Title III Suits Under the Helms-Burton Act
Title III of the Helms-Burton Act allows US nationals to bring suit against a party who “traffics” in property that was confiscated from them by the Cuban government. Successive US Presidents have suspended this private right of action since the Act’s inception in 1996.
However, the Trump administration is no longer suspending Title III, and the right of action became available on May 2, 2019. Companies doing business in Cuba should be aware that they may be exposed to potential suits, and those companies with assets expropriated by the Cuban government since 1959 may be able to recover the value of those assets, plus interest.
I. Background: The Helms-Burton Act
Passed in 1996, the Helms-Burton Act created a private right of action in U.S. federal courts for U.S. nationals who had assets nationalized by the Cuban government after January 1, 1959. The Act allows victims of nationalization to bring suit against any company that “traffics” in the victim’s confiscated properties. However, the Act confers upon the President the right to suspend Title III for six months at a time. Partially as a result of pushback from US allies, then President Bill Clinton first suspended Title III immediately after it came into force, and it remained suspended until recently.
The decision by the Trump administration to allow suits under Title III follows the general course of the administration’s Cuba policy, which is aimed at increasing economic pressure on the country.
The Act confers upon the Foreign Claims Settlement Commission (“FCSC”), a quasi-judicial independent agency within the US Department of Justice, authorization to certify claims for expropriated property. There have been two rounds of certification – one completed in 1972, and another completed in 2006. In total, the FCSC has certified approximately $2 billion in claims against the Cuban government.
Once certified, claims are eligible for treble damages under Title III, and benefit from a presumption that the FCSC valuation of the confiscated property is correct. The FCSC has certified claims for a wide range of expropriations, including telephone service providers, industrial plants, gas stations, and port facilities.
II. Potential Claims
While the breadth of the Act has yet to be tested in litigation, on its face the Act’s definition of “traffics” is very broad and includes holding an interest in the confiscated property or “commercial activity using or otherwise benefiting from confiscated property.” “Property” is also broadly defined and includes future rights and interests, but generally does not include residential property.
The apparently broad definitions of “traffics” and “property” in the Act create potential exposure for any entity doing business in Cuba. While most of the assets underlying claims certified by the FCSC are still owned and operated by the Cuban government, the expansive definition of “traffics” means that any entity that engages in commercial activity that directly or indirectly involves the confiscated property may be vulnerable to suit.
Exposure is therefore almost unavoidable for entities that use local Cuban infrastructure to conduct business. Litigation risk may also exist for entities that are merely affiliated with companies that do business in Cuba.
For example, a financial institution that funds the development of a Cuban mine, oil field, or hotel may find itself subject to claims under the theory that it has benefitted commercially from property confiscated from a US national. For potential plaintiffs looking for a defendant who may be liable for trafficking in their confiscated property, the apparently broad definition of “traffics” means that finding such a defendant may not be exceptionally difficult – indeed, a potential plaintiff may have several defendants to choose from.
III. Damages Under the Act
Title III provides for potentially significant exposure for relatively small acts of “trafficking.” Specifically, entities found to have trafficked in confiscated property may be liable to the former owners of that property for its entire value (plus interest and possible treble damages), rather than the defendant’s economic benefit from the property.
Base damages are calculated by using the greater of (i) the current fair market value of the confiscated property; (ii) the fair market value of the property when confiscated, plus interest; (iii) for a FCSC certified claim, the amount certified, plus interest; or (iv) for an uncertified claim, the value determined by a court-appointed “master.” If a claim is certified by the FCSC a presumption exists that the certified value should be used, which can be rebutted by clear and convincing evidence that another valuation method is more appropriate.
When calculating interest from a past expropriation the FCSC has applied a rate of 6% interest from the date of confiscation. Treble damages are available on the total amount (principal and interest) for claims certified by the FCSC, and in the case of uncertified claims, for plaintiffs who provide defendants with a 30 days “cease-and-desist” notice under the provisions of Title III before bringing suit. Plaintiffs are also eligible to recover costs and attorneys’ fees.
By way of illustration, one of the first claims brought under Title III of the Act is against Carnival Cruise Lines, and is based on Carnival’s use of a pier in Havana’s port to load and unload passengers, which it has allegedly done since 2016. The plaintiff claims that the pier was expropriated by the Cuban government in 1959, and has brought a claim against Carnival for the value of the entire pier at that time (approximately $9 million), plus interest.
