Independent Review Sides With Chiquita Over Extortion Payments

There's no dispute Chiquita Brands International paid $1.7 million to Colombian paramilitary groups that killed, kidnapped and tortured thousands, including American missionaries.

The Cincinnati-based fruit company agreed in 2007 to pay a $25 million criminal fine, making it the first major U.S. corporation ever convicted of financial dealings with terrorists. But the company insisted it was interested only in protecting its operations and workers from the guerrillas.

An extensive independent report that ultimately agrees with Chiquita's position has been filed in federal multidistrict litigation and no doubt will play a major role in the direction of the civil lawsuits filed by families of victims and shareholders.

For Chiquita, it's good news and bad news in the two-headed MDL case in front of U.S. District Court Judge Kenneth Marra in West Palm Beach, Fla.

The civil cases fall mainly along two lines: five lawsuits filed under the Alien Tort Claims Act by families of victims killed by the paramilitary groups and a lawsuit combining litigation by shareholder groups claiming breach of fiduciary duty by 26 company officials linked to the payments.

The 269-page report by the independent committee puts a serious damper on the shareholder litigation, and plaintiff attorneys say they plan to use it if their cases get to trial.

That may be a big if. The cases must survive a motion to dismiss filed by Chiquita. A decision by Marra is expected any day.

"This report has no impact on our cases for damages for people who were killed in Colombia," said Terry Collingsworth, an attorney with the Fort Lauderdale, Fla., firm Conrad & Scherer. "If anything, the report confirms what we already know."

In the criminal case, the Justice Department determined Chiquita subsidized the activities of brutal guerrilla groups.

Federal prosecutors said the company's payments fueled violence in an already violent country by paying for weapons and ammunition.

Chiquita "would be happy if a jury never sees this report," Collingsworth said.

Under federal law for derivative cases, Chiquita's board of directors had to set up the independent committee in April 2008 to decide whether it should sue on behalf of shareholders who sued to recoup some of the $25 million criminal fine.

The committee concluded in its Feb. 25 report that the suit should be dismissed.

"The defendants made mistakes, some more significant than others. Those mistakes were made in the belief that the actions being taken were in the best interests of the company and were to protect the lives of the company's employees," the report said.

William J. Wichmann, another family attorney, said the committee's factual summary was illuminating, but its conclusions were not.

Payments to paramilitary groups were made by Banadex, Chiquita's subsidiary in Colombia. At various times from 1989 to 2004, Banadex paid the Revolutionary Armed Forces of Colombia, or FARC; the National Liberation Army, or ELN, and the United Self-Defense Forces of Colombia, known as AUC. Payments to AUC continued even after it was named by the State Department as a foreign terrorist organization in September 2001.

"It seems incredible that the special litigation committee could find no fault that they [Chiquita officials] continued to pay them. In fact, I find that shocking," said Wichmann, a Fort Lauderdale solo practitioner.

At a February hearing on the motion to dismiss the family lawsuits, plaintiff attorneys accused Chiquita of paying paramilitary groups plus selling them arms and clearing the way for cocaine shipments.

While Chiquita has said the safety of its employees was paramount, plaintiff attorneys have said the right-wing AUC helped stabilize the region for the company by eliminating union leaders and agitators. As a result, the Uraba and Santa Marta regions became one of the most profitable banana-producing regions in the world.

Chiquita spokesman Ed Lloyd said those allegations were not sustained in the committee's investigation.

"It found no evidence, documentary or testimonial, from any Chiquita personnel that these payments were made for any purpose other than to protect the lives of our employees," he said.

The three-member committee was not associated with Chiquita. Its members were Howard W. Barker, a former KPMG partner; William H. Camp, a former senior executive at Archer Daniels Midland; and Clare M. Hasler, executive director of the Robert Mondavi Institute for Wine and Food Science at the University of California, Davis.

Attorneys representing the committee -- Joseph De Maria of Miami's Tew Cardenas and David B. Hennes of Fried, Frank, Harris, Shriver & Jacobson in New York -- declined to comment.

Gregg Levy, an attorney with Covington & Burling representing Chiquita in Washington, did not return a phone call for comment. The Chiquita case is notable because U.S. Attorney General Eric Holder represented the company while in private practice in the criminal proceeding.

The shareholders now can challenge the report and interview committee members to determine whether they were truly independent. Marra has given attorneys until June 1 to work out a possible settlement.

The shareholders have several grievances, accusing Chiquita officials of being unaware of its subsidiary's payments for years, forcing the company to make false statements in public disclosures and conducting a "fire sale" of the Colombian operations when it learned of the Justice Department investigation.

An amended complaint combining the four derivative lawsuits also claims the Chiquita executives involved in the payments received generous severance packages.

The committee said it reviewed more than 750,000 pages of documents and conducted 70 interviews of current and former Chiquita directors, officers, employees and advisers.

The report has been noted for its detail on how AUC shook down Chiquita in late 1996 and early 1997 after it expelled FARC from the disputed region. Two Banadex executives were summoned to meet AUC leader Carlos Castano in Medellin and were told the payments were to go to his group.

Castano was indicted by the Justice Department in 2002, charged with smuggling 17 tons of cocaine into the United States. He said he would turn himself in but ended up dead at the hands of a guerrilla linked to his brother.

"Based on Castano's reputation for violence and the tone of the meeting, the Banadex personnel, having experienced murders, kidnapping and property destruction for many years at the hands of the guerrillas, sincerely believed that the AUC would harm Banadex's people and property if the payments were not made," according to the report.

After four direct payments to AUC, money was directed to a government licensed security organization. The committee concluded Chiquita executives in Cincinnati thought the payments were for legitimate security services.

Wichmann and Collingsworth said the report tries to excuse Chiquita's behavior by saying the AUC was not designated a terrorist organization until 2001. Wichmann said the weakest part of the report dealt with AUC extortion.

Collingsworth said for the victims' families, the terrorist designation was meaningless: Chiquita knew it was providing funding for a group that bartered in death.

"Before 2001 when the AUC was made a foreign terrorist organization, it was widely known in Colombia as a brutal murdering organization," he said. "For our case, they don't have to be anything but a brutal bunch of thugs."

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