Wednesday, February 08, 2012

Classes Certified to Pursue Antitrust Claims Against Chinese Vitamin Makers

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The federal district court in Brooklyn, New York, has certified two classes of vitamin C purchasers to pursue claims against Chinese manufacturers for conspiring to fix prices and limit the output of vitamin C exported to the United States.

A proposed class of at least 139 entities that purchased vitamin C directly from the manufacturers was certified to seek treble damages. In addition, a class including both direct and indirect purchasers of vitamin C was certified under Rule 23(b) (2) of the Federal Rules of Civil Procedure to seek injunctive relief.

Common Issues

The manufacturers did not deny that the alleged conspiracy's existence and effect were the chief issues in the case and could be demonstrated through generalized proof. The court rejected the manufacturers’ arguments that common issues did not predominate because a class representative—an assignee of a direct purchaser of vitamin C—had "many individual issues not shared with other members of the class."

A plaintiff’s status as an assignee did not prevent it from representing the direct-purchaser damages class. Although the assignee never bought any vitamin C, it purchased the antitrust claim from a direct purchaser for $100. Contrary to the manufacturers’ assertion, there was no rule prohibiting the assignment of class membership. Antitrust claims were generally assignable, the court noted. In addition, an assignee of an antitrust claim stood before the court ""in the shoes of" its assignor."

Although the assignee’s lawyers also represented the class seeking injunctive relief, the assignee could still represent the damages class. The interests of the two classes did not conflict, and the assignee’s lawyers would not have to choose between them. The court also rejected as irrelevant the manufacturers’ arguments that the assignee was atypical of the class because it never purchased any vitamin C and because the company whose claim it was pursuing had been out of the vitamin C business for years.

A company that purchased vitamin C from a wholly-owned subsidiary of one of the defendants rather than a defendant itself could not represent the direct-purchaser damages class, the court ruled. A class representative was not "adequate" unless it was a member of the class it purported to represent.

The fact that the subsidiary was wholly owned did not permit the plaintiffs to invoke the "ownership or control" exception to the Illinois Brick direct purchaser doctrine. In an earlier ruling, the court dismissed the claims against the subsidiary, because the subsidiary never became a party to the conspiratorial agreements at issue.

Injunctive Relief

The court rejected the manufacturers’ arguments that there were debilitating conflicts of interest that prevented certification of an injunctive relief class. The class representative’s past and prospective purchases of vitamin C at artificially inflated prices constituted antitrust injury regardless of whether it could recoup the overcharge by passing it along to remote purchasers. The artificially increased prices caused by the alleged price fixing amounted to a "common impact" to warrant certification under Rule 23(b)(2).

Membership in the Rule 23(b) (2) class did not bar the indirect purchasers' subsequent claims for damages. The right of the indirect purchasers to maintain their damages claims in subsequent proceedings was expressly reserved notwithstanding their participation in the injunction class, the court noted.

Foreign Sovereign Compulsion Defense

Because the manufacturers’ price fixing was not compelled by Chinese law, dismissal of the claims on comity grounds was not justified, the court ruled. Abstention on comity grounds may be warranted where foreign sovereign compulsion creates a true conflict. The fact that a foreign government compels certain activity ordinarily indicates that the activity implicates its “most significant interests.”

However, an assertion in an amicus brief of compulsion by the Ministry of Commerce of the People's Republic of China—the highest authority in China authorized to regulate foreign trade—appeared to be a post-hoc attempt to shield the manufacturers' conduct from antitrust scrutiny rather than a complete and straightforward explanation of Chinese law.

Although the Ministry encouraged the cartel, those policy preferences did not establish that Chinese law “required” the manufacturers to follow their anti-competitive predilections. The manufacturers did not meet the burden of proof for the foreign sovereign compulsion defense, and their motion for summary judgment based upon that defense and the related doctrines of comity and act of state were denied.

The case is In re Vitamin C Antitrust Litigation, 2012-1 Trade Cases ¶77,779; ¶77,780; ¶77,781.

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