Suit Over CIA Deal Nets Freight-Firm Owner $6.2 Million

A Los Angeles federal court jury has awarded $6.2 million to the owner of a freight-forwarding company who claimed that a secret oral agreement he made to provide a “cover” in Southern California for a CIA-owned airline was illegally broken in 1981.

In exchange for the cover, Air Asia, which did clandestine work for the CIA during the Vietnam War, promised Erwin Rautenberg, 65, that his company, Air Sea Forwarders of Los Angeles, would be the airline’s exclusive forwarding agent, attorneys said.

Air Asia used Rautenberg’s company as a front to send aircraft and military parts to the Far East from warehouses in Burbank and North Hollywood, court documents said.

The jury returned the verdict--$6 million in punitive damages and $216,000 in compensatory damages--Monday on a lawsuit filed by Rautenberg against Air Asia in 1981. The suit contended that Air Asia officials wrongfully broke a secret oral agreement that Rautenberg said he entered into with the airline’s executives in 1956.

Rautenberg claimed that he was recruited by the CIA and agreed to lend his company’s name to Air Asia operations in Burbank and North Hollywood, where supplies for CIA covert operations were packed for shipment overseas.

As part of that secret agreement, Air Asia agreed to terminate Air Sea Forwarders’ role as its sole freight-forwarding agent only in the event of “good cause,” which was not cited when the relationship ended, the suit said.

Received Assurances

Even though the CIA sold Air Asia in 1975, Rautenberg said he was assured that the terms of the oral agreement were still in effect.

In court documents, Rautenberg said a written agreement was not prepared because “Air Asia was a CIA proprietary company and it is this critical factor which accounts for the fact that the true nature of the relationship had to remain oral.”

Air Asia officials, who did not deny the relationship with Rautenberg or its one-time involvement with the CIA, said in court that no secret agreement was made in 1956.

Air Asia’s attorney, James Jurecka of Los Angeles, said a written agreement was made in 1966 that gave the airline the right to terminate its relationship with Air Sea Forwarders by written notice.

But a former Air Asia executive who headed the secret operations in Burbank and North Hollywood, Roy Herold, testified in court that a secret agreement had been made in 1956 with Rautenberg.

Government documents released in 1977 showed that the CIA sold Air Asia in 1975 to E-Systems Inc. of Dallas for $1.9 million, about $1.5 million less than its net worth.

Air Asia, which is based in Taiwan, was sold by Air America, a CIA-owned company that ran airlines in the Far East and Southeast Asia and provided transportation for various CIA projects, the government documents showed.

Air Asia still maintains an aircraft maintenance and overhaul operation in Taiwan, Jurecka said.

The jury in April gave a confusing verdict during the liability phase of the case in the courtroom of U.S. District Judge Richard A. Gadbois Jr., attorneys for both sides said.

In one part of its verdict, the panel ruled that a 1956 secret agreement had indeed been made and that it had been breached in 1981 when Air Sea Forwarders was let go by Air Asia. But it also found that the 1966 agreement was valid at the time it was made.

On an appeal by Rautenberg’s attorneys, a three-judge panel of the U.S. 9th Circuit Court of Appeals ruled that the jury should be called back into court to clarify its verdict.

The jury was reconvened and it found that the 1956 agreement was in effect. It then deliberated for a day before returning its verdict of $6.2 million Monday afternoon in favor of Air Sea Forwarders.

Jurecka said the verdict will be appealed.