The Second Circuit recently set aside a $147 million verdict against two Chinese companies accused of conspiring to fix the price and supply of vitamin C sold to U.S. buyers. In re Vitamin C Antitrust Litigation. The panel held that the complaint should have been dismissed after the Chinese government submitted anamicus curiae brief confirming that Chinese law required the companies to fix prices and, in effect, violate U.S. antitrust law. The panel found that the companies could not simultaneously comply with U.S. and Chinese law and, drawing on principles of international comity, vacated the district court judgment.

The plaintiffs – including a Texas livestock supplement company and a New Jersey food company – brought suit in 2005 claiming that the defendants – Chinese vitamin C manufacturer Hebei Welcome Pharmaceutical Co. and its parent company – conspired to fix prices and restrict exports in order to create a shortage of vitamin C on the international market.

The defendants moved to dismiss the complaint, arguing that international comity required deference to Chinese regulations that mandated price coordination among the defendants and other vitamin C exporters. In an “historic act,” the Chinese government filed an amicus curiae brief in support of the motion, confirming that during the relevant period, its laws required manufacturers to export vitamin C at industry-wide coordinated prices. However, the district court denied the motion to dismiss, unconvinced that Chinese law compelled such activity.

The district court also denied the defendants’ subsequent motion for summary judgment brought on the same grounds. It declined to defer to the Chinese government’s interpretation of Chinese law and determined that Chinese law did not require the defendants’ anticompetitive behavior. The case proceeded to trial and, in March 2013, a jury found the defendants liable for violating U.S. antitrust law. The district court awarded $147 million in damages and enjoined the defendants from engaging in future anticompetitive behavior.

The Second Circuit vacated the judgment, finding that principles of international comity required the district court to abstain from exercising jurisdiction in this case. Comity is “the recognition which one nation allows within its territory to the legislative, executive, or judicial acts of another nation[.]” Comity may require a district court to abstain from exercising jurisdiction where there is a “true conflict” between U.S. and foreign law, i.e., where compliance with the laws of both countries is impossible.

Writing for a unanimous panel, Circuit Judge Peter W. Hall found that in evaluating the Chinese regulations at issue, the district court failed to accord sufficient deference to the Chinese government’s explanation of its own laws. Judge Hall drew upon prior U.S. Supreme Court and Second Circuit precedent to reaffirm the principle that “when a foreign government . . . directly participates in U.S. court proceedings by providing a sworn evidentiary proffer regarding the construction and effect of its own laws and regulations, which is reasonable under the circumstances presented, a U.S. court is bound to defer to those statements.” Accordingly, the Second Circuit deferred to the Chinese government’s conclusion that Chinese law required the defendants to engage in anticompetitive behavior. Since the defendants “could not simultaneously comply with Chinese law and U.S. antitrust laws,” the panel found that there was a true conflict that supported abstention based on international comity. The Second Circuit thus vacated the judgment, reversed the district court’s order denying the defendants’ motion to dismiss, and remanded with instructions to dismiss the complaint with prejudice.

Although the decision puts a thumb on the scale in favor of a foreign sovereign’s interpretation of its own laws in U.S. courts, three footnotes suggest certain limitations. First, deference may be inappropriate where “there is no documentary evidence” to support a foreign government’s interpretation of its own laws. Second, abstention may be inappropriate at the motion to dismiss stage where further discovery is needed to afford the trial court “the opportunity to consider the countervailing interests and policies.” Third, abstention may be inappropriate where a foreign sovereign does not actually appear in the litigation: “if the Chinese Government had not appeared in this litigation, the district court’s careful and thorough [analysis of] what Chinese law required . . . would have been entirely appropriate.”

Nevertheless, the decision may encourage additional filings by foreign governments in U.S. courts. Indeed, we may soon see a ripple effect as defendants seek to extend this decision beyond the antitrust context and to disputes involving foreign laws interpreted by foreign governments in prior U.S. litigations.