The Helms-Burton Act's Unexpected Boomerang Effect: Most Lawsuits Have Targeted US Companies

John Bellinger and Ambassador Tom Shannon co-chair Arnold & Porter’s Global Law and Public Policy practice.  John Bellinger previously served as the Legal Adviser to the State Department from 2005 to 2009.  Ambassador Tom Shannon previously served as the Assistant Secretary of State for Western Hemisphere Affairs during the same period and as Under Secretary of State for Political Affairs from 2016 to 2018.  While they were at the State Department, Bellinger and Ambassador Shannon were responsible for the implementation and interpretation of Titles III and IV of the Helms-Burton Act.

On May 2, 2019, the Trump administration allowed Title III of the Helms-Burton Act, also known as the Cuban Democracy and Solidarity (Libertad) Act, to go into effect for the first time since its enactment in 1996. Title III allows US nationals to sue persons and entities who "traffic" in property confiscated by the Cuban government, with "traffic" being expansively defined to include not only engaging "in a commercial activity using or otherwise benefiting from confiscated property," but also profiting from any trafficking done by anyone else.¹ Given that unusually broad scope, Presidents Clinton, Bush and Obama all suspended Title III's operation, leaving the law on the books but unavailable to the thousands of potential plaintiffs with claims to expropriated Cuban property.

Experts thought the Trump administration's decision to activate Title III would lead to a rush of lawsuits. As we noted in an earlier assessment in July, 2019, however, the first few months of the law's operation were surprisingly slow: only 10 suits were filed, some by the same groups of plaintiffs or attorneys.²

It has now been 10 months since the Trump administration's decision, and Title III continues to have unexpected consequences. Not only has the slow start continued, with only 15 additional suits since July, but the suits that have been filed have not been what the administration or Congress anticipated. Back in 1995, the Chairman of the House Appropriations Committee summed up the idea behind Title III as permitting "American citizens to recover damages from foreign investors who are profiting from their stolen property in Cuba."³ But many Title III lawsuits so far have targeted American companies—not Cuban or other foreign companies—and the plaintiffs' allegations of trafficking have been very contrived.

We describe here the most recent cases, how the courts have treated the first wave of suits, and what trends, if any, can be discerned at this early stage. Courts have not interpreted many of the key statutory terms in Title III yet, but we highlight a couple of the significant legal issues that have been decided or will likely be decided soon. Companies doing business in or around Cuba—especially American companies—would do well to monitor these cases and issues going forward, as they will continue to set an example, good or bad, for litigants and lawsuits in the future.

Checking in on the Original Helms-Burton Cases

Back in July, we discussed nine suits that had been filed in the first three months after Title III was activated.⁴ Each of those cases has evolved considerably in the last seven months.

One of the original suits now teeters on the verge of dismissal. On the first day possible, Havana Docks Corporation sued US cruise operator Carnival Cruise Line for allegedly "trafficking" in its confiscated property, the Havana Cruise Port Terminal.⁵ Havana Docks' case seemed to be going well, at least at first: Carnival argued that the district court should dismiss the case because Havana Docks' only interest in the property was a concession that had expired in 2004, more than a decade before Carnival's vessels began using the terminal.⁶ But the court ruled in August that it did not matter that the concession had expired; moreover, the court also held that one of the statutory exceptions to Title III's definition of "trafficking"—an exception for "transactions and uses of property incident to lawful travel to Cuba"—was something that Carnival would need to prove, rather than Havana Docks to disprove.⁷

Buoyed by this favorable result, Havana Docks filed additional suits in August against three foreign cruise lines, MSC Cruises (a Swiss company), Norwegian Cruise Line Holdings and Royal Caribbean Cruises, that also used the Havana Cruise Port Terminal.⁸ That proved to be a mistake. In the MSC Cruises case, the same judge changed her mind about her earlier ruling. She now held that since Havana Docks' concession had expired before the cruise line began trafficking in the property, Havana Docks could not bring a claim.⁹ She accordingly dismissed the two cases against MSC Cruises and Norwegian Cruise Line Holdings.¹⁰ Carnival and Royal Caribbean Cruises have now asked her to do the same in their cases.¹¹

