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The Chinese Vitamin C Case – Courts’ Need to Show “Deferrence” To Foreign Government Parties in US Courts

Sidley.com – The Second Circuit reversed a jury verdict of US$147 million after trebling and dismissed antitrust claims against a Chinese manufacturer of vitamin C, ruling that the case should have been dismissed by the district court on a motion to dismiss, which was filed just over 10 years earlier.

The district court had permitted China’s Ministry of Commerce (the Ministry or MOFCOM) to participate in the case as an amicus curiae but refused to credit the Ministry’s interpretation of Chinese law.

Holding that the district court’s refusal to defer to the Chinese government was reversible error, the Court held that when “we receive from a foreign government an official statement explicating its own laws and regulation, we are bound to extend that explication the deference long accorded such proffers received from foreign governments.” In re: Vitamin C Antitrust Litig., No. 13-4791-cv (2d Cir. Sept. 20, 2016), slip op. at 4.1

(China) moved to dismiss the complaint on the related grounds of comity, the Act of State doctrine and the doctrine of foreign sovereign compulsion.

Plaintiffs sued four vitamin C manufacturers, and an affiliate of one of them, based in the People’s Republic of China, alleging they entered into a cartel organized by a Chinese chamber of commerce to fix the prices and amount of vitamin C that the companies exported to the United States, in violation of the Sherman Antitrust Act. The defendants moved to dismiss the complaint on the related grounds of comity, the Act of State doctrine and the doctrine of foreign sovereign compulsion.

The motion to dismiss was supported by an amicus brief submitted on MOFCOM’s behalf.

In it, “[t]he Ministry explained that the Chamber, which Plaintiffs refer to as an ‘association,’ is entirely unlike a ‘trade association’ or the ‘chamber of commerce’ in the United States and, consistent with China’s state-run economy, is a ‘Ministry-supervised entity authorized by the Ministry to regulate vitamin C export prices and output levels.’” Id. at 8.

Indeed, the Ministry’s amicus brief explained that the export prices and output levels alleged as unlawful by plaintiffs were actually the result of a consensus on price and output reached by the manufacturers under direct instructions from MOFCOM through the Chamber.

However, finding that the Chinese legal system did not produce statutory and regulatory histories similar to those the district court was used to seeing in the American regulatory framework, and unwilling to defer to the Chinese government’s explanation of its own laws and regulations, the district court denied the defendants’ motion to dismiss.

Similar arguments, supported by similar amicus statements proffered by the Ministry, were offered in support of subsequent motions for summary judgment and interlocutory appeal, both of which were denied. The remaining manufacturer defendant and its affiliate appealed that verdict.

The Court relied on the seminal U.S. Supreme Court case of U.S. v. Pink and its progeny 

The Circuit court held “that the district court abused its discretion by not abstaining, on international comity grounds, from asserting jurisdiction because the court erred by concluding that the Chinese laws did not require Defendants to violate U.S. antitrust law and further erred by not extending adequate deference to the Chinese government’s proffer of the interpretation of its laws.” Id. at 13-14.

The Court relied on the seminal U.S. Supreme Court case of U.S. v. Pink and its progeny “for the proposition that an official statement or declaration from a foreign government clarifying its laws must be accepted as ‘conclusive.’” Id. at 24. It rejected plaintiffs’ argument, which was accepted by the district court, “that Rule 44.1 [a procedural rule regarding the interpretation of foreign laws], adopted in 1966 long after Pink was decided, modified the level of deference that a U.S. court must extend to a foreign government’s interpretation of its own laws.” Id. at 26.

Finally, the Second Circuit noted that MOFCOM’s amicus filings before both the district and circuit courts were “historic” because “it is the first time any entity of the Chinese government has appeared amicus curiae before any U.S. court.” Id. at 7 and n. 5.

Moreover, the “Chinese government has repeatedly made known to the federal courts, as well as to the United States Department of State in an official diplomatic communication relating to this case, that it considers the lack of deference it received in our courts, and the exercise of jurisdiction over this suit, to be disrespectful and that it ‘has attached great importance to this case.’” Id. at 42. It is clear from these and other passages of the opinion that MOFCOM’s decision to participate directly in the litigation and present its position on the proper interpretation of Chinese law directly to the U.S. courts was pivotal to the outcome.

In fact, the Court commented in a footnote “if the Chinese government had not appeared in this litigation,” the district court’s decision to engage in a wide ranging analysis of Chinese law “would have been entirely appropriate.” Id. at 35 n.10. And in another footnote, the Court cautioned that “deference may be inappropriate” where “there is no documentary evidence or reference of law proffered to support a foreign sovereign’s interpretation of its own laws.” Id. at 30 n.10.

The decision thus clarifies that in the Second Circuit, a high degree of deference must be accorded when a foreign government appears directly in a U.S. court and provides a reasonably detailed explanation of its own nation’s laws or regulations.

One question left unanswered by the decision, however, is what level of deference will be accorded to such official statements when they are proffered by a private defendant in a subsequent action in which the foreign government does not participate directly.


A Sidley Austin LLP team led by Carter Phillips in Washington, D.C., Joel Mitnick in New York and Henry Ding in Beijing, represented the Ministry in this case.


 

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