Litigation 2019 Second Edition

Last Updated December 05, 2019

Cuba

Trends and Developments


Eyes on Cuba

Recent changes in US-Cuba policies require that US and foreign companies, particularly those in the tourism, travel, transportation, telecommunications, banking, agriculture, and manufacturing sectors, examine their past and current dealings with Cuba to determine their risk of exposure.

For the first time in 23 years, effective 2 May 2019, the US government ended the suspension of Subchapter III of the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 (known as “Title III”). The unprecedented activation of Title III means that certain individuals whose property was confiscated by the Cuban government may bring an action in a US federal court against anyone who “traffics” in that property.

Even though only six months have passed, 21 lawsuits have already been filed. Because Title III was essentially dormant for 23 years, a great deal of uncertainty exists regarding how and when the statute applies. And, because the US president could re-suspend Title III at any time, it is unclear how long these lawsuits will continue to be brought.

In light of this uncertainty, the following article explores the origins of the Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996 (popularly known as the “Helms-Burton Act”), key provisions of Title III, current Title III litigation, and comparative implications, providing guideposts for entities with past or current dealings with Cuba to assess the implications of Title III regarding their interests.

The Helms-Burton Act

The Cuban Liberty and Democratic Solidarity (Libertad) Act, or the Helms-Burton Act, was nicknamed after its US Senate and House of Representatives sponsors, former Senator Jesse Helms and former Representative Dan Burton, and was first introduced in 1995.

The purposes of the law were to: codify the US embargo on Cuba into law; list explicit requirements that had to be met before the US embargo on Cuba could be lifted; and discourage entities from engaging in business in Cuba by providing, under Title III, a federal private right of action against such entities in US courts by certain claimants of confiscated Cuban property.

President William J Clinton signed the Helms-Burton Act, codified at 22 USC § 6021, et seq, on March 12, 1996. Political opinion in favour of the law was spurred by the Castro government shooting down two US civilian aircraft engaged in humanitarian activities over international waters on 24 February 1996.

The Helms-Burton Act contains four subchapters or “titles”. Only Title III is relevant to this wave of litigation, but all are described for context.

Subchapter I, titled “Strengthening International Sanctions Against the Castro Government”, §§ 6031–6046, codified into law the US embargo of Cuba, which previously had been imposed by executive regulation rather than congressional law.

Subchapter II, titled “Assistance to a Free and Independent Cuba”, §§ 6061–6067, aimed to effect the transition of Cuba to democratic rule. This section lists conditions demonstrating progress towards that end that would warrant ending the embargo.

Subchapter III, titled “Protection of Property Rights of United States Nationals”, §§ 6081–6085, created a civil remedy for damages in favour of US nationals, whose property was confiscated by the Cuban government, against persons who “trafficked” in such property (discussed in more detail below).

Subchapter IV, titled “Exclusion of Certain Aliens”, § 6091, provided that any person who “traffics” in confiscated property after March 12, 1996 (the date of enactment) “shall” be denied a visa and entry into the US.

It is important to note that Title III was “suspended” by successive US presidents from 12 March 1996 to 2 May 2019 (approximately 23 years), meaning that no actions could be brought under it. Section 6085 of Title III allows a president to suspend Title III for six-month periods by reporting in writing to the appropriate congressional committee that the suspension is necessary in the national interests of the US, 22 USC § 6085(b). President Clinton suspended Title III as soon as the Act became effective, and all other presidents since then have also continuously suspended it, until President Trump ended the suspension, effective 2 May 2019.

Key Provisions of Title III

Title III is complicated, and the scope of its applicability can only be determined on a case-by-case analysis.

Section 6082 of Title III is the key section that creates the right of action for damages. Specifically, the section allows “United States nationals” owning a claim to “property confiscated by the Cuban Government on or after January 1, 1959” the right to sue any “person” that “traffics” in such property, 22 USC § 6082.

The cause of action is arguably defined in very broad strokes. The following definitions apply to Title III’s cause of action:

“Confiscated” means that the property was nationalised, expropriated, or otherwise seized by the Cuban government on or after January 1, 1959, and (a) that such property has not been returned, “adequate and effective” compensation has not been provided for it, or the claim to the property has not been settled pursuant to any international or other mutually accepted settlement procedure; and (b) that the Cuban government has repudiated, defaulted, or failed to pay, on or after January 1, 1959, a debt of the subject enterprise, a debt which is a charge on the subject property, or a debt which the Cuban government incurred in satisfaction or settlement of the subject confiscated property claim, § 6023(4).

