Article: May 2019: A New Wave of Cuba-Related Litigation - Title III Helms-Burton Act Claims

On April 17, 2019, the Trump administration announced that it would allow the suspension of Title III of the Helms-Burton Act to lapse as of May 2, 2019, thereby allowing eligible individuals and companies to file lawsuits in U.S. courts seeking compensation for property expropriated by the Cuban government since 1959. This is the first time since the law became effective 23 years ago that Title III would be activated, after it had been suspended by every U.S. president since the law came into effect.

Since 2017, recently restored diplomatic relations between the United States and Cuba have been rapidly deteriorating: The Trump administration reinstated travel restrictions for U.S. citizens to Cuba and published the Cuba Restricted List, prohibiting U.S. individuals and companies from doing business with the entities listed. In November 2018, the U.S. administration signaled that it was seriously reviewing Title III of the Helms-Burton Act. And, in March 2019, the administration announced that it would only suspend Title III for another 45 days instead of the standard 6 months. This latest, most severe step appears to be a response to Cuba’s continued military, security, and intelligence support of Venezuela’s Nicolás Maduro, in the face of one of the worst man-made humanitarian crises in the world.

 

What is the Helms-Burton Act?

The Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996, known as the “Helms-Burton Act” after its sponsors, was initially tabled in 1995. In 1996, however, the Cuban Air Force shot down two civilian planes flown by a Miami-based humanitarian non-profit group whose mission was rescuing raft refugees from international waters between the United States and Cuba. Two weeks later, the law was enacted by President Clinton.

The Helms-Burton Act had four primary objectives: (1) to codify the United States’ embargo on Cuba, thereby requiring consent of Congress for modification of the sanctions; (2) to articulate explicit conditions precedent to be met before the embargo could be lifted; (3) to dissuade foreign countries from doing business with Cuba and exclude from the United States any foreign nationals who traffic in confiscated property; and (4) to protect Americans’ rights in property confiscated by the Castro regime.

Title III of the Act created a private right of action for U.S. nationals in U.S. courts against those individuals or corporations “trafficking” in property expropriated by the Cuban government since 1959. The activation of Title III, after its 23-year suspension, exposes companies all around the world, but particularly in the U.S., Canada, and Europe (primarily France and Spain), to legal action in U.S. courts by those whose property was confiscated by the Castro regime between 1959 and 1996.    

Some of the international criticism of Title III is centered around how broadly the Helms-Burton Act defines “trafficking.” The term essentially creates civil liability for any person who “knowingly and intentionally” engages in commercial activity that has interest in, or derives revenue from, property that was confiscated by the Cuban government. Notably, because Title III has been inactive since the enactment of the law, there is substantial uncertainty as to how broadly courts will read the term “trafficking” in litigation arising under Title III.

Who can bring claims and what are the remedies?

Claims may be brought by both U.S. citizens and foreign persons or companies who were subject to the jurisdiction of the United States at the time that their property was confiscated and who submitted claims that were evaluated and certified by the U.S. Justice Department’s Foreign Claims Settlement Commission (“FCSC”). The FCSC is authorized by the International Claims Settlement Act of 1949 to consider the validity and value of claims by US nationals arising from the nationalization or expropriation of their property. Under Title III, courts are directed to accept FCSC-certified claims as conclusive. These “certified claims” are afforded priority and are given special status. U.S. nationals, who were entitled to bring their claims before the FCSC for certification but failed to do so are prohibited from pursuing an action under Title III.

Claims that were not eligible for certification before the FCSC and that were thus not presented for certification, so called “uncertified claims,” may be brought by individuals and companies who were Cuban citizens (or nationals of countries other than the United States) at the time their property was confiscated but who later became naturalized U.S. citizens or incorporated in the United States.   Plaintiffs asserting claims uncertified by the FCSC should expect challenges in establishing title to confiscated properties. A special master may be appointed by the court to make determinations as to the validity of the plaintiff’s ownership claim and the value of the confiscated property.

 The Helms-Burton Act provides civil remedies in the form of money damages that are the greater of (1) the amount certified by the FCSC plus interest; (2) the amount determined by a court-appointed special master plus interest; or (3) the fair market value of the property, calculated as either current value of the property or the value of the property at the time of expropriation plus interest, whichever is greater. The claimant may also recover court costs and attorneys’ fees.

Title III also provides treble damages against defendants facing claims certified by the FCSC and against defendants who confront uncertified claims and fail to cease “trafficking” in the confiscated property within 30 days after they are provided notice by a claimant that an action is to be initiated against them.

Title III specifies that only cases in which the amount in controversy exceeds $50,000 (exclusive of interest, costs, and attorneys’ fees) may be brought under the Section. Of the approximately 6,000 certified claims, only a little over 900 refer to original losses in excess of $50,000. Importantly, with almost 60 years of interest, these qualifying claims will have grown considerably in value. Considering that Cubans who became naturalized U.S. citizens during the Castro regime are now eligible to bring uncertified claims, the number of potential law suits could be much higher.

