(b)(2)
`because a substantial part of the events, acts or omissions giving rise to the claims
`asserted herein occurred, and many of the contractual obligations alleged herein were to
`be performed, in part, in Sacramento, California.
`4.
`Venue in this Court also is proper pursuant to 28 U.S.C. Section 1391(c)(3)
`because Freedom is not a corporate citizen or domiciliary of the United States.
`5.
`Pursuant to Civil Local Rule 120 and Appendix A, assignment to the
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`PLAINTIFF BLUE DIAMOND GROWERS' COMPLAINT
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`Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 3 of 23
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`Sacramento Division of this Court is appropriate because this civil action arises in
`Sacramento County, California.
`SUMMARY OF THE DISPUTE
`Blue Diamond is a cooperative of nearly 3,000 independent California
`6.
`almond growers that produces and sells worldwide over US $1.5 billion in almonds each
`year.
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`7. Within the United States, Blue Diamond manufactures, markets, and sells
`almond-based foods, beverages, and ingredients, including its well-known Almond
`Breeze® brand of beverage products. However, in international markets, Blue Diamond
`generally enters into licensing agreements with local food and beverage companies for
`the manufacture, sale, and distribution of Blue Diamond products in those foreign
`markets.
`In 2011, Blue Diamond and Freedom entered into a written license
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`agreement, pursuant to which, among other things, Freedom agreed to manufacture, sell,
`and distribute Blue Diamond's almond-based beverage products in Australia and New
`Zealand and, in exchange, Blue Diamond agreed to grant Freedom a license to use Blue
`Diamond's trademark, trade dress, and trade name for the foregoing purposes and to sell
`almond base to Freedom for use in the manufacture of Blue Diamond’s products.
`9.
`Because the contractual relationship between Blue Diamond and Freedom
`was exclusive in nature, the license agreement expressly prohibited Freedom from
`manufacturing, selling, or distributing any nut-based beverage products in Australia and
`New Zealand other than Blue Diamond products (subject to certain limited exceptions
`that are inapplicable here).
`10. Blue Diamond later discovered that Freedom had breached the license
`agreement's exclusivity provision by manufacturing, selling, and distributing nut-based
`beverage products other than Blue Diamond's products.
`11. Blue Diamond also later discovered that Freedom had defrauded it, and
`breached the license agreement, by inducing Blue Diamond, under false pretenses, to
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`PLAINTIFF BLUE DIAMOND GROWERS' COMPLAINT
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`Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 4 of 23
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`sell Freedom large quantities of almond base supposedly for an unnamed "Customer D,"
`under the private label client exception to the license agreement's exclusivity provision
`(that is, where Freedom makes a proprietary product for a retailer’s own brand).
`12. But "Customer D" never existed. Blue Diamond is informed and believes
`that (a) it was Freedom itself that bought the almond base from Blue Diamond under the
`fake "Customer D" name and (b) Freedom used that base not to make private label
`products, as it said it had, but rather, to manufacture its own products that directly
`competed with Blue Diamond’s products in Australia and New Zealand.
`13.
`Freedom lied to Blue Diamond about "Customer D" to both conceal its
`breaches of the license agreement and to avail itself of lucrative rebates that were due to
`Freedom only in connection with its manufacture of true private label products. By
`fraudulently inducing Blue Diamond to provide it with rebates, Freedom essentially
`reduced its manufacturing costs for its products so it could generate greater profits and
`undercut Blue Diamond's pricing and unfairly compete with Blue Diamond in the
`marketplace.
`In 2019, Blue Diamond asked Freedom for an all-hands meeting in Los
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`Angeles to address Freedom's unlawful commercial behavior. After months of delay,
`Freedom eventually agreed to attend that meeting, and it sent its then-Chief Executive
`Officer, Rory MacLeod ("Mr. MacLeod"), to lead its delegation.
`15. At that meeting, Blue Diamond and Freedom attempted to resolve their
`prior disputes by entering into an oral forbearance agreement.
