Commitments And Contingencies

6 Months Ended

Jun. 30, 2011

Commitments And Contingencies

Commitments And Contingencies

Note 13 – Commitments and Contingencies

The company had accruals, including accrued interest, in the Condensed Consolidated Balance Sheets of $7 million, $7 million and $12 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively, related to the plea agreement with the U.S. Department of Justice described below. The company also had an accrual of $4 million at June 30, 2010 related to the settlement agreement for the Colombia related shareholder derivative lawsuits described below, a portion of which was recovered through insurance; and the company had an accrual of $11 million and $4 million related to contingencies and legal proceedings in Europe at June 30, 2011 and December 31, 2010, respectively. While other contingent liabilities described below may be material, the company has determined that losses in these matters are not probable and has not accrued any other amounts. Regardless of their outcomes, the company has paid, and will likely continue to incur, significant legal and other fees to defend itself in these proceedings, which may significantly affect the company's financial statements.

EUROPEAN COMPETITION LAW INVESTIGATION

In June 2005, the company announced that its management had become aware that certain of its employees had shared pricing and volume information with competitors in Europe over many years in violation of European competition laws and company policies, and may have engaged in other conduct that did not comply with European competition laws or applicable company policies. The company promptly stopped the conduct and notified the European Commission ("EC") and other regulatory authorities of these matters. In October 2008, the EC announced its final decision that, between 2000 and 2002, Chiquita and other competitors violated the EC Treaty's ban on cartels and restrictive practices in eight European Union ("EU") member states in Northern Europe by sharing certain information related to the setting of price quotes for bananas. Based on the company's voluntary notification and the company's continued cooperation in the investigation, the EC granted the company final immunity from fines related to this matter.

As previously disclosed, following the announcement of that decision, the EC has also continued to investigate certain alleged conduct in southern Europe. The company believes that it has cooperated with that investigation, under the terms of the EC's previous grant of conditional immunity. In connection with that investigation, in December 2009, the company received a Statement of Objections ("SO") from the EC in relation to certain past activities alleged to have occurred during the approximately 18-month period from July 2004 to January 2006. An SO is a confidential procedural document whereby the EC communicates its preliminary view in relation to a possible infringement of EU competition laws and other related matters, and allows the companies identified in the document to present arguments in response. The EC has also expressed a preliminary view questioning the granting of immunity or leniency with respect to the matters set forth in the SO. The company filed its response to the SO with the EC, and a hearing was held in June 2010. A final decision from the EC is expected in the fall of 2011. The company continues to believe that it should be entitled to immunity.

If the EC were ultimately to determine to proceed with a decision in this case and to take the position in any such decision that the company is not entitled to immunity, then the EC can seek to impose fines on the company, which, if imposed, could be substantial. Under its existing fining guidelines, the EC has significant discretion in determining the amount of any fine, subject to a maximum amount equal to 10% of a company's worldwide revenue attributable to all of its products for the fiscal year prior to the year in which the fine is imposed. As such, if the EC were to impose a fine, it is possible the fine could have a material adverse impact on the company's consolidated financial results in the particular reporting period in which imposed and, depending on the size of the fine and the company's success in challenging it, a material adverse effect on the company's consolidated financial position. A decision regarding the matters referenced in the SO will not be taken by the EC until the close of the administrative procedure. Other than the potential imposition of fines, as described above, the company does not believe that the reporting of these matters or the cessation of the conduct has had or should in the future have any material adverse effect on the regulatory or competitive environment in which it operates.

