Overview
In an increasingly interconnected world, businesses that conduct cross-border transactions will continue to navigate complicated and thorny legal regimes. As long as full compatibility between these regimes is unrealized, the doctrine of international comity will remain alive and well in U.S. litigation. Comity is a choice-of-law principle that concerns the extent “to which the law of one nation, as put in force within its territory, whether by executive order, by legislative act, or by judicial decree, shall be allowed to operate within the dominion of another nation.”[1] Comity is different from other closely-related doctrines like the act of state doctrine (a defense designed to avoid judicial inquiry into state officials’ conduct as opposed to private actors[2]) and the foreign sovereign compulsion doctrine (a defense where “corporate conduct which is compelled by a foreign sovereign" is also protected from liability "as if it were an act of the state itself”[3]).
This article discusses one flashpoint area in comity analysis—the question of what deference to give to a foreign sovereign’s interpretation of its own law, a pending question now before the Supreme Court. Adherence to one set of laws may or may not affect a court’s decision to abstain from jurisdiction. In the United States, circuit courts disagree about the degree of deference that should be given to foreign sovereigns who offer their own interpretations of their laws in litigation. For instance, the Ninth and Second Circuits have given a strong degree of deference to such interpretations, with the Second Circuit recently stating that it is “bound to defer” to such statements.[4] In contrast, the Sixth and D.C. Circuit past approaches show that they do not always compel strong deference to a foreign government’s interpretation of its laws.[5]
The Supreme Court will hear arguments on this circuit split this month. The case on appeal is Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., part of the In Re Vitamin C Antitrust Litigation multi-district class action in which plaintiffs alleged that defendants violated Section 1 of the Sherman Act by conspiring to fix the price and supply of vitamin C sold to U.S. companies. In that case, the Ministry of Commerce (MOFCOM) of the People’s Republic of China filed a statement in district court arguing that international comity required the court to abstain from jurisdiction, because, it said, Chinese law required the defendants to set prices and reduce the quantities of vitamin C sold abroad.[6] In denying the defendants’ motion for summary judgment, the district court refused to give deference to what it perceived was the Chinese government’s “post-hoc attempt to shield defendants’ conduct from antitrust scrutiny.”[7] And in its ruling on the defendants’ post-trial motion for judgment as a matter of law, the district court refused to credit the Chinese government’s statements because of “ample evidence at trial” showing that the government “did not actually compel defendants’ decisions to fix the price and limit the supply of vitamin C.”[8]
In reversing the district court, the Second Circuit held that U.S. courts are “bound to defer” to the foreign government’s interpretation of its laws when the latter “directly participates” in U.S. proceedings through a “sworn evidentiary proffer regarding the construction and the effect of its laws and regulations,” as long as it is reasonable under the circumstances presented.[9] In contrast to the district court's approach, which looked to the facts, including the extent to which defendants were compelled to engage in price-fixing behavior, the Second Circuit refused to conduct an inquiry into the underlying facts regarding a foreign sovereign’s actual behavior. The Second Circuit drew a sharp distinction between questions of “whether the Chinese Government actually enforced” the laws and “of what Chinese law required.”[10] Facts regarding China’s “unwillingness or inability” to enforce were not relevant to the conflict of law analysis.[11] Neither were facts regarding whether the defendants’ specific form of conduct was compelled by MOFCOM; what mattered was whether the Chinese law “on its face” required the defendants to violate U.S. antitrust laws.[12]
Subsequently, the Supreme Court granted certiorari, which was sought by the antitrust plaintiffs. In its amicus brief supporting the plaintiffs, the United States government has taken the view opposite to the Second Circuit. The USG amicus criticizes the Second Circuit’s insistence on relying on the “four corners” of MOFCOM's statement.[13] The amicus advocates for a court to be “neither bound to adopt the foreign government’s characterization nor barred from considering other materials that support a different interpretation.”[14] And though a U.S. court would “ordinarily afford” the views of a foreign government “substantial weight,” the “ultimate responsibility” for determining the governing law lies with the court.[15]
This approach is notable for its consistency with the January 2017 Antitrust Guidelines for International Enforcement and Cooperation, established by the Obama administration. And though the Guidelines were released after the Second Circuit’s opinion, the Agencies reserved the right to inquire into the extent to which a foreign sovereign encourages or discourages certain courses of conduct in deciding whether to enforce U.S. antitrust laws.[16] Indeed, both the amicus brief and the Guidelines state that the weight accorded to the views of a foreign government depends on the circumstances of each case.[17]
Finally, MOFCOM recently filed a joint motion with the defendant-respondents for leave to participate in oral argument and has announced its intent to file an amicus brief. In its motion, MOFCOM argues that it has a “unique ability” to assist the Supreme Court in the meaning and effect of China’s trade laws.[18] The motion warns that the creation of “a weak or indeterminate deference rule” would “invite error” at the lower courts; “incentivize parties to attack the candor and motives of the foreign sovereign”; “subject private parties to conflict legal obligations”; and “discourage foreign sovereigns from appearing in U.S. courts.”[19] At least part of MOFCOM’s brief will focus on how the interpretation of MOFCOM’s policies “carries decisive weight under Chinese law.”[20]
We can glean several takeaways with regards to this unsettled area of the law:
- Businesses whose operations span jurisdictions that have potentially divergent legal regimes should carefully analyze the likely conflict of law that may arise.
- Businesses would be well-served in analyzing how their conduct, whether current or contemplated, relates to their home countries’ regulations. At least in the antitrust context, the current administration has signaled its intent to consider other factors as to how a foreign law is actually enforced with regards to businesses when deciding whether to investigate or to enforce U.S. laws, even if that stands in contrast with how some courts conduct such an analysis.
- The Supreme Court’s decision on In re Vitamin C Antitrust Litigation on the reach of a U.S. law may have repercussions for the treatment that U.S. companies receive abroad. As MOFCOM’s motion for oral argument recognized, the resolution of this question would impact future cases.[21] Other legal regimes, particularly newly-developing ones, may choose to mirror whatever approach comes from the highest court in the U.S. when it comes to enforcing their own laws against U.S. companies operating within their borders. Or, a rule that limits the deference afforded to a foreign government’s interpretation may in fact incentivize regulators to cooperate with each other early on in the course of an investigation or enforcement to avoid any potential conflict.
