If the suspension of Title III of the Helms-Burton Act is not extended after April 17, all companies with a US presence—including US subsidiaries of foreign parent companies—that “profit” from property confiscated by the Cuban government may find themselves subject to suit. Companies should analyze their potential exposure to liability and anticipate issues that may arise throughout the course of litigation, including personal jurisdiction and service of process questions, evidentiary and interpretation issues, enforcement and blocking statutes, and the act of state doctrine.
Title III of the Helms-Burton Act (also known as the Libertad Act of 1996) provides for a private cause of action under which US citizens may sue any person engaged in “trafficking” in property that was confiscated by the Cuban government after January 1, 1959.
Since the law’s enactment in 1996, every administration has suspended Title III for six months at a time. However, on March 4, 2019, Secretary of State Mike Pompeo notified Congress that the Trump administration would only partially suspend Title III for 45 days, instead of extending the current suspension for the customary six-month period. This partial suspension did not apply to Cuban entities identified on the US Department of State’s List of Restricted Entities and Sub-Entities Associated with Cuba (known as the Cuba Restricted List), which was recently updated. In response to questions, Secretary Pompeo clarified that private persons doing business with such Cuban governmental entities could not be sued unless and until the administration decided not to continue suspending the remainder of Title III by April 17, the current expiration date and anniversary date of the Bay of Pigs invasion.
As of March 19, US citizens have had the right to bring claims against any party on the Cuba Restricted List, but such lawsuits have not apparently been filed to date for several possible reasons. First, it will be difficult to obtain personal jurisdiction in the United States over such persons; second, the Cuban entities do not have assets in the United States; and, finally, a plaintiff may be barred from bringing suit against a private party if that plaintiff has already brought suit against a company on the Cuba Restricted List relating to the same confiscated property.
If Title III is not fully suspended after April 17, all companies with a US presence that “profit” from property confiscated by the Cuban government may find themselves subject to suit.
Under Title III, any US national “who owns the claim to . . . property” confiscated by the Cuban government after January 1, 1959, has the power to sue in federal court. This includes Cuban nationals who became US citizens before the date of enactment. US nationals who have had their claims to confiscated property certified by the Foreign Claims Settlement Commission are also eligible to bring suit under Title III. Many of the largest certified claims may be held by US corporations that may have acquired claims through mergers and acquisitions. It remains to be seen whether the corporations will choose to sue or use their certified claims as leverage in settlement negotiations. Any US corporations with current interests in Cuba or desiring to reenter Cuba should consider carefully the political implications of bringing such lawsuits.
Before filing suit, a plaintiff must determine whether the defendant has a US presence. Additionally, the confiscated property must be worth more than $50,000, and the plaintiff must pay a $6,700 filing fee (a requirement aimed at deterring frivolous claims).
The plaintiff is required to provide evidence of ownership of its claim to the confiscated property, such as a certified claim of ownership issued pursuant to the Foreign Claims Settlement Commission under the International Claims Settlement Act.
Title III establishes the amount of recoverable damages. A defendant who “traffics” in confiscated property is liable for the greatest of (1) the valuation indicated in a certified claim, (2) the current fair market value of the property, or (3) the fair market value of the property at the time it was confiscated—along with interest, court costs, and attorney fees. Moreover, plaintiffs with certified claims can seek damages of up to three times the damages amount.
Potential defendants include “any person” (whether an individual or corporation, regardless of nationality) who “traffics” in property confiscated by the Cuban government after January 1, 1959, and who continued to traffic in the two-year period before the lawsuit began.
Title III defines “trafficking” broadly by imposing liability on a person or company that knowingly and intentionally sells, transfers, distributes, brokers, manages, or otherwise disposes of confiscated property, or that purchases, receives, holds, controls, manages, or holds an interest in confiscated property. “Trafficking” includes engaging in a commercial activity using, or otherwise benefitting from, confiscated property. This broad definition covers both those directly involved in trafficking and those who “profit from” the trafficking of confiscated property. US subsidiaries of foreign parent companies that deal in confiscated property may qualify as having profited from the “trafficking” of their foreign affiliates.