Carnival has encountered choppier waters in a second suit. That suit was brought by Javier Garcia-Bengochea, who alleges that Carnival engaged in trafficking by using a port in Santiago.¹² There, as in the Havana Docks case, the judge agreed with the plaintiff that the "lawful travel" exception is an affirmative defense that Carnival, rather than the plaintiff, must prove.¹³ Carnival is now arguing that Garcia-Bengochea does not actually own the claim on which he is suing. Carnival is also arguing, perhaps inspired by the timing issues that sank the other cruise line cases, that even if Garcia-Bengochea does own the claim, he did not acquire ownership until after 2000—too late for him to be able to sue under Title III, which allegedly sets March 12, 1996, as the date by which plaintiffs must acquire ownership of a claim to any property confiscated by that point.¹⁴ In rebutting that last point, Garcia-Bengochea has had the support of former Congressmen Dan Burton and Bob Torricelli, both of whom were instrumental in the enactment of the Helms-Burton Act.¹⁵

Other plaintiffs are floundering as well. In May and June, a group of plaintiffs represented by one set of lawyers brought six class actions against an assorted mix of Cuban companies, European hotel chains and European travel companies.¹⁶ But the plaintiffs immediately ran into serious trouble trying to serve all of these foreign defendants.¹⁷ Frustrated, the plaintiffs changed tactics. They dismissed one of the six cases and dropped almost all of the foreign defendants from the remaining five.¹⁸ Simultaneously, the plaintiffs swapped in new defendants: American companies, specifically Expedia and some of its US affiliates.¹⁹ Whether this switcheroo will work is still an open question, as litigation with these new defendants has barely begun.

Litigation has been less chaotic in the remaining two original cases. One was brought by the energy conglomerate Exxon Mobil against two Cuban state-owned companies, Corporación Cimex S.A. and Unión Cuba-Petróleo, for trafficking in oil refineries, service stations and other facilities that the Cuban government seized from Exxon's predecessor.²⁰ Both Exxon and the two Cuban companies have argued vigorously over why the case should or should not be allowed to proceed, with the Cuban companies claiming that they are immune from suit under the Foreign Sovereign Immunities Act.²¹ Perhaps the most surprising development is that the Cuban companies have shown up to defend their case at all, as the Cuban government has historically rarely litigated in US courts.²²

Lastly, the heirs to Banco Nuñez, a Cuban bank nationalized and absorbed into Banco Nacional de Cuba by the Cuban Government in 1960, had filed suit in July 2019 against the French bank Société Générale S.A. (SocGen).²³ SocGen has argued that the district court lacks jurisdiction over it and the case; like Carnival, it has also argued that the Banco Nuñez heirs did not acquire their claim until after Title III was enacted, which would allegedly prevent them from suing under the statute.²⁴ As in the Exxon case and others, the district court has yet to rule on these arguments.²⁵

A Second Wave of Suits

Since July 2019, 15 additional cases have been brought under Title III of the Helms-Burton Act. Of those 15, two—the cases brought by Havana Docks against MSC Cruises and Norwegian Cruise Line Holdings—have already been dismissed, as noted above, and a third—the Havana Docks case against Royal Caribbean Cruises—is poised to follow.  One other case, brought in New York by the John S. Shepard Family Trust against three hotels, was also voluntarily dismissed last week.²⁶ That leaves 11.

One of the original plaintiffs, Garcia-Bengochea, doubled down in late August on his Santiago port suit against Carnival by filing two new suits against Norwegian Cruise Line Holdings and Royal Caribbean Cruises.²⁷ Both defendants have thrown up a number of affirmative defenses, including the familiar one that their actions were "incident to lawful travel" within the meaning of Title III.²⁸

Five other new cases were all brought by the same plaintiff, Robert Glen. Glen alleges that he holds a claim to two beachfront properties located in one of Cuba's most popular beach towns, Varadero. After Castro's revolution, those properties were allegedly confiscated from Glen's family and developed into four separate beachfront resorts. Interestingly, Glen has not sued any of those four resorts (perhaps because at least some of them are foreign companies). He has instead concentrated his legal fire on a row of American targets, including Expedia, TripAdvisor, Orbitz, Travelocity, Kayak, Visa, Mastercard, and American Airlines. Glen alleges that each of these companies has "trafficked" in his confiscated property by facilitating the booking of rooms and other services at the four resorts and by profiting from those resorts' own trafficking.²⁹

Since Glen filed his lawsuits, three—those involving all the travel company defendants—have been consolidated into one action in Delaware. In exchange for the consolidation, the defendants have agreed to waive any jurisdictional defenses.³⁰ Meanwhile, Visa and Mastercard have tried to dismiss their separate Delaware case, arguing among other things that their services were "incident to lawful travel" within the meaning of Title III, and that Glen did not acquire the right to his claim until after March 12, 1996.³¹ In Florida, Glen has been given the green light to pursue jurisdictional discovery in his suit against American Airlines.³²

American Airlines is also fending off a separate new suit brought by Jose Ramon López Regueiro. Regueiro claims that he is the rightful owner of José Martí Airport, and he has sued both American Airlines and LATAM Airlines Group for "trafficking" in that airport by using it to transport cargo and passengers.³³ American Airlines and LATAM have both asked the district court to dismiss the case, raising a mix of jurisdictional and merits arguments as to why the court should not hear Regueiro's suit, including the "incident to lawful travel" argument.³⁴ The court has yet to rule on their request.

