Harvard International Law Journal

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The Legacy of the Libertad Act: Defeating Title III Claims and Protecting International Comity

Filed Under: Content, Online Scholarship, Perspectives

By: Jason Rotstein

Introduction

On April 17, 2019, United States Secretary of State Michael R. Pompeo announced the full implementation of the Cuban Liberty and Democratic Solidarity (Libertad) Act, or the Helms-Burton Act. “For the first time,” as of May 2, 2019, “claimants [can] . . . bring lawsuits [under Title III] against persons trafficking in property . . . confiscated by the Cuban regime.”

The announcement represented the first time a presidential administration did not suspend Title III’s private right of action, since the enactment of the Libertad Act on March 12, 1996.[1] This administration’s stated policy goal in effectuating Title III was to increase global pressure on the promotion of democracy in Cuba and the region.  The announcement coincided with the administration’s increased efforts to stifle support, including Cuba’s support, for the Maduro Government in Venezuela.

Specifically, the statute invites a federal private right of action: (1) by U.S. nationals, (2) who acquired ownership prior to enactment (March 12, 1996) of a claim to property, which was expropriated by the Cuban Government between January 1, 1959 and March 12, 1996; (3) and the claim must be brought (a) against persons who have trafficked or are trafficking in the confiscated property and (b) no later than two years after the trafficking giving rise to the action ceased to occur. “Trafficking” is defined as the use of, the participation in the use of or  transfer of the expropriated property or the deriving of a commercial benefit from activity involving the property.

The potential specter of liability and scourge of Title III—the Department of State reports that there are at least 200,000 potential claims under Title III—has concerned stakeholders since enactment. Title III’s definition of “trafficking” reaches an endless causal chain of transactions and/or benefits involving property, including securities, in Cuba. No attenuation principle or defenses to trafficking are available under the statute, and the act of state doctrine is declared inapplicable. Therefore, for more than twenty years, defeating a Title III claim has been seen as a legal puzzle.

The global legal community received Title III as a violation of international law.[2] Foreign governments—Canada, Europe, and Mexico—enacted “blocking statutes” to protect their nationals’ interests.

This Post analyzes the purpose and effectiveness of a blocking statute, and the role of a blocking statute in a litigation defense based on international comity doctrines such as foreign compulsion. The Post examines, in particular, the EU blocking statute and its import within a Title III litigation strategy; and the Post proposes that one of the legacies of the Libertad Act—before the Act is repealed or suspended again—may be as a vehicle for further defining the contours of the foreign sovereign compulsion doctrine. Title III litigation can serve as a barometer for the viability of sustaining an international comity defense in an era characterized by the expansion of the extraterritorial application of U.S. law. As the jurisdictional reach and extraterritorial application of U.S. law expands, how will courts react to a defense based on blocking statutes and the doctrine of foreign sovereign compulsion? Will the doctrine and jurisprudence evolve to avoid international discord and promote comity?

Blocking Statutes and the Foreign Sovereign Compulsion Doctrine

Blocking statutes are foreign countermeasures: foreign laws that conflict with and attempt to counteract the effect of the extension of U.S. law beyond its borders. Defenses based on blocking statutes almost uniformly fail, however, in U.S. courts.

Since Société Nationale Industrielle Aérospatiale v. U.S. District Court for S. Dist. of Iowa, 482 U.S. 522, 555 (1987), which held that a French Blocking statute “does not deprive an American court of the power to order a party subject to its jurisdiction to produce evidence even though the act of production may violate the statute,” “U.S. courts have ordered foreign parties to break their own countries’ laws with increasing frequency” and “almost all of the U.S. court-ordered violations of foreign law contravene foreign ‘blocking statutes.’”

Blocking statutes are treated by U.S. courts as issues of international comity, choice of law, and the deference to be afforded to a foreign sovereign and its laws. On balance are U.S. interests, the foreign interests, the litigants’ interests and, in the discovery context, the degree to which alternative procedures are viable. Courts typically consider four factors, which usually militate against the viability of a foreign blocking statute defense: (1) the fact that federal law governs matters of procedure, including discovery procedures;[3] (2) the severity and enforcement history of sanctions under a foreign blocking statute—i.e. are the sanctions real?; (3) temporality—whether the foreign law was enacted post-hoc; and, relatedly, (4) whether the foreign law pertains to the original, underlying conduct at issue in the litigation.