“Cuban Government” “includes the Government of any political subdivision of Cuba, and any agency or instrumentality of the Government of Cuba”, 22 USC § 6023(5).

“Person” means any person or entity, including any agency or instrumentality of a foreign state, 22 USC § 6023(11).

“Property” is broadly defined as “any property (including patents, copyrights, trade marks, and any other form of intellectual property), whether real, personal, or mixed, and any present, future, or contingent right, security, or other interest therein, including any leasehold interest, 22 USC § 6023(12)(A). However, “real property used for residential purposes” is exempt from this definition unless, as of March 12, 1996, the property is either the subject of a certified claim; or currently occupied by an official of the Cuban government or the ruling political party in Cuba, 22 USC § 6023(12)(B).

A person “traffics” in property if that person “knowingly and intentionally”, and “without the authorisation of any United States national who holds a claim to the property”:

  • (i) sells, transfers, distributes, dispenses, brokers, manages, or otherwise disposes of confiscated property, or purchases, leases, receives, possesses, obtains control of, manages, uses, or otherwise acquires or holds an interest in confiscated property; or
  • (ii) engages in a commercial activity using or otherwise benefiting from confiscated property; or
  • (iii) causes, directs, participates in, or profits from, trafficking (as described in clause (i) or (ii)) by another person, or otherwise engages in trafficking (as described in clause (i) or (ii)) through another person.

22 USC § 6023(13)(A)

Importantly, however, the term “traffics” does not include:

  • the delivery of international telecommunication signals to Cuba;
  • the trading or holding of securities publicly traded or held, unless the trading is with or by a person determined by the Secretary of the Treasury to be a specially designated national;
  • transactions and uses of property incident to lawful travel to Cuba, to the extent that such transactions and uses of property are necessary to the conduct of such travel; or
  • transactions and uses of property by a person who is both a citizen of Cuba and a resident of Cuba, and who is not an official of the Cuban government or the ruling political party in Cuba.

22 USC § 6023(13)(B)

“United States national” includes “any United States citizen” or “any other legal entity which is organised under the laws of the United States, or of any state, the District of Columbia, or any commonwealth, territory, or possession of the United States, and which has its principal place of business in the United States”, 22 USC § 6023(15).

Title III also makes a distinction between “certified” and “uncertified” claims, which is important for understanding the cause of action.

Certified and uncertified claims

A “certified claim” refers to a claim that was reviewed and certified by the US Foreign Claims Settlement Commission (FCSC) pursuant to the International Claims Settlement Act of 1949. That Act permitted US citizens whose property was confiscated by the Castro regime to apply for the validation and valuation of their claim. In a first programme between 1967 and 1972, and a smaller, second programme in 2005 to 2006, the FCSC certified 5,913 claims (and denied nearly 3,000 others). The total of the certified amounts was about USD1.9 billion as of the dates of confiscation (generally around 1960). The FCSC’s certification decisions are listed on the US Department of State’s website. 

FCSC decisions are important to a US court’s determinations. Title III requires that a US court “accept as conclusive proof of ownership” a certification by the FCSC, and presume that the amount certified is the relevant amount for damages, 22 USC §§ 6082(a)(2), (a)(5) (although the presumption of damages can be rebutted). A US court will also deem “conclusive” a denial by the FCSC, 22 USC § 6083(a)(1).

An “uncertified” claim is one that was not presented to the FCSC for certification. A US national who was eligible to file a claim with the FCSC, but did not, cannot bring an action under Title III, 22 USC § 6082(a)(5)(A). Persons bringing a Title III lawsuit must show that the property interest at issue was not already the subject of a certified claim, 22 USC § 6082(a)(5)(D). Lawsuits for uncertified claims also cannot be brought “before the end of the 2-year period beginning on March 12, 1996," although there has been no interpretation relating to what the repeated suspensions of Title III have done to this requirement, 22 USC § 6082(a)(5)(C). With uncertified claims, a US court may appoint a special master to determine the amount and ownership of a claim, 22 USC § 6083(a)(2).

Damages and travel restrictions

The base amount of monetary damages permitted under Title III is “the greater” of the following:

  • “the amount, if any, certified to the claimant by the [FCSC], plus interest”;
  • for uncertified claims, the amount determined by a court-appointed special master, plus interest; or
  • “the fair market value of that property, calculated as being either the current value of the property, or the value of the property when confiscated plus interest, whichever is greater”, 22 USC § 6082(a)(1)(A).