`16. Under that forbearance agreement, Blue Diamond agreed to (a) forebear
`from enforcing its rights and remedies as to Freedom's prior identified breaches of the
`license agreement, (b) permit Freedom to manufacture, sell, and distribute MilkLAB
`almond-based beverage products into foodservice channels (i.e., restaurants, cafés, and
`coffee shops) in Australia and New Zealand while continuing to forbid retail sales of
`MilkLAB almond-based beverage products, (c) not enforce the license agreement's
`exclusivity provision as to MilkLAB almond-based beverage products manufactured, sold,
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`PLAINTIFF BLUE DIAMOND GROWERS' COMPLAINT
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`Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 5 of 23
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`or distributed into foodservice channels; and (d) sell Freedom almond base at discounted
`pricing for use in the manufacture of MilkLAB for sale or distribution into foodservice
`channels.
`17. Blue Diamond expressly conditioned its grant of the foregoing concessions
`on Freedom's reciprocal promise during the meeting to (a) purchase all of the almond
`base it needed to manufacture its MilkLAB almond-based products exclusively from
`Blue Diamond and (b) terminate all of Freedom’s non-organic, non-Private Label nut-
`based product lines (other than its MilkLAB line which Blue Diamond would specifically
`permit).
`The parties also agreed that Blue Diamond could reserve, and later avail
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`itself of, its rights and remedies with respect to Freedom's prior identified breaches of the
`license agreement in the event Freedom violated the forbearance agreement.
`19. What Blue Diamond did not know, and what Mr. MacLeod never told it, was
`Freedom had no intention of ever performing under the forbearance agreement. Indeed,
`following the meeting, Freedom breached the forbearance agreement by (a) buying
`almond base from sources other than Blue Diamond, (b) using that substitute base to
`manufacture MilkLAB almond-based beverage products, and (c) making and selling
`additional, prohibited non-organic, non-private label nut-based beverage products.
`20.
`In 2020, Freedom's corporate parent commenced an internal investigation
`into accounting fraud and other financial improprieties at the company and its affiliates.
`Shortly thereafter, Mr. MacLeod and other members of management resigned from their
`positions.
`21. Surprisingly, the ongoing fraud investigation did not chasten Freedom's new
`management. On the contrary, it doubled-down on the company's prior pattern and
`practice of unlawful commercial behavior. Freedom's new Chief Executive Officer,
`Michael Perich ("Mr. Perich"), announced to Blue Diamond that Freedom would continue
`to (a) buy almond base from sources other than Blue Diamond, (b) use that alternatively-
`sourced base in the manufacture of MilkLAB almond-based beverage products, and (c)
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`PLAINTIFF BLUE DIAMOND GROWERS' COMPLAINT
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`Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 6 of 23
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`manufacture, sell, and distribute other prohibited nut-based beverage products in
`Australia and New Zealand. Mr. Perich asserted, without a hint of reticence, that
`Freedom would conduct itself this way because it was financially advantageous to do so.
`22. Blue Diamond is compelled to initiate this action to address Freedom's
`fraudulent conduct and continuing breaches of the forbearance agreement and to seek
`redress for the significant damages and continuing harm that Blue Diamond has suffered
`as a result of Freedom's conduct.
`23. Blue Diamond has concurrently commenced arbitration proceedings against
`Freedom with the American Arbitration Association, entitled Blue Diamond Growers, etc.
`v. Freedom Foods, etc., in which Blue Diamond has asserted claims governed by the
`license agreement’s arbitration provision, including those pertaining Freedom’s breach of
`the license agreement and related unlawful commercial behavior.
`THE PARTIES
`24. Blue Diamond is, and at all relevant times mentioned herein was, a
`corporation organized and doing business under the laws of the State of California with
`its principal place of business in Sacramento, California.
`25. Blue Diamond is informed and believes and, on that basis, alleges that
`Freedom, Australian Company No. 068-972-181, is and, at all relevant times mentioned
`herein was, a proprietary limited company organized and doing business under the laws
`of the nation of Australia with its principal place of business in Taren Point, New South
`Wales, Australia.
`26. Blue Diamond is informed and believes and, on that basis, alleges that
`Freedom Foods Group Limited ("Freedom Group"), Australian Company No. 002-814-
`235, is and, at all relevant times mentioned herein was, a limited company or corporation
`organized and doing business under the laws of the nation of Australia with its principal
`place of business in Taren Point, New South Wales, Australia.
`27. Blue Diamond also is informed and believes and, on that basis, alleges that
`Freedom Group is and, at all relevant times mentioned herein was, the holding or parent
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`PLAINTIFF BLUE DIAMOND GROWERS' COMPLAINT
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`A.