A litigation defense based on a blocking statute is often characterized as a foreign sovereign compulsion or international comity defense. It asks courts to consider “the political questions raised by one sovereign adjudicating the acts and/or laws of another.” The foreign sovereign compulsion doctrine, as detailed in the Restatement (Third) of the Foreign Relations of the United States § 443 (1986), recognizes that a foreign party should not be caught “between the rock of its own law and the hard place of U.S. law” and provides reasonable “protection from being caught between the jaws of this [U.S.] judgment and the operation of laws in foreign countries.” In practice the scope of the defense is narrow, especially as applied most frequently in the antitrust context: the defendant’s act (e.g., anticompetitive behavior) challenged as a violation of U.S. law must have been compelled in the first instance by a foreign sovereign within that sovereign’s jurisdiction and the refusal to comply must trigger the imposition of severe sanctions.

The EU Blocking Statute and the Libertad Act

The EU Blocking Statute, Council Regulation (EC) No 2271/96 of November 1996 aims, among others, at counteracting the extra-territorial application of U.S. laws. It provides that “EU Operators [including nationals, residents and legal persons incorporated in the European community] shall not comply with the listed extra-territorial legislation, or any decision, ruling or award based thereon.” Under the statute, “business decisions [should] remain free” and not be “forced upon EU operators by the listed extra-territorial legislation which the Union law does not recognise as applicable to them.”

Since the full implementation of the Helms-Burton Act in May 2019, multiple Title III lawsuits have been filed against French, German, and Spanish operators. By merely participating in the litigation, these EU operators are confronted with the prospect of violating Articles 5 and 9 of the Blocking Statute, which prohibit compliance with U.S. extra-territorial sanctions, (“whether directly or through a subsidiary or other intermediary”), including requests by courts. These violations are to be enforced by sanctions and penalties implemented by each Member State that are “effective, proportional, and dissuasive.” Meanwhile, non-appearance in a Title III suit in the U.S. could result in a default judgment and have other knock-on effects such as an exclusion from entering the United States and doing business in the United States under Title IV of the Libertad Act.[4] How then will a U.S. court rule when faced with a Title III EU operator defendant’s dilemma?

Predicting How a Court Will Rule

Recent case law on foreign sovereign compulsion and blocking statutes suggest a renewed focus on fairness and the protection of international comity. At its essence, an international comity defense asks a court to determine whether a defendant “is subject to conflicting legal obligations under two sovereign states” and whether “compliance with the laws of both countries is . . . impossible.”

The characterization of the EU blocking statute therefore is crucial. To sustain a viable defense, a defendant must show that it cannot comply with both the blocking statute and the requirements of Title III. The EU blocking statute conflicts with Title III in two ways: (1) it approves of “trafficking,” business interests with Cuban property—the underlying conduct which is the focus of Title III; and (2) it compels an EU operator defendant to abstain from complying with Title III litigation by sanctioning compliance with Title III litigation.

But other considerations relating to international comity must also be taken into account. For example, the Guidance Note 2018/C 277 I/03 to the EU Regulation, which states: “In 1998, the Union and the U.S. signed a Memorandum of Understanding by which the U.S. administration suspended the application of certain provisions of the Cuba extra-territorial sanctions ‘as long as the EU and other allies continue their stepped up efforts to promote democracy in Cuba.’” Importantly, Pompeo’s announcement on April 17, 2019 did not reference this Memorandum and did not suggest that operators from the EU and other allies were punished for their sovereign’s failure to uphold its commitment to promote democracy in Cuba.

Therefore, a court deciding a Title III action against an EU operator and resolving to abstain may rely on the compulsion experienced by a defendant in its home jurisdiction—to not comply with the requirements of Helms-Burton Act (including through the participation in Title III litigation)—as well as on the need to maintain “reciprocal tolerance” and “amicable working relationships between nations.” Recent case law suggests that courts are more likely to focus on the former. In In re Vitamin C Antitrust Litig., 837 F.3d 175, 194 (2d. Cir. 2016) the court boiled international comity to a true or pure conflict analysis and noted “that while we abstain from adjudicating Plaintiffs’ claims with respect to the Defendants’ conduct, the Plaintiffs are not without recourse to the executive branch, which is best suited to deal with foreign policy, sanctions, treaties, and bi-lateral negotiations.”

