Deference to China Was a Bridge Too Far, High Court Rules

WASHINGTON (CN) – Balancing diplomacy with common sense, the Supreme Court found it improper Thursday that a nearly $148 million price-fixing verdict fell apart on China’s say-so.

U.S. vitamin purchasers led by Animal Science Products Inc. obtained the judgment in question after a jury trial in New York.

Though China has been the world’s leading exporter of vitamin C for over half a century, American companies attribute this market domination to the participation of companies like Hebei Welcome Pharmaceutical in a trade cartel.

Rather than deny the allegations, Hebei claimed that it is forced by the Chinese government to set prices and limit vitamin C exports. Indeed, the Chinese government supplied testimony confirming that Hebei is at the mercy of Chinese law.

In 2016, crediting the characterization of Chinese law provided by China’s Ministry of Commerce, the Second Circuit reversed the verdict against Hebei.

But the U.S. Supreme Court vacated that holding on Thursday, finding that federal courts face no obligation to treat submissions such as the one that China gave here as conclusive.

“Given the world’s many and diverse legal systems, and the range of circumstances in which a foreign government’s views may be presented, no single formula or rule will fit all cases in which a foreign government describes its own law,” Justice Ruth Bader Ginsburg wrote for the unanimous court. “Relevant considerations include the statement’s clarity, thoroughness, and support; its context and purpose; the transparency of the foreign legal system; the role and authority of the entity or official offering the statement; and the statement’s consistency with the foreign government’s past positions.”

In the Hebei case, Ginsburg added, one piece of evidence that undermined China’s submission to the court was a 2002 statement to the World Trade Organization in which China said it “gave up export administration … of vitamin C.”

Ginsburg also distinguished China’s statement in the Hebei case from the 1942 case U.S. v. Pink, which involved the Soviet Union’s nationalization of an insurance company after the Russian revolution.

To support the position that the nationalization decree reached all of the company’s assets, including overseas branches of the Russian insurance company, the United States obtained an official declaration to that effect from the Commissariat for Justice of the Russian Socialist Federal Soviet Republic.

While the FSB commissariat’s interpretation of Russian law received deference in Pink, Ginsburg emphasized that this was because the submission at issue “rested on a document obtained by the United States, through official ‘diplomatic channels.’”

“There was no indication that the declaration was inconsistent with the Soviet Union’s past statements,” Ginsburg added. “Indeed, the court emphasized that the declaration was consistent with expert evidence in point. That the commissariat’s declaration was deemed ‘conclusive’ in the circumstances Pink presented scarcely suggests that all submissions by a foreign government are entitled to the same weight.”

Ginsburg chided the Second Circuit for its holding that a foreign government’s characterization of its own laws should be afforded “the same respect and treatment that we would expect our government to receive in comparable matters.”

“The concern for reciprocity is sound, but it does not warrant the Court of Appeals’ judgment,” she wrote. “Indeed, the United States, historically, has not argued that foreign courts are bound to accept its characterizations or precluded from considering other relevant sources.” (Emphasis in original.)

Jonathan Jacobson, an attorney for Hebei with the firm Wilson Sonsini, emphasized that the Supreme Court did not go so far as to reinstate the jury’s verdict.

“While we are disappointed that the court did not affirm the Second Circuit, we are confident of prevailing on remand because Chinese law clearly compelled price fixing of vitamin C during the relevant period, as our own government has made clear,” Jacobson said in an email.

Carter Phillips, an attorney at Sidley Austin who argued for China before the Supreme Court, made a similar point.

“It obviously is disappointing, but it does not decide the issue of what Chinese law requires so we will go back and demonstrate again to the Second Circuit that its bottom line was right the first time,” Phillips said in an email.

Boies Schiller attorney Michael Gottlieb represented the U.S. purchasers at April oral arguments.

“For the past 12 years, we have been pursuing the truth about how four Chinese companies controlled supply and fixed prices for 80 percent of the vitamin C in the United States,” Gottlieb said in a statement. “We are thrilled that our effort will continue following today’s unanimous decision that our case should not have been dismissed on the say-so of the Chinese government. The decision will promote free and open markets, while protecting the independence of the U.S. courts.”

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