In re Valsartan

IN RE VALSARTAN, LOSARTAN, AND IRBESARTAN PRODUCTS LIABILITY LITIGATION This Document Relates To All Actions.

MDL No. 2875 (RBK)

United States District Court, D. New Jersey, Camden Vicinage

December 18, 2021

Honorable (Ret.) Thomas Vanaskie

OPINION AND ORDER RE: ZHP PARTIES' MOTION TO VACATE SPECIAL MASTER ORDER NO. 35 (DOC.1482)

Robert B. Kugler United States District Judge

Before the Court in this Multi-District Litigation ["MDL"] that concerns the sale in the U.S. of generic, prescription Valsartan pharmaceuticals, found by the Food and Drug Administration ["FDA"] to contain cancer-causing contaminants, is Defendant ZHP Parties'^[1]motion to vacate ["the motion"] (Doc. 1550) Special Master Order No 35 ["SMO 35"] (Doc. 1482) under Fed. R. Civ. Proc. ["FRCP" or "Rule"] 53(f).

Specifically SMO 35 dated 12 Aug 2021 compelled production of 20 documents while denying production of 3 documents, finding they likely contained state secrets under the Law of the PRC on Guarding State Secrets ["the PRC State Secret Law" or "SSL"].

HAVING REVIEWED ZHP's brief (Doc. 1550-1) plaintiffs' opposition (Doc. 1570), and ZHP's reply (Doc.1583) without a hearing in accordance with Local Rule ["LR"] 78.1 (b), and for the reasons stated below, and for good cause shown:

THE COURT:

DENIES ZHP's motion to vacate SMO 35; and

AFFIRMS SMO 35 in its entirety; and

ORDERS:

Plaintiffs' Motion To Compel (Doc. 1231) is GRANTED IN PART AND DENIED IN PART;

and FURTHER ORDERS:

by the next Case Management Conference ["CMC"] in this MDL scheduled to occur on 5 Jan 2022, ZHP shall produce all documents that are the subject of Plaintiffs' Motion to Compel, along with all documents listed as duplicates of these documents on its State Secrets Review Log of documents withheld as Chinese state secrets, with the exception of the following three documents and any duplicates of the following three documents: ZHP0255672, ZHP02622051, and ZHP02622054; and FURTHER ORDERS

the 20 documents affirmed here as discoverable shall be disclosed to plaintiffs in the same format (i.e., redacted or original) as ordered in SMO 35;

and only to select members of plaintiffs' executive committee ["PEC"] having an immediate need to know, as determined by Plaintiffs' Lead Counsel (See Case Management Order No. 6, Doc. 96);

the PEC shall create and maintain a Disclosure Log from the date of the next CMC, which in real time records and archives disclosure details, that is, which attorneys of the PEC have been given access; what document(s); and the date of disclosure;

PEC attorneys who have been given access to any document(s) on the State Secret Review Log shall adopt best practices to maintain the secrecy and confidentiality of the document(s);

no member of the PEC nor other of plaintiffs' attorneys shall distribute, disclose, or recite any, or any portion, of these 20 disclosed documents to other plaintiffs' attorneys who are not members of the PEC without first making a motion for such disclosure to the Special Master for exceptional cause; and

if the Special Master allows disclosure to other plaintiffs' attorneys, then the PEC shall update in real time the Disclosure Log.

1.0 Facts and Background

The Court refers the reader to SMO 35 for a full exposition of the facts and background to the motion and gives a pared down summary here. This is a discovery dispute about whether any of 23 ZHP documents created in the PRC are state secrets under the SSL and, if so, whether the SSL therefore regulates their non-disclosure in this litigation. The distilled point of contention is whether the Federal Rules of Civil Procedure, especially Rule 26-to give a just and transparent determination of every action and proceeding in U.S. civil litigation- overrides or not the presumed prohibition under the SSL of the disclosure of these documents. Specifically, at issue are fourteen (14) documents that ZHP has provided plaintiffs in redacted form and nine (9) documents withheld in their entirety.

This dispute has been ongoing for over a year, with ZHP sequentially reducing the number of documents withheld as Chinese state secrets from the original 335 to 91 and then to the disputed 23. Exacerbating the dispute is the Catch-22 that, in order to abide by the SSL, ZHP U.S. attorneys have given plaintiffs a State Secret Review Log ["Secret Log"] of the withheld documents without personally reviewing the documents themselves. The ZHP U.S. attorneys have relied on various Chinese law firms to summarize the contents of the withheld documents and analyze whether the SSL actually does prohibit their disclosure. ZHP maintains that neither its U.S. attorneys nor the Court may review the documents personally, else, if the documents do contain Chinese state secrets, that review would violate the SSL. The successive reduction of the Secret Log to 23 withheld documents stems from ZHP's engagement of three Chinese law firms which, in their separate reviews, have re-categorized successively fewer and fewer documents as possibly implicating the SSL, and suggesting at the same time that some of the documents could be produced, if redacted.