Conclusion

Cases that turn on considerations of international comity often raise fraught political issues. Title III of the Helms-Burton Act is an object lesson: for years, it seemed a non-administrable law, confirmed by presidential practice suspending its application. Now that it has taken effect, defendants find themselves caught, in some instances, between conflicting legal obligations under two sovereigns.

The effectuation of the Helms-Burton Act can be seen as apiece with the expanding jurisdictional reach of U.S. law. The Helms-Burton Act, therefore, provides a fruitful context to test and clarify the scope and parameters of international comity and the comity doctrine of foreign sovereign compulsion. The atmospherics surrounding the Helms-Burton Act suggest that international comity may evolve to meet the challenge of Title III.

Even if a defense fails based on a government interest analysis—i.e. the interests of the U.S. sovereign prevail over those of the foreign state—a judge may be sympathetic to the defendant caught between conflicting obligations. A judge may also abstain to preserve international harmony. A settlement or damage award in a Title III suit would likely set off parallel litigation under the EU Blocking Statute and other reciprocal treatment. Under Article 6, EU operators can bring a parallel private right of action against persons who cause damage to them through the extraterritorial application of U.S. law, such as a Title III lawsuit. A judge may abstain therefore to avoid internecine international conflicts. The evolution of jurisprudence in the Helms-Burton context could thus have a broader impact on the international comity doctrine beyond defeating the albatross of Title III.

Jason Rotstein is an associate at Arent Fox LLP in Washington, D.C., practicing litigation, trade, and international arbitration. He counsels parties in complex cross-border disputes and international litigation, including Helms-Burton Act litigation. He also writes commentary on developments in public international law, particularly the interaction between international tribunals and courts. The views expressed in this Post are his alone and do not reflect the opinion of Arent Fox LLP or its clients. 

[1] The story of Title III of the Helms-Burton Act reads as the stuff of legend, especially for international lawyers: personal vendettas, punitive measures, and, potentially, internecine international conflicts. In one camp are Nicholas Gutierrez and Ignacio Sanchez, who participated in the drafting of the legislation and shepherded the transfer of claims to U.S. nationals. (Title III retroactively provides rights to persons who transferred or assigned a claim to ownership of expropriated Cuban property to a U.S. national prior to enactment.) For them and potential claimants, the announcement represented the end of a road. In another camp are the scores of potential defendants, for which the mechanics of Title III have been a source of perplexity and perturbation.

[2] See U.S. Department of State, Legal Considerations Regarding Title III of the Libertad Bill, 141 Cong. Rec. S15106-01, 1995 WL 600630 (daily ed. Oct. 12, 1995) (“The LIBERTAD bill would be very difficult to defend under international law, harm U.S. businesses exposed to copy-cat legislation in other countries, create friction with our allies, fail to provide an effective remedy for U.S. claimants and seriously damage the interests of FCSC certified claimants. It would do so by making U.S. law applicable to, and U.S. courts forums in which to adjudicate claims for, properties located in Cuba as to which there is no United States connection other than the current nationality of the owner of a claim to property.”); see also Vaughan Lowe, U.S. Extraterritorial Jurisdiction: The Helms-Burton and D’Amato Acts, 46 Int’l Comp. L.Q., 378, 384 (1997); Andreas F. Lowenfeld, Agora: The Cuban Liberty and Democratic Solidarity (LIBERTAD) Act, 90 Am. J. Int’l L. 419, 429-430 (1996); Robert L. Muse, A Public International Law Critique of the Extraterritorial Jurisdiction of the Helms-Burton Act (Cuban Liberty and Democratic Solidarity (Libertad) Act of 1996), 30 Geo. Wash. J. Int’l L. & Econ. 207 (1996); August Reinisch, Widening the US Embargo Against Cuba Extraterritorially: A Few Public International Law Comments on the ‘Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996’, 7 Eur. J. Int’l L. 545, 550 (1996).

[3] Blocking statute litigation frequently arises in discovery disputes. Discovery is sought in a foreign country and a foreign blocking statute mandates alternative procedures.

[4] Although Title IV is an administrative sanction, a Title III and a Title IV action may happen in parallel. The actions are often complementary and the pressures to settle concomitant.