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Villoldo v. Ruz

United States District Court, D. Massachusetts

July 7, 2015

ALFREDO VILLOLDO, individually, and GUSTAVO E. VILLOLDO, individually, and as Administrator, Executor, and Personal Representative of the ESTATE OF GUSTAVO VILLOLDO ARGILAGOS, Plaintiffs,
v.
FIDEL CASTRO RUZ, as an individual, and as an official, employee, or agent of the Republic of Cuba, RAUL CASTRO RUZ, as an individual, and as an official, employee, or agent of the Republic of Cuba, THE MINISTRY OF INTERIOR, an agency or Instrumentality of the Republic of Cuba, THE ARMY OF THE REPUBLIC OF CUBA, an agency or instrumentality of the Republic of Cuba, and THE REPUBLIC OF CUBA, a foreign state, Defendants

For Alfredo Villoldo, Individually, Gustavo E. Villoldo, individually, and as Administrator, Executor and Personal Representative of the Estate of Gustavo Villoldo Argilagos, Plaintiffs: Andrew C. Hall, Roarke Maxwell, LEAD ATTORNEYS, PRO HAC VICE, Hall, Lamb and Hall P.A., Miami, FL; Louis M. Ciavarra, LEAD ATTORNEY, AiVi Nguyen, Bowditch & Dewey, LLP, Worcester, MA; Brandon R. Levitt, PRO HAC VICE, Hall, Lamb and Hall, P.A., Miami, FL.

Maria Ana Abarrio Sainz, Interested Party, Pro se, Matanzas, CP.

For United States, Interested Party: Benjamin L. Berwick, LEAD ATTORNEY, United States Department of Justice, Civil Division, Federal Programs Branch, Washington, DC; Anthony J. Coppolino, United States Department of Justice -FPB, Civil Division, Washington, DC.

For State Street Bank and Trust Company, Trustee: Donald M. Deng, Wilmer Hale LLP, Boston, MA; Julie Callahan Shields, State Street Bank and Trust Company, Boston, MA.

For Computershare Inc., Trustee: Brian R. Birke, LEAD ATTORNEY, Adler, Pollock & Sheehan, PC, Boston, MA; Daniel D'Angelo, LEAD ATTORNEY, Computershare, Canton, MA; Michael C. Gilleran, LEAD ATTORNEY, Burns & Levinson LLP, Boston, MA.

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MEMORANDUM AND ORDER ON PLAINTIFFS' MOTION TO COMPEL RE-ISSUANCE OF CERTIFICATED SHARES (Docket No. 37), and MOTION FOR ORDER TO COMPLETE TURNOVER AND SET BOND FOR RE-ISSUANCE OF CERTIFICATED SHARES (Docket No. 49)

TIMOTHY S. HILLMAN, DISTRICT JUDGE.

Introduction

Plaintiffs Alfredo Villoldo, Gustavo Villoldo, and the Estate of Gustavo Villoldo Argilagos (" Plaintiffs" ) seek the turnover of 383 securities accounts held by Trustee-Process Defendant Computershare, Inc. (" Computershare" ). The accounts (" Computershare accounts" ) were opened in the 1950s by seventy individuals with Cuban addresses. Computershare, located in Canton, Massachusetts, is a transfer agent of U.S.-based securities issuers. Plaintiffs seek the turnover of the Computershare accounts in execution of a default judgment obtained by Plaintiffs in a Florida state court against Defendants Fidel Castro Ruz, Raul Castro Ruz, the Ministry of the Interior, the Army of the Republic of Cuba, and the Republic of Cuba. The judgment was awarded for the wrongful death and personal injuries of Gustavo Villoldo

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Argilagos, who was abducted, imprisoned, and tortured by the Castro regime following the Cuban Revolution. Plaintiffs are the sons and estate of Gustavo Villoldo Argilagos.

This Court granted Plaintiffs' initial ex parte motion for turnover on December 11, 2013. (Docket No. 27) (" Turnover Order" ). The Court found that under Cuban Law Nos. 567 and 568, the Computershare accounts are owned by the Republic of Cuba, and are therefore subject to attachment and execution to satisfy Plaintiffs' judgment under the Terrorism Risk Insurance Act of 2002 and the Foreign Sovereign Immunities Act. The Court issued a trustee summons and Computershare filed an answer on December 31, 2013, in which it indicated that it would not oppose the turnover of the accounts within its possession. (Docket No. 30).