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`Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 7 of 23
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`company or corporation for a family of affiliated or subsidiary entities, including Freedom,
`and that such entities collectively are engaged in the manufacture, sale, and distribution
`of food and beverage products throughout the world.
`GENERAL ALLEGATIONS
`Blue Diamond and Freedom Enter Into the License Agreement.
`28. On or about October 18, 2011, Blue Diamond and Freedom entered into a
`written "License Agreement" of the same date (the "License Agreement").
`29. Under the License Agreement:
`a.
`Freedom agreed to manufacture, sell, and distribute in Australia and
`New Zealand almond-based beverage products under Blue Diamond's trademark, trade
`dress, and trade name in accordance with Blue Diamond's formulations and
`specifications;
`Blue Diamond agreed to grant Freedom a license to use Blue
`b.
`Diamond's trademark, trade dress, trade name, and formulations and specifications to
`manufacture, sell, and distribute such products in Australia and New Zealand;
`c.
`Freedom agreed to buy from Blue Diamond at specific pricing, and
`Blue Diamond agreed to sell to Freedom at that pricing, all almond base for Freedom's
`use in the manufacture of such products, and to pay for such base in California;;
`d.
`Freedom agreed to only use Blue Diamond's almond base in the
`manufacture of non-organic almond-beverage products; and
`e.
`Freedom and Blue Diamond agreed that the License Agreement
`would be governed by California law.
`30.
`To protect their mutual interests, and to memorialize the exclusivity of their
`relationship, Blue Diamond and Freedom made the following additional promises in
`Section 10 of the License Agreement:
`a.
`Blue Diamond agreed not to manufacture, package, sell, or distribute
`nut-based beverage products in Australia or New Zealand or to enter into a license or
`other agreement with another company to do so unless Freedom provided Blue Diamond
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`PLAINTIFF BLUE DIAMOND GROWERS' COMPLAINT
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`with its prior consent;
`b.
`Freedom agreed not to directly or indirectly manufacture, package,
`sell, or distribute nut-based beverage products for any consumer or other buyer outside
`of Australia or New Zealand or to anyone whom Freedom suspected might do the same
`unless Blue Diamond provided Freedom with its prior consent; and
`c.
`Freedom agreed not to sell any non-organic nut-based beverage
`products in Australia or New Zealand other than Blue Diamond products unless Blue
`Diamond provided Freedom with its prior consent.
`B.
`Blue Diamond and Freedom Enter Into the First Amendment.
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`31. On or about August 1, 2014, Blue Diamond and Freedom entered into that
`certain written "First Amendment to License Agreement" of the same date (the "First
`Amendment").
`32. Under the First Amendment, Blue Diamond and Freedom agreed to, among
`other things, modify Section 10 by giving Freedom limited permission to manufacture,
`package, sell, and distribute certain limited non-organic, non-Blue Diamond almond-
`based beverage products, so long as two conditions were met: (a) the products were
`“marketed and sold under a brand name exclusive to a particular chain of retail groceries”
`(“Private Label”); and (b) Freedom exclusively used Blue Diamond almond base to
`manufacture the Private Label brand products.
`33. Blue Diamond also agreed in the First Amendment to provide rebates to
`Freedom in connection with Freedom's purchase of Blue Diamond's almond base for use
`in the manufacture of Private Label brand products. Blue Diamond did so in recognition of
`the fact that the Private Label almond-based beverage products Freedom manufactured
`for major Australian retailers, like Woolworths, Safeway, and Coles, typically sold at lower
`price points than more premium products, such as Blue Diamond’s almond-based
`beverage products.
`34.
`The First Amendment required Freedom, as a predicate condition to
`obtaining these rebates, to provide Blue Diamond with quarterly written sales reports that
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`PLAINTIFF BLUE DIAMOND GROWERS' COMPLAINT
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`Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 9 of 23
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`stated (a) the amount of Blue Diamond almond base Freedom had used to manufacture
`each Private Label product during that quarter and (b) the total volume that Freedom had
`manufactured of each Private Label product during that quarter.
`35.
`Together, the First Amendment and Section 10 of the License Agreement
`imposed the following contract terms:
`a.
