Update on Helms-Burton Act Cuban “Trafficking” Cases

Introduction

The authors describe in this update a recent significant appellate decision in the Havana Docks cases (the update a year ago focused on the appellate arguments in those cases) and decisions in five other cases, two by appellate courts and three at the trial court level.

As a brief reminder, the Helms-Burton Act’s civil liability provisions grant a US national the right, subject to various limitations and conditions, to sue and collect substantial money damages from persons that have knowingly and intentionally trafficked in – that is, used or derived economic benefit from – property that the Cuban government expropriated in or after 1959 and in which the US national claims an interest.

Havana Docks – USD100 million judgments vacated

On 22 October 2024, an Eleventh Circuit panel, by a 2-1 vote, reversed the trial court’s judgments of over USD100 million against each of four cruise lines. The court reversed on one ground: that the plaintiff company, Havana Docks, did not own the dock outright but, rather, held a 99-year concession that would have expired in 2004. At the time Cuba confiscated the dock in 1960, only 44 years remained on the concession; as a result, Havana Docks’ rights expired long before the three cruise lines’ use of the dock from 2015 to 2019, irrespective of the expropriation. Therefore, no “trafficking” in Havana Docks “property” could have occurred. The court did not address the cruise lines’ other arguments for reversal. The appeals court remanded the case to the trial court, however, as the plaintiff and one of the cruise lines, Carnival, had agreed to consider claims that Carnival allegedly trafficked in the concession “from 1996 to 2001 through its [ownership] interests in two other companies, Airtours and Costa”.

The dissenting judge disagreed on the effect of the concessionary nature of Havana Docks’ interest. In his view, the ruling is “incompatible with the text of the Act and undermines its remedial purpose”. “Nothing in the statute”, he wrote, “requires that a claimant establish that, absent the confiscation, it would have a current, present day property interest in its stolen property”.

The non-unanimous decision in this large-money case makes it likely that that additional appellate proceedings will take place.

Escalon v Trafigura – plaintiff acquired the claim too late

Plaintiff Escalon sued Trafigura, a commodities trading company, in a Texas federal court, both as an heir and as the representative of two estates. Each Florida decedent had held an ownership interest in companies in Cuba that extracted and exported metals. Escalon claimed that Trafigura trafficked by partnering with the Cuban government to exploit the companies’ assets.

Trafigura moved to dismiss on several grounds, and it succeeded on one of them: that Escalon did not acquire her claim before 12 March 1996 – the date Helms-Burton was enacted – as the Act requires. The claim on the properties had been held, before the enactment date, by Escalon’s aunt and mother. Under their wills, Escalon inherited their claims in July 1996 and June 2000, respectively. The trial court dismissed because Escalon inherited her claims on the dates of death, too late under the Act.

On appeal to the Fifth Circuit Court of Appeals, Escalon argued that (i) the claims she asserted were not hers but, rather, those of the estates; (ii) she was asserting the claims as the estates’ personal representative; and (iii) because the decedents acquired their claims long before March 1996, the claims were timely. The appellate court rejected these arguments based on Florida law, under which an heir acquires an estate’s property upon the death of the testator unless the will states otherwise. As neither will stated otherwise, Escalon acquired the claims when the decedents died, at which times the estates ceased to have any interest in the claims. Therefore, Escalon, not the estates, owned the claims, which were untimely because she acquired them after March 1996.

Exxon – claims against Cuba state-owned entities potentially narrowed

This case is unique in two respects. First, it involves claims against Cuba state-owned entities and thus is essentially a lawsuit against the Cuban government. Helms-Burton suits generally have involved claims against private companies, such as hotel operators, airlines, cruise lines, shipping companies, booking companies and credit card companies. Second, it involves a contentious difference of opinion among the judges on the three-judge appellate panel concerning the interplay between the Helms-Burton Act and the Foreign Sovereign Immunities Act (FSIA).

Exxon sued three entities in the District of Columbia federal court: (i) CIMEX, which (among other things) operates hundreds of service stations, (ii) its Panama affiliate, and (iii) CUPET, Cuba’s state-owned oil company. Exxon alleged that these entities traffic in properties Cuba confiscated from Exxon by using those properties to extract, import and refine crude oil, and by operating service stations selling the refined oil.

All three defendants moved to dismiss under the FSIA, arguing that they are immune from suit because none of the exceptions to immunity applies. The trial court deferred decision as to two of the defendants pending jurisdictional discovery, but denied the motion as to CIMEX.