On April 2, 2014, however, Computershare had a change of heart and filed an emergency motion for a continuance of the turnover process, citing " the myriad of regulatory, contractual, and statutory securities issues" raised by the Turnover Order. (Docket No. 45). The Court granted the continuance, prompting Plaintiffs to file a motion for an order directing Computershare to complete the turnover process. (Docket No. 49). Subsequently, the United States filed a statement of interest urging the Court rescind the Turnover Order. (Docket No. 69). Specifically, the United States asked the Court to reconsider its conclusion that the accounts are owned by Cuba.[1]

In an order dated January 8, 2015, this Court determined that it would reconsider the Turnover Order and requested additional briefing from the parties on whether Cuban Law Nos. 567 and 568 vested ownership of the Computershare accounts in Cuba. (Docket No. 85). For the following reasons, the Turnover Order (Docket No. 27) and the Order Directing Turnover of Book Shares and Cash Accounts (Docket No. 35) are vacated. Plaintiffs' Motion to Compel Re-Issuance of Certificated Shares (Docket No. 37) and Motion for Order to Complete Turnover and Set Bond for Re-Issuance of Certificated Shares (Docket No. 49) are denied.

Discussion

The Foreign Sovereign Immunities Act (FSIA) provides that " a foreign state will be 'immune from the jurisdiction of the courts of the United States and of the States.'" Hausler v. JP Morgan Chase Bank, N.A., 770 F.3d 207, 211 (2d Cir. 2014) (citing 28 U.S.C. § 1604 (1988)). However, Congress has created certain terrorism-related exceptions to the general immunity that foreign sovereigns enjoy in federal and state courts. One of those exceptions is § 201 of the Terrorism Risk Insurance Act (TRIA), which makes liable terrorist states for judgments obtained against them in U.S. courts. Section 201(a) provides:

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Notwithstanding any other provision of law . . . , in every case in which a person has obtained a judgment against a terrorist party on a claim based upon an act of terrorism, or for which a terrorist party is not immune under [28 U.S.C. § 1605A] . . . , the blocked assets of that terrorist party (including the blocked assets of any agency or instrumentality of that terrorist party) shall be subject to execution or attachment in aid of execution in order to satisfy such judgment to the extent of any compensatory damages for which such terrorist party has been adjudged liable.

Terrorism Risk Insurance Act of 2002, § 201(a), Pub. L. No. 107-297, 116 Stat. 2322,, (codified at 28 U.S.C. § 1610 Note " Satisfaction of Judgments from Blocked Assets of Terrorists, Terrorist Organizations, and State Sponsors of Terrorism" ) (hereinafter " TRIA § 201(a)" ) (emphasis added).

The issue before this Court is whether the Computershare accounts are owned by the Republic of Cuba. If so, TRIA § 201(a) allows Plaintiffs to attach the accounts in satisfaction of their Florida state court judgment.[2] Plaintiffs argue that the accounts, which are held in the names of seventy account holders believed to be Cuban nationals, are the property of Cuba. According to Plaintiffs, Cuban Law Nos. 567 and 568 made it illegal for Cuban nationals to hold investments in foreign companies and any such assets were automatically nationalized pursuant to those laws in the early to mid-1960s. Therefore, Plaintiffs claim that the Computershare accounts are owned by Cuba. Computershare and the United States raise three impediments to this theory of recovery. First, they argue that Cuban Law Nos. 567 and 568 cannot be given extraterritorial effect by this Court. Second, they contend that the penal law rule precludes application of the Cuban laws. Third, Computershare and the United States assert that, by their plain language, the Cuban laws did not nationalize the Computershare accounts.

The Act of State Doctrine and the Extraterritorial Effect Rule

Computershare and the United States first assert that the Cuban laws cannot be given extraterritorial effect. Courts in the United States are precluded " from inquiring into the validity of the public acts a recognized foreign sovereign power committed within its own territory." Hilton v. Kerry, 754 F.3d 79, 85 n.4 (1st Cir. 2014) (quoting Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 401, 84 S.Ct. 923, 11 L.Ed.2d 804 (1964)). This general rule, known as the act of state doctrine, arises from our government's system of separation of powers and the recognition that the executive branch bears primary responsibility for conducting foreign affairs. See Tchacosh Co., Ltd. v. Tockwell Intern. Corp., 766 F.2d 1333, 1336 (9th Cir. 1985). Decrees by foreign governments purporting to confiscate property are " the very archetype of an act

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of state." Republic of Iraq v. First Nat'l City Bank, 353 F.2d 47, 50 (2d Cir. 1965).

