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Article: November 2018: U.S. Supreme Court Holds That Courts Should Carefully Consider, but Not Uncritically Defer to, Foreign Governments’ Statements on Issues of Foreign Law

Business Litigation Reports

On June 14, 2018, the Supreme Court issued a unanimous opinion in Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co., Ltd., rejecting the notion that U.S. courts should uncritically accept a foreign government’s assertion about what is required under its laws. 585 U.S. ___, 138 S. Ct. 1865 (2018). The decision will likely have a substantial impact in lawsuits implicating the treatment of a foreign government’s characterization of its own laws under Federal Rule of Civil Procedure 44.1.

Background

In 2005, U.S.-based purchasers of vitamin C initiated class-action litigation against four Chinese corporations that manufacture and export vitamin C for allegedly conspiring in violation of one of the principal federal antitrust laws, Section 1 of the Sherman Act. Plaintiffs alleged that, starting in 2001, the defendants and China Chamber of Commerce of Medicines & Health Products Importers & Exporters (“Chamber”) established an “illegal cartel” to fix the prices of vitamin C exported to the United States and around the world, in particular by implementing a policy of limited production with the intent of creating a vitamin C shortage in order to increase prices. Defendants moved to dismiss the action—under the act of state doctrine, the doctrine of foreign sovereign compulsion, and/or principles of international comity—contending that they had acted pursuant to Chinese regulations issued by Ministry of Commerce of the People’s Republic of China (the “Ministry”) that controlled vitamin C export pricing.

Notably marking the first time any entity of the Chinese government had appeared amicus curiae before any U.S. court, the Ministry itself filed a brief in support of the defendants’ motion to dismiss. The Ministry asserted that the Chamber was acting as an instrumentality of the Chinese government and was required to implement the Ministry’s rules and regulations with respect to vitamin C. In opposition, the U.S. purchasers introduced evidence indicating that the price fixing alleged was not mandated by Chinese law, but rather voluntary. The District Court denied the motion, finding that the record was “too ambiguous” to determine the voluntariness of the defendants’ actions.

After discovery, the defendants moved for summary judgment on the same three defenses originally asserted in their motion to dismiss. The Ministry again submitted a statement in support of defendants’ summary judgment motion and, in response, the plaintiffs cited further evidence they contended demonstrated that Chinese law did not require the defendants to fix the price or quantity of vitamin C export, such as evidence that China had previously represented to the World Trade Organization that it had given up administration of vitamin C. The District Court denied summary judgment and the case proceeded to trial. At trial, the jury found for plaintiffs, awarding $147 million in treble damages and enjoining defendants from further antitrust violations.

On appeal, the Court of Appeals for the Second Circuit reversed. The Second Circuit determined that the question at issue was whether or not it was impossible for the defendants to comply with both Chinese and U.S. law,

and thus whether they had been confronted with “a true conflict.” In re Vitamin C Antitrust Litig., 837 F.3d 175, 186 (2d Cir. 2016). The Second Circuit found that the answer to this question “hinges on the amount of deference that we extend to the Chinese Government’s explanation of its own laws,” under Federal Rule of Civil Procedure 44.1—which provides, in relevant part: “In determining foreign law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court’s determination must be treated as a ruling on a question of law.”

Weighing in on a circuit split between different U.S. Courts of Appeals regarding the level of deference owed by U.S. courts to a foreign government’s official statement characterizing its own laws, the Second Circuit determined that Federal Rule of Civil Procedure 44.1 had not “softened” the level of deference owed to official interpretations of foreign law, and held that “when a foreign government ... directly participates in U.S. court proceedings ... regarding the construction and effect of its laws and regulations, which is reasonable under the circumstances presented, a U.S. court is bound to defer to those statements.” In re Vitamin C Antitrust Litig., 837 F.3d at 189. Plaintiffs then filed a petition for a writ of certiorari seeking the Supreme Court’s review on appeal to resolve the circuit split, which was granted.