Due to the accumulation of almost 60 years of interest and the possible availability of treble damages, Carnival’s exposure from merely using this pier to load its passengers may exceed $750 million.
IV. Potential Defenses
There are a number of potential defenses that could be raised by defendants under Title III.
Personal Jurisdiction: Plaintiffs under Title III will still need to show that the US constitutional requirements for a court to exercise personal jurisdiction over a defendant are met. Since in most cases the “trafficking” that gives rise to exposure will occur outside the borders of the US, showing personal jurisdiction over a defendant may be a challenge where the entity is not “at home” in the US.
However, it is too early to tell whether fact patterns exist that may support a court’s exercise of specific jurisdiction – that is, jurisdiction based on the defendant’s claim related conduct within the US. It is possible that a court would find a situation where a company commercially benefits from its use of Cuban property in the United States to provide the requisite minimum contacts to satisfy the test for the exercise of specific jurisdiction.
Failure to State a Claim: To state a claim under the Act, a plaintiff must show that the defendant “knowingly and intentionally” “trafficked” in property that formerly was owned by plaintiff or its predecessors and was nationalized by the Cuban government. Defendants may contest whether they “knowingly and intentionally” “trafficked” in confiscated property; whether the plaintiff can show a chain of ownership of the claim from the date of confiscation; or whether the defendant’s actions meet the definition of “traffics.”
Challenges to Title to Confiscated Property: For claims that are not certified by the FCSC, plaintiffs will need to prove that they had title to the property which they claim is now being trafficked. Establishing such a claim could be difficult given that almost 60 years has passed since many expropriations. However, not all expropriations occurred in the 1960s – the FCSC has certified claims for expropriations that occurred as late as 2003.
Exemptions: Title III carves out several activities as exempt from claims: (i) the broadcasting of international telecommunications signals to Cuba; (ii) the trading of publically held securities (unless the trading is with or by a person specifically subject to sanctions); (iii) transactions and uses of property by a Cuban who is not part of the government; and (iv) “transactions and uses of property incident to lawful travel to Cuba, to the extent…necessary to the conduct of such travel.”
This last exemption in particular is likely to be the subject of significant litigation, as many companies in the travel and hospitality industries currently do business in Cuba and will rely on this exception in defending against claims brought under the Act.
Licenses: Some companies received licenses from OFAC under the Obama Administration that authorized them to do business in Cuba. To date, the current Administration has suggested that activities conducted under such licenses are not exempt from claims under the Act. Depending on the terms of the licenses, which are generally not public, courts may come to a different view.
Statute of Limitations: The Act creates a two-year limitations period, such that activities that ceased more than two years ago should not be the subject of a claim. It is possible, however, that the courts will consider the statute of limitations under the Act to have been “tolled” for the period from the passage of the act in 1996 until May 2, 2019, because the government disallowed claims during that period.
Justiciability and Constitutionality: Some commentators have questioned whether the Act violates the Act of State doctrine, which limits the ability of courts to judge the acts of foreign governments, or the equal protection and due process protections of the Constitution. These defenses would likely be an uphill battle. The Helms-Burton Act expressly states that the Act of State Doctrine is not a defense to claims under Title III.
V. Other Factors to Consider:
Foreign Blocking Statutes: Several foreign countries responded to the passage of the Helms-Burton Act by passing “blocking statutes” which are meant to deter suits under Title III, including statutes passed by the EU, Canada, and Mexico. These statutes all prohibit the recognition or enforcement of judgments under Title III, and provide a retaliatory “clawback” right of action that allows an entity that suffered a judgment in a Helms-Burton suit to bring a suit against the Helms-Burton plaintiff for the value of that judgment.
Claims Under Bilateral Investment Treaties: Non-US companies whose US investments are seized to enforce a Title III judgment may be eligible to bring a claim under a US bilateral investment treaty, if applicable. In contrast to the blocking statutes discussed above, such a claim could allow the company to recover the value of the judgment from the US government, rather than the Helms-Burton plaintiff.
Re-implementation of Title III Suspension: The possibility exists that the Trump administration, or a successor administration, could re-implement the suspension of Title III. However, provisions of the Act state that any actions filed before such a renewed suspension are not effected or suspended.