Two other American companies, Amazon and Susshi International, have also been named as defendants in Title III suits. Daniel A. Gonzalez sued both companies for "trafficking" in his confiscated agricultural property. Gonzalez claims that since 2017, Amazon and Susshi International have been selling and promoting the sale of marabu charcoal produced on his property.³⁵ Both companies have asked the district court to dismiss the case, highlighting in particular the lack of any alleged connection between the charcoal they sell and Gonzalez's property.³⁶ Once again, the court has yet to rule.

In early January, Maria Dolores Canto Marti sued Iberostar Hoteles y Apartamentos S.L., a Spanish hotel chain, for trafficking in "El Imperial," a hotel in Santiago once owned by Canto's parents. Canto alleges that Iberostar has co-managed and co-operated the renamed Iberostar Imperial Hotel with the Cuban government since at least November 2016.³⁷ Iberostar has not yet responded.

Finally, and most recently, on January 14, Marlene Cueto Iglesias sued Pernod Ricard, the French producer of alcoholic beverages. Cueto alleges that in 1963 the Cuban government confiscated her father's cognac company, Conac Cueto. Conac Cueto's assets were then allegedly folded into the government's rum company (the creatively named "Cuban Government Rum Company"), which began reselling Conac Cueto's cognac and other spirits under the brand name "Havana Club." Cueto claims that Pernod Ricard has partnered with the Cuban government since 1993 to distribute the Havana Club brand. Cueto claims Pernod Ricard has therefore trafficked in both the assets and the intellectual property of Conac Cueto, as well as profited from the Cuban government's possession of her father's company.³⁸ Pernod Ricard has not yet responded to these allegations.

Surprising Trends in Title III Cases and Parties

Several new twists in Title III litigation are becoming apparent.

First, the slow start we observed last July has not picked up much speed. Only 15 new cases have been filed in the last seven months, and five of those have already been dismissed (the two cruise line cases, the two duplicate cases brought by Glen, and the case brought by the John S. Shepard Family Trust against three hotels). All told, that means that there will be only 17 Title III cases left if and when the last two Havana Docks cases are dismissed.

Title III has thus spawned relatively little litigation despite being in effect for 10 months now. As we suggested last time,³⁹ that may reflect the fact that plaintiffs lawyers are unwilling to file high-cost suits over low-stake claims, and that potential plaintiffs with high-stake claims are unwilling to sue the companies with whom they do business (or hope to).

Second, the suits brought under Title III are being increasingly aimed at American companies. Out of the 15 new suits, six were brought against American defendants, seven against foreign defendants, and two against a mix. Even more dramatically, several of the original suits have pivoted away from grasping at remote foreign defendants and toward suing more reachable American ones. If the last two Havana Docks cases are dismissed, then almost two-thirds of the remaining 17 suits will have at least one American defendant, and over one-third will have exclusively American defendants. Only six will have exclusively foreign defendants.

All this is rather unexpected. Congress passed Title III of the Helms-Burton Act primarily to compensate American citizens for expropriations and to pressure foreign companies to stop doing business with Cuba. Indeed, Congress specifically justified Title III as part of the United States' "obligation to its citizens to provide protection against wrongful confiscations by foreign nationals and their citizens."⁴⁰ So Congress almost certainly never anticipated how much the law would be wielded against American companies, not least because many of the defendants thus far—including Amazon, American Airlines and Carnival—claim that they have received express permission from the Executive Branch (in the form of licenses from the Treasury Department's Office of Foreign Assets Control) to facilitate trade and travel with Cuba.

This focus on American companies makes sense for plaintiffs. Suing foreign companies, especially state-owned ones, means running a gauntlet fraught with procedural hurdles that do not exist in lawsuits brought against American defendants. For example, courts are unlikely to have personal jurisdiction over most foreign companies who allegedly engage in trafficking.  Foreign companies are by definition incorporated abroad, and the mere fact that they may be commercially active inside the United States will generally not be enough to bring them within the power of US courts. Nor is it usually going to be the case that plaintiffs’ claims of trafficking will arise out of these companies’ contacts with the United States.  The broader lesson seems clear: American companies are more easily reachable, so they are increasingly becoming the defendants.