COLOMBIA-RELATED MATTERS

DOJ Settlement. As previously disclosed, in March 2007, the company entered into a plea agreement with the U.S. Department of Justice ("DOJ") relating to payments made by the company's former Colombian subsidiary to a Colombian paramilitary group designated under U.S. law as a foreign terrorist organization. The company had previously voluntarily disclosed these payments to the DOJ as having been made by its Colombian subsidiary to protect its employees from risks to their safety if the payments were not made. Under the terms of the plea agreement, the company pled guilty to one count of Engaging in Transactions with a Specially-Designated Global Terrorist Group without having first obtained a license from the U.S. Department of Treasury's Office of Foreign Assets Control. The company agreed to pay a fine of $25 million, payable in five equal annual installments with interest. In September 2007, the U.S. District Court for the District of Columbia approved the plea agreement. The DOJ had earlier announced that it would not pursue charges against any current or former company executives. Pursuant to customary provisions in the plea agreement, the Court placed the company on corporate probation for five years, during which time the company and its subsidiaries must not violate the law and must implement and/or maintain certain business processes and compliance programs; violation of these requirements could result in setting aside the principal terms of the plea agreement, including the amount of the fine imposed. The company recorded a charge of $25 million in 2006 and paid the first four $5 million annual installments in September 2007, 2008, 2009 and 2010, respectively. At June 30, 2011 the remaining $5 million installment payment, plus accrued interest of approximately $2 million, is included in "Accrued liabilities" on the Consolidated Balance Sheet. Accrued interest is payable with the final installment payment due in September 2011.

Tort Lawsuits. Between June 2007 and March 2011, nine lawsuits were filed against the company by Colombian nationals in U.S. federal courts. These lawsuits assert civil tort claims under various laws, including the Alien Tort Statute ("ATS"), 28 U.S.C. § 1350, the Torture Victim Protection Act ("TVPA"), 28 U.S.C. § 1350 note, and state laws (hereinafter "ATS lawsuits"). The plaintiffs either individually or as members of a putative class, claim to be persons injured, or family members or legal heirs of individuals allegedly killed or injured, by armed groups that received payments from the company's former Colombian subsidiary. The plaintiffs claim that, as a result of such payments, the company should be held legally responsible for the alleged injuries. All of these ATS lawsuits have been centralized in the U.S. District Court for the Southern District of Florida for consolidated or coordinated pretrial proceedings ("MDL Proceeding").

At present, claims are asserted on behalf of over 4,000 alleged victims in these nine ATS lawsuits. Plaintiffs' counsel have indicated that they may add claims for additional alleged victims to the litigation. The company also has received formal requests to participate in mediation in Colombia concerning similar claims, which could be followed by litigation in Colombia. Eight of the ATS lawsuits seek unspecified compensatory and punitive damages, as well as attorneys' fees and costs, and one of them also seeks treble damages and disgorgement of profits, although it does not explain the basis for those demands. The other ATS lawsuit contains a specific demand of $10 million in compensatory damages and $10 million in punitive damages for each of the several hundred alleged victims in that suit. The company believes the plaintiffs' claims are without merit and is defending itself vigorously.

In addition to the ATS lawsuits, between March 2008 and March 2011, four tort lawsuits were filed against the company by American citizens who allege that they were kidnapped and held hostage by an armed group in Colombia, or that they are the survivors or the estate of a survivor of American nationals kidnapped and/or killed by the same group in Colombia. The plaintiffs in these cases assert civil claims under the Antiterrorism Act ("ATA"), 18 U.S.C. § 2331, et seq., and state tort laws (hereinafter "ATA lawsuits"). These ATA lawsuits have also been centralized in the MDL Proceeding before the U.S. District Court for the Southern District of Florida. Similar to the ATS lawsuits described above, the ATA plaintiffs contend that the company should be held liable because its former Colombian subsidiary allegedly provided material support to the armed group. These ATA lawsuits seek unspecified compensatory damages, treble damages, attorneys' fees and costs and punitive damages. The company believes the plaintiffs' claims are without merit and is defending itself vigorously.

The company has filed motions to dismiss the nine ATS lawsuits pending in the MDL Proceeding. In June 2011, the company's motion to dismiss the first seven ATS lawsuits was granted in part and denied in part. While the court allowed plaintiffs to move forward with their TVPA claims and some ATS claims, it dismissed various claims asserted under the ATS, state law, and Colombian law. The company believes it has strong defenses to the remaining claims in these cases. Motions to dismiss the remaining two ATS cases not subject to the court's June 2011 order are currently pending.

