Cert Petition Challenges Second Circuit’s Comity Abstention Doctrine

A cert petition filed with the Supreme Court on March 21, 2022 challenges the doctrine of prescriptive comity abstention.  The Second Circuit used this doctrine to reverse a $147 million antitrust judgment against Chinese companies for fixing the price of vitamin C sold into the United States. The Second Circuit’s decision relies on the kind of multi-factor balancing test that the Supreme Court has repeated rejected as an approach to extraterritoriality over the past two decades. The decision also charts a course for foreign countries to immunize their companies from U.S. antitrust liability by requiring them to coordinate prices and filing amicus briefs. It is a remarkable decision—one that should attract the attention of the Supreme Court.

The Proliferation of International Comity Abstention

International comity is deference to foreign states that is not required by international law. As I have noted elsewhere, U.S. law is full of doctrines based on international comity. Lower courts have developed several abstention doctrines based on international comity, although the Supreme Court has endorsed none of them. These doctrines fall into two basic categories: adjudicative comity abstention and prescriptive comity abstention.

Under adjudicative comity abstention, a U.S. court dismisses a case in deference to a foreign court. Several circuits have adopted a version of adjudicative comity abstention that requires a pending parallel proceeding abroad and a showing of exceptional circumstances, including the Second, Third, Fourth, Sixth, and Seventh Circuits. This version essentially extends Colorado River abstention, authorizing abstention in favor of state courts, to include foreign courts. The Ninth Circuit has a broader version of adjudicative comity abstention that requires neither a pending parallel proceeding abroad nor a showing of exceptional circumstances and that turns instead on the views of the foreign government and the United States about the particular case. Last Term, in Federal Republic of Germany v. Philipp, the U.S. Governmentasked the Supreme Court to adopt this broader version. Maggie Gardner and I filed an amicus brief arguing against the government’s suggestion, and the Court decided the case on other grounds without addressing the question.

Under prescriptive comity abstention, a U.S. court declines to apply U.S. law in deference to foreign law. The doctrine essentially asks a court to balance the interests of the United States in applying its law against the interests of a foreign state, using as many as ten factors to guide the analysis. The Ninth Circuit adopted prescriptive comity abstention for antitrust cases in Timberlane (1976) and the Third Circuit soon followed suit in Mannington Mills (1979). The D.C. Circuit rejected doctrine in the 1980s, while the Second Circuit embraced it. In Hartford Fire Insurance v. California (1993), the Supreme Court declined to resolve the split. Assuming without deciding that prescriptive comity abstention would ever be appropriate, Hartford limited any such doctrine to cases where it was impossible to comply with the laws of both countries, what Hartford called a “true conflict.”

The Vitamin C Case

The Vitamin C case has already been to the Supreme Court once. It began in 2005, when plaintiffs sued several Chinese companies for fixing the prices of vitamin C sold into the United States. The defendants did not deny the allegations but moved to dismiss based on the foreign state compulsion doctrine, the act of state doctrine, and principles of international comity. The Chinese Ministry of Commerce filed an amicus brief stating that Chinese law required the defendants to coordinate their prices. After the district court denied the motions, a jury found Hebei Welcome Pharmaceutical and its parent company liable for violating the Sherman Act. The court awarded approximately $147 million in treble damages and permanently enjoined the defendants from further violations of the Sherman Act.

On appeal, the Second Circuit applied the multi-factor balancing test set forth in Timberlane and Mannington Mills. With respect to the threshold question of whether there was a “true conflict” with Chinese law, the court held that it was “bound to defer” to the Chinese government’s representations about the content of Chinese law. After weighing the other nine factors in its test, the court concluded that “principles of international comity required the district court to abstain from exercising jurisdiction in this case.”

