Cartel Defendants Not Entitled To Rely on “Foreign Sovereign Compulsion” Defense to Antitrust Liability, Despite Official Statement that Conduct Was Compelled

Cartel Defendants Not Entitled To Rely on “Foreign Sovereign Compulsion” Defense to Antitrust Liability, Despite Official Statement that Conduct Was Compelled

By Louis M. Solomon

In re Vitamin C Antitrust Litigation, 06-MD-1738 (BMC)(JO) (E.D.N.Y. Sept. 2011) [enhanced version available to lexis.com subscribers], addresses on summary judgment the Vitamin C cartel's arguments over the so-called "foreign sovereign compulsion" (FSC) and related defenses.  In rejecting reliance on those defenses and thereby denying the motions for summary judgment, the decision contains extended discussion of several important international litigation issues.

The defendants in the case "do not dispute that the cartel agreements at issue violate the antitrust laws" except for a single defense:  "that they were compelled by the Chinese government to fix prices".  The motion for summary judgment relied on the FSC defense as well as defenses based on comity and the Act of State Doctrine.  The motion was supported by an amicus brief filed by the Chinese government explaining the Chinese government's regulation of vitamin C.  The District Court found:  "According to the Ministry, defendants' actions were compelled by the Chinese government".

The rulings in the case that are noteworthy from an international practice perspective include:

First, to prove non-U.S. law, the Court applied Fed. R. Civ. P. 44.1 [enhanced version ] and found what it concluded was Chinese law based on plaintiffs' reliance on the "plain language" of various official directives and statements and not on the basis of any expert (defendants used an expert; plaintiffs did not).

Second, in analyzing what degree of deference should be accorded to the non-U.S. government's own statement of non-U.S. law, the Court acknowledged that, prior to the enactment of Rule 44.1, "the Supreme Court held that such statements should be considered 'conclusive'.  Still, the Court quoted the more recent decision from the Second Circuit, Karaha Bodas Co. v. Perusahaan Pertambangan Minyak Dan Gas Bumi Negara, 313 F.3d 70 (2d Cir. 2002) [enhanced version  / unenhanced version available from lexisONE Free Case Law], stating that "a foreign sovereign's views regarding its own laws merit - although they do not command - some degree of deference".  The District Court went on to reject China's statement on the basis of the Court's own reading of Chinese law as well as on the basis of a highly detailed analysis of what the official statement did and did not say.  The Court made no finding that the Chinese government was ill-motivated or had not attempted to meet the plaintiffs' claims fully.

Third, in the Court's discussion of comity,  the Court analyzed the Supreme Court's decision in Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993) [enhanced version  / unenhanced version],  The Court observed - just as we have in our e-book (International Practice:  Topics and Trends) discussion titled "is comity a limited doctrine" - that "[i]t is thus not clear that a comity analysis is still permitted in the absence of the type of true conflict envisioned by Hartford Fire - i.e., that the only instance where a true conflict does not exist, and comity should not be considered, where the "defendant can comply with both United States and foreign law, 'even where the foreign state has a strong policy to permit or encourage [the conduct that violates American law']" (meaning that a true conflict exists only where the defendants were "required . . . to act in some fashion prohibited by the law of the United States", or there "their compliance with the laws of both countried is otherwise impossible").  The Court did not discuss whether, even assuming Chinese law would have been violated by the defendants' conduct, the Court could still find defendants' conduct unlawful under U.S. law (see our discussion of a recent case refusing to apply a French block statute prohibition, even assuming it prohibited the defendant's compliance with U.S. discovery rules).

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