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International Comity and Deference: A Foreign Government with Final Say When Interpreting its Own Laws

On Tuesday, the Second Circuit in In Re Vitamin C Antitrust Litigation vacated a $147 million award against two Chinese companies for engaging in anti-competitive behavior.  At issue was how a federal court should respond when a foreign government’s regulatory scheme conflicts with U.S. laws.  Because the Chinese companies 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 the case.  As a result, the Second Circuit reversed the district court’s denial of the Chinese companies’ motion to dismiss and remanded the case with instructions to dismiss the complaint with prejudice. In re Vitamin C Antitrust Litig., No. 13-4791 (2d Cir. Sept. 20, 2016).

Case History

The case arose in 2005 when various vitamin C purchasers in the United States filed numerous suits against a Chinese vitamin C manufacturer and its holding company alleging that the defendants and their co-conspirators had established an illegal price-fixing cartel in order to inflate the price of vitamin C to be exported to the U.S. and worldwide.   Instead of denying the allegations, defendants moved to dismiss on the basis that they had acted in accordance with Chinese regulations regarding vitamin C export pricing and were required by their government to coordinate prices and to create a supply shortage.  Defendants argued that their case should be dismissed pursuant to the act of state doctrine, the doctrine of foreign sovereign compulsion, and/or principles of international comity.

Notably, for the first time in U.S. history, the Ministry of Commerce of the People’s Republic of China (the “Ministry”) filed an amicus curiae brief in the U.S. court in support of defendants’ motion to dismiss.   In its brief, the Ministry represented itself as the highest authority in the Chinese Government to regulate foreign trade and acknowledged that it had compelled the vitamin C exporters to set and coordinate vitamin C prices and export volumes.

However, the United States District Court for the Eastern District of New York denied the motion to dismiss, in order to allow “further inquiry into the voluntariness of defendants’ actions.” Subsequently, the district court denied defendants’ motion for summary judgment because it determined that Chinese law did not “compel” defendants’ anticompetitive conduct.  At trial, defendants were found liable for antitrust violations and the district court awarded approximately plaintiffs $147 million.

Comity Balancing Test

On review, the Second Circuit held that the district court abused its discretion in not abstaining from asserting jurisdiction on international comity grounds. Specifically, the Court performed a multifactor comity balancing test to dismiss the case on international comity grounds.

First, the Second Circuit reiterated the U.S. Supreme Court’s description of comity as “the recognition which one nation allows within its territory to the legislative, executive or judicial acts of another nation” and as a guiding principle under which “judicial decisions reflect the systemic value of reciprocal tolerance and goodwill.”

Next, in order to balance the interests of the United States, the Court considered the interests of China and those mutual interests the family of nations have in just and efficiently functioning rules of international law. In doing so, the Court conducted a multifactor comity balancing test.  While the test includes ten factors,[1] the analysis focused largely on the first factor: the degree of conflict between U.S. and foreign law.

True Conflict between the Two Countries’ Laws

The Second Circuit explained that application of U.S. antitrust laws would not necessarily be barred merely because conduct is lawful in the foreign state in which it took place. Rather, to justify the Court’s decision to refrain from exercising jurisdiction on comity grounds, the degree of conflict must rise to a level of “true conflict” between the Chinese and U.S. law that would make it impossible for defendants to have complied with the laws of both countries.

The Second Circuit reaffirmed that a U.S. court is bound to defer to a foreign government’s statements regarding the construction and effects of its laws and regulations when the foreign government “acting through counsel or otherwise, directly participates in U.S. court proceedings by providing a sworn evidentiary proffer . . . .” In other words, “deference” requires a U.S. court to abstain from challenging a foreign government’s official representation – even if such representation would be inconsistent with interpretation under the U.S. system.  Furthermore, this is the same deferential respect and treatment that the U.S. government would expect to receive in a foreign court.

Accordingly, the Second Circuit indicated that the Chinese Ministry’s official statements in amicus curiae should be credited and accorded deference.  The Court disregarded disputes about the motives behind the Chinese Government’s decision to regulate the vitamin C market, the enforcement practices of the Chinese Government or the Chinese law, or the potential difference between foreign compulsion and a true conflict.  Instead, the Court provided full deference to the Ministry’s official statement and accepted that compliance with U.S. laws and the Chinese laws as proffered by the Ministry would have been impossible.

Other Factors of Comity Balancing Test

Lastly, the Court found that the remaining nine factors of the comity balancing test “clearly weigh in favor of U.S. courts abstaining from asserting jurisdiction” over this antitrust case. For instance, all defendants are Chinese entities, with places of business in China, and all relevant conduct at issue took place in China without evidence showing an express purpose or intent to affect or harm U.S. commerce.

Moreover, the Court noted that the district court’s exercise of jurisdiction over the case may have negatively affected U.S.-China relations. The Court noted that the Chinese Government had communicated multiple times to the federal courts and the U.S. Department of State that it attached great importance to the case and felt disrespected by the “lack of deference it received in [U.S.] courts, and the exercise of jurisdiction over this suit[.]”

Conclusion

This case exemplifies the U.S. courts’ continued respect for international comity and deference for foreign governments – even those with which the U.S. government might not always agree – especially when they appear before a U.S. court. As the Second Circuit noted, “we have yet to identify a case where a foreign sovereign appeared before a U.S. tribunal and the U.S. tribunal adopted a reading of that sovereign’s laws contrary to that sovereign’s interpretation of them.”  And, it appears that such practice will continue while international complexities grow.


[1] The factors considered by the Second Circuit in the comity balancing test include: (1) Degree of conflict with foreign law or policy; (2) Nationality of the parties, locations or principal places of business of corporations; (3) Relative importance of the alleged violation of conduct here as compared with conduct abroad; (4) The extent to which enforcement by either state can be expected to achieve compliance, the availability of a remedy abroad and the pendency of litigation there; (5) Existence of intent to harm or affect American commerce and its foreseeability; (6) Possible effect upon foreign relations if the court exercises jurisdiction and grants relief; (7) If relief is granted, whether a party will be placed in the position of being forced to perform an act illegal in either country or be under conflicting requirements by both countries; (8) Whether the court can make its order effective; (9) Whether an order for relief would be acceptable in this country if made by the foreign nation under similar circumstances; and (10) Whether a treaty with the affected nations has addressed the issue.

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© 2021 Proskauer Rose LLP. National Law Review, Volume VI, Number 266
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About this Author

Rachel O. Wolkinson, Securities Litigation Attorney, Proskauer Law Firm
Associate

Rachel Wolkinson is an associate in the Litigation Department. Her practice focuses on complex litigation matters, including securities litigation and investigations, shareholder derivative litigation, and civil enforcement proceedings. She has represented companies in anti-corruption investigations due diligence and has advised companies on the development of Foreign Corrupt Practices Act and Office of Foreign Assets Control compliance programs.

Rachel represents clients in many different industries, including financial institutions, and energy...

202-416-5811
Mee (Rina) Kim, Proskauer Law Firm, Litigation Attorney
Associate

M. Rina Kim is an associate in the Litigation Department and is admitted to the New York bar. Her practice focuses on securities litigation, including class actions and shareholder derivative suits. She counsels clients regarding financial statement disclosures and represents companies in connection with government investigations and civil litigation relating to the antifraud provisions of the United States federal securities laws.

Rina is a 2015 graduate of The George Washington University Law School, where she was editor-in-chief of The...

202-416-6831
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