Paul Stephan and I submitted an amicus brief urging the Supreme Court to take up the comity abstention question. But the Court granted cert only on the question of whether the lower courts were bound to defer to the Chinese government’s interpretation of its own law, unanimously holding that they were not. In a footnote, the Court said that it was not addressing ultimate question of how China’s law affected the defendants’ liability under the Sherman Act.

On remand, the Second Circuit again held that the case should have been dismissed on grounds of international comity. In addressing the threshold requirement of a “true conflict,” the court held that foreign law must be taken “at face value.” Having found such a conflict, the court again proceeded to weigh the other factors, which it now condensed from nine to five: (1) the nationality of the parties and the site of the anticompetitive conduct; (2) the effectiveness of enforcement and alternative remedies; (3) foreseeable harms to American commerce; (4) reciprocity; and (5) the possible effect on foreign relations. The Chinese nationality of the defendants and the location of the conduct weighed in favor of abstention, the harms to American commerce weighed against, and the effectiveness of enforcement and alternative remedies was neutral.

Factors four and five tipped the balance for abstention. With respect to reciprocity, the court did not know of any circumstances under which the U.S. Government mandates price-fixing by U.S. companies. Still, the court reasoned that if it were ever to do so, “the U.S. Government would undoubtedly expect the Chinese court to recognize as a valid defense that U.S. law required the American exporter’s conduct.” In the court’s view, this factor “weigh[ed] heavily in favor of dismissal on comity grounds.” With respect to foreign relations, the court acknowledged that it was “ill-equipped to assess the numerous, cross-cutting bilateral and multilateral issues properly informing such decisions.” But the court nevertheless “discerned that China has already taken umbrage” over the case and that trying to enforce the judgment was “likely to prove a considerable further irritant.”

In their petition, plaintiffs challenge the Second Circuit’s decision to take Chinese law “at face value” as inconsistent with FRCP 44.1 and the Supreme Court’s prior decision in this case. They also challenge the court’s authority to abstain from applying the Sherman Act on a case-by-case basis on grounds of international comity. I focus here only on the comity abstention question.

Prescriptive Comity Abstention Is Inconsistent with the Supreme Court’s Decisions

The Second Circuit acknowledged that Hartford created a threshold “true conflict” requirement but otherwise considered the multi-factor balancing test it embraced in the 1980s to be untouched by the Supreme Court’s extraterritoriality decisions. In fact, quite a lot has changed in the Supreme Court’s approach to extraterritoriality since Hartford. Most important for present purposes, the Supreme Court has consistently rejected the sort of case-by-case approach that the Second Circuit applied.

In F. Hoffmann-La Roche v. Empagran (2004), the Supreme Court interpreted the geographic scope of the Sherman Act as amended by the Foreign Trade Antitrust Improvements Act (FTAIA). The Court adopted a bright-line rule, holding that the Sherman Act applied when the plaintiff’s claims were based on anticompetitive effects in the United States but not when they were based on anticompetitive effects abroad. The Court observed that applying U.S. antitrust law “to redress domestic antitrust injury” was “reasonable, and hence consistent with principles of prescriptive comity” even if it interfered with a foreign nation’s ability to regulate. The respondents in Empagran argued instead for case-by-case balancing. But the Court expressly rejected that argument, concluding that such an approach was “too complex to prove workable.” As an example of this unworkable, balancing approach, the Court cited Mannington Mills, one of the cases from which the Second Circuit drew its multi-factor test.

The Supreme Court has rejected a case-by-case approach to the geographic scope of other statutes too. Considering the scope of Securities Exchange Act § 10(b) in Morrison v. National Australia Bank (2010), the Court criticized the lower courts’ “methodology of balancing interests,” which led to “the unpredictable and inconsistent application of § 10(b) to transnational cases.” Instead, the Court adopted a “clear test” that simply asks where the transaction occurred.