The company has also filed motions to dismiss the ATA actions pending in the MDL Proceeding. In February 2010, the company's motion to dismiss one of the ATA lawsuits was granted in part and denied in part. The company believes it has strong defenses to the remaining claims in that case. There has been no decision on the company's pending motions to dismiss the other ATA lawsuits.

Insurance Recovery. The company maintains general liability insurance policies that should provide coverage for the types of costs involved in defending the tort lawsuits described above. However, the company's primary general liability insurers whose policies are relevant to the underlying tort lawsuits have disputed their obligations to provide coverage.

In September 2008, the company filed suit in the Common Pleas Court of Hamilton County, Ohio against three of its primary general liability insurers seeking (i) a declaratory judgment with respect to the insurers' obligation to reimburse the company for defense costs that it has incurred (and will incur) in connection with the defense of the tort claims described above; and (ii) an award of damages for the insurers' breach of their contractual obligation to reimburse the company for defense costs to defend itself in these matters. A fourth primary insurer, National Union Fire Insurance Company of Pittsburgh, PA ("National Union"), was later added to this case. In August 2009, the company reached a settlement agreement with one of the primary insurers under which this insurer has paid and will continue to pay a portion of defense costs.

In September 2009, the Court ruled that Chiquita's primary insurers that did not settle have a duty to defend the tort lawsuits that include allegations that bodily injury or property damage occurred during the period of their policies as a result of negligence. The Court also ruled that the dispute about the number of occurrences that are involved in the underlying tort cases should be resolved by a trial.

In February 2010, Chiquita reached a settlement agreement with two of the remaining three primary insurers involved in the coverage suit, under which they have paid and will continue to pay a portion of defense costs. National Union, the one remaining primary insurer involved in the coverage suit which has not settled with Chiquita, has also paid a portion of defense costs, but has reserved the right to attempt to obtain reimbursement of these payments from Chiquita. A fifth primary insurer that is not a party to the coverage suits is insolvent.

In October 2010, after a trial, the Court ruled that the defense costs incurred by Chiquita in connection with the underlying tort lawsuits and that were the subject of trial—with certain limited exceptions related to media-related activity—were reasonable and that National Union was obligated to reimburse Chiquita for all defense costs not already paid by other insurers. Pursuant to the Court's order, National Union reimbursed Chiquita for almost all of the defense costs not already paid by other insurers, but continues to reserve its rights to seek reimbursement from Chiquita in the form of loss-sensitive premium, the amount of which is based in part on the number of occurrences. National Union also has sought contribution from other primary insurers with whom Chiquita entered partial settlements. The number of occurrences was the subject of the second phase of the trial involving National Union, which was held in November 2010. In April 2011, the Court ruled that the underlying tort lawsuits arise out of a single occurrence, and that National Union has no legal right to contribution from the insurers who entered partial settlements with Chiquita.

In May 2011, before the trial court entered final judgment, National Union filed a notice of appeal with the Ohio intermediate court of appeals. National Union indicated that it intended to appeal nearly every substantive ruling made by the trial court. In June 2011, the court of appeals granted Chiquita's motion to dismiss National Union's appeal because the appeal was not taken from a final appealable order. National Union is likely to file another appeal after the trial court enters a final judgment.

In addition, in June 2011, Chiquita filed a motion for reconsideration in the trial court, seeking a ruling from the trial court that, even though the judge presiding over the underlying tort lawsuits dismissed the negligence allegations from certain of the underlying complaints, National Union still owes Chiquita coverage for defense costs because Chiquita will be defending against the remaining allegations in the underlying cases by asserting, among other things, a claim of right—namely, that it acted for the purpose of saving lives rather than causing harm. In July 2011, National Union filed its opposition to Chiquita's motion for reconsideration and a motion seeking affirmative relief. A hearing on the pending motions is set for September 2011. National Union has indicated that it will oppose Chiquita's motion for reconsideration and seek affirmative relief in the trial court. It is unclear when the trial court will rule on Chiquita's motion for reconsideration or National Union's anticipated request for affirmative relief. Through June 30, 2011, the company has received $8 million as expense reimbursement from National Union, which is being deferred in "Other liabilities" in the Condensed Consolidated Balance Sheets until the appeal process is complete.