Interest is set forth at the federal rate (in 28 USC § 1961) from the date of confiscation (typically around 1959–1961) until the date the action was commenced, 22 USC § 6082(a)(1)(B).

In addition, a claimant is entitled to treble the amount of damages calculated using the above methodology: automatically for a certified claim; or for an uncertified claim, only if the claimant gave written notice to the defendant at least 30 days before filing the action and the defendant did not cease trafficking during that period, 22 USC § 6082(a)(3)(A)–(B).

Court costs and attorneys’ fees

Court costs and reasonable attorneys’ fees are available in all instances. Thus, if a person is found liable under Title III on a certified claim, the likely damages amount will be three times the amount of the certified claim and interest from the date of confiscation to the date the action was commenced, plus court costs and reasonable attorneys’ fees. If liability is found on a non-certified claim, the likely damages will be the amount determined by a special master, plus interest, or the greater of either the property’s fair market value at the time of confiscation plus interest, or current fair market value (which may be trebled), and court costs and reasonable attorneys’ fees.

Notably, Title IV of the Helms-Burton Act requires the US Secretary of State to deny a visa to, and the Attorney General to exclude from the United States: any alien who traffics in confiscated property to which a US national has a claim; corporate officers, principals, or shareholders with a controlling interest in an entity involved in the trafficking of confiscated property to which a US national owns a claim; and the spouse, minor child, or agent of such persons, 22 USC § 6091(a)(2)–(4). As such, upon finding a liability, Title IV may come into effect, although the definition of “trafficking” under Title IV is slightly different from in Title III.

Limitations

Any action brought under Title III must involve a claim for at least USD50,000, exclusive of interest and attorneys’ fees, 22 USC § 6082(b).

If a claimant has commenced an action under Title III, it may not commence any other action on the same subject matter under federal, state or common law, 22 USC § 6082(f). The reverse is also true: if a claimant has brought another such action, it may not sue under Title III.

A lawsuit in “[a]n interest in a property” for which a US national has a certified claim can only be brought by that US national, 22 USC § 6082(a)(5)(D).

Title III claims may only be brought within two years after the trafficking giving rise to the action has ceased to exist, 22 USC § 6084.

Finally, federal district courts have original jurisdiction for Title III cases, and all other jurisdictional requirements and procedural rules apply as they would in an ordinary case, § 6082(c)(1).

Current Litigation

So far, 21 lawsuits have been brought under Title III. A number of conclusions can be drawn simply from the claims that have been asserted:

  • seven actions have been brought against 12 cruise lines;nine actions have been brought against 19 hotel companies, hotel-booking companies, or travel service providers;
  • two actions have been brought against nine financial institutions;
  • one action has been brought against two airlines;
  • one action has been brought against two entities involved in the petroleum industry; and
  • one action has been brought against two e-commerce entities.

The actions also list as-yet-unknown members of the Cuban government involved in the alleged “trafficking”. A review of these cases shows that plaintiffs are asking the US courts to interpret Title III broadly, and consider even a connection to Cuba to be the basis for a suit. Thus far, plaintiffs have not limited themselves to US-based defendants. Of the 46 defendants brought to court, at least 14 are foreign entities based in Europe and Latin America.

Plaintiffs are asserting rights relating to both certified and uncertified claims. Of the 21 suits, five assert liability for certified claims, 13 assert liability for uncertified claims, and three assert liability for both certified and uncertified claims.

At least four cases have been raised as class actions, meaning that plaintiffs expect to represent a larger group of individuals beyond the listed plaintiffs presented to the courts.

To date, the defendants have challenged the sufficiency of the claimants’ allegations in five of the actions, generally focusing on:

  • whether the plaintiff properly pled jurisdiction;
  • an injury traceable to each defendants’ conduct;
  • confiscation of property from US citizens;
  • ownership of confiscated property;
  • trafficking of the allegedly confiscated property;
  • “knowing” and “intentional” trafficking; 
  • “trafficking” when the activity falls under the “lawful travel” exception; and
  • ownership of confiscated property.

Defendants have also challenged the constitutionality of Title III, on the basis that it: retroactively punishes defendants for activity that was legal under President Obama’s administration; fails to provide fair notice of trafficking, as “traffics” is broadly defined and has no discernible limits on its reach to indirect traffickers; and violates constitutional due process protections because it applies an oppressive and excessive damages penalty.