However, the act of state doctrine only forbids judicial examination of " taking[s] by a foreign sovereign of property within its own territory," and does not bar inquiry into the expropriation of property located outside the foreign state.[3] Id. at 51 (emphasis added); see also Banco Nacional de Cuba v. Chemical Bank New York Trust Co., 658 F.2d 903, 908 (2d Cir. 1981). U.S. courts generally " will not give extra-territorial effect to a confiscatory decree of a foreign state, even where directed against its own nationals." Maltina Corp. v. Cawy Bottling Co., 462 F.2d 1021, 1025 (5th Cir. 1972). This is true regardless of whether the foreign state attempts to expropriate property of individuals or a domestic corporation. See Republic of Iraq, 353 F.2d at 51. The prevailing rule is that when property is located in the United States at the time of the foreign state's attempted confiscation, U.S. courts will recognize the foreign decree only if it would be " consistent with the policy and law of the United States." Id. (quoting Restatement of Foreign Relations Law of the United States § 46); see also Chemical Bank, 658 F.2d at 908-09 (discussing United States v. Belmont, 301 U.S. 324, 57 S.Ct. 758, 81 L.Ed. 1134 (1937)).

Plaintiffs contend that the extraterritorial effect rule does not apply because Cuban Law Nos. 567 and 568 caused assets of Cuban nationals to be " forfeited" to the Cuban government rather than " confiscated" or " expropriated." Plaintiffs cite no authority for this semantic distinction and the Court rejects it.[4] The interpretation of the Cuban laws advanced by Plaintiffs would eliminate the rights of the Cuban nationals to the Computershare accounts and vest ownership in the Republic of Cuba. See Decl. of Jorge Salazar-Carrillo, Docket No. 95, Ex. A-1; Decl. of Jaime Suchlicki, Docket No. 95, Ex. B. Further, the parties do not dispute that the accounts are located in Massachusetts. Thus, " it is appropriate to treat [the Cuban

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laws] as . . . foreign decree[s] purporting to expropriate property located within the United States." Maltina, 462 F.2d at 1027. The question for the Court, then, is whether it would be consistent with United States policy and law to recognize the validity of Cuban Law Nos. 567 and 568. Clearly, it would not.

Whether recognition of Cuban Law Nos. 567 & 568 is consistent with U.S. policy and law

Principles embodied in the Fifth Amendment to the U.S. Constitution prohibit the state from depriving individuals of property without compensation. See Maltina, 462 F.2d at 1027. This alone is grounds for the Court to find that Cuban Law Nos. 567 and 568 are incompatible with the policy and law of the United States.[5] See United Bank Ltd. v. Cosmic Int'l., Inc., 542 F.2d 868, 872-877 (2d Cir. 1976) (refusing to recognize Bangladesh law purporting to expropriate payment due to successors of Pakistani corporations from American company); Menendez v. Saks & Co., 485 F.2d 1355, 1364 (2d Cir. 1973) (refusing to recognize Cuban law purporting to seize Cuban cigar companies' accounts receivable located in United States); Maltina, 462 F.2d at 1027 (refusing to recognize Cuban law purporting to expropriate Cuban corporation's trademark rights in United States); Republic of Iraq, 353 F.2d at 51-52 (refusing to recognize Iraqi law purporting to confiscate former Iraqi king's bank accounts located in New York); cf. Williams & Humbert Ltd. v. W. & H. Trade Marks (Jersey) Ltd., 840 F.2d 72, 75, 268 U.S. App.D.C. 192 (D.C. Cir. 1988) (observing that " had Spain attempted to expropriate without compensation property . . . within the United States at the time of expropriation, our courts would not assist Spain in obtaining such property" ).

