Posted in: Comics, Current News | Tagged: AENT, diamond

AENT Sues Diamond, Claim "Fraudulently Misrepresented" WOTC Agreement

Alliance Entertainment, or AENT, sues Diamond, claiming they "Fraudulently Misrepresented" status of distribution agreement with Wizards of the Coast

Alliance Entertainment, or AENT, is suing Diamond Comic Distributors over the details of how the Chapter 11 bankruptcy process played out. In this process, they were named the highest bidder for Diamond, initially rejected by the debtors, confirmed by the courts, and then terminated the purchase agreement themselves.  The current lawsuit claims that Diamond "fraudulently misrepresented" the status of their contract with major gaming manufacturer Wizards Of The Coast, behind games such as Magic: The Gathering. They claim that Diamond represented an ongoing contract with WOTC, but that WOTC had notified Diamond that they would terminate that contract, and that Diamond deliberately misrepresented their relationship during the bankruptcy process. AENT also claims that "Debtors now refuse to return AENT's earnest money deposit of $8.5 million, providing no reasonable justification for doing so."

In the decision to terminate their agreement with Diamond, AENT states that it eventually discovered that WOTC had decided not to renew its Distributor Agreement with Diamond, set to expire on the 30th of April, 2025, which AENT says would result in an estimated 25% revenue reduction for the Alliance Gaming part of Diamond Comics, equating to approximately $39.88 million of its $161.3 million annual revenue. AENT states that this fundamentally undermined the economic projections and operational sustainability of the business, constituting a Material Adverse Change as defined in the Purchase Agreement on which they bid at auction.

Wizards Of The Coast, Redacted

AENT alleges that Diamond concealed this information and that they provided redacted versions of the Distributor Agreement, obscuring the expiration date. They state that they only got to see the unredacted documents after the Purchase Agreement was executed and a Sale Order entered in the Chapter 11 case, which revealed a 31st of March, 2025 expiration, later extended to the 30th of April. AENT state that Diamond misrepresented the situation, noting, "When questioned as to why WOTC only granted a 90-day extension of the Distribution Agreement through the Second Amendment, Tyson explained that WOTC stated it was only granting 90-day extensions to all of its distributors, so the Debtors did not believe the limited extension was a concern. This statement was false."

AENT states they only learned of WOTC's decision not to renew the agreement on the 17th of April when Diamond's counsel informed AENT's counsel. AENT states that on both the 6th of March and on the 9th of April, Diamond claimed that their vendor relationships, including with WOTC, were "strong and stable", and that Diamond "knew those representations were false when made or were recklessly indifferent to the truth of the matter. In fact, at the time such representations were made, the Defendants actively concealed facts in their possession contradicting those representations. Defendants intended that Plaintiff would rely on such representations as to secure tens of millions of dollars above what the Debtors' assets would otherwise be worth. Plaintiff justifiably relied on those representations and suffered significant damages because of such reliance."

AENT asserts these statements were false, and that Diamond "redacted the termination dates from the WOTC agreements that were disclosed to Plaintiff (and, presumably, other bidders). A sliver of truth came to light on April 12, 2025, only after the execution of the AENT APA and entry of the Sale Approval Order" when Diamond for the very first time, provided AENT "with an unredacted copy of the Distribution Agreement and its amendment, revealing the imminent termination of the WOTC relationship." But that Diamond "then waited another five days before revealing, for the first time, on April 17, 2025, that WOTC would not renew the Distribution Agreement."

Feigned Outrage, A Slap in the Face

According to AENT's account, the reasoning behind the situation only became clear from a video call with WOTC.  "Far from confessing to their deception, on April 17, 2025, Defendants feigned outrage, calling the termination 'shocking,' 'coming out of nowhere,' and a 'slap in the face,' given the Debtors' twenty-five-year relationship with WOTC. Defendants' falsehoods were finally laid bare on April 21, 2025, in a video conference involving WOTC, AENT, and the Debtors. WOTC revealed that its decision to terminate the Distribution Agreement was made—and the Debtors were aware of the decision—in December 2024, because the Debtors' business with WOTC had declined by more than 8% over the last four years, during which period each of WOTC's other four distributors had significantly increased their sales. Importantly, Debtors did not refute WOTC's characterization on the video conference."

Efforts to resolve the issue, including a proposed "transfer fee" to extend the WOTC agreement to the end of 2025 were rejected by WOTC on the 22nd of April. Additionally, AENT claims that subsequent discussions between Diamond's financial advisors, Raymond James, revealed a valuation gap as a result of the loss of the WOTC contract, with Diamond proposing a $14-16 million downward adjustment to the purchase price and AENT suggesting $18-25 million. On the 23rd of April, AENT claimed they proposed a $19 million compromise, but Diamond cancelled scheduled follow-up calls and refused further engagement. As a result, AENT says that "Seller's breach is incurable, and (b) Seller fraudulently induced Purchaser and made material misrepresentations to Purchaser in an effort to conceal the Material Adverse Change, no cure period is applicable to Seller's breach". Alliance terminated the agreement and demanded the return of its deposit.

And now, AENT is suing Diamond Comic Distributors, filing a verified complaint in the Baltimore bankruptcy courts against Diamond, financial advisors Raymond James & Associates, restructuring services company Getzler Henrich & Associates, Diamond's co-Chief Restructuring Officer Robert Gorin, and Diamond's co-Chief Executive Officers Charlie Tyson, and Dan Hirsch, with allegations of fraud, breach of contract, and misrepresentation.

After the auction, AENT had agreed to pay a total of $85.36 million for Diamond, but in light of these developments, it required a $18-25 million reduction in the purchase price due to the revenue loss.  They state that Diamond refused to engage meaningfully over it, cancelling scheduled meetings. As a result, AENT issued a Notice of Material Adverse Change and terminated the purchase agreement. Since then, they also claim that Diamond has refused to return AENT's $8.5 million deposit.

AENT's request for relief from the court because of these claims, "Plaintiff respectfully requests that the Court enter judgment in favor of
Plaintiff and against Defendants and issue an order as follows:"

• Compelling the Debtors to return AENT's earnest money deposit of $8.5 million, plus
  accrued interest;
• Entering judgment against Defendants Debtors, Getzler Henrich, Gorin, Tyson, and
  Hirsch for fraud perpetuated against AENT;
• Entering judgment against Defendants Raymond James, Getzler Henrich, Gorin,
  Tyson, and Hirsch for aiding and abetting fraud perpetuated against AENT;
• Entering judgment against Defendants Debtors, Getzler Henrich, Gorin, Tyson, and
  Hirsch for their negligent misrepresentations made to AENT;
• Entering judgment against the Debtors for the breach of their implied covenant of good
  faith and fair dealing to correctly represent the status of their operations and
  relationships with vendors;
• Compelling Defendants Raymond James, Getzler Henrich, and Gorin to disgorge all
  fees paid to them after the Petition Date;
• Awarding Plaintiff damages against Defendants in an amount to be determined at trial.
• Awarding Plaintiff its reasonable attorneys' fees, costs and other expenses incurred in
  this action; and
• Awarding Plaintiff such other and further relief as the Court deems just and proper.

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