The appeal by CIMEX and a cross-appeal by Exxon, before the Court of Appeals for the District of Columbia Circuit, concerned three trial court rulings that: (i) rejected Exxon’s argument that Helms-Burton confers jurisdiction over the Cuban entities independently of the FSIA; (ii) the FSIA’s expropriation exception did not apply and thus did not confer jurisdiction; and (iii) the FSIA’s commercial activity exception was satisfied as to CIMEX and therefore that claim could proceed. In a 2-1 decision, the appellate court agreed with the trial court on the first two issues and remanded for further proceedings on the third.

On the first issue, the court held that, as has long been recognised, the FSIA provides the only avenue for a plaintiff to sue a foreign state or its instrumentalities in a US court. “The upshot”, the court stated, “is that plaintiffs bringing [Helms-Burton] actions against foreign states must satisfy one of the FSIA’s exceptions, which is the same condition any litigant seeking to sue a foreign sovereign must meet”.

The dissenting judge disagreed, contending that Helms-Burton is itself a grant of jurisdiction that “deprives the Cuban defendants of immunity from suit”. His view is based on two premises: (i) statements by the Supreme Court and Circuit Courts that the FSIA is the only basis for obtaining jurisdiction over a foreign state or instrumentality are not binding or persuasive because none addressed the interplay between the FSIA and Helms-Burton; and (ii) the language of Helms-Burton waives sovereign immunity, as the Supreme Court has held with respect to essentially identical text in statutes that were found to waive sovereign immunity of the US government or one of its states. The Act’s text on which the dissenting judge relied states that “any person”, defined to include “any agency or instrumentality of a foreign state”, that traffics in confiscated property “shall be liable” to US nationals with claims to that property.

Exxon will seek review of this ruling by the US Supreme Court. It obtained an extension of the time to file its petition for such review until 27 December 2024.

On the second issue, the court first rejected CIMEX’s threshold argument that, because the suit arose from Cuba’s expropriation of Exxon’s properties, the court must consider only the FSIA’s expropriation exception, but not the commercial activity exception. The court explained that the various exceptions to immunity in the FSIA “are framed as alternatives, separated by the word ‘or’” and noted that it had “rejected the idea that an activity must fall under ‘either the expropriation exception or the commercial-activity exception, but not both.’” Therefore, it found, Exxon can properly rely on the commercial activity exception even though the case involves an expropriation.

As to whether the expropriation exception applied, the court upheld the trial court’s ruling against Exxon, but under different reasoning. The appeals court explained the exception has two requirements: (i) the claim must involve “rights in property taken in violation of international law” and (ii) there must be an adequate connection between the defendant and both the expropriated property and some commercial activity in the USA. The court held that Exxon cannot meet the first requirement, because Exxon did not own the properties directly but rather through a Cuban entity (Essosa), of which Exxon was a shareholder and parent company. Relying heavily on decisions of the International Court of Justice on this point, the court held that “international law generally does not recognize a shareholder’s right in property owned by the corporation”. Although the court recognised that there is an exception to that principle – if the expropriation completely destroys the corporation’s productive value, thereby “leaving the shareholder with shares that have been rendered useless” – the court credited the trial court’s factual findings that Essosa continued its operations, including operating fuel stations, for decades following the expropriation of Exxon’s shares, which meant that the exception could not apply.

The appeals court then turned to the third issue – ie, whether the commercial activity exception applied. That exception abrogates sovereign immunity where:

“...the action is based [1] upon a commercial activity carried on in the United States by the foreign state; or [2] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [3] upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States”.

At issue was only the third clause, which, as the court pointed out, itself has three requirements: (i) there must be an act outside the USA (ii) in connection with commercial activity by the foreign state elsewhere, and (iii) the act must cause a direct effect in the USA.

The first element was concededly present; the parties disputed the second and third elements. The court held the second element was met because Exxon showed that CIMEX’s alleged activities – processing money remittances and operating service stations that sell gasoline and food items – are not uniquely sovereign actions, but rather are the kinds of activities typical of private entities. This element is met even if an act of expropriation preceded and therefore gave rise to the later commercial activity on which the claim is based.

The court had doubts, however, as to whether the third element – that the commercial acts caused a direct effect in the USA – was satisfied. Exxon argued that CIMEX’s handling of money transfers from US residents into Cuba and its sale at service stations of foods it procured in the US satisfied the “direct effect” in the USA requirement. While agreeing that such acts “can” satisfy that requirement in some cases, the appeals court remanded the question to the trial court to determine, on additional facts, whether CIMEX causes such effects in the USA, and if so, whether the effects are sufficiently “direct” to meet the third element of the commercial activity exception.