 

Defenses to claims brought under Title III

There are a number of potential defenses to claims brought under Title III of the Helms-Burton Act:

• Personal Jurisdiction

A primary defense to any claim under Title III will be a challenge to personal jurisdiction. This is especially true for non-U.S. defendants who do not themselves do business in the United States. To establish general jurisdiction, plaintiffs must show the defendant is “at home” under Daimler AG v. Bauman, 571 U.S. 117 (2014). This can be very difficult to show for non-U.S. defendants who do not have a principal place of business in the United States. Likewise, to establish specific jurisdiction, plaintiffs must show that their claims arise from contacts in the United States. Thus, the alleged trafficking activity must necessarily take place in the United States. And to establish quasi in rem jurisdiction, a plaintiff must identify property of the defendant that is within the court’s district and show that the defendant has “sufficient minimum contacts” with the forum state such that the action does not offend “traditional notions of fair play and substantial justice.” As such, it will also be extremely difficult to establish quasi in rem jurisdiction over a foreign defendant whose only property in the forum is not the subject of the litigation.

• Statute of Limitations and other bars

Under Title III, claims brought more than two years after the trafficking has ceased are time-barred. This statute of limitations period may have started to run, or even expired, while the previous presidential suspensions were in effect, as the statute is triggered by the ceasing of “trafficking” in the confiscated property. Furthermore, if any claim was previously denied by the FCSC, courts must accept that finding as conclusive.

• Blocking statutes/foreign extraterritorial measures

Some jurisdictions, including Canada, Mexico, the United Kingdom, and the European Union, passed legislation to block judgments under the Helms-Burton Act, making them essentially unenforceable in the jurisdiction where the defendants have assets. As such, even if potential plaintiffs could successfully pursue a Title III action in the U.S., those with interests in jurisdictions that have adopted blocking legislation may be deterred from bringing the claim due to adverse consequences they may face overseas. Additionally, many potential plaintiffs are large corporate groups that own assets in foreign jurisdictions that have adopted “clawback” regulations, which provide an avenue, through countersuit, to reclaim any damages awarded in a Title III case, plus attorney’s fees and costs. These potential plaintiffs may be deterred from bringing a Title III action in the U.S. by the likelihood of retaliatory litigation abroad.  

• Exemption of certain industries

Title IV of the Helms-Burton Act carves out some limited exceptions from the term “trafficking,” including “the delivery of international telecommunication signals to Cuba,” trading and holding publicly traded securities, and the “transactions and uses of property incident to lawful travel to Cuba.”

• Challenging title to confiscated properties

The ability to challenge title to confiscated properties turns on whether a claim has been certified by the FCSC. For certified claims, certification by the FCSC serves as conclusive proof of title and ownership and provides a presumption in favor of the valuation of the property set by the FCSC, which is rebuttable only by clear and convincing evidence. However, defendants facing uncertified claims may challenge title and valuation of a property under a lower preponderance of the evidence standard.

• International legal considerations

Shortly after Congress passed the Helms-Burton Act, several countries initiated proceedings against the United States in the WTO, claiming that Title III violated the United States’ obligations under international law. However, these proceedings were dismissed after the United States suspended Title III. Nevertheless, defendants facing a claim under Title III could encourage foreign countries to reinitiate proceedings before the WTO, which may, in turn, put pressure on the United States to reimplement the stay on Title III claims.

 

What steps should concerned companies take?

Potential claimants should consider the following prior to initiating litigation:

• Determine whether the claim was previously certified.
• If the claim was not certified, carefully consider facts to ensure ability to prove title/ownership of confiscated property.
• Evaluate the claim to ensure that the amount in controversy exceeds $50,000 (exclusive of interest, costs, and attorney’s fees).
• Identify all potential defendants, including Cuban state-owned companies and others who benefited from the confiscated property, or otherwise engaged in trafficking.
• If claim was not certified, send 30-day notice letter to maintain ability to obtain treble damages if defendant does not cease trafficking activities.
• If litigation can be reasonably anticipated, ensure that all potentially relevant electronically stored information is preserved and issue document holds to key individuals with any information about Cuba-related claims.

 

Similarly, potential defendants should take the following proactive steps to limit their exposure going forward:

• Evaluate present assets to determine whether they can be traced back to property that was confiscated by the Cuban government.
• Evaluate present business interests to determine whether the interest relates to or derives revenue from expropriated property.
• Review future business opportunities carefully to determine whether they could create liability under Title III.
• Include provisions in future contracts requiring disclosure, representations, and warranties with respect to “trafficking,” as defined under Title III, and include associated remedies for failure to meet obligations thereunder.
• For foreign entities, become familiar with the laws of foreign countries to identify potential blocking statutes, claw-back provisions, and other potential protections.
• If litigation can be reasonably anticipated, particularly with respect to claims that are already certified, ensure that all potentially relevant electronically stored information is preserved and issue document holds to key individuals with any information about Cuba-related assets.