Nev. Indep. v. Whitley

506 P.3d 1037

The NEVADA INDEPENDENT, Appellant,

v.Richard WHITLEY, in His Official Capacity as the Director of the Nevada Department of Health and Human Services; the State of Nevada Department of Health and Human Services ; and Sanofi-Aventis U.S. LLC, Respondents.

No. 81844

Supreme Court of Nevada.

FILED MARCH 24, 2022

Robert L. Langford & Associates and Matthew J. Rashbrook and Robert L. Langford, Las Vegas, for Appellant The Nevada Independent.

Aaron D. Ford, Attorney General, Heidi Parry Stern, Solicitor General, Steve Shevorski, Chief Litigation Counsel, and Akke Levin, Senior Deputy Attorney General, Carson City, for Respondents Richard Whitley and the State of Nevada Department of Health and Human Services.

Bailey Kennedy and John R. Bailey, Dennis L. Kennedy, Sarah E. Harmon, and Rebecca L. Crooker, Las Vegas, for Respondent Sanofi-Aventis U.S. LLC.

McCracken, Stemerman & Holsberry, LLP, and Richard G. McCracken and Paul L. More, San Francisco, California, for Amicus Curiae Culinary Workers Union Local 226.

BEFORE THE SUPREME COURT, PARRAGUIRRE, C.J., STIGLICH and SILVER, JJ.

OPINION

By the Court, STIGLICH, J.:

Nevada's public records law shines a light on government conduct. It permits Nevadans insight into whether the officials they elected are holding true to their promises. But this law's illumination ends where statutory confidentiality provisions begin.

In this appeal, we consider whether the federal Defend Trade Secrets Act (DTSA) prohibits disclosure, under the Nevada Public Records Act (NPRA), of documents from pharmaceutical companies and pharmacy benefit managers collected under S.B. 539. The Nevada Independent (TNI) petitioned the district court to order the Department of Health and Human Services (DHHS) to release such documents, arguing that the documents constituted public records that must be made available to it. The district court determined that the information in these documents comprised trade secrets protected under the DTSA and that the documents thus were not subject to disclosure under the NPRA. TNI appeals the district court's order.

As a matter of first impression, we hold that because the DTSA classifies these requested documents, obtained pursuant to S.B. 539, as confidential trade secrets, these documents are shielded from disclosure under the NPRA.

BACKGROUND

Most states, including Nevada, have adopted some form of the Uniform Trade Secrets Act. See NRS Chapter 600A. To compliment these state trade secret laws, Congress, in 2016, amended the Economic Espionage Act of 1996 by passing the DTSA to further ensure trade secret protections in national and global economies. H.R. Rep. No. 114-529 (2016), as reprinted in 2016 U.S.C.C.A.N. 195, 198. The DTSA created a federal cause of action for misappropriation of trade secrets and defined "misappropriation" to include disclosure of a trade secret without the owner's consent, among other things. 18 U.S.C. §§ 1836, 1839(5)(b). Like the uniform act, the DTSA classifies as trade secrets information (A) that the owner has taken "reasonable measures" to keep secret and (B) that "derives independent economic value" from "not being generally known to" or "readily ascertainable through proper means" by an entity that can economically benefit from the information's disclosure or use. 18 U.S.C. § 1839(3).

One year later, in responding to the rapidly increasing price of insulin for Nevada residents, then-Governor Brian Sandoval signed into law S.B. 539. 2017 Nev. Stat., ch. 592. That bill, now codified in NRS 439B.600 -.695, requires pharmaceutical manufacturers and pharmacy benefit managers (PBMs) to submit to DHHS documentation regarding the cost structure of insulin medication in Nevada. As relevant here, S.B. 539 requires DHHS to compile lists of essential diabetes medications, manufacturers to report the pricing information of these drugs and justify any price increases, and PBMs to disclose the rebates they negotiate. NRS 439B.630 -.645.

Importantly, S.B. 539 also amended Nevada's version of the Uniform Trade Secrets Act to exclude from trade secret protections "any information" that a manufacturer or PBM is required to report per S.B. 539. NRS 600A.030(5)(b). Nevertheless, after S.B. 539 was passed, two organizations representing pharmaceutical companies sued Governor Sandoval, DHHS Director Richard Whitley, and the Nevada Legislature, claiming that S.B. 539's elimination of trade secret protections is preempted by the DTSA and is constitutionally suspect. The case was dismissed after DHHS promulgated regulations, NAC 439.730 - .740, to harmonize S.B. 539, the NPRA, and the DTSA.

