Enter to open, tab to navigate, enter to select
Second Circuit, Citing Comity, Vacates $147 Million Vitamin C Price-Fixing Award
Practical Law Legal Update w-003-5459 (Approx. 4 pages)
Second Circuit, Citing Comity, Vacates $147 Million Vitamin C Price-Fixing Award
by Practical Law Antitrust
| Published on 21 Sep 2016 • USA (National/Federal) |
The US Court of Appeals for the Second Circuit vacated a $147 million vitamin C price-fixing judgment against Chinese defendants, reasoning that under the principles of international comity, the US district court should have abstained from exercising jurisdiction in the case at the motion-to-dismiss stage.
On September 20, 2016, the US Court of Appeals for the Second Circuit vacated a US District Court for the Eastern District of New York decision awarding the plaintiffs $147 million based on the principles of international comity (In re Vitamin C Antitrust Litigation, No. 13-4791-cv (2d Cir. Sept. 20, 2016)).
In In re Vitamin C, plaintiffs alleged that the defendants, Chinese companies, colluded to set the prices of vitamin C sold to US companies on the international market, in violation of Section 1 of the Sherman Act. The defendants argued that because they were acting pursuant to Chinese laws mandating the price-fixing, they should not be subject to punishment under US antitrust laws.
The Second Circuit held that international comity required the district court to abstain from exercising jurisdiction in the case because both:
- The Chinese government submitted a formal statement that the defendants were acting pursuant to a Chinese law that required fixing the prices of vitamin C exports.
- The defendants could not simultaneously comply with both the Chinese law and US antitrust laws prohibiting price-fixing.
Chinese Law
During the trial, the Chinese government submitted a formal statement explaining that, beginning in 2002, the China Chamber of Commerce of Medicines & Health Products Importers & Exporters (Chamber) and the Ministry of Commerce of the People's Republic of China (MOFCOM) enacted a price verification scheme under which vitamin C exporters were required to coordinate the prices at which they would export vitamin C. The statement explained that the scheme was intended to:
- Avoid anti-dumping sanctions from other countries.
- Promote industry self-discipline.
- Ensure a healthy export market.
The statement further explained that the Chamber and MOFCOM would only allow companies to export vitamin C if they complied with the coordinated minimum acceptable price. However, the parties disputed whether the Chinese program actually compelled the defendants to fix the prices of vitamin C exports.
Comity Analysis
The court used a ten-part test in evaluating whether to exercise jurisdiction based on comity grounds, weighing:
- The laws' degree of conflict.
- The nationality of the parties or their principal places of business.
- The relative importance of the violation under US laws compared to under international law.
- How effective each law would be at achieving compliance, whether the international law provides a remedy, and whether litigation is pending abroad.
- Whether the conduct was foreseeably intended to harm American commerce.
- The effect a US court decision would have on foreign relations.
- Whether a judgment in favor of the plaintiff would require the defendant to perform an illegal act in either country, or be under conflicting requirements.
- Whether a court can enforce its order.
- Whether the US would accept a similar order for relief made by the other country.
- If there exists a treaty between the affected countries addressing the issue.
True Conflict Analysis
The degree of conflict between the Chinese and US laws was a significant threshold issue to determine the correct balancing test to apply and to ultimately decide whether abstention was warranted. The court found that a true conflict existed between two countries' laws if it was impossible to comply with both. In this case, the court held that there was a true conflict between US law and Chinese law, so the ten-part test was appropriate and international comity would apply.
The court found that:
- A US court must defer to a sworn statement by a foreign government offering a reasonable interpretation of its own laws and regulations, where the foreign government is directly participating in the legal proceedings. The court reasoned that not extending deference to international law in this case would be disrespectful of the foreign government, and deference to Chinese law was particularly important considering the differences between Chinese and American law.
- Deferring to the official Chinese statement, the court found that the Chinese law required defendants to fix the price of exported vitamin C, which was a violation of the Sherman Act in the US. Therefore, it was impossible for the defendants to comply with both the Chinese and US laws.
The court further held that it was irrelevant whether:
- The Chinese authorities enforced the price verification program.
- The defendants influenced the government's price verification program.
- China's interpretation of its regulations was inconsistent with how the regulations might be interpreted by a US court.
In addition, the act of state doctrine barred the court from considering the Chinese government's motives behind its price verification program.
Remaining Comity Factors
The court noted that the remaining factors also weighed clearly in favor of the US courts refraining from exercising jurisdiction. The court also observed that the plaintiffs had recourse to the executive branch for relief, which was better suited to address matters of foreign policy.
The court vacated the district court ruling and remanded to dismiss plaintiffs' complaint with prejudice.
For more on antitrust defenses involving foreign conduct, see Practice Note, Antitrust Affirmative Defenses: Overview, Cases Involving International Commerce.