D.C. Circuit Remands Helms-Burton Case Against Cimex

Exxon (then Standard Oil) owned several subsidiaries in Cuba that were expropriated without compensation by the Cuban government in 1960. In 1996, Congress enacted the Cuban Liberty and Democratic Solidarity Act (CLDS), which permits suits by U.S. plaintiffs against those who traffic in property confiscated by the Cuban government. Exxon has sued Cuban state-owned companies (collectively “Cimex”) under the CLDS in a case that illustrates the importance of discovery in Foreign Sovereign Immunities Act (FSIA) cases and that also raises an interesting question about the interaction between the CLDS and the FSIA. 

The CLDS and the FSIA

The CLDS, also called the Helms-Burton Act, creates a private right of action against any “person” who traffics in property expropriated by the government of Cuba after 1959. The U.S. president has the power to suspend the private rights of action, which all presidents did until 2019 when the Trump Administration reversed course. With the suspension lifted, Exxon sued three corporations that are all owned by the Cuban government, alleging that those defendants’ current participation in the oil industry and their operation of service stations on expropriated property constitute trafficking in confiscated property under the CLDS. In July, the D.C. Circuit vacated the district court’s decision in the case, Exxon Mobil Corp. v. Corporación Cimex S.A. and remanded for additional discovery. 

One part of the FSIA provides foreign states (and their agencies and instrumentalities) with immunity from suit, while another part of the FSIA provides them with immunity from measures of execution. The FSIA also sets out exceptions to both kinds of immunity, including exceptions to immunity from suit for some claims involving expropriations and commercial activity. It is uncontested that the defendants in this case are agencies and instrumentalities of the Cuban government and that they are thus presumptively entitled to immunity – —if the FSIA applies. The CLDS specifically defines a “person” subject to liability to include any agency or instrumentality of a foreign state, so it is also uncontested that the defendants in this case are subject to suit as “persons” under the CLDS. 

The defendants thus come within the terms of both the FSIA and the CLDS. A key question in the case is whether an agency or instrumentality of a foreign state that is subject to suit under the CLDS is also entitled to immunity under the FSIA, or whether the creation of a private cause of action under CLDS lifts any immunity to which the defendants might be entitled. The district court and two of the three judges on the D.C. Circuit panel reasoned that the plaintiff’s claims must come within an exception to the FSIA. For the many readers familiar with FSIA litigation, that answer may seem to be obviously correct. After all, the Supreme Court has repeatedly emphasized that the FSIA “provides the sole basis for obtaining jurisdiction over a foreign state in the courts of this country.”  That language, which originated in Argentine Republic v. Amerada Hess Shipping Corp (1989), if applied in this case, would mean that plaintiffs must not only allege a cause of action under the CLDS, but they must also satisfy an exception to the FSIA. 

That answer seemed right to me until I read the CLDS carefully. The statute is clear in its identification of state-owned entities as “persons” who are potentially liable parties. The point of the statute is to remedy confiscations of property by the Cuban Government, meaning that Congress had foreign states specifically in mind when it created the cause of action. The term “persons” is specifically defined to include “any agency or instrumentality of a foreign state.” In a case such as Amerada Hess, the statute or common law that created the cause of action did not specifically identify foreign sovereign entities as subject to liability, nor were they created with the conduct of foreign states in mind. The oft-repeated dicta from cases brought under such general causes of action is not necessarily convincing here. After all, the Supreme Court recently held the Amerada Hess language inapplicable in criminal prosecutions. Senior Circuit Judge Randolph’s dissenting opinion carefully lists each case in which the Supreme Court has repeated this language and notes that none of them address the CLDS. 