Nonetheless, Plaintiffs assert that the Cuban laws should be enforced and urge the Court to conclude that this case is controlled by Banco Nacional de Cuba v. Chemical Bank New York Trust Co., in which the Second Circuit gave effect to a similar Cuban law. 658 F.2d 903, 909 (2d Cir. 1981). In Chemical Bank, Banco Nacional sued as the successor-in-interest of private Cuban banks to recover certain assets held in the United States. Id. at 905-6. The private banks, which were incorporated and domiciled in Cuba, were nationalized in 1960 pursuant to Cuban Law No. 891 and taken over by Banco Nacional, the country's central bank. Id. Banco Nacional filed an action in federal court the following year, seeking to recoup substantial deposits the private Cuban banks had made with three American banks. Id. at 906. The district judge ruled that Banco Nacional was unable to assert the claims as successor because the assets were located in the United States and the foreign expropriation could not be given extraterritorial effect. Id. at 907.

The Second Circuit reversed. The court acknowledged that Cuban Law No. 891 expropriated property in the United States, but gave effect to the law anyway. Id. at 909. Interpreting the Supreme Court's decision in United States v. Belmont,[6] 301 U.S. 324, 57 S.Ct. 758, 81 L.Ed. 1134 (1937),

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the court articulated a modified formulation of the extraterritorial effect rule, stating that when " enforcement [of a foreign confiscatory law] has promised to further, rather than violate, the policy aims of the United States," courts may recognize foreign expropriations. Chemical Bank, 658 F.2d at 908-09. The court concluded that enforcing the Cuban government's ownership of the assets would further American policy aims, because any assets awarded to Banco Nacional would " be paid into a frozen account [to] be distributed by the United States Foreign Claims Settlement Commission to American nationals [with] valid claims against Cuba." Id. at 909. Central to the result was the court's supplemental conclusion that, given the circumstances of the case, it was inconsequential that the private bankers had not been compensated:

While United States law of course does not approve the taking of private property without compensation, the former owners of the Private Banks have lodged no protest, either by bringing suit to recover their United States property, or by seeking to intervene in Banco Nacional's suits. In the twenty years during which these suits have been pending, the former owners have not asserted any conflicting claim. Thus we cannot say that the effect in this case of recognizing the Cuban nationalization of the Private Banks would violate United States policy.

Id. at 909. Thus, in determining whether to give extraterritorial effect to Cuban Law No. 891, the Second Circuit weighed the promotion of an affirmative American policy goal--making available assets for individuals with valid claims against the Cuban government--against the Fifth Amendment policy proscribing takings without compensation. Finding the Fifth Amendment concerns to be significantly diminished because the original owners had never asserted their rights to the assets, the Court concluded that by recognizing the expropriation, " United States policy will be furthered rather than violated." Id.

Plaintiffs assert that the same result should follow here. They argue that enforcement of Cuban Law Nos. 567 and 568 will further the national policy aims embodied in TRIA, and that this interest outweighs any Fifth Amendment concerns because the Cuban nationals have not asserted ownership of the Computershare accounts. The Court disagrees.

First, enforcement of the Cuban laws will not further the policy aims of TRIA. One of the principal goals of TRIA § 201(a) is to compensate victims of state-sponsored terrorism. See Heiser v. Islamic Republic of Iran, 735 F.3d 934, 938-39, 407 U.S. App.D.C. 181 (D.C. Cir. 2013) (discussing legislative history of TRIA § 201). To be sure, ordering the turnover of the Computershare accounts would compensate the Villoldo family and provide some measure of restitution for the terrorist acts committed against them by the Castro regime. That is not the end of the story, though, because TRIA is also intended to punish and deter terrorist states by making them liable for judgments obtained against them in

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our courts. Id. at 939-40; see also 148 Cong. Rec. 23,121 (Statement of Sen. Harkin) (noting that TRIA § 201 would " punish and impose a heavy cost" on state sponsors of terror and " deter future acts of terrorism" ). The statute achieves this goal by ensuring that victims can only collect frozen assets that belong to state sponsors of terror.[7] See TRIA § 201(a) (making attachable the " blocked assets of that terrorist party" ) (emphasis added); see also Heiser, 735 F.3d at 939-40 (observing that Congress did not intend victims to be paid with assets not owned by a terrorist state).