As such, if the administration signals that it plans to re-implement the suspension, potential defendants should expect to see a surge of claims in response, as plaintiffs race to make their claims before they lose the right to do so. Potential plaintiffs should monitor developments in the area closely to ensure that they do not miss their chance to bring a claim.
Title IV of Helms-Burton: Title IV allows the allows the Secretary of State to bar persons or entities who traffic in confiscated property from the United States, including corporate officers and controlling shareholders of such entities. The US government has so far not used its powers under the Act, but the Trump administration has signaled that it will ramp up its enforcement of this provision. Entities who may have exposure to Title III claims should therefore also consider exposure to Title IV.
VI. Next Steps for Entities Effected by Title III
Many of the companies that have had assets confiscated by the Cuban government are now once again doing business in Cuba. The result is that some companies have both a potential claim under Title III and potential exposure arising from their current activities. Below we outline next steps that companies should consider in both situations.
(a) Next Steps for Potential Defendants Concerned About Exposure
Potential exposure exists for companies that have done business in Cuba, or are affiliated with an entity that has done business in Cuba. The uncertainty surrounding the tolling of the 2-year statute of limitations means that exposure could exist for trafficking that occurred as early as 1996. As a result, companies should analyze their history of business dealings that relate to Cuba, but pay special attention to the last two years.
There are several potential steps that companies can take to assess and limit their exposure under Title III:
- Information Gathering: Companies should assess whether they have participated in actions that could constitute “trafficking” under Title III, bearing in mind that more direct relationships to Cuban property pose more significant risk. Such an assessment should include an analysis of whether business affiliates are involved in the “trafficking” of confiscated properties. For any such potential actions, companies should ascertain whether and what type of due diligence was done on the business dealings that involve the property, which may create a defense under the “knowing and intentional” requirement for trafficking.
- Due Diligence on Future Business Dealings: For any future business dealings that may involve Cuba or affiliates doing business with Cuba, companies should conduct due diligence on the possibility that the business may involve confiscated properties, in order to create a “knowing and intentional” defense against a claim for trafficking. Contracts involving risk of a Title III case should include appropriate representations and warranties, and indemnification clauses where possible. If feasible from a business perspective, companies could consider limiting or ending their business dealings that create Title III exposure.
- Regulatory Disclosures: Publically-traded companies concerned about exposure under Title III should consider whether the associated risk requires disclosure under reporting regulations.
- Monitor Legal Developments and Assess Countermeasures: Companies with exposure should actively monitor developments in this area and have a contingency plan should they be the recipient of a Title III claim. Such a plan should include an analysis of whether, how, and when it may be prudent to cease business dealings involving Cuba, and what “clawback” claims may be available under the relevant blocking statutes or bilateral investment treaties.
(b) Next Steps for Potential Plaintiffs Considering a Claim
Despite the seemingly generous provisions of Title III, the untested nature of the statute and complex requirements around bringing a claim make careful consideration of any legal steps especially necessary. Potential plaintiffs should begin with the following:
- Information Gathering: Potential plaintiffs should carefully assess the property that was confiscated, its value (both on the date of confiscation and in the present), whether the property has been certified by the FCSC, and their ability to prove ownership. Plaintiffs should also assess what entities may be “trafficking” in the confiscated property and evaluate suits against such parties on a case-by-case basis, keeping in mind that certain defendants may be eligible to bring retaliatory “clawback” suits.
- Evaluate Strategic Options: There are a number of key strategic choices to consider with regards to a potential claim under Title III. For example, potential plaintiffs should carefully evaluate which legal entity in their business structure has the best standing to bring a claim, as the Act contains specific requirements regarding the continuity of claim ownership and the transfer of claims between entities, and these requirements vary based on the date of expropriation. Further, any legal action regarding a claim that is not brought under Title III can disqualify a plaintiff from bringing a Title III claim, and vice-versa. Potential plaintiffs should carefully consult with knowledgeable counsel before taking any legal steps.
- Special Considerations for Uncertified Claims: Potential plaintiffs considering a claim that has not been certified by the FCSC have additional considerations. For example, in order to be eligible for treble damages under the Act, plaintiffs with an uncertified claim must give a “cease-and-desist” notice the defendant in their suit at least 30 days before filing a claim. Further, Title III bars some categories of uncertified claims, including those that were eligible for certification by the FCSC at certain points in the past.
- Filing a Claim: Due to the complex nature of the considerations involved, the actual filing of a claim under Title III should only be done after thorough consideration of legal options and consultation with knowledgeable counsel.
