U.S. Supreme Court Rejects Second Circuit’s Conclusive Reliance on Chinese Interpretation of its Own Law

Is a federal court determining foreign law required to treat as conclusive a submission from a foreign government interpreting its law? The U.S. Supreme Court confronted this question in a case involving price-fixing claims against Chinese sellers of vitamin C. In an opinion released yesterday, the Court determined that the views of the Chinese government that its laws compelled the Chinese conspirators to fix prices and output of vitamin C are entitled to "respectful consideration" in U.S. courts, but not the "conclusive effect" provided by the Second Circuit. See Vitamin C Antitrust Litigation (Animal Science Products, et al. v. Hebei Welcome Pharmaceutical Co. Ltd. et al.), No. 16-1220, 585 U.S. __ (2018)).

Overview

U.S.-based purchasers of vitamin C sued Chinese sellers in the U.S. District Court for the Eastern District of New York, alleging a conspiracy to fix the prices and quantities of their exports to the United States. The Ministry of Commerce of the People's Republic of China—the government agency charged with regulating foreign trade—submitted an amicus brief supporting the defendants' motion to dismiss the case—marking the first time the Chinese government appeared amicus curiae before any U.S. court. The Ministry argued that Chinese law required the sellers to fix the prices and quantities of vitamin C exports. The district court, noting that the Ministry had not identified any Chinese law or regulation mandating an agreement on prices, denied the motion to dismiss. The case was eventually tried to a jury, which returned a verdict in favor of the purchasers and against the Chinese sellers and awarded treble damages of $147 million.

The Second Circuit reversed, finding that the district court should have granted the Chinese sellers' motion to dismiss based on principles of international comity. The Second Circuit found that, when reasonable under the circumstances, a foreign government's interpretation of its own laws should bind a U.S. court. In making its decision, the Second Circuit looked only at the Ministry's amicus brief and the sources cited therein, and did not look at contradictory evidence provided by the U.S. purchasers, because "a U. S. court [must] not embark on a challenge to a foreign government's official representation."

Decision

In a unanimous ruling released yesterday, the U.S. Supreme Court vacated the Second Circuit's decision. The Supreme Court found that a federal court determining foreign law should accord respectful and careful consideration to a foreign government's interpretation of its laws, but the courts are not bound to give conclusive effect to that interpretation. Moreover, federal courts can look outside the foreign government's interpretation to other, relevant, materials.

The Court stated that the weight a court accords to a foreign government's interpretation of its own laws will depend on the circumstances, with the following factors guiding the determination: the statement's clarity, thoroughness and support; its context and purpose; the transparency of the foreign legal system; the role and authority of the entity or official offering the statement; and the statement's consistency with the foreign government's past positions.

In this case, the Court observed some inconsistency in the Chinese government's past statements of whether its laws essentially required vitamin C manufacturers to engage in price fixing, and refused to allow the government's position in this litigation to effectively block recovery in U.S. courts for harm from that misconduct.

Analysis

The Supreme Court's unanimous decision brings welcome clarity and common sense to an issue that has broad-reaching implications for foreign companies and domestic plaintiffs. For defendants faced with allegations of anticompetitive conduct occurring abroad, the Second Circuit's now-vacated decision had provided a clear road map to dismissal where the relevant foreign government was willing to appear and claim its laws conflict with the U.S. antitrust laws. For plaintiffs, the vacated decision made potential claims against foreign companies less viable—particularly those located in countries with laws that may provide the patina of legality to anticompetitive conduct. Now, for all companies engaged in international commerce and courts addressing issues of international comity, there is a balanced approach that gives appropriate deference to the views of foreign governments without requiring the overly deferential treatment that the Second Circuit demanded.

Holland & Knight's Antitrust and Competition Team has been following and providing guidance on this case over the past year as it made its way to yesterday's decision by the Supreme Court (1, 2, 3).