Only two courts have made rulings on the sufficiency of the plaintiffs’ allegations, ruling in favour of the plaintiffs in two cases where the defendants questioned only the sufficiency of plaintiffs’ “trafficking” and ownership allegations. As such, these cases will move on to discovery procedures, where the plaintiffs and defendants may seek documents from each other to either support or rebut the allegations made. The other three cases are still being argued by the parties.

Comparative Implications

Businesses, persons, and even foreign agencies or instrumentalities with past or present dealings that may relate to Cuba, should take heed of this wave of litigation and prepare themselves, whether to raise claims against certain entities or to defend themselves from potential claims. The damages and travel stakes are high with Title III liability. As such, it is recommended that such entities engage counsel with experience in US-Cuba affairs as well as doing the following:

Review all past and present dealings with Cuba

To fully understand exposure or an ability to seek redress under Title III, it is important that entities review activities conducted by all companies, affiliates and subsidiaries to determine if the activities are in any way connected to Cuba and, more specifically, if the activities are connected to a potentially “confiscated” property. Title III broadly defines “traffics” to include commercial activity that profits from or “participates” in another person’s trafficking, which may raise concerns regarding activity that is not directly linked – but is somehow connected – to Cuba. If any potential risk or redress is found, entities should look into who owned the potentially “confiscated” property in the late 1950s or early 1960s to determine the possibility of a claim, and can even further narrow their exposure or redress assessment based on state department records relating to certified and uncertified claims.

Consider whether a US court can bind a defendant

Title III expressly states that, except as provided in Title III, the provisions of Title 28 of the United States Code (which concern the courts and their jurisdiction) and of the Federal Rules of Civil Procedure (which concern court procedures) apply, as in all other cases brought under a federal statute, 22 USC § 6082(c)(1). As such, when foreign entities are involved, it is worth considering whether any US court can exert power over a foreign defendant under US jurisdictional requirements.

Consider foreign entity liability

Foreign entities are not exempt from Title III. However, foreign entities may be subject to legislation explicitly “blocking” Title III’s applicability. One example is the European Union’s Council Regulation (EC) No 2271/96, which remains in effect (EC 2271/96). EC 2271/96 provides certain protections from Title III to persons residing or incorporated in the European Union, even allowing such persons to recover damages and legal costs from Title III plaintiffs, EC 2271/96 at Article 6. Canada and Mexico, among other countries, have enacted similar legislation. Foreign entities that may be liable under Title III, as well as claimants seeking to recover from them, should consider the applicability of any “blocking” statutes. Such foreign entities may also consider what steps they should take to remain protected under relevant blocking statutes, and may even lobby their local governments to pass similar blocking statutes.

Keep Title III’s limitations in mind

In considering exposure or the potential for redress, entities should keep in mind that Title III’s damages provisions differ depending on whether a claim is certified or uncertified, and bar certain claims from adjudication.

Political realities may impact Title III

US-Cuba relations have been in a state of flux since 2014, with back-to-back US administrations first allowing certain economic activities with Cuba and continuing Title III’s suspension, and then prohibiting such economic activities and activating Title III. It is entirely possible that Title III may once again be suspended. In such an event, claimants would be barred from bringing suit, though suits commenced before the date of the suspension would not be affected (and would continue as if the suspension had not occurred), 22 USC § 6085(b)(3).

Conclusion

US-Cuba policies have taken another turn. For the first time in 23 years, Title III has been activated by a US president. Now, owners of properties confiscated by the Cuban government in the late 1950s and early 1960s can sue entities that “traffic” in those properties, and “trafficking” is broadly defined as even including indirect activity. As such, businesses with a link to Cuba must assess their risk of being sued in US federal court with relation to such “confiscated” property. Because Title III has not yet been interpreted by the US courts, uncertainty and the possibility for litigation are high, although it is possible that rights under Title III may once again be suspended by a US president.

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Trends and Development

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Akerman LLP helps businesses navigate the complexities of the Cuba market and is at the cutting edge of Cuba policy and market-entry strategy. The team has led frontline policy discussions with government and industry leaders on the future of US-Cuba relations for more than a decade, with members of the team being described as “very knowledgeable of OFAC regulations and the Helms-Burton Act”. Recent developments have seen Title III of the Helms-Burton Act, which has been suspended since its creation in 1996, come into effect. Akerman LLP has developed a comprehensive analysis of the legal risks, potential actions and defences relating to claims arising from the implementation of Title III. The firm currently represents several clients in the defence of claims resulting from the activation of this provision. This article should not be considered as a reflection of Akerman LLP's position in those cases.

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