Unintended Consequences for Reversing Rapprochement: Is the US Government Liable for a Loss of US Property in Cuba?

• Author: Kolansky, David

ABSTRACT

In 2014, the United States announced a historic reopening of ties with Cuba. This effort at rapprochement included restoring diplomatic relations and easing regulatory restrictions to facilitate greater business, trade, travel, and communication between the two nations. However, the US government's decision in 2017 to reverse course and reinstate the economic embargo against Cuba could result in significant legal and financial consequences for both US claimants who hold property in Cuba and the US government. One issue that arises is whether US corporations and individuals, who invested in property in Cuba following the Obama-era easing of restrictions, have a constitutional right to just compensation for their loss. Under the Fifth Amendment of the U.S. Constitution, if the government has expropriated one's property, a claimant can allege a regulatory taking and may seek fair compensation from the government. In addition to direct takings of US property overseas, the Fifth Amendment may have applications to takings by foreign governments, and therefore there is the potential of a court holding the United States liable for a foreign taking of US property in Cuba. Finally, if a court concludes that a US claimant has not demonstrated evidence of a foreign taking, there remain several alternatives for US claimants seeking compensation for their property that has been seized, frozen, or made inaccessible following the US regulatory shift preventing trade and travel with Cuba.

TABLE OF CONTENTS I. INTRODUCTION II. BACKGROUND A. The US Trade Embargo Against Cuba: from Past to Present B. The Obama Administration's Easing of Trade Restrictions on Cuba and the Resulting Investment Deals During the Obama-Era C. The Trump Administration's Tightening of Trade Restrictions III. THE TAKINGS DOCTRINE A. The Takings Clause and its Application Extraterritorially B. The Basis of a Foreign Taking: Judicial Frameworks for Evaluating a Taking of US Property Abroad 1. The Langenegger Test 2. Claim Extinguishment C. The Scope and Limits of Recovery for a Foreign Taking D. Available Remedies for a Regulatory Taking IV. LEGAL ARGUMENTS AVAILABLE TO US CLAIMANTS AND ALTERNATIVE SOLUTIONS A. Can US Claimants Establish an Effective Foreign Takings Claim in US Courts? B. Alternative International Frameworks for US Claimants without the Langenegger Test V. CONCLUSION I. INTRODUCTION

In December 2014, U.S. President Barack Obama announced a historic reopening of ties between the United States and Cuba. (1) This effort at rapprochement included plans to restore diplomatic relations and ease regulatory restrictions to facilitate greater business, trade, travel, and communication between the two nations. (2) Since 1962, an economic embargo had prevented the routine flow of goods, remittances, and people between the United States and Cuba. (3) The trade embargo, which was implemented largely in an effort to suppress and defeat the Castro regime, has a long and difficult history, exacerbated by Cuba's policies that nationalized American-owned properties and raised tariffs on US imports. (4) The initial embargo received sustained support through ten US administrations until President Obama took office.

When Presidents Obama and Raul Castro announced that their governments would restore full diplomatic ties and begin plans to liberalize trade and travel restrictions on Cuba, many US and multinational firms immediately began making investments and arranging business deals that would enable them to expand operations in Cuba as the market opened up to the United States. (5) Substantial business and investment opportunities developed across many industries, particularly in the travel, telecommunications, and agricultural sectors, as new policies favored such investments by reducing regulatory barriers and liberalizing market access between the two nations. (6) However, when President Donald Trump was elected in November 2016, his administration quickly reversed many of these Obama-era policies. (7) The policy shift left in its wake nonviable investments in Cuban property by US firms, like Google and Marriott Hotels, who had not expected that their ventures in Cuba would become frozen, and those economic interests potentially extinguished by future presidential administrations. (8)