Third, the Title III litigation has focused thus far on a relatively small pool of repeat plaintiffs and defendants. On the plaintiff's side, a few plaintiffs have brought multiple suits, and even plaintiffs whose suits are nominally unconnected to each other share the same attorneys. As is apparent even from the claims that have been brought, establishing enough facts to prove ownership of a claim under Title III is turning out to be very difficult. It may be that there are very few potential plaintiffs who are both willing and capable of doing so.

On the defendant's side, the trend is even starker. Companies like Carnival and American Airlines are defending against two suits each, while several travel booking companies are fighting three or four. Expedia is now defending against six suits simultaneously, apparently for helping book travelers into hotels in Cuba. (It is worth nothing that Expedia was the subject of a US government enforcement action last year for allegedly violating US-Cuba sanctions by assisting with Cuba travel bookings.)⁴¹ Exactly what to make of this limited, non-diverse pool of litigants is unclear, but it does suggest that other potential litigants may be treating the current litigation as test cases that will determine if, when, and how they eventually bring their own suits.

Fourth, it is also surprising that 9 out of the 12, non-Havana Docks cases filed since July were brought by plaintiffs with uncertified claims.⁴² Title III privileges plaintiffs who sue based on claims that have been officially certified by the US Foreign Claims Settlement Commission (FCSC) by creating a presumption of damages in the amount of the certified claim and by making the certification conclusive proof of ownership of an interest in property. Experts therefore expected most Title III suits to fall in this category, not least because the FCSC maintains a publicly available list of certified claims that could function as a roadmap for the plaintiff's bar to find clients.⁴³ So far, however, that has not happened, for reasons that remain unclear.

Some Contested Legal Issues

Courts have yet to rule on most of the legal questions raised by Title III cases, in large part because many of the plaintiffs are still straightening out exactly who they want to sue and where. Some of the arguments that defendants will raise, however, are becoming apparent, as are plaintiffs' plans to parry them.

One of the most critical threshold questions is who bears the burden of proving whether defendants' trafficking did or did not fall within certain statutory exceptions. Title III defines "trafficking" in an extraordinarily expansive way, but it also carves out several exceptions, including one for "transactions and uses of property incident to lawful travel to Cuba."⁴⁴ It is not immediately clear from Title III's language whether plaintiffs must show that these exceptions do not apply, or whether defendants must show that they do.

The answer matters, not only because it increases the burden on one side or the other, but also because it potentially affects the stage of litigation at which a case may be dismissed. Carnival argued in both of its cases that the plaintiffs had failed to allege the "lawful travel" exception did not apply, and that the cases should therefore be dismissed.⁴⁵ The district courts disagreed,⁴⁶ however, which means that the litigation may move past the threshold stage into the costly world of discovery. But the issue is far from settled, as other defendants like American Airlines have argued that those initial opinions were wrongly decided and that plaintiffs should be the ones showing that the "lawful travel" exception does not apply.⁴⁷

Another interesting legal question is playing out in the Exxon case. Cuba's decision to defend its state-owned companies there means that US courts will have the opportunity to receive full briefing on a contested legal question: does Title III waive the sovereign immunity that would normally protect states, their political subdivisions and their agencies and instrumentalities from suit? Exxon has argued that it does, citing Congress's intent to allow US citizens to recover from Cuban agencies and state-owned companies.⁴⁸ The two Cuban companies have responded that the Foreign Sovereign Immunities Act remains the sole basis for jurisdiction over foreign states, and that Title III's legislative history shows that Congress did not intend for Title III to waive states' sovereign immunity.⁴⁹ Both parties have strong arguments, and the district court's decision on Cuba's sovereign immunity will be groundbreaking.

Since the Cuban defendants have indicated that they will immediately appeal any adverse district court decision on this question, we are likely to see a decision on this point from the DC Circuit in the next two years.

Conclusion

It is too soon to say how the existing Title III cases will fare. So far, only a few suits have been dismissed, all on unique grounds. Title III plaintiffs have also scored a handful of successes (most notably the rulings about the "lawful travel" exception). But defendants have responded by throwing up a powerful array of jurisdictional and merits arguments. It will become clearer in the coming months whether these arguments will succeed.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.