Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co. (In re Vitamin C Antitrust Litig.)

837 F.3d 175

In re: Vitamin C Antitrust Litigation

Animal Science Products, Inc., The Ranis Company, Inc., Plaintiffs-Appellees,

v.Hebei Welcome Pharmaceutical Co. Ltd., North China Pharmaceutical Group Corporation, Defendants-Appellants.

Docket No. 13-4791-cv

August Term, 2014

United States Court of Appeals, Second Circuit.

Argued: January 29, 2015

Decided: September 20, 2016

William A. Isaacson , Boies, Schiller & Flexner, LLP, Washington, D.C. (James T. Southwick, Shawn L. Raymond, Katherine Kunz, Susman Godfrey LLP, Houston, TX, Michael D. Hausfeld, Brian A. Ratner, Melinda Coolidge, Hausfeld LLP, Washington D.C., Brent W. Landau, Hausfeld LLP, Philadelphia, PA, on the brief), for Plaintiffs-Appellees.

Jonathan M. Jacobson , (Daniel P. Weick, Justin A. Cohen, on the brief), Wilson Sonsini Goodrich & Rosati, P.C., New York, NY (Scott A. Sher, Bradley T. Tennis, on the brief), Wilson Sonsini Goodrich & Rosati P.C., Washington, D.C., for Defendants-Appellants.

Before: Cabranes, Wesley, and Hall, Circuit Judges.

Hall, Circuit Judge:

This appeal arises from a multi-district antitrust class action brought against Defendants-Appellants Hebei Welcome Pharmaceutical and North China Pharmaceutical Group Corporation, entities incorporated under the laws of China. Plaintiffs-Appellees, Animal Science Products, Inc. and The Ranis Company, Inc., U.S. vitamin C purchasers, allege that Defendants conspired to fix the price and supply of vitamin C sold to U.S. companies on the international market in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 4, 16. This appeal follows the district court's denial of Defendants' initial motion to dismiss, In re Vitamin C Antitrust Litig ., 584 F.Supp.2d 546 (E.D.N.Y. 2008) (Trager, J. ), a subsequent denial of Defendants' motion for summary judgment, In re Vitamin C Antitrust Litig ., 810 F.Supp.2d 522 (E.D.N.Y. 2011) (Cogan, J. ),¹ and, after a jury trial, entry of judgment awarding Plaintiffs approximately $147 million in damages and enjoining the Defendants from engaging in future anticompetitive behavior. For the reasons that follow, we hold that the district court erred in denying Defendants' motion to dismiss.²

This case presents the question of what laws and standards control when U.S. antitrust laws are violated by foreign companies that claim to be acting at the express direction or mandate of a foreign government. Specifically, we address how a federal court should respond when a foreign government, through its official agencies, appears before that court and represents that it has compelled an action that resulted in the violation of U.S. antitrust laws. In so doing we balance the interests in adjudicating antitrust violations alleged to have harmed those within our jurisdiction with the official acts and interests of a foreign sovereign in respect to economic regulation within its borders. When, as in this instance, we receive from a foreign government an official statement explicating its own laws and regulations, we are bound to extend that explication the deference long accorded such proffers received from foreign governments.

Here, because the Chinese Government filed a formal statement in the district court asserting that Chinese law required Defendants to set prices and reduce quantities of vitamin C sold abroad, and because Defendants could not simultaneously comply with Chinese law and U.S. antitrust laws, the principles of international comity required the district court to abstain from exercising jurisdiction in this case. Thus, we VACATE the judgment, REVERSE the district court's order denying Defendants' motion to dismiss, and REMAND with instructions to dismiss Plaintiffs' complaint with prejudice.

BACKGROUND³

For more than half a century, China has been a leading producer and exporter of vitamin C. In the 1970s, as China began to transition from a centralized state-run command economy to a market economy, the Chinese Government began to implement various export controls in order to retain a competitive edge over other producers of vitamin C on the world market. In the intervening years, the Government continued to influence the market and develop policies to retain that competitive edge. In the 1990s, for example, as a result of a reduction in vitamin C prices, the Government facilitated industry-wide consolidation and implemented regulations to control the prices of vitamin C exports. By 2001, Chinese suppliers had captured 60% of the worldwide vitamin C market.