There are, however, a few exceptions to Title III’s definition of “trafficking.” A company’s involvement in the delivery of international telecommunication signals to Cuba, the trading of securities that are publicly held or traded, and the use of property incident to lawful travel to Cuba are all exceptions to “trafficking” and cannot be the basis of a claim.
Potential defendants include European, Canadian, and Asian companies invested in the hotel, tourism, travel, transportation, telecom, mining, and manufacturing industries.
Should the Trump administration not extend the suspension of Title III past April 17, companies should analyze their potential exposure to liability and consider the issues and defenses that may arise in litigation.
Personal Jurisdiction and Service of Process
Under US law, a plaintiff attempting to bring suit against a foreign company under Title III must prove that the foreign company (1) is “at home” in the United States, namely, that it is headquartered or has its principal place of business in the United States; or (2) is connected to the United States, and that connection is directly related to the confiscated property. Notably, the US Supreme Court has held that jurisdictional contacts of a subsidiary corporation are not imputed to the parent corporation. Essentially, a plaintiff cannot use a foreign company’s US subsidiary as a basis for asserting personal jurisdiction over the foreign parent company. Following the passage of the Helms-Burton Act in 1996, many foreign companies tried to firewall their US operations from liability for their foreign affiliates’ activities in Cuba, a possible strategic move that may be useful in challenging personal jurisdiction.
Service of process may also be difficult for plaintiffs suing foreign companies. For example, plaintiffs may face challenges when attempting to serve foreign corporations that do not accept process in the United States, and will be forced to rely on The Hague Convention or other more complex methods of gathering evidence from abroad.
Statute of Limitations
Title III suits may not be brought more than two years after a company has stopped “trafficking” the confiscated property at issue.
Evidentiary and Interpretation Issues
Given the age of many of these claims, there will be a host of discovery and evidentiary issues relating to proving the elements of the Title III cause of action, including that the “trafficking” was “knowing” and “intentional.” For those plaintiffs without certified claims, proving valuation at the time of confiscation may be challenging—all the more so if essential evidence is located abroad and discovery runs into roadblocks from foreign governments and courts.
Moreover, because the exceptions to the definition of “trafficking” will be interpreted by the US courts for the first time, the scope of these exceptions will be subject to considerable litigation.
Enforcement and Blocking Statutes
Certain jurisdictions, including Canada, Mexico, and the European Union, have enacted blocking and anti-enforcement measures to counteract the possible ramifications of the act. For example, for actions brought against companies in the EU, EC Regulation 2271/96 could potentially impede discovery needed to support Title III claims. Additionally, Canada amended its Foreign Extraterritorial Measures Act to block the enforcement of Title III judgments in Canada.
Act of State Doctrine
The act of state doctrine generally precludes US courts from determining the validity of acts that a foreign government has committed wholly within its own territory. The doctrine has historically been an obstacle for lawsuits challenging the confiscation of property by foreign sovereigns. Fortunately for plaintiffs, Title III specifically permits circumvention of the doctrine, providing that “[n]o court of the United States shall decline, based upon the act of state doctrine, to make a determination on the merits in an action” brought pursuant to Title III. Title III’s legislative override of a judicial doctrine will likely present complex questions involving separation of powers, international law, and personal jurisdiction.
Additionally, Title III eliminates the need for plaintiffs to obtain licenses from any US agency before filing suit; without this provision, plaintiffs might have needed licenses from the Office of Foreign Assets Control or other agencies to pursue claims.
Because Title III of the Helms-Burton Act has never come into effect, there is uncertainty concerning whether the administration will actually end the continued suspensions of Title III, over the protests of US allies. But the current administration has invoked domestic political considerations when making such decisions and that may be the case here. It is also unclear whether it will result in a wave of litigation—though some litigation is likely. Many of these cases will probably be brought by the same plaintiffs’ bar in South Florida that has obtained hundreds of millions of dollars in unsatisfied judgments against the Cuban government. While there remains broad uncertainty surrounding the implementation and enforcement of Title III, companies with ties to Cuba both in the United States and abroad should consider their risk of liability and plan accordingly.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Boston
Carl A. Valenstein
Miami
Robert M. Brochin
Alison Tanchyk
Philadelphia
Zane David Memeger
Washington, DC
Giovanna M. Cinelli
Kenneth J. Nunnenkamp