On 10 May 2021, plaintiffs filed a motion to compel the production of the 23 documents on the Secret Log. Doc. 1231 and accompanying brief at Doc. 1231-1. On 12 May 2021, ZHP timely filed its opposition brief (Doc. 1267) to plaintiffs' motion to compel as well as a cross motion for a protective order (Doc.1268) precluding the production of the documents withheld on the Secret Log, which relied on the arguments in its opposition. On 12 August 2021, in Doc. 1482 [“SMO 35"], the Special Master ruled 20 of the 23 documents could be produced with the condition that 14 of the documents remain redacted. On 8 September 2021, ZHP filed the instant motion to vacate SMO 35. Doc. 1550 and accompanying brief at 1550-1. On 20 September 2021, plaintiffs timely filed their opposition (Doc. 1570) to which ZHP timely replied on 27 September 2021 in Doc. 1583.

A primary procedural concern here is the lack of transparency and guidance in the SSL (and its Regulations) as to how a PRC defendant could recognize with a degree of confidence whether any information it was producing was a state secret under the SSL and the liability attached to that disclosure. Several U.S. legal pundits have remarked this endemically vague definition of a "state secret" in the SSL provokes in PRC defendants a somewhat unavoidable anxiety, and therefore deep disincentive, to produce in U.S. litigation information even remotely implicating the SSL.^[2] A theme in Federal Court litigation is that PRC defendants, when in doubt as to their potential liability for the production of PRC state secrets, invoke the SSL and don't produce.^[3] In effect, the uncertainty as to what a PRC state secret is can work to the advantage of PRC defendants to avoid or minimize their liability in U.S. courts. A tendency to over-preclude Chinese "state secrets" from disclosure can have the result of tipping the balance in favor of advancing the interests of PRC defendants over those of the U.S. by hampering the parties from putting "all relevant cards on the table", thereby moving to a transparent adjudication of liability under the Federal Rules.

Another procedural concern is the uncertainty about the weight accorded to the opinions of ZHP's PRC law experts on how the SSL applies to the 23 documents. Without a direct, in camera review of the documents and because of the inherent uncertainty in predicting whether a PRC governmental entity would define any of the disputed documents as a state secret, weighing the reliability and bias of the PRC law expert's analysis is an intellectual and legal black box. With full respect for Ms. Yang's credentials, the Court cannot evidence that her opinion is methodologically reliable.

2.0 Parties Contentions

2.1 ZHP

ZHP's primary legal argument is that the Special Master misapplied 4 of the 5 factors enunciated in Societe Nationale Industrielle Aerospatiale v. U.S. Dist. Court for Southern Dist. of Iowa, 482 .S. 522, 107 S.Ct. 254, 296 L.Ed.2d 461 (1987), which comprise the determinative balancing test whether non-disclosure of relevant documents withheld under the laws of other countries supplants their required production under the Federal Rules of Civil Procedure ["FRCP"]- Because of this asserted misapplication of relevant law, the Special Master improperly found that 20 of the 23 documents were not governed by the SSL-and specifically, do not relay Chinese state secrets-and therefore wrongly ordered the production of these to plaintiffs.

As a preliminary matter, ZHP does not present legal arguments as to whether the 23 documents at issue are in fact state secrets under Chinese law, but rather relies on the certification of its expert, Ms. Yang, a Chinese lawyer who avers the documents at issue may implicate a Chinese government agency's naming them as state secrets.

ZHP poses an auxiliary argument. Another PRC law, the Data Security Law ["DSL"], in force from 1 September 2021-3 weeks AFTER the issuance of SMO 35-may separately prohibit disclosure of the 23 documents because these documents, having PRC national security interest and located on a server in the PRC, may not be transferred to a foreign court or outside the PRC.

2.2 Plaintiffs

Plaintiffs oppose the motion on principally different grounds than ZHP's. They assert ZHP has not met its burden to provide reliable expert testimony such that the proper PRC government agency would likely find the SSL prohibits disclosure of each document on the Secret Log. Put differently, ZHP has not reliably evidenced that any of these documents contain state secrets as defined in the SSL. Plaintiffs also deduce that since...