Vitamin C Ruling May Trigger Comity Defense Resurgence

This article was originally published in Law360. Any opinions in this article are not those of Winston & Strawn or its clients. The opinions in this article are the authors’ opinions only. 

In an August 2021 decision in the long-running In re: Vitamin C Antitrust Litigation, the U.S. Court of Appeals for the Second Circuit dismissed price-fixing claims against several Chinese pharmaceutical companies on international comity grounds, holding that Chinese law essentially required the defendants to engage in the conduct alleged.^[1]

The implications of the case go beyond antitrust, and beyond even merits-based defenses.

This article explores a possible resurgence of comity-based defenses in discovery disputes—which have been asserted in the past with mixed success—but which could gain traction now post-Vitamin C.^[2]

In Vitamin C, the Second Circuit twice reversed a judgment against defendants for coordinating supply and prices of Vitamin C in China that was later exported to the United States.^[3]

In the first instance, the Second Circuit held that the district court was bound to defer to the explanation of Chinese law that was submitted by China's Ministry of Commerce, which said that the defendant companies were bound by Chinese law to engage in the alleged anti-competitive conduct.^[4]

The U.S. Supreme Court reversed because, it said, the Second Circuit afforded too much deference to the MOC and should have tested its statements against additional objective sources.^[5]

On remand, the Second Circuit once again reversed and dismissed the action. In reaching that decision, the court looked beyond the statement from the MOC and examined the regulations in the Vitamin C industry in China and various other pieces of evidence, including industry records and other administrative materials, all of which corroborated the MOC's position that the defendant companies were required to coordinate on supply and price in accordance with the China Chamber of Commerce for Import and Export of Medicines and Health Products.

The court ultimately concluded that it was impossible for the defendant companies to comply with U.S. antitrust law and Chinese law, and it was required to defer to Chinese law under the principles of international comity.

While Vitamin C is interesting enough on the merits, it also calls for fresh eyes on the role comity ought to play in discovery disputes of international scope.

The Supreme Court first examined international comity in relation to discovery in the 1987 Société Nationale Industrielle Aérospatiale v. U.S. District Court for the Southern District of Iowa decision, in which the U.S. Supreme Court held that a particularized analysis of the interests of each respective sovereign is required to resolve a comity-based defense to discovery. The court developed a five-factor balancing test for the assessment ^[6]:

• Importance of the information sought in the investigation;
• Specificity of the request;
• Origin of the information;
• Alternative means of obtaining the information; and
• Interest of sovereigns — balancing national interests.^[7]

Later, in granting discovery of a Chinese defendant's assets, in the 1992 Richmark Corp. v. Timber Falling Consultants decision, the U.S. Court of Appeals for the Ninth Circuit considered the five Aérospatiale factors while adding two more:

• Hardship of compliance for the party facing the obligation; and
• Likelihood of compliance.

The court also said that factor five — national interests of the respective sovereigns — is the most important.^[8] On the facts, the Richmark court held that the evidence sought was not only relevant but crucial to enforcing a default judgment and that there were no other alternative means of obtaining the requested information.^[9]

Plus, the United States' “interests in vindicating the rights of American plaintiffs and in enforcing the judgment of its courts” outweighed the interests of China, in part, because China was “unable to identify any way in which [Chinese] interests will be hurt by disclosure.”^[10]

In the past few years, litigants are increasingly turning to comity to challenge discovery. In the 2019 In re: Grand Jury Investigation — of possible violations of Title 18 of the U.S. Code, Section 1956 and 50, and Section 1705, for example, the U.S. District Court for the District of Columbia granted a motion to compel compliance with a subpoena issued by the U.S. government to three Chinese banks.

The banks had argued that compliance would violate multiple Chinese laws, including a relatively new one designating the Mutual Legal Assistance Agreement as the exclusive mechanism for the disclosures at issue, which the United States chose to bypass.

Despite that, the court determined that the majority of the Richmark and Société Nationale factors weighed in favor of the United States ^[11] and, most importantly, that national security was at stake for the United States, but not so for China.^[12]

Non-Chinese defendants have raised similar comity arguments with limited success prior to Vitamin C.

Take, for example, the 2017 Knight Capital Partners Corp. v. Henkel AG & Co. decision, in which the U.S. District Court for the Eastern District of Michigan denied a German company's motion to quash based on the German Federal Data Protection Act because the Act “expressly allow[ed] disclosures that are necessary for the purposes of litigation.”

Take also, the 2016 Fenerjian v. Nong Shim Co., decision, in which the U.S. District Court for the Northern District of California held that the Korean Personal Information Protection Act did not prohibit Korean defendants from complying with discovery requests because enforcing the antitrust laws of the United States was an interest of “fundamental” importance and a protective order was put in place to provide confidentiality for any personal information to be disclosed.

Finally, take the 2014 Motorola Credit Corp. v. Uzan decision, in which the U.S. District Court for the Southern District of New York found that Richmark factors favored enforcing a subpoena for bank records located in France, Jordan, and United Arab Emirates but denied enforcement for bank records located in Switzerland because Switzerland's bank secrecy laws were so “seriously enforced” that they had become “an element of [Switzerland's] national identity.”

