Mr. Dalton was forced to resign as the foundation's executive director in January in part because he reported Dr. Diamond's conduct to the foundation board and objected to a plan to steer a $1.4 million contract to another foundation director, the complaint said.
Dr. Diamond, a pioneer in the treatment of migraines, launched the foundation in 1970, two years before he started his Diamond Headache Clinic in Lincoln Park, which has five doctors. The tiny National Headache Foundation, which provides information to patients and funds research, had just $1.6 million in revenue in 2010.
James Staulcup, a Geneva-based lawyer who represents Dr. Diamond and the foundation, declined to comment on the specifics of the lawsuit but said, “We will defend the action vigorously.”
In addition to his duties with the foundation, Dr. Diamond is director emeritus of Diamond Headache Clinic. Originally a family practitioner, he has published more than 400 articles during a career that began after his 1949 graduation from what is now Rosalind Franklin University's Chicago Medical School.
The lawsuit comes amid increasing attention to corporate governance in the nonprofit sector in the wake of attempts to change practices in the private sector.
“Once the standard for private-sector companies changes gradually, that same standard applies to other sectors such as nonprofits,” said Gretchen White, executive director of the Center for Professional Responsibility in Business and Society at the University of Illinois at Urbana-Champaign's College of Business.
Mr. Dalton joined the Headache Foundation in December 2009 with a base salary of $105,000 and a 2010 potential bonus of $65,000. The next year he opposed a plan to outsource the foundation's medical education seminars to a company controlled by Dr. Roger Cady, the associate executive chairman of the nonprofit, at a cost of $1.4 million a year.
Mr. Dalton objected to the plan because it was “tainted by a conflict of interest, as well as being prohibitively and unreasonably expensive,” the complaint said.
The foundation ultimately decided not to go through with the deal with the company, Primary Care Network Inc., a Springfield, Mo.-based physicians group, where Dr. Cady is a director. Dr. Cady referred questions to Mr. Staulcup.
Dr. Diamond proposed the deal with Allergan last fall. When representatives of the Irvine, Calif.-based company objected, Dr. Diamond, said, “Who would need to know?” according to the complaint.
The lawsuit is unlikely to have a quick resolution, said Anthony Masciopinto, a partner with Chicago law firm Kulwin Masciopinto & Kulwin LLP, which represents Mr. Dalton.