Therefore, for the Court to give effect to Cuban Law Nos. 567 and 568, enforcement of the expropriation must further the policy of compensating victims with assets owned by Cuba. But the Computershare accounts are only owned by Cuba if the Court gives effect to Cuban Law Nos. 567 and 568. The Court refuses to adopt such a circular justification, because it would allow Cuba to escape TRIA's sanctions at the expense of the Cuban nationals who originally owned the accounts. This is precisely the concern that the D.C. Circuit found compelling in Heiser v. Islamic Republic of Iran, where the court determined that certain blocked assets with ties to Iran were not attachable under TRIA § 201(a).[8] 735 F.3d 934, 407 U.S. App.D.C. 181 (D.C. Cir. 2013). In reaching that conclusion, the court discussed the " acute" need to preserve the punitive effect of the law by ensuring that attachable assets are actually owned by the terrorist state. Id. at 939-40. The court emphasized that the policy goals of TRIA § 201 are not served where potentially innocent individuals pay the plaintiff's judgment, because it would allow the terrorist state to reduce its liability to victims and force innocent parties to unjustly bear the costs of the terrorist state's wrongdoing. Id. " Congress could not have intended such a result." Id. at 940.

Indeed, the United States has itself filed a statement of interest in this case, asserting that enforcement of the Cuban laws would be inconsistent with national policy interests. See Statement of Interest of the United States, Docket No. 69; Second Supp. Statement of Interest of the United States, Docket No. 93. The government states that recognition of Cuba's attempt to confiscate the assets of its citizens would undermine the punitive effect of TRIA and weaken the leverage of blocked assets as a tool of foreign policy. See Second Supp. Statement of Interest of the United States at 11-12. These concerns are heightened where, as here, one set of the Castro regime's victims would bear the cost of the regime's terrorist acts by paying Cuba's debt to other victims. Id. The Court gives significant weight to the government's representations of its own policy interests--especially in the context of foreign affairs.[9] Accordingly, the Court finds

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that the policy aims of TRIA will not be furthered by enforcement of the Cuban laws.

Second, substantial Fifth Amendment concerns are present in this case. In Chemical Bank, the Second Circuit was not concerned with the property rights of the original bank owners because in the twenty years in which the litigation had been pending, none had asserted a conflicting claim. 658 F.2d at 909. The potential claims of the Cuban nationals cannot be similarly dismissed. This litigation has only been pending for two years. The notice protocol ordered by the Court was not completed until December 2013, and the whereabouts of almost all the account holders or their successors are still unknown.[10] Yet one woman has formally objected to the turnover of her relative's account, see Letters from Maria Ana Abarrio Sainz, Docket Nos. 32 & 63, and Computershare has identified two other objectors who did not receive notice of this proceeding. See Trustee-Process Def.'s Resp. to Pl.'s Mot. to Complete Turnover, Docket No. 59, Ex. 4 & 5. One of the individuals identified by Computershare has now filed an affidavit asserting that she is the rightful owner of $38,000 worth of shares and dividends that Plaintiffs seek to attach. See Decl. of Katia Ochoa, Docket No. 94, Ex. 1.

These competing claims suggest that other potential objectors may not have received notice of this litigation, and raise significant questions about the propriety of enforcing Cuban laws that expropriate privately owned securities located in the United States. The Fifth Amendment concerns are particularly troublesome in this case because the Computershare accounts are in the names of individuals--not domestic corporate entities that were dissolved or nationalized by the Cuban government. Consequently, the Court concludes that significant Fifth Amendment interests remain implicated, and recognition of Cuban Law Nos. 567 and 568 would violate United States policy against takings without compensation.

Because enforcement of the Cuban laws would not further the policy of TRIA and would violate the Fifth Amendment policy against takings without compensation, the expropriation of the Computershare accounts is not consistent with United States policy and law. Therefore, the Court will not give extraterritorial effect to Cuban Law Nos. 567 and 568 as they pertain to the Computershare accounts. The accounts are not the property of the Republic of Cuba and are not subject to attachment and execution. As this finding is dispositive, the Court does not reach the remaining issues raised by the parties.

Conclusion

For the foregoing reasons, the Turnover Order (Docket No. 27) and the Order Directing

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Turnover of Book Shares and Cash Accounts (Docket No. 35) are vacated. Plaintiffs' Motion to Compel Re-Issuance of Certificated Shares (Docket No. 37) and Motion for Order to Complete Turnover and Set Bond for Re-Issuance of Certificated Shares (Docket No. 49) are denied. This case is dismissed.

SO ORDERED.


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