Animal Science Products v. Hebei Welcome Pharmaceuticals - An Analysis

A major reappraisal of the U.S.-China trade relationship may have begun in the supplements aisle of your local health food store. The U.S. Supreme Court’s unanimous decision in Animal Science Products Inc. v. Hebei Welcome Pharmaceutical Co. 138 S. Ct. 1865 (2018) settled an international dispute spanning more than a decade over the sale of vitamin C supplements and the procedures for interpreting foreign law in U.S. federal courts.

The U.S. District Court for the Eastern District of New York first rendered judgment for U.S.-based purchasers of vitamin C supplements against Chinese sellers in 2008. The U.S. Court of Appeals for the Second Circuit subsequently overturned this ruling in In Re Vitamin C Antitrust Litigation 837 F.3d 180 (2d Cir. 2016). In his opinion, Second Circuit Judge Peter Hall opined that federal courts are bound to defer to a foreign government’s statement in interpretation of that government’s law if the interpretation is “reasonable”, but he did not elucidate what to do if the testimony was not “reasonable.” [1] The U.S. Supreme Court then overturned Hall’s judgment because the Second Circuit did not consult materials beyond a brief submitted by the Chinese government. Associate Justice Ruth Bader Ginsburg cited the Federal Rule of Civil Procedure 44.1 and created a less binding standard of deference to a foreign government’s interpretation of its law. Ginsburg’s opinion attempted neither to label the Chinese interpretation as unreasonable nor to create a clearer precedent for future disputes over the interpretation of foreign law—she admits there will be no generalized rule and offers a hazily-delineated list of criteria that could be considered in evaluation of the foreign government’s statement. Instead, Ginsburg’s emphasis on Rule 44.1 as making interpretation of foreign law a “ruling on a question of law”, as opposed to fact finding, is meant to assert such disputes as ones in which the United States government has vested political interests.

Legal actions began when the U.S-based purchasers sued Chinese sellers for violations of the Sherman Antitrust Act. The purchasers argued that the Chinese sellers had engaged in a price fixing scheme that constituted illegal cartel activity under U.S. law. The sellers’ oblique defense cited a brief filed by the Ministry of Commerce of the People’s Republic of China—the first time that the Chinese government has appeared amicus curiae [2] in a U.S. court [3]—stating that the sellers were mandated to do so. The suit was thus transfigured from a dispute over the mechanics of antitrust into a question of whether the Chinese sellers were incapable of complying with U.S. and Chinese law simultaneously and protected from sanction, as such, by the principle of international comity. [4] Although the Eastern District of New York ruled in favor of the purchasers because the Ministry’s brief was not “conclusive,” the Second Circuit subsequently adopted a different framework. [5]

To the Second Circuit, the question of whether the Chinese sellers could comply with both U.S. and Chinese law hinged on the “amount of deference” given to the Ministry’s claims. [6] Citing United States v. Pink, a 1942 case in which the U.S. Supreme Court accepted the Soviet government’s interpretation of its nationalization law as definitive and accordingly disregarded expert testimony on the matter, the Second Circuit ruled, “a U.S. court is bound to defer to [a foreign government’s] statements.” This means interpreting the foreign country’s laws if the statements are “reasonable under the circumstances presented.” [7]

Hall’s opinion briefly noted Rule 44.1, which has stipulated since 1966: “In determining foreign law, the court may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court's determination must be treated as a ruling on a question of law.” [8] Hall cited several post-1966 cases in arguing that Rule 44.1 had not changed the precedent set by Pink because, “Rule 44.1 explicitly focuses on what a court may consider when determining foreign law, but it is silent as to how a court should analyze the relevant material or sources.” [9]

The sellers claimed that the Ministry’s internal interpretation of regulatory statutes was more significant than formal law, and the Second Circuit found the argument reasonable. Because the panel wanted to avoid having the court “embark on a challenge to a foreign government’s official representation”, the Second Circuit considered only the Ministry’s statement and rendered judgment for the sellers. [10] The U.S. Supreme Court then accepted the case to resolve whether U.S. federal courts needed to treat a foreign government’s statements “as a conclusive submission” with respect to that country’s law. [11]

The Supreme Court ruled 9-0 to overturn the Second Circuit’s judgment and strike down the “reasonable” deference standard. [12] In her opinion, Justice Ginsburg reviewed the history of foreign legal interpretation in U.S. federal courts and argued that the Second Circuit misread Rule 44.1 because Judge Hall failed to comprehend the Rule’s clause about such interpretations occurring in the context of legal rulings as a major break from pre-1966 practices, which had treated such proceedings as findings of fact. While acknowledging that Rule 44.1 does not prescribe how federal courts are supposed to weigh foreign interpretations, Ginsburg rejects that a federal court is ever bound to defer to a foreign sovereign, and lists “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” as relevant criteria that judges can use in determining the weight to assign such statements. [13] The Appeals Court erred in its deference to the Chinese brief and failure to subsequently consider the purchasers’ evidence.