VII. Three Key Takeaways
- The current administration’s decision not to extend the suspension of Title III of the Helms-Burton Act will expose many companies to suit for business dealings connecting them to Cuba. At the same time, it may provide certain companies, who had assets confiscated by the Cuban government, with claims worth millions or billions of dollars.
- Evaluating such claims will require an in-depth analysis of the extent of a company’s contact with Cuban property, and should be completed on a case by case basis. Regardless of whether one is a potential plaintiff or a potential defendant, there are several proactive steps that companies can take to assess their current exposure, limit future claims, or increase their chances of succeeding with a claim.
- The suspension of Title III since the passage of the Helms-Burton Act in 1996 and the apparently broad scope of “trafficking” under the Act means that there is substantial uncertainty around how several key provisions of Title III will be interpreted. In such a situation the assistance of effective counsel can make the difference between a successful defense and a successful claim. Companies who are considering either should contact knowledgeable counsel as soon as possible.
 Pub. L. No. 104-114, 110 Stat. 785 (1996) (codified at 22 U.S.C. §§ 6021-91).
 In May 1998 the US and the EU reached an agreement, the “Understanding about Expropriated Property,” under which the EU suspended a WTO suit based on the Act, and the Clinton administration agreed to suspend Title III of the Act and refrain from using Title IV against European businesspeople who did business in Cuba.
 The most recent six-month suspension was on June 28, 2018. On January 16, 2019, the Secretary of State suspended the right of action for 45 days, and then for 30 days on March 4 and two weeks on April 3. On April 17 the Secretary of State and the White House announced that effective May 2nd it would allow Americans to bring lawsuits under Title III, and that under Title IV the State Department will not issue a visa to anyone who has trafficked in property under the Act.
 Approximately 900 claims have been certified by the FCSC as having a value of more than $50,000, which is the minimum required to bring a claim under Title III.
 Applying this rate, compounded annually, from a confiscation date in 1959 yields a current return of approximately 2700% on the 1959 value of the confiscated property.
 The administration stated that there would be no exceptions under Title III for American companies. Special Briefing, Office of the Spokesperson, Assistant Secretary for Western Hemisphere Affairs Kimberly Breier. Washington, DC, April 17, 2019. Available at < https://www.state.gov/r/pa/prs/ps/2019/04/291176.htm>.
 EU Council Regulation 2271/96, “Protecting Against the Effects of the Extraterritorial Application of Legislation Adopted by a Third Country.” The EU potentially has the greatest ability to retaliate against claimants. The European Commission has noted that an overwhelming majority of the 50 largest claimants certified by the FCSC – who together make up more than 70% of the total value of certified claims – have assets in the EU.
 Foreign Extraterritorial Measures Act (FEMA), R.S.C. 1995, c F-29 (as amended). The Act was specifically amended in 1997 in response to the Helms-Burton Act.
 Ley de Protección al Comercio y a la Inversión de Normas Extranjeras que Contravengan el Derecho Internacional [LPCINECDI], Diario Oficial de la Federación [DOF], 22-10-1996.
 Companies should consider whether they have the capability to quickly end their business dealings that could be construed as “trafficking.” Ceasing to traffic in confiscated property will not provide a defense to a Title III claim. However, it may limit future claims based on the two-year statute of limitations, and may limit the applicability of treble damages for claims not certified by the FCSC.
Title III provides that treble damages are only available for non-FCSC certified claims if a defendant fails to cease trafficking within 30 days of receiving a statutory “cease-and-desist” notice under the Act. Thus, the ability to quickly cease dealings that could be construed as “trafficking” in the event of a claim could limit exposure. If a company cannot quickly end its business dealings, it should consider whether a pre-emptive exit from Cuba would be in its best interest.
 The blocking statutes are a two edged sword: in addition to giving Title III defendants a right of action to recover the value of any US judgment, some blocking statutes prohibit certain compliance with the Act. The most prominent example is the EU blocking statute, which prohibits compliance, “based on or resulting, directly or indirectly” from the Helms-Burton Act.
It is possible that an EU court could construe withdrawing from business dealings in Cuba as compliance with the Act, which would expose such companies to legal action. However, the same provision provides a process for companies who fear substantial damages under Helms-Burton to apply to the EU for the ability to comply with the Act.