Chiquita Brands, Part III-A — What (Allegedly) Did Chiquita Do In Colombia and What Are the Legal Consequences?

An outcry has erupted in recent days over former Colombian hostage (and former presidential candidate) Ingrid Betancourt. Almost eight years ago, Betancourt defiantly drove through dangerous territory in Southern Colombia, apparently against the advice of security forces, to meet with FARC rebel forces and try to break an impasse in peace negotiations. Instead, she was herself taken hostage and held for over six years. She was rescued in a daring raid by government troops that made headlines around the world. Last week, however, she started legal proceedings against the Colombian government claiming US$6 million in damages.  A new word was coined describing the public outcry at her actions: “Ingrititude.”  She was forced to withdraw the claim and to announce that she only holds the FARC forces responsible for her capture and suffering and, inexplicably, does not intend to claim damages for herself.

Is there really no one else responsible beside the FARC? Who provided the FARC terrorists with material assistance? These questions are being addressed as former hostages (and survivors of other victims) have sued for damages in some cases – not against the Colombian government but against private companies like Coca-Cola, Drummond Coal, and Chiquita Brands.  As I reviewed in Part Two of this series, however, the cases against Coca-Cola and Drummond Coal were dismissed.  A recent court decision, however, sustained – as a provisional matter and subject to evidence — lawsuits which allege that Chiquita provided extensive material support – not just extorted monies but covert arms transport – in a campaign designed to destroy banana unions and keep Chiquita in business in Colombia.

A review of the various allegations is very timely this week as the world considers: who is responsible in damages for murders and kidnappings carried out by the guerillas and paramilitaries in Colombia before they were beaten back by government forces?

1.

In the 1990’s and into this decade, Chiquita Brands’ Colombian subsidiary, Banadex, operated over 200 farms and controlled significant amounts of land area in two very challenging parts of Colombia: the Urabá region adjacent to the Panama border, and the Santa Marta region in Northeast Colombia adjacent to Venezuela. Both were dominated by warring factions. Initially, it was the communist guerillas of the FARC and ELN, but they were displaced by the paramilitary forces of the AUC. The paramilitaries, over time, operated very closely with government forces and the military, and there were in fact decrees and other laws specifically coordinating government action with the paramilitaries during the very late 90’s and into the early 2000’s.  Like the guerillas before them, the paramilitaries exacted security payments from landowners like Chiquita – i.e., extortion.

But how far did Chiquita go in making these payments and cooperating with the guerillas and then the paramilitaries? New cases allege that the Chiquita payments were made to de facto governments in those areas, and therefore were not just actions complicit in numerous deaths, but corrupt payments to foreign government officials. These allegations, still untested, follow a court ruling earlier this year finding a complaint against Chiquita legally sufficient on its face – though still unproven – to state valid claims of violations of the Anti-Terrorism Act.

What did Chiquita do?

The answer depends upon whom you ask.  In this article I present information from Chiquita’s own special investigation and from the unproven allegations of families of several murder victims as evaluated by a federal judge for legal sufficiency in a recent decision. A third source of information was covered in Part One — Chiquita’ guilty plea to a single transaction with a Specially Designated Global Terrorist Organization.

2.

In this section, I review the findings made by a special investigation launched after Chiquita Brands, the US-based parent company, was hit with shareholder lawsuits alleging that senior officials of the company breached fiduciary duty wasted corporate assets in connection with illegal conduct in its Colombia operations. Independent members of Chiquita’s board of directors constituted a special litigation committee (the “Special Committee”) to investigate the facts, and hired a large New York international law firm. The committee issued a 269-page report (the “Special Report”) detailing that Chiquita paid monies under extortion threats, out of concern for the safety of its workers, and recommended that the company seek to dismiss the lawsuit against it by the shareholders.  The Special Committee concluded that the officers and directors of Chiquita made fair business judgments and were not liable to the shareholders. In January, Chiquita settled shareholder derivative actions relating to payments by adopting corporate governance and compliance changes and paying attorneys fees.

The Special Committee’s report provides extensive detailed findings that Banadex made payments, first to the FARC and ELN guerillas, and then to the paramilitaries. The payments were arranged in person in some cases, and were actively concealed throughout. Colombian lawyers opined that extortion payments were not illegal payments.

