U.S. Supreme Court Confirms That, When a Court Interprets Foreign Law, There Is No Secret Password

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Dennis Hranitzky (left) and Michael McGinley of Dechert[/caption] When the Second Circuit held in 2016 that U.S. courts are “bound to defer” to a foreign government’s reasonable construction of its own laws, its decision made waves within the international litigation community. [In re Vitamin C Antitrust Litigation, 837 F.3d 175 (2d Cir. 2016).] While others hailed the decision as a landmark for international comity establishing an unflinching rule of deference, some of us questioned in these pages whether the decision represented the sea change many thought it to be and further wondered if the Second Circuit’s broad “rule” would survive. [ See Hranitzky et al., “When A Court Interprets Foreign Law, There Is No Secret Password,”New York Law Journal Vol. 256, No. 112 (2016).] The U.S. Supreme Court answered our questions last Thursday. In a unanimous opinion by Justice Ruth Bader Ginsburg, the Supreme Court rejected the Second Circuit’s ruling and held that foreign governments are not entitled to absolute deference on the construction of their own laws. [Animal Science Products v. Hebei Welcome Pharmaceutical Co., No. 16-1220, --- S. Ct.---, 2018 WL 2973745 (U.S. Jun. 14, 2016).] The court’s opinion makes clear that federal courts should grant respect to a foreign government’s construction of its own law but are not bound to give those pronouncements conclusive effect. In doing so, the court adopted a view similar to what we had set forth in our earlier article—that the level of deference to be given to a foreign government’s construction should depend on the circumstances. The Supreme Court’s nuanced approach will put a premium on sophisticated litigation counsel. Whatever the precise contours of the Second Circuit’s rule, it provided a relatively predictable framework by increasing the deference given to foreign governments and limiting the sources that courts could consider. Now, courts within the Second Circuit will be open to a broader set of arguments, and parties may rely on the broad array of sources that are available when litigating any other legal question. It is thus incumbent upon attorneys to marshal all of the evidence and argument available to them when facing questions of foreign law in federal courts.

The Second Circuit’s Decision in Vitamin C

To understand the Supreme Court’s ruling, it is important to recall the background of the litigation: While winding its way through the Second Circuit, the case was known as In re Vitamin C Antitrust Litigation. (In the Supreme Court it became Animal Science Products v. Hebei Pharmaceutical Co.) The plaintiffs in the litigation were purchasers of Vitamin C who alleged that the defendants illegally fixed prices for their exports of Vitamin C from China. The parties disagreed on whether Chinese law compelled the defendants’ actions and thus excused them of liability. The defendants argued that Chinese law required them to fix prices and urged the district court to dismiss the case based on principles of international comity. The Ministry of Commerce for the People’s Republic of China submitted an amicus brief in support of the defendants’ position that Chinese law mandated the alleged price-fixing. For their part, the plaintiffs argued that there was no written law or regulation that supported the Ministry’s view and that China had previously told the World Trade Organization that it had ceased controlling Vitamin C exports in 2002. The district court rejected the defendants’ comity defense, and the plaintiffs prevailed at trial. On appeal, the Second Circuit reversed after concluding that it was required to defer to the Chinese Commerce Ministry’s statements about Chinese law. Specifically, the Second Circuit held that U.S. courts are “bound to defer” to a foreign government’s statements “regarding the construction and effect of its laws and regulations,” so long as those statements are “reasonable under the circumstances presented.” After the Second Circuit’s decision, many disputed the true breadth and implications of the court’s rule. Some interpreted the Second Circuit’s holding as an unflinching rule that courts must always defer to a foreign government’s reading of its own law, which placed the Second Circuit’s view in conflict with decisions from other circuits. Others viewed the Second Circuit’s “reasonableness” requirement as an important caveat that cabined the breadth of the court’s decision. The view that some of use expressed in these pages was that, even under the Second Circuit’s rule, “courts must consider the circumstances under which a foreign state submits an interpretation of its own laws in determining what level of deference to afford that interpretation.” [Hranitzky et al., “When A Court Interprets Foreign Law, There Is No Secret Password,” New York Law Journal Vol. 256, No. 112 (2016).] In particular, we explained that relevant factors should include the persuasiveness of the foreign government’s opinion, the relative expertness of the entity submitting the opinion, the formality of the opinion and whether the circumstances raise any concern of bias.

