Bombshell Lawsuit Drops in Diamond Bankruptcy Saga

Just when you thought the Diamond Comic Distributors bankruptcy couldn’t get any messier, Alliance Entertainment has thrown another legal grenade into the mix. Late Monday, they filed their second lawsuit, and this time they’re not holding back.

Alongside Diamond and its related entities, Alliance is also targeting some heavy hitters: investment bank Raymond James, restructuring gurus Getzler, Henrich & Associates LLC (and their Chief Restructuring Officer Robert Gorin personally), and even the co-CEOs of Alliance Game Distributors, Charlie Tyson and Dan Hirsch.

What’s got Alliance so riled up? They allege a deliberate cover-up. According to the lawsuit, the defendants intentionally kept quiet about the impending loss of a major distribution deal between Alliance Game Distributors and Wizards of the Coast (WotC) until after the asset purchase agreement was signed and court-approved. We’re talking about a potential $39.88 million hit to Alliance Game Distributors’ sales – a whopping 25% of their $161.3 million revenue, the lawsuit claims.

The eleventh-hour reveal came on April 17th, a mere eight days before the deal was set to close. Diamond informed Alliance that the crucial agreement with Wizards of the Coast would expire on April 30th and wouldn’t be renewed. Executives at Alliance Game Distributors and other Diamond representatives reportedly feigned surprise.

But the jig was apparently up on April 21st. During a video conference between Alliance Entertainment, Wizards of the Coast, and Diamond representatives (including Tyson, Hirsch, and Gorin), WotC President John Hight and VP of Global Revenue Brian Trunk allegedly revealed that the decision to terminate the agreement was made way back in December 2024. The reason? A concerning 8% decline in sales to Alliance Game Distributors over the previous four years, despite overall market growth, the complaint states. Extensions were granted until April 30th, allegedly to aid the bankruptcy proceedings and “induce the Debtors to grant WotC critical vendor status.”

Alliance claims they tried to salvage the situation, even proposing incentives to Wizards of the Coast to continue the partnership post-acquisition, but were rebuffed. Discussions with Diamond about a price reduction to reflect the company’s diminished value also went nowhere, leading Alliance Entertainment to pull the plug on the Asset Purchase Agreement last Thursday.

Despite this, Alliance isn’t entirely walking away. They state in their filing that they “remain ready, willing, and able to close the purchase of the Debtors’ assets at a reduced valuation… to reflect the loss of revenue represented by the terminated WotC Distribution Agreement.”

The lawsuit lays out five key grievances:

• Breach of Contract: Against the Diamond companies.
• Fraud: Against the Diamond companies, restructuring consultants, and Tyson and Hirsch.
• Aiding and Abetting Fraud: Against Raymond James, the restructuring consultants, and Tyson and Hirsch.
• Negligent Misrepresentation: Against the Diamond companies, restructuring consultants, and Tyson and Hirsch.
• Breach of Implied Covenant of Good Faith and Fair Dealing: Against the Diamond companies.

Alliance is seeking the return of their $8.5 million earnest money deposit, demands that Raymond James, Getzler Henrich, and Gorin cough up all fees received since the bankruptcy petition date, and is asking for unspecified damages and fees.

Meanwhile, the bankruptcy proceedings continue to spiral. Just today, the trustee moved to convert the Chapter 11 reorganization into a Chapter 7 liquidation. Adding another twist, Diamond announced they are moving forward with a sale to a different buyer – presumably the back-up bid from Universal Distribution and Ad Populum.

This latest legal salvo comes after Alliance’s first lawsuit, which forced Diamond to backtrack on a previous attempt to switch acquirers. Now, not only is the bankruptcy court embroiled in legal battles, delays, and mounting expenses, but the very health of Diamond’s business appears to be deteriorating.

In their complaint, Alliance revealed concerns raised during an April 23rd meeting about a significant $16 million increase in Diamond’s accounts payable after the bankruptcy filing. They claim their question about how these growing debts would be addressed went unanswered before the meeting was abruptly adjourned.

The plot thickens in this dramatic bankruptcy saga. Will Alliance’s aggressive legal strategy pay off? Will Diamond successfully navigate a sale to a new buyer amidst this turmoil? One thing is certain: the future of comic book distribution is looking increasingly uncertain. Stay tuned for more updates as this story unfolds!