Many would view the Special Committee as biased in favor of Chiquita, and, the burden for shareholder liability is very different from the burden for tort liability. Indeed, the Special Report lists several determinative factors for its decision to seek dismissal of the claims against Chiquita, including the expense to the company of continued litigation, reputational harm, and diversion of management time and resources. Also included was the Special Committee’s finding that none of the company directors and officers involved acted in any bad faith.

Nevertheless, the Special Committee investigation was quite thorough, and included seeking the information of the plaintiffs’ counsel. The Special Report, in a footnote, discounted that Chiquita had any role in any arms shipments, saying:

The Special Committee found evidence of only three specific incidents of smuggling, all of them by third parties. The Special Committee found no evidence that any Chiquita employees committee wrongdoing in connection with these incidents or that any member of senior Banadex of Chiquita management had prior knowledge of or involvement in them. The evidence shows that, in each instance, the event was reported internally, appropriately investigated, and any necessary remedial steps were taken. Despite requests made by the Special Committee to all lead counsel in the [Anti-Terrorism Act/Alien Tort Statute] cases for any evidence supporting claims that Chiquita was involved in drugs and arms smuggling, no such evidence was provided.

The report also indicated that the Special Committee had the full cooperation of the Company and its personnel (none of whom were charged by the Department of Justice with any crimes), which the DOJ obviously did not have, and had full access to the company’s investigation relating to the DOJ charges, and reviewed reams and reams of documents.

Special Committee counsel met periodically during its investigation with lead plaintiffs’ counsel to brief them on the facts adduced and the procedures being followed, and received no objection.  Special Committee counsel were informed by lead plaintiff’s counsel that their allegations were based upon publicly available information – they otherwise had no documentation of any of their claims. This looms as a major factor.

Significantly, there was no evidence found of any actual nexus between Chiquita payments or activities and specific acts of murder or kidnapping. And, the report cites Colombian lawyers’ opinions that extortion payments are not illegal payments, and that payments to a duly-authorized and -constituted “convivir” organization were not illegal. The report finds instead that all individuals, even those who made recognized errors, acted in good faith out of concern for harm to Banadex personnel under extortion. This perspective gave no express consideration to the possibility, central to the argument seen later in the New Times Missionaries case, that Banadex directly benefited by AUC payments that harassed and limited the banana worker unions. There is also no apparent consideration of why Chiquita did not earlier report the extortion payments to the authorities and seek legal protection, whether in the United States or Colombia. On the contrary, as recognized in the New Times Missionaries case, a Chiquita executive stated that, but for Chiquita’s informing the U.S. Department of Justice in 2003, the facts would likely never have come to light.

According to the Special Committee report, Chiquita made payments to both the communist FARC/ELN and the right-wing paramilitaries, at different times falling into three periods from 1989 through 2004. During the first time period, from 1989 though at least 1997, Chiquita made payments to the FARC and the ELN (Ejercito de Liberación Nacional, or National Liberation Army). The FARC was designated a Foreign Terrorist Organization by the United States in 1997, and was long known before that to be a violent terrorist organization.

In the second phase, from roughly 1997 to September 10, 2001, Chiquita shifted its payments to the AUC or Autodefensas Unidas de Colombia, the United Self-Defense Forces of Colombia, also known as the paramilitaries. Paramilitary forces first emerged as Antioquia landowners fought the guerilla insurgencies seeking the violent overthrow of the Colombian government, particularly where the national army and police were feckless. Over time they consolidated into the AUC, and their conduct resulted, on the day before 9/11, in the U.S. Government naming the AUC a Foreign Terrorist Organization and a Specially-Designated Global Terrorist. Payments were also made during this phase to an organization called “convivir” (meaning “live together”) closely associated with the paramilitaries.

In the third and most difficult phase, Banadex’s paramilitary payments continued after and despite the September 10, 2001 determination by the United States Government that the AUC was a “Foreign Terrorist Organization.” This determination meant that any payments to the AUC were strictly prohibited. Chiquita executives failed to discover this terrorist designation for over eighteen months, having missed news reports to that effect and despite the events of 9/11 that clearly raised the level of international concern about terrorist organizations. Chiquita nevertheless continued to make the prohibited payments — out of concern for its workers’ safety, the Special Report found – until late 2004. No payments have been made since, and the subsidiary was later sold off.

