Cuba News: U.S. Allows Lawsuits for Trafficking on Confiscated Cuban Properties

Effective May 2, 2019, pursuant to Title III of the Cuban Liberty and Democratic Solidarity Act (known as the Helms-Burton Act), U.S. nationals (including citizens and legal entities) can sue any person or entity in U.S. federal court for “trafficking” on “property” that was confiscated from them by the Cuban Government on or after January 1, 1959. “Property” is broadly defined to include “any property (including patents, copyrights, trademarks, 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.” However, it does not include real property used for residential purposes, unless a couple of exceptions apply.

Title III may apply to many persons and entities because “trafficking” occurs when a person or entity (directly or through another person) intentionally, knowingly, and without authorization by the U.S. national “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 “engages in a commercial activity using or otherwise benefiting from confiscated property.” A person or entity is also at risk of trafficking if it causes, directs, participates in or profits from the above trafficking by another person or entity.

Because the State Department previously estimated there could be between 75,000 and 200,000 potential claims arising from Title III, the exposure could be significant. The pool of plaintiffs will come from (1) those who were U.S. nationals at the time of the confiscation and previously filed timely claims through the Foreign Claims Settlement Commission (FCSC) and (2) those who were Cuban citizens at the time of the confiscation but have since become U.S. nationals. For corporations and individuals with ties to Cuba, this is a time to assess whether they were owners of confiscated property (in which case they may be potential plaintiffs) or whether they may be considered to be trafficking in confiscated property (in which case they may be potential defendants).

Potential plaintiffs who wish to pursue a claim should consider the merits of the claim, the available damages, the ability to collect on a judgment and potential retaliatory lawsuits.

To assess the merits, a potential plaintiff should analyze the evidence of the following key information: (1) the plaintiff’s U.S. nationality; (2) the property’s location; (3) the property’s owner names and chain of title; (4) the timing and circumstances of the property’s confiscation; (5) the property’s type; (6) whether trafficking exists, the type of trafficking and by whom; (7)  whether the trafficking was intentional, knowing and unauthorized by the U.S. national who holds the claim; (8) whether personal jurisdiction exists;  (9) whether the property is the subject of a claim certified by the FCSC; and (10) whether any defenses exist (discussed below). Of note, a certified claim is sufficient proof of ownership.

If the potential plaintiff is able to prove its case, the total damages award could be significant because Title III provides for the recovery of the greatest amount among the following: (1) the amount certified by the FCSC; (2) the amount determined by a special master pursuant to Title III’s provision; or (3) 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. Title III also provides for interest, court costs and attorney’s fees, plus the ability to recover treble damages, under certain circumstances for those who have a certified claim or provided the required 30-day notice before filing the lawsuit.

Although a large damages award may be possible, care must be taken when dealing with a judgment against a foreign defendant because it may result in a retaliatory action in certain countries with blocking statutes and other laws that (1) render any judgment under Title III unenforceable, (2) limit the amount of discovery needed to support Title III claims, (3) make it illegal to comply with U.S. extraterritorial trade law, (4) contain a fee-shifting provision, or (5) permit a Helms-Burton foreign defendant to file a lawsuit in the foreign country for damages suffered as a result of imposition of the Helms-Burton measures. In the latter scenario, a U.S. national who secures a judgment against a European Union defendant in the United States could end up facing a lawsuit and judgment in the European Union that may be enforced against the U.S. national’s assets in the European Union. Navigating the interplay in international law in situations of foreign defendants will require careful thought and research.

However, if a viable lawsuit has been brought against a person or entity, or an entity believes it may be a potential defendant, the potential defendant should:

1. Assess the structure of the entity and its related companies within and outside of the United States to determine if they could be deemed to be trafficking.
2. Develop a plan to deal with any alleged trafficking, including weighing the pros and cons of ceasing or modifying such actions, and addressing the costs, risks and logistics involved.
3. Assess evidence of past due diligence to defend allegations of knowing and intentional trafficking.
4. Consider whether risks are properly addressed in corporate disclosures, as needed.
5. Assess the likely potential defenses, which may arise from:
a. Lack of personal jurisdiction.
b. Problems establishing the minimum amount in controversy.
c. Problems establishing ownership.
d. Problems establishing “trafficking” and the requisite knowledge and intent, considering the ability to show adequate due diligence into the confiscated interest before transacting the relevant business.
e. Problems establishing valuation.
f. The application of Title III exceptions.
g. Whether the claim was brought more than two years after the trafficking ceased to occur.
h. In connection with treble damages, whether the required 30 day notice was sent.
i. The application of blocking statutes and other foreign law relating to Title III, considering potential multi-jurisdiction litigation and filing of lawsuits under blocking statutes in home countries.
j. Whether the entity has an OFAC license for the subject activity.

In addition to allegations of current trafficking, if a person or entity has plans for future ties with Cuba, it should reassess the viability and desirability of these plans in light of Title III. If the plan is to proceed, a defendant may consider due diligence to prevent allegations of knowing and intentional trafficking. Contract clauses could also be inserted to require disclosures, representations and warranties related to trafficking, and indemnification and other contractual remedies (such as rescission) could be added to cover risks relating to Title III.

While the above provides some information to initiate an assessment relating to actions under Title III, in light of the unique issues of international and domestic law and facts, a full assessment of a potential party’s unique situation should be done on a case by cases basis in consultation with legal counsel.