`Blue Diamond could only sell almond base and almond-based
`beverage products for the Australia and New Zealand markets to Freedom;
`Freedom could only manufacture, sell, and distribute organic nut
`b.
`beverage products in Australia and New Zealand under Freedom’s Australia’s Own
`brand;
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`Freedom could only manufacture, sell, and distribute non-organic
`c.
`Blue Diamond products and Private Label almond-based beverage products in Australia
`and New Zealand and could only use Blue Diamond almond base to manufacture those
`products;
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`Freedom could not sell any other non-organic nut beverage products
`d.
`in Australia or New Zealand; and
`e.
`Freedom could not sell any type of nut beverage products outside of
`Australia and New Zealand.
`36. At all relevant times after the parties entered into the License Agreement
`and the First Amendment (collectively, the "License Contracts"), Blue Diamond fully and
`effectively performed in accordance with their terms and conditions by, among other
`things, producing and delivering to Freedom almond base for Freedom's use in the
`manufacture, sale, and distribution of Blue Diamond and Private Label almond-based
`beverage products.
`C.
`Freedom Breaches the License Contracts By Manufacturing, Selling, and
`Distributing Prohibited Nut-Based Beverage Products.
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`In 2017, Blue Diamond learned for the first time that Freedom had begun to
`37.
`manufacture, sell, and distribute nut-based products in Australia and New Zealand under
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`PLAINTIFF BLUE DIAMOND GROWERS' COMPLAINT
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`Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 10 of 23
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`the brand names "MilkLAB" and "AO," even though those products were neither organic
`nor Private Label, and thus, violated Section 10(b) of the License Agreement, as
`amended by the First Amendment.
`38. On or about March 5, 2018, Blue Diamond served Freedom with a notice of
`default under Section 10(b) of the License Agreement, as amended, based on Freedom’s
`manufacture, sale, and distribution of prohibited MilkLAB and AO nut-based products.
`39.
`Freedom thereafter failed to cure the defaults identified in the March 5,
`2018 default notice.
`40. Blue Diamond is informed and believes and, on that basis, alleges that
`Freedom not only ignored the March 5, 2018 default notice and continued to
`manufacture, sell and distribute MilkLAB and AO products, but it also started to
`manufacture, sell, and distribute new prohibited nut-based beverage products in violation
`of the License Contracts.
`41. On or about September 28, 2018, and January 23, 2019, Blue Diamond
`served Freedom with two additional notices of default under Section 10(b) of the License
`Agreement based on the breaches identified in Paragraphs 37 and 40, above.
`42.
`Freedom thereafter failed to cure the defaults identified in the September
`28, 2018, and January 23, 2019 default notices.
`D.
`Freedom Breaches the License Contracts By Submitting False Rebate
`Claims to Blue Diamond for Prohibited Nut-Based Beverage Products.
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`In or about July 2017, Blue Diamond discovered that Freedom had induced
`43.
`Blue Diamond, under false pretenses, to sell Freedom significant quantities of almond
`base and to provide Freedom with Private Label rebates in connection with those
`purchases.
`44. At various times in 2016 and 2017, representatives of Freedom told their
`counterparts at Blue Diamond, orally and in written reports, including without limitation,
`Freedom's July 21, 2016, November 2, 2016, June 5, 2017, and June 13, 2017 written
`reports, that Freedom had purchased almond base for a purported retailer, “Customer D,"
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`Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 11 of 23
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`for which Freedom allegedly was manufacturing a Private Label almond-based beverage
`product. Based on those purchases, Freedom had claimed rebates from Blue Diamond.
`Blue Diamond honored those claims and provided the requested rebates to Freedom in
`accordance with the terms of the License Contracts.
`45. But Blue Diamond is informed and believes and, on that basis, alleges that
`“Customer D” never existed; that "Customer D" was Freedom itself; and that Freedom
`had purchased almond base from Blue Diamond for use in Freedom's manufacture of its
`own MilkLAB products, rather than for an alleged Private Label customer, as
`represented.
`46. Blue Diamond is informed and believes and, on that basis, alleges that
`Freedom engaged in the foregoing ruse not only to conceal from Blue Diamond both the
`fact and scope of Freedom's manufacture, sale, and distribution of prohibited MilkLAB
`products in breach of the exclusivity provisions of the License Contracts, but also to
`fraudulently obtain rebates from Blue Diamond that were available only in connection with
`Freedom's manufacture of true Private Label products.
