September 4, 2018 News

U.S. High Court Protects Consumers Over International Comity

(September 4, 2018).  Comity. The legal principle that political entities (such as states, nations, or courts from different jurisdictions) will mutually recognize each other’s legislative, executive, and judicial acts. The underlying notion is that different jurisdictions will reciprocate each other’s judgments out of deference, mutuality, and respect. (Cornell Law Legal Definition).

In Animal Science Products, Inc., et al. v. Hebei Welcome Pharmaceutical Co. Ltd., et al., No. 16-1220 (June 14, 2018), Justice Ginsburg delivered a unanimous Court decision that a federal court should accord respectful consideration to a foreign law, but it is not bound to accord conclusive effect to the foreign law.  Rather, in determining the foreign law the court may consider any relevant material or sources; and as we interpret the decision, recognize that when the U.S. consumer is indisputably a victim of illegal conduct and suffered an economic injury the federal court should not defer to foreign laws to protect the foreign defendant.

Here, the plaintiffs alleged that the foreign horizontal competitor defendants engaged in a global conspiracy to fix or stabilize the price of vitamin C in violation of antitrust laws.  The defendants asked the court to dismiss the claim based upon foreign law and principles of international comity.

The U.S. Supreme Court reiterated that in the spirit of ‘international comity,’  a federal court should carefully consider the foreign state’s views about the meaning of its own laws.  But the appropriate weigh in each case will depend upon the circumstances; a federal court is neither bound to adopt the foreign law or to ignore relevant materials.   As such, “because the Court of Appeals concluded that it was bound to defer to the foreign law, the court did not consider the shortcomings or results of the position or other aspects of the evidence,” the decision was vacated and remanded for renewed consideration consistent with all the evidence and results of what economic injury to U.S. purchasers of vitamin C.

Here, the U.S. Supreme Court’s insightful and honest assessment of international comity will very likely be relied upon U.S. investors that purchase securities of foreign corporations in future shareholder litigation. Indeed, “Morrison” has never been applied to foreclose a U.S. investor from lodging a Blue Sky or common law claim in U.S. federal court against a foreign corporation relating to securities purchased on a foreign stock exchange.  See, Paniccia v. MDC Partners, Inc., 2017 ONSC 7298, at paragraph 33 (referring to Professor Adam Pritchard, Frances and George Skestos Professor of Law at the University of Michigan Law School).

Bottom line, if U.S. consumers are being injured as a result of purchasing foreign product (here being overcharged for vitamin C), and the foreign corporation knows that its product is being purchased by U.S. consumers, it should come to no surprise to the foreign defendant that it may be asked to answer to the U.S. federal courts.

It seems that Canadian courts previously followed the U.S. Supreme Court’s views in requiring foreign corporations to answer to Canadians in Canadian court, see, Vitapharm Canada Ltd. v. F. Hoffmann-La Roche Ltd., 2002 CanLII 63927 (ON SCDC), but what started from a fast-food promotional contest lawsuit involving consumers eating $5 dollar “happy meals” (not investors) has somehow evolved into a notion that it would not be unreasonable for an Ontario investor that believes it is victim of a foreign corporation’s fraud, misrepresentations or Ponzi to be shut-out of Ontario courts on the basis of international comity. See, Kaynes v. BP, plc., 2014 ONCA 580, at 50, but the stay based upon alleged comity lifted by the same panel at Kaynes v. BP, plc, 2016 ONCA 601 (purely procedural reasons preventing the Canadian’s claim to be heard on the merits).

In Kaynes v. BP, plc, 2016 ONCA 601, at paragraphs 16 and 18, the Ontario Court of Appeal wisely recognized (following the same rational pronounced by Animal Science Products, Inc.) that a foreign defendant should not be shielded from answering to Canadian investors on the basis of purely procedural gamesmanship.

We anticipate that this area of law will continue to develop.