A reporter for TNI thereafter made a public records request to DHHS for all reports submitted by pharmaceutical manufacturers and PBMs under S.B. 539. Relevant here, TNI sought the names of pharmaceutical manufacturers and PBMs that submitted annual reports pursuant to S.B. 539, and the annual reports themselves.¹ DHHS responded by providing the names of manufacturers and PBMs and some general information about the diabetes drugs but did not disclose other parts of the Manufacturer Essential Diabetes Drug Reports, including (1) the cost of producing the drug, (2) the total administrative expenditure relating to the drug, and (3) the profit margin the manufacturer earned by producing the drug. DHHS explained that, proceeding under NAC 439.730 - .740, it believed disclosing this information would constitute misappropriating trade secrets under the DTSA, such that this information was confidential and not subject to release under the NPRA. TNI and DHHS subsequently exchanged another similar request and response.

As a result of DHHS's refusal to provide the requested information, TNI filed a mandamus action in the district court to compel disclosure under the NPRA, also challenging the validity of NAC 439.730 - .740. Sanofi-Aventis U.S. LLC, a pharmaceutical company that submitted records pursuant to S.B. 539, moved to intervene, which the district court allowed. Sanofi thereafter presented an affidavit from its Vice President and Head of Diabetes and Primary Care Sales, James Borneman, who attested to the steps Sanofi takes to safeguard its trade secrets and the potential economic hardship Sanofi would suffer from the trade secrets' disclosure. For example, Borneman affirmed that pricing inputs and rationale are restricted internally within Sanofi and are shared on a need-to-know basis only, subject to nondisclosure agreements. The public disclosure of this information, Borneman declared, could be used by Sanofi's competitors and customers in, inter alia, price negotiations with insurers to Sanofi's financial detriment. TNI moved to compel Borneman's testimony or in the alternative to strike his affidavit from the record. The district court denied this motion.

The district court then denied TNI's writ petition. The district court determined that "[t]he DTSA's definition for trade secrets places these reports squarely under confidentiality protections," since DHHS demonstrated that the reports are subject to reasonable efforts to maintain their secrecy and that the reports derive independent economic value from such secrecy. See 18 U.S.C. § 1839(3). Next, the district court found that NAC 439.730 - .740 are valid regulations because DHHS has broad discretion to develop regulations that "foster efficient enforcement of codified legislation" (in this case, S.B. 539) and DHHS reasonably interpreted the governing statute in adopting the regulations. The district court opined that these regulations ensured that NPRA requests for information DHHS had gathered due to S.B. 539 did not run afoul of the DTSA because, while the regulations’ "confidentiality protections are not automatic," they ensured that the affected entity had the opportunity to contest the release of what it believes to be confidential information in court. This appeal followed.

DISCUSSION

TNI has not demonstrated that NAC 439.730 - .740 are invalid regulations

TNI contends that NAC 439.735 and NAC 439.740 are invalid regulations because they were not authorized by the Nevada Legislature, conflict with S.B. 539, and "operate as a line-item veto over the NPRA."² We disagree.

NRS 439B.685 allows DHHS to adopt regulations it deems "necessary or advisable to carry out the provisions of NRS 439B.600 to 439B.695, inclusive." Relevant here, DHHS utilized this enabling provision to promulgate NAC 439.735 and NAC 439.740 to harmonize the NPRA, S.B. 539, and the DTSA. NAC 439.735(1) permits a manufacturer or PBM to submit a request for confidentiality to DHHS to prevent public disclosure of any information it reasonably believes could lead to the misappropriation of a trade secret under the DTSA. The requesting manufacturer or PBM must describe the information it seeks to protect with particularity and explain why public disclosure would lead to misappropriation of a trade secret under the DTSA. NAC 439.735(2)(a)-(b). DHHS must determine whether it agrees with this assessment if it receives an NPRA request for the ostensibly confidential information. NAC 439.735(3). If DHHS agrees with the manufacturer's or PBM's assessment, it must deny the NPRA request. NAC 439.735(4). However, if DHHS does not agree, then it must provide the manufacturer or PBM a period of 30 days before releasing the information to allow the affected entity the opportunity to challenge DHHS's determination in court. NAC 439.735(5). NAC 439.740 requires DHHS to include only aggregated data that does not disclose the identity of any manufacturer or PBM in its public reports submitted pursuant to NRS 439B.650 and descriptions of trends in prescription drugs and how those prices affect the prevalence and severity of diabetes in Nevada and healthcare in the state more generally.

Agency regulations are presumed valid. See NRS 233B.090 ; Montage Mktg., LLC v. Washoe County ex rel. Washoe Cty. Bd. of Equalization, 134 Nev. 294, 297, 419 P.3d 129, 131 (2018). And ...