Second Circuit Takes A Second Look At Chinese Vitamin C Price-fixing Case And Again Affirms Dismissal
08/19/2021On August 10, 2021, the Second Circuit, in a 2-1 decision, affirmed the dismissal—for the second time—of price-fixing claims against a pair of Chinese vitamin C exporters, after the Supreme Court had remanded it for further consideration. Animal Science Prods., et al., v. Hebei Welcome Pharma. Co. Ltd., et al., 13-4791-cv (2nd Cir. Aug 10, 2021). Following the Supreme Court’s directive to “carefully consider but not conclusively defer” to submissions from the Chinese Ministry of Commerce, a three-judge panel of the Second Circuit agreed that the case should, nevertheless, still be dismissed on international comity grounds. This decision—involving the Chinese government’s first appearance in a U.S. court—was unusual for an antitrust case in that there was no real dispute that the alleged anticompetitive conduct occurred. Instead, the question centered on “whether Chinese law required the Chinese sellers’ conduct.”
Plaintiffs, Animal Science Products, Inc. and The Ranis Company, Inc., brought a putative class action in 2005 alleging that four Chinese exporters of vitamin C conspired to restrict supply in violation of the Clayton Act and Section 1 of the Sherman Act, to the detriment of American buyers of bulk Vitamin C. The only holdouts after the three other exporters settled, Hebei Welcome Pharmaceutical Co. Ltd. (“Hebei”) and its parent company North China Pharmaceutical Group Corp. (“NCPG”), went to trial where a jury found them guilty and ordered them to pay treble damages of over $147 million.
On the first appeal, the Second Circuit reversed, holding that the trial court was bound to defer to the explanation of Chinese law submitted by the Ministry of Commerce of the People’s Republic of China (the “Ministry”), which it found to be reasonable under the circumstances. The Court found that, according to the Ministry’s submission, Chinese law actually required defendants to undertake the anticompetitive conduct at issue, which made it impossible for defendants to comply with both China’s regulatory scheme and U.S. antitrust law. The Court held that this “true conflict” of law, in combination with other international comity factors, mandated dismissal of plaintiffs’ suit.
The Supreme Court reversed, holding that the Second Circuit afforded too much deference to the Ministry’s views and reminded the court that, while submissions from foreign governments should get “respectful consideration,” they should not be given dispositive effect as they are not binding on U.S. courts.
On remand, the Second Circuit took a second look at the Ministry’s amicus curiae brief, which it interrogated following the Supreme Court’s guidance and ultimately still found credible. The brief explained that China’s ongoing transformation from a state-run command economy to a more market-driven economy led to terms and dynamics that would likely be misunderstood by a U.S. court. For example, whereas plaintiffs had alleged that the Chinese Chamber of Commerce of Medicines & Health Products Importers & Exporters (the “Chamber”) operated like a mere “trade association” facilitating “the collusive actions of a cartel,” the Ministry’s brief clarified that the Chamber actually served “under the authority and direction of the Ministry” as part of “a regulatory pricing regime mandated by the government of China” to stabilize its export market, promote profitability, and protect national interests. Writing for the majority, U.S. Circuit Judge William J. Nardini found that, taking it at face value, Chinese law required defendants to engage in price-fixing conduct violative of U.S. antitrust law in a way that made it impossible to comply with the laws of both countries.
In a dissenting opinion, U.S. Circuit Judge Richard C. Wesley said that the majority overemphasized international comity concerns without properly deciding whether Chinese law required the conduct at issue, arguing that the regulatory regime was not mandatory. The majority countered that, while the exporters could technically withdraw from the committee that set the prices, they would have little choice but to participate in industrywide coordination because they were China’s only vitamin C manufacturers.
Although involving very unique considerations, the journey that this case has taken through the courts has been elucidating as to the question of how much deference to give to foreign governments’ explanations of their own law, and the ability of U.S. antitrust law to govern extraterritorial conduct when international comity concerns are at issue.