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International Railways of Central America v. United Brands Co.

decided: March 4, 1976.


Appeal from U.S. District Court, Southern District of New York.

Lumbard, Friendly and Mulligan, Circuit Judges.

Author: Mulligan

MULLIGAN, Circuit Judge:

This action claiming various antitrust violations and breach of contract was brought by plaintiff International Railways of Central America (IRCA) against United Brands Co., successor in interest to United Fruit Co. (UF),*fn1 and its wholly-owned subsidiary Compania Agricola de Guatemala (CAG), by the filing of a complaint and summons on February 16, 1965.*fn2 Essentially it appears that plaintiff IRCA was dominated for many years by its controlling stockholder UF. (UF, however, sold virtually all of its IRCA stock in January 1962, pursuant to a 1958 consent decree which terminated a civil antitrust complaint brought by the federal government. See 373 F.2d 408, 411. The decree will be discussed in more detail infra). UF was and is in the business of importing bananas into the United States; its subsidiary CAG owned and operated banana plantations in western Guatemala, in an area called Tiquisate. IRCA had operated since the early part of this century the only railroad of any significance in Guatemala. Its main line ran from Puerto Barrios on the Atlantic Coast of Guatemala across the isthmus to the Pacific Coast. While all of plaintiff's assets were seized by the Guatemalan government in 1969 for alleged default on a government loan, the corporate entity remains and is the present plaintiff.

Of plaintiff's antitrust claims against UF, three survive (numbered as they were in the lower court): First, that UF, by requiring IRCA to discriminate in its rates and practices (such as preferential use of railroad equipment), prevented other prospective banana shippers from using IRCA's rail facilities from February 16, 1961 to December 31, 1961,*fn3 thus causing IRCA to lose the profits it would have gained thereby, in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2; Third, that UF restricted its own banana shipments over IRCA's lines from February 16, 1961 until 1964, and disposed of its Tiquisate plantations in such a way as to prevent others from cultivating bananas on the same land, thus causing IRCA to lose profits, in violation of sections 1 and 2 of the Sherman Act; Sixth, that UF's acquisition of a controlling interest in IRCA had the effect of probably lessening competition in and tending to monopolize the importation of bananas into the United States in violation of section 7 of the Clayton Act, 15 U.S.C. § 18.

The Fifth claim against UF, and the only claim against CAG, was for breach by CAG of certain 1948 contracts by failing to maintain a substantial volume of banana shipments from western Guatemala on IRCA's lines.*fn4

I. Prior Proceedings

In 1949 dissatisfied minority stockholders of IRCA instituted a derivative suit against UF in the Supreme Court of the State of New York, alleging that UF, as controlling shareholder of IRCA, breached its fiduciary duty to the latter by using its dominant position to procure from IRCA unfairly low rates for its banana shipments. An award of damages (totalling, with interest, some $8.5 million) to IRCA and a mandated increase in freight rates between the parties was eventually affirmed by the New York Court of Appeals, Ripley v. IRCA, 8 N.Y. 2d 430, 209 N.Y. S. 2d 289, 171 N.E. 2d 443 (1960). Approximately four years later the instant antitrust and contract action was commenced, with plaintiff retaining the same attorneys who had won success in Ripley.

In 1966 UF moved to dismiss the instant suit on the theory that IRCA's claims were barred by the prohibition against splitting causes of action between Ripley and the instant suit, and by the statute of limitations. A granting of the motion on the first ground (254 F. Supp. 233 (S.D.N.Y. 1966)) was reversed, 373 F.2d 408 (2d Cir. 1967). However, this court agreed with the district court that the statute of limitations barred claims for alleged antitrust violations committed before February 16, 1961.

Thereafter, UF made a motion for summary judgment in the trial court, on two grounds: one, that the plaintiff lacked standing to sue under the antitrust laws, and two, that the contract claim had to be dismissed because there was neither an express nor an implied obligation on CAG's part to ship any particular volume of bananas on plaintiff's lines. By an opinion reported at 358 F. Supp. 1363 (S.D.N.Y. 1973), partial summary judgment was granted dismissing the contract claim insofar as it sought damages for breaches committed after December 31, 1962*fn5 and before January 1, 1961 against UF and after December 31, 1962 and before October 9, 1962*fn6 against CAG. In addition, partial summary judgment dismissing the antitrust claims for acts committed prior to February 16, 1961 (the cut-off statute of limitations date already found by the circuit court) was also granted. Id. at 1378. The motion for summary judgment was denied in all other respects. Id.

