In 1960, the Cuban government expropriated assets owned by Exxon's subsidiary, Essosa, including refineries and service stations, without compensation. Decades later, Congress enacted the Cuban Liberty and Democratic Solidarity Act of 1996 (Title III), which allows U.S. nationals to sue anyone trafficking in property confiscated by the Cuban government. In 2019, Exxon sued three Cuban state-owned entities—CIMEX (Cuba), CIMEX (Panama), and CUPET—alleging they traffic in the expropriated property by operating service stations and processing remittances. The defendants moved to dismiss based on foreign sovereign immunity. The district court denied the motion, ruling that Title III did not independently confer jurisdiction but that the FSIA's commercial-activity exception applied. The D.C. Circuit reviewed whether Title III bypasses the FSIA and whether the specific FSIA exceptions were properly applied.
Chief Judge Srinivasan, writing for the court, first addressed whether Title III independently abrogates foreign sovereign immunity. The court held that the FSIA is the 'sole basis' for obtaining jurisdiction over foreign states in U.S. courts. While Title III defines 'person' to include foreign agencies and creates a cause of action, it does not explicitly state that it overrides the FSIA's immunity bar. The court reasoned that Congress was aware of the FSIA when enacting Title III and that the FSIA's comprehensive scheme governs civil jurisdiction over foreign states. Therefore, plaintiffs must still satisfy one of the FSIA's exceptions to proceed. Next, the court analyzed the FSIA's expropriation exception. This exception requires that the claim involve rights in property taken in violation of international law. The court found that under customary international law, a parent company generally does not hold a property right in the assets of its subsidiary; the corporate entity is separate. Since Exxon's claim was based on its shareholder interest in Essosa's assets, and not direct ownership, it failed to meet the international law standard for expropriation. The court rejected the argument that the Foreign Claims Settlement Commission's certification of Exxon's claim was conclusive proof of ownership under international law, noting the Commission used a broader statutory definition of property. Finally, the court addressed the commercial-activity exception. The court agreed that trafficking in confiscated property constitutes 'commercial activity' because private parties can engage in similar conduct. However, the court vacated the district court's finding that this exception was satisfied. The exception requires that the commercial activity outside the U.S. cause a 'direct effect' in the United States. The court found the record insufficient to determine if the defendants' specific operations on the confiscated property—such as remittances processed at only four to ten stations on former Exxon land, or the sale of U.S. goods procured through an independent intermediary—caused a direct effect in the U.S. The court remanded for the district court to conduct further fact-finding on whether these specific activities caused the alleged outflow of money or inflow of goods.
The decision clarifies that Title III plaintiffs cannot bypass the Foreign Sovereign Immunities Act; they must prove an FSIA exception applies. It establishes that shareholder claims for expropriated subsidiary assets generally fail under the expropriation exception unless the shareholder's rights were directly targeted. The ruling sends the case back to the district court to determine if the defendants' specific commercial activities on the confiscated property cause a direct effect in the United States. If the district court finds no direct effect, the defendants will likely be immune from suit under the FSIA.