Ginsburg also re-interprets Pink. Beyond noting that it was a pre-Rule 44.1 case, she argues that the circumstances were exceptional because the Soviet Commissariat for Justice’s legal interpretation was “obtained by the United States, through official diplomatic channels” and treated as conclusive on those grounds. [14] She claims that the unusual circumstances of Pink do not imply that deference should be awarded equally to different governments. Ginsburg also implied that her criteria are distinct from the reasonability test advanced by the Second Circuit, but her standard is qualitatively—not procedurally—different. If a federal judge felt a foreign government’s interpretation of its law met her thresholds, it would be appropriate to defer; on face, nothing in either ruling forces a federal judge to consider outside materials. Thus she may have increased the ambiguity surrounding foreign legal interpretation.

This ambiguity allowed Ginsburg to assert that the process of defining foreign law in U.S. courts is potentially political. In highlighting the Second Circuit’s omission of the shift from fact-finding to legal ruling intended by Rule 44.1’s implementation, Ginsburg signals that the core flaw in the Appeals Court’s interpretation is a misconception of the stakes in such disputes. Unlike a domestic fact-finding in which the Court is a disinterested party, as agents of the United States government the federal courts have a vested interest in subjecting the determination of foreign law to a procedural legal ruling. Her mechanism for labeling Pink as exceptional (i.e., the Soviet interpretation was obtained by executive branch diplomats and therefore endorsed by an elected representative of the United States) further substantiates this claim. In Animal Science Products Ginsburg does not articulate an interest in the definition of Chinese law, nor really the qualitative means by which such disputes should be resolved—her criteria are uncontextualized and conspicuously open to individual interpretation. What does concern Ginsburg is the question of who is allowed to exercise agency in resolving these definitions.

The Supreme Court’s decisions both to take the case when it did and to limit the scope to the deference issue are significant. [15] The addition of Animal Science Products to the Court’s docket in January 2018 came amidst escalating commercial tensions with China in the first year of the Trump Administration and preceded the levying of the initial tariffs in the ongoing trade war by 10 days. [16] Given the increasing volume of international commercial litigation and backlash against the global trade regime, Ginsburg’s ambiguous legal prescription is an unambiguous re-assertion of U.S. national sovereignty: the federal court system reserves the right to disregard foreign interpretations of foreign law as it sees fit. More rulings of this sort may follow in the years to come, as the standards for clear legal precedent become increasingly disjunct from popular political positions in the face of escalating anxiety over China’s rise.

Sources:

[1] In re Vitamin C Antitrust Litigation, 180.

[2] Latin for “friend of the court”, the term usually refers to parties not directly involved in a case who file briefs hoping to influence the case’s outcome. Legal Information Institute, “Amicus Curiae.” Wex Legal Dictionary. http://www.law.cornell.edu/wex/second_amendment (accessed March 13, 2019).

[3] Ibid.

[4] Ibid, 182.

[5] In re Vitamin C Antitrust Litigation, 584 F. Supp. 2d 546, 559 (EDNY 2008) in Animal Science Products Inc. v. Hebei Welcome Pharmaceutical Co. 138 S. Ct. 1865, 1869 (2018).

[6] In re Vitamin C Antitrust Litigation 837 F.3d 180, 186 (2d Cir. 2016). “In re Vitamin C Antitrust Litigation” hereafter refers to this Second Circuit ruling.

[7] Ibid, 189.

[8] Federal Rules of Civil Procedure 44.1, “Determining Foreign Law.”

[9] In re Vitamin C Antitrust Litigation, 187.

[10] Ibid.

[11] Animal Science Products Inc. v. Hebei Welcome Pharmaceutical Co., 1872.

[12] Ibid, 1865.

[13] Ibid, 1874.

[14] Ibid, 1876. Internal quote marks removed.

[15] Howe, Amy. “Court bulks up this term’s docket (UPDATED).” SCOTUSblog (blog), January 12, 2018, https://www.scotusblog.com/2018/01/court-bulks-terms-docket/

[16] Gonzales, Richard. “Trump Slaps Tariffs On Imported Solar Panels And Washing Machines.” npr.org. https://www.npr.org/sections/thetwo-way/2018/01/22/579848409/trump-slaps-tariffs-on-imported-solar-panels-and-washing-machines (accessed March 13, 2019).