A trial without a jury was then held before District Court Judge Murray I. Gurfein on the issues of liability. The trial proceedings consumed fourteen days, with both sides producing a great deal of documentary and testimonial evidence; seven witnesses were heard, and their testimony consumed 2045 pages of transcript. On January 29, 1975, Judge Gurfein, now a Circuit Court judge sitting by designation, filed an extensive and comprehensive opinion to which was appended 245 findings of fact (some of them from the prior Ripley litigation) and twenty-one conclusions of law, dismissing the complaint and finding for defendants in all respects. From this opinion, and Judge Gurfein's earlier partial dismissal of IRCA's contract claim, the plaintiff appeals. For the reasons that follow, we affirm.

II. Facts

Since IRCA on appeal raises numerous factual as well as legal issues, it will be necessary to recite the facts in some detail.

The relationship between IRCA and UF extends back practically to the turn of the century. By the late twenties, UF, through stock control, dominated the affairs of IRCA. By 1936, UF was able to control the election of IRCA's nine directors, although for many years the extent of UF's dominance was concealed.

UF desired to exercise its control over IRCA to insure for itself low freight rates and special services for the shipment of its fruit, while at the same time denying them to its competitors. For example, on banana shipments from Western Guatemala, UF paid IRCA only $60 per railroad car, performing wharfage services and loading at Port Barrios with its own labor, whereas its competitors paid $130 per car, and an additional $72 to IRCA for wharfage and loading, upon which IRCA made a profit. This disparity in freight rates was provided in a 1933 contract between UF and IRCA. In 1936, these rates were reaffirmed, and additional provisions added; for example, CAG agreed to buy new locomotives and cars for use on IRCA tracks and agreed not to build a port on Guatemala's west coast to insure that the fruit produced at Tiquisate would be carried on IRCA's lines to east coast ports. In separate agreements, CAG was given the right to operate its banana cars over IRCA's lines, and IRCA agreed to operate CAG's trains and to maintain CAG's rolling stock.

In 1948 CAG and IRCA entered into new agreements, which in essence reaffirmed and extended the 1936 contracts. The main contract was to continue until December 31, 1962, and the supplemental trackage and operating agreements until five years thereafter.

As we have noted, the Ripley litigation commenced in state court in 1949, and the decree there fixed the subsequent rate for future banana shipments by UF over IRCA at $130 per car, the same rate then charged by IRCA to UF's competitors. Furthermore, as noted, UF was forced by the 1958 consent decree to sell its stock holdings in IRCA by 1966 and in fact in January 1962 sold all but one hundred shares. In fact, it was found below that the IRCA board of directors was independent of UF by February 16, 1961, the statutory cut-off date. At the May 1961 stockholders' meeting, UF did not vote its stock. Furthermore, it was found below that there had been at least three independent directors since 1959. In addition, the consent decree expressly prohibited contracts between UF and IRCA that would require IRCA to discriminate against other shippers.*fn7

The court below also found as a fact that UF-CAG at all material times exported most or all of the bananas sent to the United States from Guatemala. However, what once was a profitable banana business began to deteriorate during the 1950's. UF's net earnings from its banana operations declined from $58.6 million per year in 1950 to $7.2 million in 1959. The Tiquisate plantation became plagued by Panama disease which rendered the area unsuitable for the cultivation of the more common type of banana (Gros Michel or Cocos type), and in addition was subject to excessive "blowdowns," or storms, which destroyed vast areas of plantings. As a consequence, UF's management was forced to take some sort of affirmative action.

As the lower court found, "[before] and after February 16, 1961 United officials informed IRCA that unless the Ripley judgment required rate of $130 per banana carload was reduced to $90, the Tiquisate operations might have to be liquidated. IRCA refused to reduce the $130 Ripley - decreed rate."*fn8 Furthermore, the main IRCA-CAG agreement, which included the scheduling of rates, was to expire on December 31, 1962, so that the freight rates were due for renegotiation at that time. However, IRCA took the position that the main contract did not expire until the end of 1967, and refused to consider the renegotiation of rates. (IRCA's interpretation of the contract expiration date was expressly rejected by the court below, 358 F. Supp. at 1374-76, which found the main agreement, by its very terms, to expire at the end of 1962, not 1967.) Thereafter, UF-CAG decided to liquidate the Tiquisate properties.

It was found as a fact below*fn9 that UF, starting in 1961, began a company-wide program to sell or otherwise dispose of many unproductive land holdings; eventually, properties in Ecuador, Costa Rica, Honduras, Guatemala, and other countries were liquidated. With respect to Guatemala, it was found that after the Communist takeover of that country in the early fifties, the political climate was at best inhospitable. Besides widespread riots and labor strife,*fn10 the ...

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