Chiquita reportedly had a “robust” (according to the Special Committee) FCPA compliance program. It stemmed from the fact that Chiquita’s predecessor, United Fruit, engaged in conduct in Hondura that was a principal reason for passage of the FCPA and resulted in a consent decree requiring the company to institute rigorous compliance procedures relating to payments to or for the benefit of foreign officials.  The program reportedly captured information about most of the improper payments, and Chiquita obtained and relied upon Colombian legal opinions that determined (without question) that the payments were extorted, that is, obtained by force and under duress, and therefore not illegal under Colombian law.

Nevertheless, Chiquita failed to learn about and report to the correct authorities in upper management all of the payments. Moreover, certain aspects of the payments were not reflected properly in company books and records. For example, the paramilitaries summoned a Chiquita official to a meeting at which threats were made if the payments were not forthcoming; this meeting was not documented or reported in the company. Also, the Special Committee was (justifiably) critical of the audit committee and general counsel’s failure to learn timely about the foreign terrorist organization designation and to make sure that Banadex did not violate the law against payments to a foreign terrorist organization. (However critical, the Special Committee’s response seems more muted that it would have been if the violations of the Anti-Terrorist Act concerned an organization like Al Qaeda instead of the FARC or AUC, but that is pure speculation.)

Chiquita has had other problems in Colombia. In 2001, Chiquita was charged with paying bribes to a port officials through a customs broker to renew rights to use port facilities. Chiquita admitted the payments, which also weren’t caught in its books and records, and which were made without the knowledge or consent of any employee at the parent level and in apparent contravention of Chiquita’s policies. The initial payment was recorded as a maritime donation on the Company’s books and the second installment was identified as relating to a maritime agreement. Chiquita’s internal audit subsequently discovered the payments, and the relevant employees were terminated. Chiquita paid a $100,000 fine and agreed to a cease-and-desist order. (SEC v. Chiquita Brands Int’l, Inc., Accounting and Auditing Enforcement Rel. No. 1,464 (Oct. 3, 2001).  Read more about this case from Transparency.org and from Goliath.) It stands generally for the proposition that where the DOJ brings criminal charges against a foreign, wholly-owned subsidiary, the Issuer parent is typically held civilly accountable for the failure of the subsidiary to maintain accurate books and records and for its own lack of internal controls that should have prevented and caught the FCPA violations, even if the Issuer had no knowledge of the conduct.

The Special Committee does concede a number of errors by its directors. Its general counsel failed to notice for over eighteen months that the party it was paying extortion had been added to a federal list of persons with whom it is a crime to engage in transactions because they are terrorists. This occurred a day before the events of 9/11. Similarly, he delayed in telling the audit committee for five weeks, waiting for a regularly scheduled meeting, about the terrorist designation. The general counsel failed to stop two payments to the “convivir” because he forgot about them. And he did not tell the audit committee the payments were going to continue despite the terrorist designation because the Special Committee believed, after dozens of hours of interviews, he was truly concerned that failure to pay would result in injury, kidnapping, or death. The Special Committee had similar concerns about the conduct of an independent director (and former SEC Chairman) who took over management of the issue after the terrorist designation was discovered.  But the Special Committee’s concerns did not include any of the decisions to make the payments themselves.

3.

The complaint filed by survivors of several members of the New Tribes Missionaries who were kidnapped and murdered makes allegations that are unproven — that makes them unreliable. In fact, the Special Report states that the plaintiffs’ attorneys were asked to provide information relating (among other things) to alleged drug and weapons smuggling, and none was forthcoming.  To put it mildly, the case has not been tested.  No witnesses have sworn their testimony under oath, no one has been cross-examined, and hearsay and other non-evidence has not been ferreted out.  The Special Committee reported, moreover, that the plaintiffs counsel they consulted had no evidence that was not publicly-available.

However, with detailed factual allegations and a court’s determination that, if true, the allegations are sufficient to require Chiquita to pay damages, the New Tribes Missionaries case is important to study.  It deals only with FARC payments (not the later AUC payments), and is similar to the claims made by former hostage Stansell and his Northrup Grumman co-workers and their families. Chiquita is facing similar lawsuits from over 200 plaintiffs injured by terrorist acts caused by the right-wing paramilitaries.

Under the Anti-Terrorism Act, a federal district court judge granted an order finding that, if the as-yet-unproven allegations are true, they would suffice to make Chiquita liable for the FARC’s murders of the missionaries. The same judge is hearing all the consolidated cases involving Chiquita.

