Top retailers settle claim of counterfeit coffee

The $1.26-million award involves a lawsuit by Hawaiian growers against a wholesaler, Starbucks and others.

Hawaiian coffee growers reached a $1.26-million settlement with some of the nation's largest coffee retailers, who allegedly sold coffee falsely labeled and priced as being from Kona on the west side of Hawaii island.

The settlement on the class-action lawsuit filed in 1997 against the now defunct California-based wholesaler Kona Kai Farms and top retailers such as Starbucks and Costco is subject to approval by a California state court, said Mark Davis, an attorney representing 650 Kona coffee growers, who announced the deal at a news conference with farmers Wednesday.

"The farmers undertook a difficult battle to fight for the protection of the Kona name and to send a message that coffee farmers would seek to fight the expropriation of the fraudulent use of their product for profit," Davis said.

The civil case stems from federal criminal charges brought in 1996 against Kona Kai and its owner, Michael Norton, for allegedly distributing a cheaper and inferior grade Central American coffee labeled as Kona, considered one of the world's finest coffee beans.

Norton is awaiting trial, Davis said.

Kona Kai and its insurance company agreed to pay $1-million to the farmers, while the $255,000 balance comes from retailers including Nestle's Beverage Co., Price Costco Inc., First Colony & Tea Co., S&W Fine Foods, Gloria Jeans' Gourmet Coffee Corp., Peerless Coffee Co., The Coffee Beanery, Starbucks Corp., Brothers Gourmet Coffee, Peets Coffee and Tea Inc. and Klein Brothers, Davis said.

The $1-million is all the assets and insurance coverage available from the defunct Kona Kai.

While there is no evidence the retailers were aware of Kona Kai's fraud, "we all have a responsibility to ensure that when we buy coffee and make a representation to the public about what it is that we ensure that it is authentic," Davis said.

"The deals consummated by some of the retailers were too good to be true, and they were, in fact, too good to be true."

Starbucks' attorney in Hawaii, Daniel Bent, said the company agreed to settle because it was the best business decision.

"We settled for less than a month's legal fees," Bent said. "There was no evidence whatsoever that Starbucks received any of the phony coffee. We don't think we did."

Because of the time difference, attempts to reach mainland distributors were unsuccessful.

As part of the settlement, some of the retailers have agreed to buy 161,000 pounds of green Kona coffee over the next five years from Kona farmers, Davis said.

When attorneys' fees and expenses are paid, the settlement will give the farmers about $600,000, or about $300 per acre in production during the 1987-1995 period of Kona Kai's scheme, Davis said.

The settlement falls far short of the losses suffered by Kona farmers when 20-million pounds of Kona Kai's falsely labeled and lower-priced coffee hit the world market, artificially depressing Kona prices, he said.

Two-thousand acres in Kona annually produce about 2-million pounds of green coffee which, after roasting, retails for an average $20-$22 per pound. That's second only to Jamaican Blue Mountain Coffee, which can fetch up to $40 a pound.

"Kona coffee is one of the finest and most expensive coffees in the world, and there are many who capitalize on that fact and take advantage of the public," said Gus Brocksen of the Kona Farmers Alliance.

For years, Kona farmers have been seeking a federal certification mark for their coffee but have been blocked by local processors who make money off so-called Kona blends, which under state law can be marketed with as little as 10 percent Kona beans, farmer John Langenstein said.

However, the Hawaii Coffee Association is close to gaining separate certification marks designating Kona and other growing regions, including Kauai and Molokai.

"That's what's used with the Jamaican Blue Mountain coffee industry," Colombian coffee and Idaho potatoes," he said.