Second Circuit—Once Again—Overturns on Comity Grounds Multi-Million Dollar Price-Fixing Judgment

The U.S. Court of Appeals for the Second Circuit recently issued a decision in In re Vitamin C Antitrust Litigation, reversing a $148 million price-fixing judgment against two Chinese exporters of vitamin C, remanding the case with instructions to dismiss the case with prejudice. The Second Circuit reversed on international comity grounds, finding there was a true conflict between U.S. and Chinese law and, as a result, declining to "construe U.S. antitrust law to reach defendants' conduct."  

The case dates back more than a decade, when a putative class of U.S.-based vitamin C purchasers filed an action under Section 1 of the Sherman Antitrust Act against four Chinese companies, alleging that the Chinese companies conspired to fix prices and constrain the supply of vitamin C to the U.S. The Chinese companies did not contest that they were price fixing; instead, they argued that Chinese law compelled their alleged anticompetitive conduct. The Chinese government, through the Ministry of Commerce, appeared and agreed that it required price fixing as a means of nurturing its nascent vitamin C industry.  

The Chinese companies sought to dismiss the action on, among other things, international comity grounds. The district court denied the request, and the case ultimately went to trial, resulting in a $147 million jury verdict against the non-settling defendants. On appeal in 2016, the Second Circuit reversed, dismissing the lawsuit on the basis of the defendants' international comity argument. The U.S. Supreme Court, however, granted certiorari and vacated the Second Circuit's ruling, a decision we discussed in more detail here. The U.S. Supreme Court remanded the case for further consideration with the instruction that U.S. courts should give "careful consideration but not conclusive deference to foreign governments' submissions in U.S. litigations.   

On remand, relying on Hartford Fire Ins. Co. v. California, 509 U.S. 764, 799 (1993), the Second Circuit started its comity analysis by asking whether Chinese law required defendants to engage in anticompetitive conduct that violated U.S. antitrust laws, such that a "true conflict" exists.  

The Second Circuit drew an interesting—and we anticipate, important—comparison between the true conflict requirement under the international comity doctrine, on one hand, and the foreign sovereign compulsion doctrine, on the other hand. The Second Circuit recognized that a number of courts, including district courts within the Second Circuit, had incorrectly conflated the two. Of most interest to foreign litigants, the Second Circuit emphasized that the true-conflict doctrine requires only that a conflict exist, not that the litigant face the risk of sanctions should it not comply with the foreign country's law. 

That represents a notable change. To date, many trial courts have required foreign litigants asserting an international comity defense to demonstrate they will be punished in the foreign country if they fail to comply with the foreign law. In other words, a conflict was not enough; the litigant also had to show that it would be punished. That approach is no longer correct under the Second Circuit's decision, which found that the "exclusive attention" should be on what foreign law facially requires, regardless of "the threat of compulsive sanctions." This approach, the Second Circuit explained, reflects that international "‘comity' is characterized by respect for another country's sovereign authority within its border, not by examination of whether such authority exerts duress-like pressure" on the litigants. 

In concluding that a true conflict existed between U.S. and Chinese antitrust law, the Second Circuit also considered "with more than a grain of salt," but nonetheless gave "some weight" to, the statements from the Chinese government as to the proper interpretation of its laws and what requirements those laws imposed on the defendants. The Court then weighed the true conflict together with the other comity factors—including the U.S.'s interest in adjudicating antitrust violations within its jurisdiction with China's interest in regulating its economy within its borders—and held that principles of international comity require dismissal.  

The Second Circuit's decision, however, was not unanimous. The three-judge panel split 2-1, with Judge William J. Nardini writing for the majority. Judge Richard C. Wesley dissented, arguing that no true conflict existed between the relevant U.S. and Chinese laws.