With the exception of the defense costs that, as described above, three of Chiquita's primary insurers have agreed to pay pursuant to partial settlement agreements, there can be no assurance that any claims under the applicable policies will result in insurance recoveries.

Colombia Investigation. The Colombian Attorney General's Office is conducting an investigation into payments made by companies in the banana and other industries to paramilitary groups in Colombia. Included within the scope of the investigation are the payments that were the subject of the company's March 2007 plea agreement with the DOJ, described above. The company believes that it has at all times complied with Colombian law.

ITALIAN CUSTOMS AND TAX CASES

1998-2000 Cases. In October 2004, the company's Italian subsidiary, Chiquita Italia, received the first of several notices from various customs authorities in Italy stating that it is potentially liable for additional duties and taxes on the import of bananas by Socoba S.r.l. ("Socoba") from 1998 to 2000 for sale to Chiquita Italia. The customs authorities claim that (i) the amounts are due because these bananas were imported with licenses (purportedly issued by Spain) that were subsequently determined to have been forged and (ii) Chiquita Italia should be jointly liable with Socoba because (a) Socoba was controlled by a former general manager of Chiquita Italia and (b) the import transactions benefited Chiquita Italia, which arranged for Socoba to purchase the bananas from another Chiquita subsidiary and, after customs clearance, sell them to Chiquita Italia. Chiquita Italia is contesting these claims, principally on the basis of its good faith belief at the time the import licenses were obtained and used that they were valid.

Of the original notices, civil customs proceedings in an aggregate amount of €14 million ($21 million) plus interest were ultimately brought and are now pending against Chiquita Italia in four Italian jurisdictions, Genoa, Trento, Aosta and Alessandria (for €7 million, €5 million, €2 million, and €0.4 million, respectively, plus interest). The Aosta case is still at the trial level; in the Genoa case, Chiquita Italia won at the trial level, lost on appeal, and appealed to the Court of Cassation, the highest level of appeal in Italy, where the case is pending; in the Trento and Alessandria cases, Chiquita Italia lost at the trial level, but the cases have been stayed pending a final resolution of a case in Rome. This Rome case was brought by Socoba (and Chiquita Italia intervened voluntarily) on the issue of whether the forged Spanish licenses used by Socoba should be regarded as genuine in view of the apparent inability to distinguish between genuine and forged licenses. In an October 2010 decision, the Rome trial court rejected Socoba's claim that the licenses should be considered genuine on the basis that Socoba had not sufficiently demonstrated how similar the forged licenses were to genuine Spanish licenses. Socoba has one year to appeal this decision. In an unrelated case addressing similar forged Spanish licenses used in Belgium, the EU Commission has ruled that these types of licenses were such good forgeries that they needed to be treated as genuine, and Chiquita Italia has brought this decision to the attention of the customs authorities in Genoa to seek relief in relation to the pending customs case but they declined to give the benefit of the decision to Chiquita Italia; Chiquita Italia intends to appeal this decision to the tax court. In Italy, each level of appeal involves a review of the facts and law applicable to the case and the appellate court can render a decision that disregards or substantially modifies the lower court's opinion.

Under Italian law, the amounts claimed in the Trento, Alessandria and Genoa cases have become due and payable notwithstanding the pending appeals and stays of proceedings. In March 2009, Chiquita Italia began to pay the amounts due in the Trento and Alessandria cases, €7 million ($10 million), including interest, in 36 monthly installments. In the Genoa case, Chiquita Italia began making monthly installment payments in March 2010 under a similar arrangement for the amount due of €13 million ($19 million), including interest, but this payment obligation has been temporarily suspended. If Chiquita Italia ultimately prevails in its appeals, all amounts paid will be reimbursed with interest.