`47.
`Freedom's ruse was successful in that Blue Diamond was unaware that
`Freedom was using large volumes of Blue Diamond's almond base to make prohibited
`MilkLAB products. By the time Blue Diamond became aware of Freedom's fraud and
`breaches of the License Contracts, Freedom had already established its MilkLAB brand
`and products in the marketplace, the market share for Blue Diamond's products had
`significantly decreased, and Blue Diamond's brand and consumer reputation had
`deteriorated.
`48.
`Freedom's ruse was also successful in that it induced Blue Diamond, under
`false pretenses, to provide Freedom with substantial Private Label rebates, which
`Freedom otherwise would not have been entitled to receive under the License Contracts.
`Freedom used the rebates it fraudulently obtained from Blue Diamond to unfairly
`compete with Blue Diamond because the rebates essentially reduced Freedom's
`manufacturing costs for MilkLAB and allowed Freedom to undercut Blue Diamond's
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`pricing in the marketplace.
`E.
`Freedom Fraudulently Induces Blue Diamond to Enter Into the Forbearance
`Agreement.
`
`In early 2019, Blue Diamond asked Freedom to participate in an "all-hands"
`49.
`meeting with its decision-makers to discuss and resolve Freedom's repeated prior
`breaches of the License Contracts. Blue Diamond asked for this meeting so the parties
`might satisfy the "Dispute Resolution" requirements under Section 28(a) of the License
`Agreement, which required the parties to engage in good faith discussions before
`commencing any litigation or arbitration under the License Contracts.
`50. After delaying the scheduling of the proposed meeting for several months,
`Freedom eventually agreed to participate in the meeting.
`51.
`The meeting occurred on June 18, 2019 and June 19, 2019 in Los Angeles,
`California. Freedom's delegation was led by Mr. MacLeod, the then-Chief Executive
`Officer of both Freedom and its corporate parent, Freedom Group.
`52. During the meeting, Mr. MacLeod, for and on behalf of Freedom, asked
`Blue Diamond to forebear from enforcing its rights and remedies as to Freedom's prior
`identified breaches of the License Contracts, allow Freedom to manufacture, sell, and
`distribute MilkLAB almond-based beverage products into foodservice channels (even
`though they were not permitted under the License Contracts), and sell Freedom almond
`base to use in the manufacture of MilkLAB products at discounted prices.
`53. Mr. MacLeod orally represented to Blue Diamond's representatives that, if
`Blue Diamond agreed to the foregoing terms, Freedom would, in exchange, (a) purchase
`all of the almond base it needed to manufacture its MilkLAB almond-based products
`exclusively from Blue Diamond and (b) terminate all of Freedom’s non-organic, non-
`Private Label nut-based product lines (other than its MilkLAB line, which Blue Diamond
`would specifically permit). Mr. MacLeod expressly orally promised that Freedom would
`adhere to these terms and honor its commitments.
`54. Although Blue Diamond was weary of Freedom's prior breaches of the
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`License Contracts, it also valued its contractual relationship with Freedom and the access
`it provided to the lucrative Australian and New Zealand markets.
`55. Accordingly, Blue Diamond accepted Mr. MacLeod's proposal on the
`condition that, in the event Freedom failed to honor its commitments under the
`forbearance agreement, Blue Diamond could then enforce its rights and remedies under
`the License Contracts as to Freedom's prior identified and any continuing breaches. Mr.
`MacLeod agreed to that condition.
`56.
`The parties' oral agreement at the June 2019 meetings in Los Angeles
`constituted a valid, complete, and enforceable oral agreement (the “Forbearance
`Agreement”) for which there was adequate consideration.
`57.
`The Forbearance Agreement had the following material terms and
`conditions:
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`Blue Diamond agreed to (i) forebear from enforcing its rights and
`a.
`remedies as to Freedom's prior identified breaches of the License Contracts, (ii) permit
`Freedom to manufacture, sell, and distribute MilkLAB almond-based beverage products
`into foodservice channels in Australia and New Zealand while continuing to forbid retail
`sales of MilkLAB almond-based beverage products, (iii) not enforce the License
`Contracts' exclusivity provisions with respect to MilkLAB almond-based beverage
`products manufactured, sold, or distributed into foodservice channels; and (iv) sell
`Freedom almond base at discounted prices for use in the manufacture of MilkLAB
`products for sale or distribution into foodservice channels in Australia and New Zealand.
