Corporate Governance

In re Chiquita Brands: Court Preliminarily Approves Settlement Agreement for Derivative Action

By Misty Dalke

We have been following the Alien Tort Statute and the Shareholder Derivative Action for In re Chiquita Brands since August 2007.  This post pertains to the Shareholder Derivative Action. 

In 2008, we reported that Chiquita shareholders filed four shareholder derivative lawsuits against Chiquita in several federal district courts. Subsequently, the four shareholder derivative actions were transferred to the Southern District Court of Florida and consolidated into one action, the Shareholder Derivative Action.  A related action was filed by the Service Employees International Union in the Ohio Court of Common Pleas.  The Ohio court stayed that action until the Florida court resolved the Shareholder Derivative Action. 

The plaintiffs filed an amended complaint with the Florida court asserting breach of fiduciary duty and corporate waste claims against twenty-six Chiquita executives. In response, Chiquita created an independent Special Litigation Committee ('SLC') to conduct due diligence and decide the best course of action for Chiquita. 

As a first step, the SLC conducted an independent investigation of all related documents and witnesses.  Following the investigation, the SLC filed a motion to dismiss the plaintiffs' amended complaint, as reported here.  Then, the plaintiffs and the SLC agreed to participate in mediation to reach a settlement agreement.  While the parties were unsuccessful at reaching a settlement in the mediation, they continued to negotiate terms of a potential settlement.  Ultimately, the parties agreed to settle the Derivative Action, as reported in an earlier post. 

On July 28, 2010, the court ordered the parties to file a status report concerning the settlement and derivative actions by August 9.  On August 5, 2010 the plaintiffs and the SLC filed a joint motion seeking preliminary court approval of their settlement. 

The proposed settlement agreement stipulates the following:

• Chiquita will enact corporate governance and compliance changes listed in Exhibit C of the Stipulation and Agreement of Settlement within 180 days of the court's final judgment.  The Stipulation lays out several changes Chiquita is required to implement regarding composition of Chiquita's Board of Directors, internal controls, compliance and ethics, shareholder meetings, and director compensation. 
• The plaintiffs' Co-Lead Counsel will present Chiquita's Board of Directors with further governance and compliance changes not listed in the stipulation, including separating the Chief Executive Officer and Chairman roles and adopting majority voting for director elections.  Chiquita is not required to take any action on these proposed changes. 
• The SLC will turn over settlement related discovery to the plaintiffs' Co-Lead Counsel. 
• Within ten days of the court's final judgment, the plaintiffs in the shareholder derivative suit in Ohio will petition the court to dismiss the action with prejudice on the grounds that the Florida court's action is binding on all Chiquita shareholders. 
• Chiquita will pay the plaintiffs $4,000,000 for attorneys' fees and expenses within ten days of the court's dismissal of the Shareholder Derivative Action with prejudice. 
• Chiquita will cover costs and provide notice for all shareholders affected by the proposed settlement. 
• Upon final judgment, Chiquita, all Chiquita shareholders, and the plaintiffs relinquish all claims relating to the Shareholder Derivative Action.

The court issued an order the same day that the motion was filed, preliminarily approving the proposed settlement order and setting a Settlement Hearing for October 15, 2010. 

The primary materials for this post can be found on the DU Corporate Governance website.

Full post as published by The Race to the Bottom on September 28, 2010 (boomark / email).