In RJR Nabisco v. European Community (2016), the Supreme Court considered the geographic scope of RICO, holding that two of its substantive provisions apply extraterritorially to the same extent as RICO’s underlying predicate acts, and that RICO’s private right of action requires proof of domestic injury to business or property. The European Community asked the Court to consider the absence of international friction in cases like that one, where foreign governments themselves were the plaintiffs. But the Court refused to “permit extraterritorial suits based on a case-by-case inquiry that turns on or looks to the consent of the affected sovereign.”

The Threat to Other Comity Doctrines

The Second Circuit’s prescriptive comity abstention doctrine also threatens to swallow up more narrowly tailored doctrines of international comity. Recall that the Chinese companies in Vitamin C also raised foreign state compulsion and the act of state doctrine as defenses. As I noted in 2016 after the Second Circuit’s first decision in this case, foreign state compulsion seems like the best fit for cases where the basic argument is that a foreign government required a company to violate U.S. law.

The Supreme Court has carefully circumscribed both doctrines. As Section 442 of the Restatement (Fourth) of Foreign Relations Law summarizes the doctrine of foreign state compulsion, it requires (1) the threat of severe sanctions under foreign law; and (2) that the person in question has acted in good faith to avoid the conflict. (The leading Supreme Court decision remains Societe Internationale pour Participations Industrielles et Commerciales, S.A. v. Rogers (1958).)

The act of state doctrine applies only when a case requires a U.S. court to question the validity of a foreign government’s official act. As the Supreme Court emphasized in W.S. Kirkpatrick & Co. v. Environmental Tectonics Corp., International(1990), this doctrine “does not establish an exception for cases and controversies that may embarrass foreign governments.”

Prescriptive comity abstention blows right through such limitations. The Second Circuit itself distinguished foreign state compulsion by noting that prescriptive comity abstention does not consider “the threat of compulsive sanctions” but only whether the laws of each country taken “at face value” impose conflicting requirements. Nor is prescriptive comity abstention limited like the act of state doctrine to cases where a U.S. court must question the validity of a foreign official act. Whereas the Supreme Court ruled out embarrassment as a factor under the act of state doctrine, the “umbrage” of a foreign government plays a key role in the Second Circuit’s balancing test. Prescriptive comity abstention is precisely the kind of “vague doctrine of abstention” about which Kirkpatrick warned.

The Institutional Capacity of Courts

Prescriptive comity abstention also asks courts to do things for which they are not well-equipped. Maggie Gardner has argued persuasively that courts cannot easily handle multi-factor balancing tests for procedural questions in transnational cases and tend to develop simpler heuristics that lead to the same outcomes in all cases.

The Second Circuit’s five factor test (condensed from Mannington Mills’ ten) is already slanted in favor of abstention. The first factor (the nationality of the parties and the site of the anticompetitive conduct) will always favor abstention in cases like this. The second factor (effectiveness of enforcement and alternative remedies) did not tip the Second Circuit panel in either direction, but it is hard to imagine a case where a foreign country directs its companies to coordinate prices in which these considerations would favor retaining the case. The fourth factor (reciprocity), which the Second Circuit weighed “heavily,” will favor abstention any time a foreign country requires its companies to coordinate prices, on the theory that the United States would expect the same deference if it required its companies to do the same (even though it never does). And the fifth factor (possible effect on foreign relations) will also weigh in favor of abstention if the foreign country files an amicus brief in support of its companies or otherwise expresses “umbrage” about the case, as China did here. This combination of factors will always outweigh the third factor (foreseeable harms to American commerce) even when those harms are substantial as they were in this case—$54 million in actual damages before adjustments and trebling.

The result of the Second Circuit’s prescriptive comity abstention doctrine is a “get out of jail free card” for foreign companies to fix prices. If a foreign government passes a law that, “taken at face value,” requires them to coordinate prices, and if that government files an amicus brief expressing umbrage at the U.S. suit, Second Circuit precedent now requires that any U.S. antitrust claims against those companies must be dismissed. This is an astonishing result, and one hopes that the implications will not be lost on the Supreme Court.

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