Last week, the Second Circuit affirmed that U.S. courts should, and indeed must, defer to a foreign government’s interpretation of its own laws. That should hardly be a controversial proposition, but up until now, lower courts have treated the interpretations of foreign governments regarding their own laws with varying degrees of deference, ranging from strict deference to outright skepticism. But now, the Second Circuit has put litigants on notice that the principles of international comity have to be applied in cases implicating the laws of other sovereign nations.
The Second Circuit’s ruling will affect a wide spectrum of legal issues facing foreign companies and financial institutions, ranging from subpoenas to asset restraints, and from enforcement actions to discovery requests, as well as substantive matters such as antitrust law, intellectual property, and securities laws.
This client alert explores the Second Circuit’s decision and discusses its significant practical impact on companies and financial institutions with global operations.
In Re: Vitamin C Antitrust Litigation
On September 20, 2016, the United States Court of Appeals for the Second Circuit handed down its decision in In Re: Vitamin C Antitrust Litigation, 2016 WL 5017312 (2d Cir. Sept. 20, 2016), vacating a $147 million judgment against two Chinese vitamin C manufacturers (“Defendants”) for violation of U.S. antitrust laws.
Writing for a unanimous court, Judge Peter Hall found, as argued in an amicus brief submitted by the Chinese Ministry of Commerce (“MOFCOM”), that Defendants were required by the Chinese Government to “fix the price and quantity of vitamin C sold abroad.” Therefore, he reasoned, Defendants “could not simultaneously comply with Chinese law and U.S. antitrust laws,” and the “principles of international comity required the district court to abstain from exercising jurisdiction in the case.”
Plaintiffs’ Claims and MOFCOM’s Appearance
Proceedings in the case have lasted more than 10 years. In 2005, Animal Science Products, Inc. and the Ranis Company (“Plaintiffs”), as well as other U.S. vitamin C purchasers, all filed lawsuits—later consolidated into a multidistrict class action—against the Defendants, Hebei Welcome Pharmaceutical Company and North China Pharmaceutical Group Corporation. Plaintiffs alleged, in part, that Defendants had colluded with a third Chinese entity to limit vitamin C production and increase prices in order to create a worldwide shortage and protect China’s status as a leading vitamin C exporter.
Defendants moved to dismiss the action based, inter alia, on the act of state doctrine, the defense of foreign sovereign compulsion, and principles of international comity. Principally, the Defendants argued that they should not be punished for violating U.S. antitrust law because they had acted pursuant to Chinese export pricing regulations and had been compelled by MOFCOM to fix vitamin C prices and restrict supply.
In support of Defendants’ motion to dismiss, MOFCOM submitted an amicus brief explaining that all vitamin C legally exported during...
