Supreme Court Tells China to Read the Rules

In a unanimous decision, the Supreme Court today politely told China to take a back seat while U.S. courts interpret Chinese law.

For over a decade, antitrust litigation has been pending in the Eastern District of New York regarding alleged price fixing by Chinese manufactures of vitamin C.  U.S. purchaser plaintiffs claimed that Chinese firms conspired to set prices through their own trade organization.  In fact, that same organization had proudly announced that the manufacturers “were able to reach a self-regulated agreement . . . whereby they would voluntarily control the quantity and pace of exports . . . without any government intervention.”  With the aid of this admission, purchaser plaintiffs won a $162 million judgment at trial.

At trial, the Chinese firms argued that the trade association was no more than a tightly-regulated arm of the Chinese government, enacting government-directed trade policy.  Accordingly, the association’s decisions were protected state action.  This interpretation of Chinese law was supported by an amicus brief from the Chinese trade ministry itself.  While rejected by the trial court (in light of evidence that the Chinese firms had acted voluntarily) the Second Circuit reversed, holding that the U.S. court must defer to China’s own interpretation of its laws.  Otherwise, Chinese firms are placed in the impossible position of attempting to adhere to conflicting U.S. and Chinese laws.

Not so, says Ruth Bader Ginsburg, holding that China is trumped by the Federal Rules of Civil Procedure.  Fed. R. Civ. Pro. 44.1 provides that interpretation of alien law “must be treated as a ruling on a question of law,” and therefore a court may look beyond the submission of the parties to “any relevant material or source . . .  whether or not . . . admissible under the Federal Rules of Evidence.”  Thus, Justice Ginsburg observed, “[a] federal court should accord respectful consideration to a foreign government’s submission, but is not bound to accord conclusive effect to the foreign government’s statements.”  Instead, the weight accorded to a foreign government’s own interpretation of its laws will vary from case to case, governed by external factors including “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 its decision granting deference to China, the Second Circuit noted China’s claim that the lower-court decision had “already negatively affected U.S.–China relations,” and that China considered the attention of the U.S. courts “disrespectful.”  It will be interesting to observe how the Supreme Court’s latest ruling plays out against the backdrop of already-tense U.S.-Chinese relations.

About Faruqi & Faruqi, LLP

Faruqi & Faruqi focuses on complex civil litigation, including securities, antitrust, consumer and wage and hour class actions, as well as shareholder derivative suits.  The firm is headquartered in New York, and maintains offices in California, Delaware, Pennsylvania and Georgia.  Since its founding in 1995, Faruqi & Faruqi has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers, and employees.

To contact the author of this blog or the offices of Faruqi & Faruqi, please call us at (877) 476-7797.

About Adam Steinfeld

Adam Steinfeld is a Partner in Faruqi & Faruqi, LLP’s New York office.  He practices in the area of antitrust litigation with a focus on competition in the pharmaceutical industry.

Posted by Adam Steinfeld

Partner at Faruqi & Faruqi, LLP
New York Office
Tel: (212) 983-9330
Fax: (212) 983-9331

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