The court noted that only between four and ten of the more than 500 service stations operated by CIMEX are on property expropriated from Exxon, and making remittances available at those few stations may not have an effect on the USA if, for example, recipients could get their remittances at nearby stations on non-expropriated property. As for the food purchases, the record showed that CIMEX does not itself make decisions about where to buy the foods; that is done by a different Cuban agency (Alimport) that exercises its own judgment as to where to source the foods.

On remand, therefore, the trial court must conduct further fact-finding to resolve two questions: (i) does the operation of four to ten service stations at which remittances are processed cause a direct effect in the USA, and (ii) does CIMEX have enough knowledge of or influence on Alimport’s sourcing of food products in the USA to support a finding that, by acquiring foods through Alimport, CIMEX itself causes a direct effect in the USA?

Parreno v Airbnb – novel issues

In an August 2024 decision, the federal court in Jacksonville, Florida stayed discovery pending resolution of Airbnb’s motion to dismiss. Two of the grounds for dismissal appear to be novel to Helms-Burton cases.

The case was commenced in March 2024 by Javier Garcia-Bengochea, as administrator and on behalf of the estate of Parreno, who died in 1972 owning a claim in the confiscated Port of Santiago, Cuba. Garcia-Bengochea had filed four previous actions, including three against cruise lines, alleging that he – as an heir, and not the estate – owned the claims. All his prior actions were dismissed on the ground that he inherited the claims after the Act’s 12 March 1996 deadline. In this case, however, Garcia-Bengochea argues, contrary to his assertions in his prior lawsuits (and echoing the plaintiff’s unsuccessful argument in Escalon, discussed above), that the claim never left Parreno’s estate and, as Parreno owned the claim long before March 1996, it is not time-barred.

Airbnb’s motion raised several familiar grounds for dismissal attacking Garcia-Bengochea’s turnabout position, including that it was barred by the decisions in the prior cases and by judicial estoppel, and that the complaint does not sufficiently allege that Airbnb acted with the requisite “knowledge and intent”.

In addition, Airbnb made two novel arguments: (i) as a provider of “an interactive computer service”, Airbnb is immune from suit – under the Communications Decency Act, 47 U.S.C. Section 230 (a federal statute that can protect companies such as Facebook from liability for postings by others) – for postings by property owners on the Airbnb website; and (ii) Helms-Burton is unconstitutional because its provision allowing the President to suspend the right to bring a private action for six-month periods – which President Clinton invoked immediately upon passage of the Act in 1996 and all Presidents continued until President Trump lifted the suspension in 2019 – was an improper delegation of Congressional power to the President.

As is its right when a federal constitutional challenge to any statute is raised, the US government filed a “statement of interest” in which it asked the court “to decide Airbnb’s many non-constitutional bases for dismissal before reaching the constitutional question and, only if the Court finds it necessary to reach the constitutional question, to provide the Government an opportunity to participate at that stage”. Given the strength of Airbnb’s other grounds for dismissal, the court may not reach the constitutional issue.

Echevarria v Expedia – issues narrowed for trial

The Echevarria plaintiffs commenced two actions on the same day in 2019 in Miami federal court against two hotel booking companies and their affiliates, Expedia and Booking.com, alleging that the companies trafficked on land in Cayo Coco Island, Cuba, which Cuba confiscated in 1960 and as to which plaintiffs hold a claim, by booking rooms at hotels later built on that land. The first case alleges claims on behalf of three family members and involves bookings at a single hotel, the Pullman Cayo Coco Hotel, operated by Accor. The second case, against Expedia and its affiliates, was a proposed class action on behalf of other persons similarly situated and involves bookings at 20 hotels operated by Iberostar, in Cayo Coco or elsewhere in Cuba. Judge Federico Moreno, who was assigned to both cases, consolidated them in May 2024; they are scheduled for trial beginning on 27 January 2025.

Judge Moreno issued two noteworthy decisions in these cases.

In the first, issued in September 2023, he granted in one respect and otherwise denied the booking companies’ motion to dismiss. The first issue was whether plaintiffs acquired their claims before the Helms-Burton cutoff date of 12 March 1996. After summarising the long line of succession of the property’s ownership from the 19th century through each plaintiff, the court ruled that only Echevarria, and not the other two plaintiffs, plausibly alleged that he acquired the claim in a timely manner.

