The board of Diamond Foods Inc. failed to properly oversee the snack food company, damaging its reputation and costing it the chance to buy rival Pringles, according to a shareholder lawsuit filed on Wednesday.
Diamond Foods has been embroiled in an accounting scandal involving the timing of payments to walnut growers. The company’s chief executive and chief financial officer resigned and its stock price fell from last year’s high of $96.13 to Wednesday’s close of $17.49, a loss of about 80 percent.
The accounting scandal also destroyed Diamond Foods’ proposed $2.35 billion acquisition of Pringles from The Procter & Gamble Co., according to court documents.
The lawsuit by the Board of Trustees of City of Hialeah Employees’ Retirement System accused the board of misrepresenting the company’s financial condition. The plaintiffs did not specify a dollar amount for damages.
Diamond Foods did not immediately respond to requests for a comment.
The lawsuit in Delaware’s Court of Chancery is what is known as a derivative complaint, meaning the shareholder seeks permission to step into the shoes of the company and hold directors and officers responsible for harm they caused.
Any recovery is paid to the company and shareholders benefit only indirectly.
The lawsuit makes many of the same allegations as a derivative lawsuit that was dismissed by a federal judge William Alsup in California last month.
Since then, Chancery Court Judge Travis Laster ruled that dismissal of a derivative lawsuit by one plaintiff did not prevent a different plaintiff from bringing essentially the same case.
Laster has been a frequent critic of plaintiffs’ attorneys he accuses of “fast-filing” cases to gain control of litigation. His ruling earlier this month involved Botox-maker Allergan Inc , and Laster said that a dismissal of a derivative lawsuit against Allergan in California did not prevent a similar case being brought in Delaware.
The case is Board of Trustees of City of Hialeah Employees’ Retirement System v Michael J Mendes et al, Delaware Court of Chancery, No. 7657.