`b.
`Freedom agreed (i) to purchase all of the almond base it needed to
`manufacture its MilkLAB products exclusively from Blue Diamond, (ii) to terminate all of
`Freedom’s non-organic, non-Private Label nut-based product lines (other than its
`MilkLAB line which Blue Diamond would specifically permit for sale or distribution into
`foodservice channels), and (iii) that Blue Diamond could reserve its rights and remedies
`with respect to Freedom's prior identified breaches of the License Contracts and later
`avail itself of appropriate relief in the event Freedom breached the Forbearance
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`Case 2:20-cv-01932-KJM-AC Document 1 Filed 09/25/20 Page 14 of 23
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`Agreement.
`58. Although the License Contracts expressly prohibited Freedom from
`manufacturing, selling, and distributing competing nut-based beverage products, like
`MilkLAB and AO, in the Australian and New Zealand markets, Blue Diamond – as the
`party to which Freedom's duties and obligations were owed – had the unilateral right to
`elect to not enforce the prohibitions under Section 10(b) of the License Agreement, as
`amended by the First Amendment, subject to Freedom's satisfaction of certain conditions.
`59. Blue Diamond granted the concessions in Paragraph 57(a), above,
`expressly conditioned on Freedom's full and complete performance of its obligations in
`Paragraph 57(b), above.
`60. Blue Diamond is informed and believes, and on that basis alleges, that
`although Freedom and Blue Diamond had entered into the Forbearance Agreement, and
`in connection therewith, Mr. MacLeod had orally promised Blue Diamond's
`representatives that Freedom would perform its terms and conditions and honor its
`commitments thereunder, Freedom never had any intention of performing those terms
`and conditions or honoring its commitments.
`61. Blue Diamond is informed and believes, and on that basis alleges, that, in
`the months following the Los Angeles meeting, Freedom, at Mr. MacLeod's direction, (a)
`purchased, or continued to purchase, almond base from sources other than Blue
`Diamond; (b) used that almond base to manufacture non-organic, non-Private Label
`products, including MilkLAB, and (c) did not terminate and instead continued to
`manufacture, sell, and distribute its other non-organic, non-Private Label nut-based
`product lines.
`62. Blue Diamond is informed and believes, and on that basis alleges, that –
`based on Freedom’s historic pattern and practice of fraudulent conduct in its dealings
`with Blue Diamond, including the fraudulent conduct alleged in Paragraphs 44-48, above
`– Freedom never intended to perform as promised under the Forbearance Agreement
`and instead fraudulently induced Blue Diamond into executing the Forbearance
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`Agreement in a concerted effort to conceal from Blue Diamond the fact and scope of
`Freedom's continuing, unauthorized manufacture, sale, and distribution of MilkLAB
`products made from non-Blue Diamond almond base and non-organic, non-Private Label
`nut-based product lines.
`E.
`Freedom Doubles-Down on its Prior Breaches of the Forbearance
`Agreement and the License Contracts.
`
`63. Blue Diamond is informed and believes, and on that basis alleges, that, in
`or about June 2020, Freedom Group commenced an internal investigation into
`accounting fraud and other financial improprieties at the company and its affiliates.
`64.
`In the wake of that investigation, Mr. MacLeod and other members of
`management abruptly resigned from their positions.
`65.
`In or about late June 2020 or early July 2020, Blue Diamond learned for the
`first time that Freedom had breached the Forbearance Agreement and the License
`Contracts in the manner alleged above.
`66. On or about August 19, 2020, Mr. Perich informed Blue Diamond that he
`had been named as Freedom Group's and Freedom’s Chief Executive Officer.
`67. On August 24, 2020, representatives from Freedom, including Mr. Perich,
`met with representatives from Blue Diamond to discuss, among other things, Freedom’s
`breaches of the Forbearance Agreement and the License Contracts.
`68. During that meeting, Mr. Perich orally acknowledged that:
`a.
`Freedom had continued to purchase, and would continue to
`purchase, non-organic almond base from suppliers other than Blue Diamond for use in
`Freedom's manufacture of almond-based bevera