The Supreme Court’s Opinion

The Supreme Court vacated the judgment of the Second Circuit and remanded the case for renewed consideration. In so ruling, the Supreme Court held that a “federal court should accord respectful consideration to a foreign government’s submission, but is not bound to accord conclusive effect to the foreign government’s statements.”

In reaching this decision, the Court noted that at common law, “the content of foreign law relevant to a dispute was treated ‘as a question of fact,’” but that Federal Rule of Civil Procedure 44.1 had “fundamentally changed the mode of determining foreign law in federal courts,” as the Rule expressly specifies that determinations of foreign law “must be treated as a ruling on a question of law” rather than as a finding of fact.

The Court also clarified that although “[i]n the spirit of ‘international comity,’ a federal court should carefully consider a foreign state’s views about the meaning of its own laws,” “a federal court is neither bound to adopt the foreign government’s characterization nor required to ignore other relevant materials.” Instead, U.S. courts should evaluate certain factors, including “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.” The Court took no position on the interpretation of Chinese law at issue, but indicated that “there may be cause for caution” when “a foreign government makes conflicting statements” about what the law requires (as the vitamin C plaintiffs had contended), or “as here, offers an account in the context of litigation.”

Implications Going Forward

The Supreme Court’s decision and holding that U.S. courts are not “bound” to accept a foreign government’s characterization of its own laws is significant for at least two reasons.

First, the reversal and remanding of the Second Circuit’s decision handed the class action plaintiffs an important victory, breathing new life into the $147 million and injunction awarded by the jury, and underscoring the large impact that foreign law disputes can have on major litigation. With respect to the antitrust laws, the class action plaintiffs had argued that a contrary result would likely result in foreign governments “manufactur[ing]” statements to immunize its nationals from the U.S. antitrust laws. Although the Supreme Court did not adopt this argument, the concern potentially animated its decision.

To be clear, the impact of the Supreme Court’s opinion will extend beyond antitrust actions to a plethora of other cases where a foreign government’s views on its own laws and regulations may be of any material import. By way of past examples, in In re Oil Spill by Amoco Cadiz, 954 F.2d 1279 (7th Cir. 1992), the Seventh Circuit considered and adopted the French government’s interpretation of a French statute concerning recovery for the costs of oil spills after a ship crashed off the coast of France and the French government, among others, filed suit in the United States. And in D’Angelo v. Petroleos Mexicanos, when confronted with the scope and effect of an expropriation decree affecting the interests of a dissolved Delaware corporation in Mexican oil wells, the court determined that an official declaration from the attorney general of Mexico on the issue “must be accepted by this Court as an ‘official declaration’ by the Mexican government” and “requires this Court to abstain from further inquiry into [the expropriation decree’s] scope and effect.” 422 F. Supp. 1280, 1284-85 (D. Del. 1976), aff’d, 564 F.2d 89 (3d Cir. 1977).

Second, given the Supreme Court’s rejection of a deferential approach to the assessment of a foreign government’s characterization of its own laws, the issue of what foreign law may or may not require will likely become a more contentious issue in U.S. litigation going forward, and one that litigants need to assess how to approach at the outset of litigation. Rejecting a bright-line standard, the Supreme Court determined that “no single formula or rule will fit all cases” and that the “appropriate weight” to a foreign government’s characterization “will depend on the circumstances” in each case the issue is raised. Moreover, the “[r]elevant considerations” that the Supreme Court stated that U.S. courts should consider when evaluating a foreign government’s proffered views of its own laws are far from clear, and include of a number of undefined terms, such as the foreign government statement’s “support” and the “transparency” of the foreign legal system. How lower courts utilize the Supreme Court’s instructions remains to be seen, but it is reasonable to expect that, given the flexible standard announced by the Supreme Court, new splits in the jurisprudence on this issue among different courts will develop over time.