The Supreme Court Rejects Absolute Deference

Recognizing that Vitamin C introduced uncertainty with respect to the treatment of a foreign government’s construction of its own law (and to resolve a split of authority among the courts of appeals), the Supreme Court granted certiorari. In a unanimous opinion, it vacated and remanded. Ginsburg’s opinion for the court explained the history of the issue—tracing the common law’s treatment of foreign law questions as factual disputes through the modern approach embodied in Federal Rule of Civil Procedure 44.1. That rule, the court explained, “fundamentally changed the mode of determining foreign law in federal courts” by specifying that a court’s determination of foreign law “‘must be treated as a ruling on a question of law.’” [Fed. R. Civ. P. 44.1.] According to the court, the purpose of this change was to align the process for determining foreign law with the process for determining domestic law. Against the backdrop of this history, the Supreme Court acknowledged that it has also long held that, in the spirit of “international comity,” federal courts should give respectful consideration to a foreign government’s views on the meaning of its own laws. [See, e.g., Société Nationale Industrielle Aérospatiale v. U.S. Dist. Court for S.D. Iowa, 482 U.S. 522 (1987).] The question presented in Animal Science Products required the court to reconcile Rule 44.1’s objectives with the principles of international comity. The court answered the question by explaining that, while a foreign government’s view of its own law is entitled to respect, “the appropriate weight in each case will depend upon the circumstances” and “a federal court is neither bound to adopt the foreign government’s characterization nor required to ignore other relevant materials.” The court explained that “[r]elevant 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.” Thus, courts may exercise more caution, for instance, when a foreign government’s interpretation is advanced in the course of litigation or is inconsistent with that foreign government’s past statements in other contexts.

Practical Impact on International Litigation

The Supreme Court’s decision will have a significant impact on international litigation and insolvency proceedings in the United States. We expect to see the decision’s impact in a wide-variety of cases. Foreign law questions frequently arise in cases involving application of the Foreign Sovereign Immunities Act, in cross-border insolvency matters under Chapter 15 of the Bankruptcy Code and in litigation where discovery runs up against foreign privacy laws, among many other contexts. A significant number of those cases are litigated in the Second Circuit. Moreover, by eschewing a bright-line rule in favor of a more-nuanced approach, the Supreme Court’s decision puts a premium on sophisticated litigation counsel. The considerations set forth in Animal Science Products require a well-informed understanding of a foreign legal system, its government structure, and the history of that government’s positions with respect to the issue in dispute. Questions of foreign law will be hotly contested, and attorneys addressing those questions should present courts with a wide array of sources and arguments, just as they would when litigating a dispute over domestic law. Though predating Animal Science Products, our firm’s recent experience litigating against the Democratic Republic of Congo (DNC) in the Southern District of New York is consistent with the factors announced by the Supreme Court. In Themis Capital v. Democratic Republic of Congo, [No. 09-cv-1652, Dkt. 213 (S.D.N.Y.)], we represented holders of debt issued by the DRC in a suit seeking to recover $85 million in defaulted debt from the DRC. At issue was whether the signatories to an acknowledgment of the debt and extension of the statute of limitations had authority under DRC law to bind their principals, or whether a particular DRC law required that they obtain prior approval from the DRC’s Council of Ministers. The DRC presented the interpretation of its laws, not through any state agency but through a private DRC attorney, who asserted that the DRC law required prior approval. Faced with competing opinions from private experts, Judge Paul A. Engelmayer declined to accept the DRC’s interpretation. In light of the Supreme Court’s decision in Animal Science Products, it is clear that Engelmayer took the right approach. While the DRC’s view was entitled to some respect under international comity principles, its presentation was unconvincing: The country used a private expert, not an entity or official with authority, to advance its legal statement; the DRC had a great interest in the outcome of the case, thus tainting its purpose in offering the statement; and upon considering the clarity, thoroughness, and support of the private expert’s conclusion, the court concluded that the interpretation was not reasonable.

Final Thoughts

While the Supreme Court’s decision in Animal Science Products was expected by most who were following the case, it will have a significant impact on international litigation and insolvency proceedings, especially within the Second Circuit. Our own experiences confirmed that at least some judges were already applying the Second Circuit’s precedent in Vitamin C with the context-specific approach that the Supreme Court has now mandated—rather than blindly deferring to any legal submission by a foreign government. But the value of sophisticated counsel is even clearer now. Foreign governments will receive due respect when advancing interpretations of their own law, but federal courts are required to treat the question as any other legal question—open to the full panoply of relevant legal sources and arguments. While that might not be quite the course correction that some will label it, it is clearly correct.

Dennis H. Hranitzky is co-head of Dechert LLP’s International and Insolvency Litigation group; Michael H. McGinley is a partner in the International and Insolvency Litigation group who focuses on appellate and complex litigation matters and May Chiang is a litigation associate.