In an unanimous decision, the Supreme Court has gutted the Second Circuit’s rule on deference to a foreign government’s interpretations of its law, holding that a federal court determining foreign law under Federal Rule of Civil Procedure 44.1 should accord “respectful consideration” to a foreign government’s submission, but a court “is not bound to accord conclusive effect” to these statements.
The case is Animal Science Products, Inc. v. Hebei Welcome Pharmaceutical Co. Ltd., which began as a multi-district class action alleging price fixing claims vitamin C exports sold to U.S. companies. Initially, plaintiffs won at a jury trial after the district court refused to credit the Chinese government’s statements that it compelled the defendants to fix the price and limit the supply of vitamin C. Then, the Second Circuit reversed, holding that the district court was “bound to defer” to the Chinese government’s interpretation of its laws when the latter “directly participates” in U.S. proceedings through a “sworn evidentiary proffer regarding the construction and the effect of its laws and regulations,” as long as it is reasonable under the circumstances presented.
As previewed in our earlier analysis, this case has important repercussions for any business involved in cross-border transactions. We explore these further below in light of the Supreme Court opinion.
First, businesses whose operations span jurisdictions with potentially divergent legal regimes will need to continue to assess the conflict of law that may arise. The Supreme Court’s opinion makes it evident that “the appropriate weight in each case will depend upon the circumstances” when a federal court must make a decision about a foreign state’s view of its own laws. In practical terms, this may mean that businesses who want to engage in a certain type of conduct may want to analyze in detail any statements made by a foreign government that might be related to the contemplated behavior. As the Supreme Court acknowledges, “no single formula or rule will fit all cases in which a foreign government describes its own law.” An analysis would need to be undertaken of many factors, including each statement’s “clarity, thoroughness, and support; its context and purpose; the transparency of the foreign legal system; the role and authority of the entity of official offering the statement; and the statement’s consistency with the foreign government’s past positions.”
Second, our earlier analysis posited that a Supreme Court ruling which limits the deference afforded to a foreign government’s interpretation may in fact incentivize regulators to cooperate with each other early on in the course of an investigation or enforcement to avoid any potential conflict. The Supreme Court has done just that with its rejection of the Second Circuit’s “highly deferential” rule. And, somewhat presciently, it appears that Makan Delrahim, the Assistant Attorney General for the Antitrust Division, has begun to already make strides in bringing further convergence to the processes of antitrust enforcement. Recently, Delrahim announced a partnership between the United States and other leading antitrust agencies to finalize and join a Multilateral Framework on Procedures in Competition Law Investigation and Enforcement (“MFP”). The MFP will seek “meaningful compliance among competition agencies” on advancing competition through compliance mechanisms. Delrahim discussed the compliance mechanisms not as “establishing a formal and binding dispute settlement mechanism” but ensuring “sufficient incentives to comply with the common commitments.” If the MFP goes forward, it remains an interesting question as to the degree of deference accorded to statements of MFP enforcers under the Supreme Court’s more flexible rule.
Finally, the Supreme Court’s opinion is a validation of the past and current administration’s approach under the Antitrust Guidelines for International Enforcement and Cooperation (2017). As the Guidelines and the Supreme Court amicus brief by the U.S. government assert, the weight accorded to the views of a foreign government depends on the circumstances. What this means for businesses evaluating agency enforcement likelihood is that the Guidelines will likely continue to be leaned on by this current administration.