President Trump's policy reversal, which channels US economic activities away from the Cuban government, had the practical effect of slowing down US business activities in Cuba, and for some US firms, the shift completely deprived them of their property in Cuba. (9) Corporations like AT&T and Starwood Resorts were suddenly unable to utilize their property or manage existing investments, despite regulatory assurances made during the Obama administration. (10) Herein lies a potential constitutional challenge against the US government. The constitutional right to private property, and its underlying protection, is often challenged under the "takings clause" of the Fifth Amendment, which states that "private property [shall not] be taken for public use, without just compensation." (11) A takings claim provides US nationals legal footing to challenge the US government over their lost property, if a claimant has not been adequately compensated. (12) To determine whether a government action constitutes a Fifth Amendment taking, courts conduct a two-part analysis: first, a trial court determines whether the claimant has identified a cognizable property interest under the Fifth Amendment that is the subject of the taking, and then, if it finds that a cognizable property interest exists, it considers whether that property interest was taken by the government.

The Supreme Court has held that if the government expropriated one's property, a takings action may be justified against the United States and the claimant may seek his constitutional right to just compensation. (13) But what specific government action effectively amounts to a taking presents a challenging question, and thus is a central issue as it pertains to property in Cuba. (14) By expanding the jurisprudence around a takings claim to include "regulatory takings," the court has recognized that regulatory interferences with property rights can have severe economic effects for property owners to the same degree as appropriations and physical invasions of land, effectively depriving the owner of the utility or value of that property. (15) Moreover, because courts have found that Fifth Amendment protections can apply outside the United States, the regulation of non-real-estate property, including by means of an embargo, has prompted fresh and heightened scrutiny of government conduct as it relates to private property. (16)

Courts have held that Fifth Amendment protections can apply extraterritorially. (17) In particular, a taking prompted by a foreign government constitutes a Fifth Amendment violation if the claimant can demonstrate that the taking was done on behalf of the US government. (18) But, the Fifth Amendment can also support a takings claim where the seizure of property abroad by a foreign government does not necessarily lead to the US government acquiring a possessory interest in the property. (19) The Fifth Amendment's scope has been extended to include "indirect" takings by foreign governments. (20) This suggests that the United States can be liable for a foreign taking (and just compensation) simply by encouraging foreign sovereigns to adopt domestic policies or programs that result in the seizure of a US claimant's property. (21) Accordingly, this Note examines the modern frameworks utilized by US courts to determine if a foreign taking has occurred, and then applies various judicial tests to determine whether US property losses in Cuba constitute a Fifth Amendment taking. It is also important to consider whether a taking exists in cases where the US government has extinguished a claimant's "live expropriation action" against a foreign government, as this would allow the claimant to seek just compensation. (22)

In the context of this policy dilemma, US investors and corporations must put forth enough proof to establish that US government involvement in the foreign expropriation was "sufficiently direct and substantial." (23) If there is clear evidence that the Cuban government seized or froze US citizens' property at the prompting of the US government or another foreign sovereign, this may confirm a Fifth Amendment taking in the eyes of the court. (24) However, if the US government can show that its policy changes do not amount to a clearcut taking and are nonjusticiable questions, then it will be difficult, if not impossible, for US property holders to demonstrate the existence of a regulatory taking for a foreign expropriation of property in Cuba.

If US claimants cannot successfully meet this burden in a US court, the best course of action may be to litigate their claim under the Helms-Burton Act of 1996. Title III of Helms-Burton extended the territorial application of the embargo to apply to foreign companies trading with Cuba. (25) The act permits US companies and individuals to seek compensation in US federal court against those trafficking in expropriated property taken by the Cuban government. (26) Title III also covers property formerly owned by Cubans who have since become US citizens. (27) Alternatively, a US citizen seeking compensation could lobby the US government to negotiate with the expropriating country for an award on its behalf, (28) or can pursue a local action against the foreign sovereign for just compensation in cash. (29) Both approaches may be available to US property owners alleging a taking in Cuba. This Note explores each of these solutions in more depth and considers other remedies available to property owners in the U.S. Court of Federal Claims. (30)

While this Note discusses the United States' trade embargo with Cuba and examines the scope of a foreign...