The survivors of the five New Times Missionaries allege that the five were killed (in separate incidents in 1993 and 1994 through acts of international terrorism by the FARC, and that Chiquita aided and abetted the FARC, conspired with the FARC, and provided material support to the FARC.

Chiquita is a multinational corporation incorporated in New Jersey and headquartered in Cincinnati, Ohio. One of the largest banana companies on the planet, it operated through its wholly-owned subsidiary, C.I. Bananos de Exportacion, S.A. (“Banadex”) until approximately May 2004. Banadex had over 2000 farms. The complaint alleges that Banadex was Chiquita’s controlled subsidiary, agent, and/or alter ego.

Chiquita’s payments to FARC, which began as cash at FARC’s request, escalated into regular monthly payments ranging from $20,000.00 to $100,000.00. Over time, the payments were fixed to a percentage of Banadex’s gross revenues, with as much as ten percent being diverted to FARC.”

Chiquita went to great lengths to mask payments to the FARC (made from 1989-1997), by delivering them first in cash by a senior employee who is a former American military pilot, then later by padding the payroll with fake names through front organizations, and also by working with labor unions controlled or co-opted by the FARC, including the Sintrabanano banana workers union. Chiquita also conspired in setting up false “front” entities and fictitious contracts to confuse authorities. The allegations include that Chiquita worked with the FARC and its controlled unions for commercial advantage, such as by subverting some unions and having Chiquita’s competition intimidated.

The complaint also charges that Chiquita provided the FARC with weapons, ammunition and other supplies through its transportation contractors. Chiquita transport systems were used to funnel weapons and ammunition.

Chiquita did so knowing, or consciously avoiding, the fact that FARC was a violent terrorist organization.

As part of its guilty plea in response to charges of unlawfully collaborating with the paramilitaries, Chiquita also admitted to a history of payments to the FARC. “Chiquita admitted to using many tactics similar to those alleged above as a means of disguising and hiding its AUC payments.”

On the assumption that these facts were true and under a permissive standard that only requires the allegations to rise above “the speculative level,” the Court made these legal rulings:

1. Allegations that Chiquita systematically concealed its conduct, if true, would suffice to bar the application of the four-year statute of limitation as a matter of equity.
2. Financial support of the FARC constitutes an act of “international terrorism,” as liability is not limited to those who actual kill or kidnap but extends to those who aid and abet the terrorists. Allegations of conspiracy were also upheld, the Court ruled, rejecting a comparison to the Coca-Cola/FARC case (In re Sinaltrainal Litigation, 578 F.3d 1252 (11^th Cir. 2009), where the “attenuated” conspiracy allegations were insufficient to “nudge their claims across the line from conceivable to plausible.” Conspiracy was sufficiently pleaded on the allegations that Chiquita, knowing the FARC was a terrorist organization, intentionally agreed to provide the FARC with money, weapons, and services, and to conceal its actions, in order to subvert local unions and protect its banana business. Many critics and commentators suggest that the District Judge’s ruling will not stand up in the Eleventh Circuit Court of Appeals precisely because of the similarity to the allegations of the Coca-Cola/FARC relationship, but others say that the drafters of the Complaint against Chiquita (and the District Judge)  learned from the Coca-Cola case to paint(or, in the Judge’s case, evaluate) a picture of much more direct and knowing support in the Chiquita case. They were also benefited, undoubtedly, by the Chiquita guilty plea recited in the Complaint.
3. Allegations were sufficiently pleaded that Chiquita provided “material support” to terrorists, in violation of 18 U.S.C. §2339a(b), by providing money, weapons, and false documentation.
4. Allegations were sufficiently pleaded that Chiquita’s FARC support proximately caused the deaths of the Missionaries, under a standard that only requires that the provision of support occurred before the killings and was a “substantial factor” resulting in the killings. This test would be satisfied if a reasonably prudent person could foresee that a harm like the killings might result from his actions. The Court rejected Chiquita’s argument that plaintiffs should have to show that the killings would not have occurred ‘but for” Chiquita’s support of the FARC. And the court did not require any more specific nexus between the payments and the acts resulting in the Missionaries’ deaths.

***

In the next and concluding chapter, I will summarize some of the key lessons to be learned from the Chiquita case.