Freedom Foods seeks to throw out California lawsuit

Carrie LaFrenzSenior reporter

Feb 2, 2021 – 1.33pm

Lawyers for the Australian manufacturer are trying to dismiss or stay the court action lodged in late September before a hearing that is set down for February 5.

Former Freedom Foods chief executive Rory Macleod was named as complicit in the alleged fraud and breach of contract.

This latest headache follows the news on Friday that Freedom Foods hadfailed to reach an agreement with possible investorOaktree Capital, leaving the company to scramble to reach a Plan B with its wealthy major shareholder, the Perichs.

The billionaire family pledged to invest up to $200 million in the milk and plant-based foods manufacturer after Freedom Foods confirmedThe Australian Financial Reviewreport that talks were over with Oaktree and its senior lenders, calling the development “unexpected and disappointing”.

The group is also facingan investor class action launchedby Slater and Gordon in December.It also claims that Australia is a better forum for the case, and Freedom Foods would suffer “oppression and vexation” if the case were to continue in California.

Former Freedom Foods chief executive Rory Macleodwas named as complicit in the alleged fraud and breach of contract by its key supplier of Almond Breeze milk products last year.

Freedom Foods ‘desperate to avoid litigation’

According to the court documents, Freedom Foods was “aggressively working to undermine Blue Diamond’s market share for its own financial gain” after it started using the purchased almond base from Blue Diamond to make its own competing products.

Lawyers for Blue Diamond – a group made up of nearly 3000 independent almond growers that filed the lawsuit in the Eastern District Court of California – said in the court documents Freedom Foods was “desperate to avoid litigation” since it was facing severe financial and other challenges, given its former “CEO and CFO abruptly resigned in the wake of an Enron-like accounting fraud scandal”.

Blue Diamond and Freedom Foods allegedly resolved their dispute at a meeting in Los Angeles in June 2019. The pair came to aforbearance agreement, which was allegedly not adhered to as promised by Freedom Foods’ representatives once they returned to Australia.

The US court action lodged on September 25 mirrors the claims made with the American Arbitration Association, and was five days ahead of Freedom’s own legal claims lodged by Arnold Bloch Leibler in Australia against Blue Diamond, which makes the Almond Breeze milk range.

Freedom Foods’ claim centres on misleading and deceptive conduct by Blue Diamond, that it had not acted in good faith under the franchising code, and it had engaged in unconscionable conduct in breach of Australian consumer law.

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A source close to Blue Diamond said it was stunned that Freedom Food’s recent market update outlined that its almond drink, MilkLab, the same product at the centre of court actions in the United States and Australia, would be central to its recovery.

“How can you call out a product that you are in dispute with one of your key suppliers about as an important part of your future turnaround,” he said.

Freedom Foods is the largest supplier of almond milk to supermarkets. Plant-based milk alternatives are a fast growing food category in Australia and around the world. Blue Diamond makes the top-selling almond milk in the US and Australia.

Freedom Foods shares have been suspended from trade since late June, and will remain so until April 30 after its senior lenders agreed to extend its standstill agreement to enable the finalisation of the recapitalisation plans, including the completion of the issuing of notes to Arrovest, a Perich family investment vehicle.