In 2005, various vitamin C purchasers in the United States, including Plaintiffs Animal Science Products, Inc. and The Ranis Company, filed numerous suits against Defendants, Chinese vitamin C manufacturer Hebei Welcome Pharmaceutical Co. and its holding company, North China Pharmaceutical Group Corporation. These cases were transferred to the Eastern District of New York by the Judicial Panel on Multidistrict Litigation for coordinated or consolidated pretrial proceedings. The Plaintiffs allege, inter alia , that in December 2001 Defendants and their co–conspirators established an illegal cartel with the “purpose and effect of fixing prices, controlling the support of vitamin C to be exported to the United States and worldwide, and committing unlawful practices designed to inflate the prices of vitamin C sold to plaintiffs and other purchasers in the United States and elsewhere.” E.D.N.Y. Dkt. No. 1:06–md–1738, Doc. 179 (Second Amended Complaint (“SAC”)) ¶ 1. Specifically, Plaintiffs assert that Defendants colluded with an entity that has been referred to in this litigation as both the “Western Medicine Department of the Association of Importers and Exporters of Medicines and Health Products of China” and the “China Chamber of Commerce of Medicines & Health Products Importers & Exporters,” (the “Chamber”)⁴ and agreed to “restrict their exports of Vitamin C in order to create a shortage of supply in the international market.” Id. ¶ 49. Plaintiffs allege that, from December 2001 to the time the complaint was filed, Defendants, their representatives, and the Chamber devised and implemented policies to address price cutting by market actors and to limit production levels and increase vitamin C prices with the intent to create a shortage on the world market and maintain China's position as a leading exporter. Id. ¶ 60.

Rather than deny the Plaintiffs' allegations, Defendants instead moved to dismiss on the basis that they acted pursuant to Chinese regulations regarding vitamin C export pricing and were, in essence, required by the Chinese Government, specifically the Ministry of Commerce of the People's Republic of China (the “Ministry”), to coordinate prices and create a supply shortage. Defendants argued that the district court should dismiss the complaint pursuant to the act of state doctrine, the doctrine of foreign sovereign compulsion, and/or principles of international comity. In an historic act, the Ministry filed an amicus curiae brief in support of Defendants' motion to dismiss.⁵

In its brief to the district court, the Ministry represented that it is the highest authority within the Chinese Government authorized to regulate foreign trade. The 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.” Joint App'x at 153. The Ministry's amicus brief describes the Chamber as follows:

To meet the need of building the socialist market economy and deepening the reform of foreign economic and trade management system, the China Chamber of Commerce of Medicines & Health Products Importers & Exporters was established in May 1989 in an effort to boost the sound development of foreign trade in medicinal products. As a social body formed along business lines and enjoying the status of legal person, the Chamber is composed of economic entities registered in the People's Republic of China dealing in medicinal items as authorized by the departments under the [S]tate Council responsible for foreign economic relations and trade as well as organizations empowered by them. It is designated to coordinate import and export business in Chinese and Western medicines and provide service for its member enterprises. Its over 1100 members are scattered all over China. The Chamber abides by the state laws and administrative statutes, implements its policies and regulations governing foreign trade, accepts the guidance and supervision of the responsible departments under the States Council. The very purpose is to coordinate and supervise the import and export operations in this business, to maintain business order and protect fair competition, to safeguard the legitimate rights and interests of the state, the trade and the members and to promote the sound development of foreign trade in medicinal items.

Joint App'x at 157 n.10 (emphasis in original). According to the Ministry, the Chamber was an instrumentality of the State that was required to implement the Ministry's administrative rules and regulations with respect to the vitamin C trade.⁶

In support of Defendants' motion to dismiss, the Ministry also provided evidence of two Ministry–backed efforts by the Chamber to regulate the vitamin C industry: (1) a vitamin C Subcommittee (“the Subcommittee”) created in 1997 and (2) a “price verification and chop” policy (“PVC”) implemented in 2002. The Chamber created the Subcommittee to address “intense competition and challenges from the international [vitamin C ] market.” Joint App'x at 159. Before 2002, only companies that were members of the Subcommittee were allowed to export vitamin C. Under this regime, a vitamin C manufacturer qualified for the Subcommittee and was granted an “export quota...