2004-2005 Cases. In 2008, Chiquita Italia was required to provide documents and information to the Italian fiscal police in connection with a criminal investigation into imports of bananas by Chiquita Italia during 2004 through 2005, and the payment of customs duties on these imports. The focus of the investigation was on an importation process whereby Chiquita sold some of its bananas to holders of import licenses who imported the bananas and resold them to Chiquita Italia, a practice the company believes was legitimate under both Italian and EU law and was widely accepted by authorities across the EU and by the EC (indirect import challenge). The Italian prosecutors are pursuing this matter. If criminal liability is ultimately determined, Chiquita Italia could be civilly liable for damages, including applicable duties, taxes and penalties.

Both tax and customs authorities have issued assessment notices for the years 2004 and 2005 for this matter. The assessed balances for taxes are €6 million ($9 million) for 2004 and €5 million ($7 million) for 2005 plus, in each case, interest and penalties. Chiquita appealed these assessments to the first level Rome tax court and, in June 2011, the court rejected Chiquita Italia's appeal for 2004. Chiquita Italia is in the process of appealing this decision. The assessed balances, for customs for 2004 and 2005, total €18 million ($26 million) plus interest. Chiquita Italia also appealed these assessments to the first level Rome tax court, which rejected the appeal in June 2011. Chiquita Italia is in the process of appealing this decision. Under Italian law, each level of appeal involves a review of the facts and law applicable to the case and the appellate court can render a decision that disregards or substantially modifies the lower court's opinion.

The fiscal police investigation also challenged the involvement of a Chiquita entity incorporated in Bermuda in the sale of bananas directly to Chiquita Italia (direct import challenge), as a result of which the tax authorities claimed additional taxes of €13 million ($19 million) for 2004 and €19 million ($28 million) for 2005, plus interest and penalties. In order to avoid a long and costly tax dispute, in April 2011, Chiquita Italia reached an agreement in principle with the Italian tax authorities to settle the dispute. Under the settlement, the tax authorities agreed that the Bermuda corporation's involvement in the importation of bananas was appropriate and Chiquita Italia agreed to an adjustment to the intercompany price paid by Chiquita Italia for the imported bananas it purchased from this company, resulting in a higher income tax liability for those years. The settlement amounts for additional income tax for 2004 and 2005, including interest accrued through July 1, 2011 and penalties, are less than €1 million ($1 million) and €2 million ($4 million), respectively, significantly below the amounts originally claimed. The settlement is subject to approval by the Rome Tax Court. The 2004 settlement was approved in June 2011 and the 2005 settlement is expected to be approved before the end of 2011. As part of the settlement, Chiquita Italia also agreed to a pricing adjustment for its intercompany purchases of bananas for the years 2006 through 2009. As a result, in June 2011 Chiquita Italia paid €1 million, ($2 million) of additional tax and interest to the Italian tax authorities in full settlement of years 2007 through 2009. In July 2011 Chiquita Italia paid a further less than €1 million, ($1 million) in full settlement of 2006. The indirect import challenge described above is not part of the settlement.

Chiquita Italia filed appeals to object to the tax assessments in May 2010 (for 2004) and in April 2011 (for 2005) for both the indirect import challenge and the direct import challenge. Pending appeal, the 2004 assessment became due and payable, and in February 2011 Chiquita Italia began to make required installment payments for half of the amount assessed plus interest. In March 2011, these payments were temporarily suspended.

Chiquita Italia continues to believe that it acted properly and that all the transactions for which it has received assessment notices were legitimate and reported appropriately, and, aside from those issues already settled, continues to vigorously defend the transactions at issue.

CONSUMPTION TAX REFUND

In March 2008, the company received a favorable decision from a court in Rome, Italy for the refund of certain consumption taxes paid between 1980 and 1990. The Italian Finance Administration did not appeal the decision prior to May 2009, when their right to appeal expired. In the second quarter of 2010, payment was received, and the company recognized other income of €3 million ($3 million or $2 million net of income tax). The company has a number of other similar claims pending in different Italian jurisdictions and any gains that may occur will be recognized as the related gain contingencies are resolved. The March 2008 Rome ruling has no binding effect on pending claims in other jurisdictions, which may take years to resolve.