While the courts overwhelmingly compelled discovery in these cases, the Vitamin C decision may provide a roadmap for more successful comity-based defenses going forward.

First, while a statement from a foreign government on its own may be persuasive, it is not dispositive. Courts must consider both context and incentives in assessing the credibility of government statements that may seem, on their face, self-serving.

Second, courts have devoted much importance to the national interest and hardship factors, requiring, at the very least, an evidentiary showing of how the relevant laws and/or interest of the non-U.S. jurisdiction are violated as well as particularized and unusual burdens on the party opposing the request.^[13]

Based on these broad rules, clients doing business in foreign nations or with foreign companies should:

• Consider any specific restrictions set forth in their laws and regulations that may be implicated by compliance with a discovery request (whether civil or criminal).
• Consider the location of the evidence sought and accessibility (or non-accessibility) of that evidence outside the litigant's home jurisdiction.
• Consider whether and how to request support from the relevant government agency in the home jurisdiction.
• Gather objective indicia that the specific restrictions against the discovery are established and are regularly and actively enforced in the home jurisdiction.
• Gather evidence showing the importance of the specific restriction to the home jurisdiction in terms of national security, national character, etc.
• Gather evidence showing specific hardships if forced to comply with the discovery, including as to future business/relationships with the United States.
• Consider how both U.S. and home-based legal counsel can work together to maximize the effectiveness of an international comity strategy.

As the Vitamin C case demonstrates, comity defenses are viable but surely require a strategic and comprehensive approach, even at the discovery stage, when disclosure — or nondisclosure — could be critical to the litigation overall.

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^{[1] Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co., No. 13-4791-cv, Dkt. No. 324-1 (2d Cir. Aug. 10, 2021).}

^{[2] Comity-based arguments may also gain traction due to COVID-19. For example, in China, there is a law precluding certain remote depositions of witnesses located in mainland China that arguably should be deferred to as a comity matter.}

^{[3] In re Vitamin C Antitrust Litig., 8 F.4th 136 (2d Cir. 2021). The plaintiffs filed a petition for a rehearing or a rehearing en banc with the Second Circuit, but it was denied on October 21, 2021.}

^{[4] In re Vitamin C Antitrust Litig., 837 F.3d 175 (2d Cir. 2016).}

^{[5] Animal Sci. Prods., Inc. v. Hebei Welcome Pharm. Co., 138 S. Ct. 1865 (2018).}

^{[6] Aérospatiale, 482 U.S. at 544 n.28.}

^{[7] Id. at 546.}

^{[8] Richmark, 959 F.2d at 1475-76, 1479. The Richmark court noted that the Supreme Court in Aérospatiale found that the comity factors were not exhaustive. Id. at 1475. The Richmark court also appeared to pull these additional factors from Accord United States v. Vetco, Inc., 691 F.2d 1281, 1788 (9th Cir. 1981) (quoting the Restatement (Second) of Foreign Relations Law § 40). Id.}

^{[9] Richmark, 959 F.2d at 1475-76.}

^{[10] Id. at 1477.}

^{[11] In re Grand Jury Investigation, 381 F. Supp. 3d at 57-58.}

^{[12] Id.; Prior to In re Grand Jury Investigation, the U.S. District Court for the Southern District of New York examined international comity principles in the context of deciding whether to enforce several civil subpoenas issued to six non-party Chinese banks in Nike, Inc. v. Wu, 349 F. Supp. 3d 310 (S.D.N.Y. 2018). Using the Richmark factors, the court found that the importance of the information sought, the specificity of the requests, the lack of alternative means of obtaining the requested information, and the balancing of national interests all favored enforcement of the subpoenas, with the balance of national interests being the most important. Nike, 349 F. Supp. 3d at 336, 339. The court in In re Grand Jury Investigation cited to Nike several times in supporting its analysis on the specificity of a subpoena, consideration of alternative means of obtaining information particularly through diplomatic channels and MLAA/Hague Evidence Convention requests, and whether violations of Chinese law may impose penalties on the Chinese defendants for compliance with the subpoena, and particularly adopted its position on reviewing the severity of the sanction in the context of the identity of the defendant. See In re Grand Jury Investigation, 381 F. Supp. 3d 41-42, 44, 53-54.}

^{[13] For example, in the In re Grand Jury Investigation case, the court considered the hardship, additional burden, and national interest with respect to a new law in China called the International Criminal Judicial Assistance Law. Id. at 46-57. Particularly, the defendants attempted to identify potential sanctions for violations of this law and several others in China, but the court found that there was not much historical precedent for severe violations with respect to complying with U.S. discovery obligations, and especially so for the new laws. Id. at 52-55. Keeping China as an example, new laws such as the PRC Data Security Law and revised PRC Securities Law have similar prohibitions that could require comity considerations, which may be directly relevant to arguments under analogous laws in other jurisdictions like the EU General Data Protection Regulations.}