 The CLDS specifically refers to the FSIA. For example, it provides “[i]n an action under this section, service of process on an agency or instrumentality of a foreign state in the conduct of a commercial activity, or against individuals acting under color of law, shall be made in accordance with [the FSIA].”  If agencies and instrumentalities could only be sued pursuant to the FSIA, this language would be superfluous because the service of process requirements in the FSIA would already apply.  On the other hand, the Court of Appeals pointed to language in the CLDS providing that “[n]otwithstanding” the FSIA’s exceptions to a foreign sovereign’s immunity from attachment and execution, in CLDS actions “the property of a foreign state shall be immune from attachment and from execution” in certain conditions.  Such language only makes sense if Congress thought immunity was applicable in the first place, the Court of Appeals reasoned, meaning that FSIA immunity applies to suits brought under the CLDS. But that reasoning elides the key distinction between immunity from execution and immunity from suit.  The CLDS arguably creates a private cause of action that obviates immunity from suit – —but it would not lift immunity from execution, so the language cited by the Court of Appeals here is not on point.  

Finally, as Senior Circuit Judge Randolph emphasizes, the language of the CLDS is clear that “any person that … traffics in property which was confiscated by the Cuban government on or after January 1, 1959, shall be liable to any United States national who owns the claim to such property for money damages.”  Although this phrasing does not use the words foreign sovereign immunity, the language that defines “person” clearly seeks to impose liability on agencies and instrumentalities to which the FSIA generally applies, arguably obviating any immunity to which they would otherwise be entitled. 

The question is closer than I expected. 

The FSIA Commercial Activity Exception

Having decided that the FSIA applied, the court of appeals then turned to possible exceptions to immunity. It agreed with the district court that the expropriation exception was not applicable, but it vacated and remanded the case for further consideration of the commercial activity exception. The plaintiffs argued that the third clause of the commercial exception (28 U.S.C. § 1605(a)(2)) was applicable. That clause requires that the claim be “based upon” an act outside the United States that was taken “in connection with a commercial activity” of the defendant outside the United States, and that the act caused a “direct effect” in the United States.”  The “direct effect” requirement was difficult to apply in this case, as it has been in others.  

 The Supreme Court interpreted “direct effect” in Republic of Argentina v. Weltover to mean an effect with no intervening elements, but the effect need not be substantial or foreseeable. In this case, the district court concluded that CIMEX causes a direct effect in the United States through its remittances business in which money is transferred from the United States to people in Cuba and through the sale of U.S. goods at CIMEX convenience stores.  Defendants argued that the effect of the remittances business is not “direct” because it depends on the decisions of multiple third parties, including the people who send and receive the money. In some tension with the Supreme Court’s language in Weltover, the appellate court reasoned that in this case, because “the involvement of third parties is an entirely foreseeable (and even intended) consequence of the defendants’ relevant actions,” it “will not stand in the way of concluding that the defendants’ activity causes a direct effect in the United States.” An entity that “operates a remittances business knows full well—and indeed, intends—that people in one location will use the service to send money to recipients in another location.”  

The court nonetheless remanded for discovery to determine which of the CIMEX stations that process remittances are actually located on confiscated property, a number that appears to be between four and ten. The CLDS imposes liability only for trafficking in confiscated property, so the question is not whether CIMEX’s business as whole has a direct effect in the United States, but instead whether remittances from stations located on expropriated property have such an effect.  To do so, those stations must “cause” the direct effect, meaning that if “precisely the same amount of remittances would be sent from the United States to Cuba” even if those four to ten stations did not exist, then the defendants’ relevant conduct did “cause” the direct effect. This is a pretty fine-grained distinction.  

 The district court also concluded that the “direct effect” requirement may be met through CIMEX’s sale of imported U.S. goods at its gas stations. The defendants argued—again—that the involvement of an intermediary means that the effect was not “direct.”  CIMEX does not import directly from the United States, but instead orders products from Alimport, another Cuban company. Alimport, not CIMEX, decides the “source location” of the goods it provides to CIMEX. Here, too, the court of appeals remanded for more discovery. The key question, it reasoned, is whether CIMEX had “sufficient and continuing awareness that the goods it receives from Alimport originate from the United States—in other words, if CIMEX knows it is all but ordering U.S. goods when it places an order with Alimport.” If CIMEX has such knowledge, then by ordering the goods from Alimport, it induces the purchase of “what it knows and anticipates would be U.S. goods,” satisfying the direct effect requirement.  Here, too, determining the knowledge of the defendant about the source of the goods it sells appears to be a fine-grained and discovery-heavy undertaking. We will see what happens on remand.