The decision also addressed whether the remaining plaintiff adequately pled that the booking companies’ alleged trafficking was knowing and intentional. Although the judge agreed that most of the allegations of scienter were conclusory and therefore insufficient, he denied dismissal on this ground because the plaintiffs alleged they sent the defendants a pre-suit notice of their alleged trafficking, and that the defendants continued to book rooms at the hotel in question after the defendants received the notice.

The judge also rejected the argument that the hotel-booking activities were protected by the Act’s “lawful travel” exception, which exempts from liability uses of property that are “incident to lawful travel to Cuba” to the extent that such use is “necessary to the conduct of such travel”. He agreed with courts in other cases, which have uniformly held that the lawful travel exception is an affirmative defence as to which a defendant bears the burden of proof at trial, and, therefore, is not a proper basis for dismissal on the pleadings.

The defendants failed to win dismissal based on another exception in the Act – that the property at the time of expropriation was used as a residence. The judge relied on allegations in the complaint that Cayo Coco had been “uninhabited” and the family had used it “as a recreational area and for limited commercial purposes”, such as producing charcoal and salt, and raising livestock.

The defendants also failed in their argument that the plaintiffs have no claim because they were not US nationals at the time the property was expropriated in 1960. Judge Moreno interpreted the Act’s relevant text to require that a plaintiff be a US national on 12 March 1996 (when Helms-Burton was enacted), not when the property was expropriated.

In Judge Moreno’s second decision, issued in July 2024, he denied a motion to certify a class consisting of all persons claiming an interest in properties anywhere in Cuba on which 20 Iberostar-operated hotels are located. The plaintiff sought certification concerning several core common issues, including whether Expedia trafficked, whether it did so knowingly and intentionally, and whether it benefited from the trafficking. The plaintiff proposed that issues individual to each class member, including ownership and damages, be adjudicated in later, individual actions by each owner.

Although the court rule concerning class actions (Federal Rule of Civil Procedure 23) gives a court discretion to certify a class “with respect to particular issues”, Judge Moreno denied certification.

He concluded that the proposed class did not meet most of the requirements for class certification, including that common issues must “predominate” and plaintiff’s claims be “typical” of members such that class treatment would be “superior” to individual actions. Judge Moreno noted, for example, (i) Expedia’s showing that it did not offer rooms at all of the 20 hotels; and (ii) that Echevarria seeks over USD10 million, based on a 12.5% interest in the Cayo Coco property, which suggests that other class members would also have an interest in pursuing their own claims, as at least one other claimant has done.

Following these two decisions (and because the claims against Booking.com have been settled), what remains to be tried are the claims of a single plaintiff, Echevarria, against Expedia concerning bookings at hotels only on Cayo Coco, in which Echevarria claims an interest.

Trinidad v Expedia – summary judgment dismissing the case

In a 31 October 2024 decision, Judge Moreno – who also presided over the Echevarria cases discussed above – granted summary judgment dismissing this case. Trinidad claimed that Expedia trafficked in a property in Varadero Beach that had been owned by his parents, and in which he inherited an interest, by booking rooms at two hotels later built on that property. The evidence he presented, however, failed in two respects, each of which was sufficient to doom his claim.

First, the Act excludes “property used for residential purposes” from the definition of “property” as to which a trafficking claim can be made, with two exceptions: if, as of 12 March 1996, (i) the claim had been certified by the Federal Claims Settlement Commission or (ii) “the property was occupied by a Cuban government official or its ruling political party”. It was established that the property was used as a residence and that Trinidad’s claim was not certified; Trinidad tried but was unable to prove that a government official or its political party had occupied the residence. Thus, neither exception applied.

Second, Trinidad could not prove that the hotels actually sat on the property his parents had owned. According to a certificate from the Cuban property registry, as well as a hand-drawn map that Judge Moreno ruled was inadmissible hearsay, both submitted by Trinidad, the hotels in question were located on a different stretch of road than the Trinidad property. Thus, there was no trafficking regarding the Trinidad property. Having found these two deficiencies, each sufficient to dismiss the case, the court did not consider other possible grounds for dismissal. Trinidad has filed a notice of appeal from this decision.

Conclusion

As we go to press with this update, the authors and other interested persons await further developments in the Havana Docks and Exxon cases, and in the trial in Echevarria against Expedia.