US Courts Not Bound By MOFCOM’s Interpretation of Chinese Laws
June 15, 2018
In a closely watched case involving allegations of price-fixing by Chinese Vitamin C manufacturers, the Supreme Court, reversing the US Court of Appeals for the Second Circuit, ruled on Thursday that federal courts are neither “bound to adopt” a foreign government’s characterization of its own laws nor “required to ignore other relevant materials” affecting the interpretation of those laws.1
The Court explained that while the views of foreign states remain important—and courts must “carefully consider” those views pursuant to international comity—the weight given to a foreign government’s representations will vary based on the circumstances in any given case. US courts must consequently consider a range of factors when assessing a foreign state’s description of its own law, including:- The clarity, thoroughness, and support underlying a foreign government’s description of its law;
- The context and purpose of the foreign government’s statement;
- 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.2
The Court indicated that particular caution is appropriate when the representations of a foreign government conflict with other statements by that government or when the representations are made (as they were in this case) in the context of litigation.
Whatever the circumstances, courts “may consider any relevant material or source,” “whether or not submitted by a party,” in order to determine the meaning of a foreign law.3 This can include statements by foreign governments but also any relevant material in the record as well as any materials uncovered by the court during its own research.
Because the Second Circuit applied an “unyielding rule” in the underlying litigation, accepting as binding the interpretations offered by China’s Ministry of Commerce of Chinese law, the Supreme Court reversed and remanded.4 The Court did not independently assess the requirements of the Chinese laws at issue or their impact on the antitrust dispute in which they arose.
Background
The Supreme Court’s ruling revives the long-running antitrust litigation regarding Vitamin C imported from China and sold in the US. Since they filed their first complaint in 2005, US purchasers have contended that Chinese manufacturers unlawfully fixed the prices and quantity of Vitamin C exported to the US from China in violation of the Sherman Act.
Defendants have never disputed the allegations regarding their behavior. Instead, they argued that their actions were required by the Chinese government and should not result in liability, invoking the act of state doctrine, the foreign sovereign compulsion doctrine, and principles of international comity. China’s Ministry of Commerce—the highest Chinese authority regulating foreign trade—submitted multiple filings explaining that the complained-of conduct was actually “a regulatory pricing regime mandated by the government of China.”5 The District Court concluded that it did not consider the Ministry’s statements conclusive, particularly in light of conflicting evidence submitted by the US purchasers. The suit proceeded to trial, where a jury returned a verdict in favor of plaintiffs and awarded $147 million in treble damages.
On appeal, the Second Circuit reversed. It ruled that Chinese manufacturers could not be held liable for price fixing because their actions were dictated by Chinese law. The Second Circuit explained that “when a foreign government, acting through counsel or otherwise, directly participates in US court proceedings by providing a [statement] regarding the construction and effect of [the foreign government’s] laws and regulations, which is reasonable under the circumstances presented, a US court is bound to defer to those statements.”6 Given this standard, the Second Circuit disregarded all evidence casting doubt on China’s representation of its own law.
The Supreme Court granted certiorari to resolve the question whether federal courts assessing the meaning of foreign law must treat as conclusive submissions by foreign governments describing their own laws.
The Supreme Court’s Ruling
The Supreme Court concluded that the Second Circuit erred when it accorded binding deference to the Ministry of Commerce’s interpretation of Chinese law. The Court explained that Federal Rule of Civil Procedure 44.1 requires courts to assess questions of foreign law just as they would any other question of law. This means that courts “may consider any relevant material or source . . . whether or not . . . admissible under the Federal Rules of Evidence” and whether or not submitted by a party.7
And while the Court explained that statements from foreign governments should receive careful consideration in the “spirit of international comity,” the appropriate weight attributed to any statement “will depend upon the circumstances; a federal court is neither bound to adopt the foreign government’s characterization nor required to ignore other relevant materials.”8
The Court expressly identified several “[r]elevant considerations” for courts assessing a foreign government’s statement about its own laws, including: (1) the statement’s clarity, thoroughness, and support; (2) its context and purpose; (3) the transparency of the foreign legal system; (4) the role and authority of the entity or official offering the statement; and (5) the statement’s consistency with the foreign government’s past positions. Particular caution is warranted when the representation conflicts with past statements or arises in the context of litigation.9
Because the Second Circuit “riveted its attention on the Ministry’s submission” and failed to consider other evidence regarding Chinese law—including inconsistent statements by the Chinese government—the Court remanded the case for further consideration. It explained that the “materials identified by the District Court were at least relevant to the weight the Ministry’s submissions should receive and to the question whether Chinese law required the Chinese sellers’ conduct.”10 Until a more holistic assessment occurred, the Second Circuit’s conclusions regarding Chinese law could not stand.
Importantly, the Supreme Court did not address the correct interpretation of Chinese law or how Chinese law affects the underlying antitrust suit. The Second Circuit will revisit those questions on remand, as the Vitamin C antitrust litigation lives on.1 Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co. Ltd., No. 16-1220, slip op. at 8–9 (June 14, 2018).
2 Id. at 9.
3 Id. at 1–2.
4 Id. at 9–10.
5 Id. at 3.
6 In re Vitamin C Antirust Litig., 837 F.3d 175, 189 (2016).
7 Animal Sci. Prods., No. 16-1220, slip op. at 8.
8 Id. at 8–9.
9 Id. at 9.
10 Id. at 12.
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