The case of the day is In re Vitamin C Antitrust Litigation (E.D.N.Y. 2015). The plaintiffs obtained a $148 million judgment on a jury verdict against Hebei Welcome Pharmaceutical Co. and North China Pharmaceutical Group, both Chinese firms, for violations of the Sherman Act. The plaintiffs served discovery requests in aid of the judgment under FRCP 69. When the defendants failed to provide discovery, the plaintiffs sought an obtained an order requiring the defendants to respond. The defendants stated, however, that they would not respond to the discovery, because under Chinese law, specifically the rules of the State–Owned Assets Supervision and Administration Commission of Hebei Province, they would be subject to criminal sanctions if they provided the discovery. The plaintiffs sought to hold the defendants in contempt and sought a per diem monetary sanction in order to coerce compliance with the court’s orders.

The court held that the defendants had failed to comply with its orders, and it rejected the argument that the fear of criminal prosecution in China excused the failure.

Although defendants are correct that fear of criminal prosecution constitutes a weighty excuse for nonproduction, such a fear is belied by the history of this case. First, the Court has already found that defendants’ claimed risk of criminal prosecution for complying with the Order is pretextual. The Order went further and stated that “[e]ven if criminal prosecution were certain, defendants could not show hardship from compelled production, because the purportedly untenable situation in which defendants find themselves is entirely of their own creation.” Second, defendants have produced merits discovery without being prosecuted, or fear of prosecution. In fact, as the Order noted, “the Chinese Government, through its Ministry of Commerce (‘MOFCOM’), has been participating in this case as amicus for years,” but never objected to defendants producing merits discovery or stated that doing so would contravene Chinese law.

The point about allowing merits discovery seems particularly persuasive. You can’t blow hot and cold. A claim based on a criminal blocking statute is all about credibility.

The court refused, however, to order per diem sanctions. Why would anyone believe that the judgment debtors, which had refused to pay $148 million, would provide discovery on account of additional amounts owed? On the basis of this reasoning, the court avoided having to decide whether, as one of the defendants claimed, it was a foreign state or the instrumentality of a foreign state and thus protected from coercive sanctions by the FSIA. “The Court is not going to engage in the idle gesture of imposing a fine or an escalating monetary sanction when there is already $148 million unpaid.”

Small comfort for the plaintiffs!