Ex Parte Seizure Orders Under the Defend Trade Secrets Act

Laptop closeup

Did the federal trade secret statute’s new ex parte seizure remedy live up to the hype?

When the Defend Trade Secrets Act was signed in May 2016, there was a lot of talk about its ex parte seizure provisions. The DTSA allows a federal judge in a trade secrets case to order federal marshals to seize a defendant’s property—usually a computer or smartphone—without notice to the defendant. Critics worried about the potential for abuse of this extraordinary remedy.

I worried too, but not that much. The statutory requirements for getting an ex parte seizure order are strict, and I predicted here that “most federal judges are going to set the bar very high for obtaining such unusual ex parte relief.”

Did the first year of litigation under the DTSA proven me right on this point? Well, yes. But honestly, it wasn’t that difficult a prediction.

I haven’t done any comprehensive survey, but trade secrets litigator Paul Mersino wrote a nice summary of all the ex parte seizure cases he could find. He only knew of two cases that granted an ex parte seizure remedy under the DTSA, and one of them was so secret, he’d have to kill you if he told you about it.

One of the few cases to grant ex parte seizure under the DTSA is Mission Capital Advisors v. Romaka from the Southern District of New York.[1] The court first issued an order requiring the defendant to appear at a hearing to show cause why he should not be restrained from accessing, disclosing, or copying the employer’s client and contacts lists. When the defendant failed to appear, the court found that a Rule 65 order would be inadequate and issued an order directing the U.S. Marshal to seize the defendant’s contacts list from his computer (by copying them to a storage medium and deleting them from defendant’s computer).

Is this it? Is this all you can conjure, Saruman? After all the hand-wringing about federal marshals busting down doors and seizing iPhones from renegade insurance salesmen, we only get one or two ex parte seizure orders in a year? What gives?

There are many reasons ex parte seizure orders have been rare, but the most fundamental reason is this: federal judges can already do a lot with an “ordinary” Temporary Restraining Order under Rule 65 of the Federal Rules of Civil Procedure, and the DTSA itself says that an ex parte seizure order is only allowed when a Rule 65 order would be inadequate. See 18 U.S.C. § 1836(b)(2)(A)(ii)(I). 

Most federal courts addressing ex parte seizure requests have found an ordinary extraordinary remedy would be adequate

Balearia Caribbean v. Calvo, a case in the Southern District of Florida, was one of the first to address an application for an ex parte seizure order under the Defend Trade Secrets Act.[2] A ferry company called BCL sued its former CEO, Calvo, claiming that he hijacked the company’s negotiations to provide ferry service to a Bahamas casino. Before leaving, Calvo allegedly bought a Mac laptop, had it reconfigured to access the company’s electronic information systems, and forwarded confidential emails to his private Gmail account.

Now, I’m all for using a MacBook (which I typed this post on) and a personal Gmail account (which I also have). But come on, man. You just can’t do that stuff.

BCL sued Calvo in federal court under the DTSA and sought ex parte seizure of Calvo’s Mac laptop so that a forensic expert retained by BCL could image the hard drive. But the court found that the risk of Calvo improperly using or destroying the confidential information was not the kind of “extraordinary circumstances” required for ex parte seizure. Instead, the court granted a TRO requiring Calvo to preserve evidence and to appear at a hearing where the court would appoint a special master to take temporary custody of the Mac to have a forensic expert image the hard drive.

Magnesita Refractories v. Mishra, a case in the Northern District of Indiana, was similar.[3] It was another case of a rogue employee with confidential information on his personal laptop (allegedly). Magnesita, the employer, presented emails suggesting that the employee, Mishra, was in talks with a competitor about pursuing potential business ventures in competition with Magnesita.

At the initial ex parte hearing, the judge considered several options to deal with the laptop:

  • Alow Magensita to confiscate the laptop and have it imaged
  • Send the U.S. Marhsal to seize the laptop to be placed in custody
  • Order Mishra not to disseminate or destroy any material on the laptop and to bring the laptop to a hearing a couple days later.

The judge found that Magnesita met the requirements for an ex parte TRO under Rule 65 but declined to order seizure under the DTSA. The judge wrote:

Rather than involve the U.S. Marshal Service, and the potential reputational damage caused by them seizing Mishra’s personal property at his place of employment, I ordered Mishra to turn over to Magnesita’s counsel his personal laptop, which Magnesita would immediately deliver to the Clerk of Court to be secured. To ensure the protection of Mishra’s privacy, I ordered that “Magnesita shall not review any of the contents of the laptop prior to delivering it to the Clerk of Court.” In order to provide Mishra a way to expeditiously address any issues regarding the ex parte TRO, discuss the disposition of the laptop and potential appointment of a Special Master to image the laptop, and set a date for a preliminary injunction, I ordered the parties to appear at an in person hearing two days after I issued the ex parte TRO.

Mishra appeared and testified at the hearing two days later, but the judge found his testimony “far from persuasive” and denied his motion to dissolve the injunction. Mishra would suffer no damages if it was found that his laptop was improperly seized or imaged, the judge found, because the laptop would be returned to him as soon as it was imaged.

Lessons learned from the first year under the DTSA’s ex parte seizure provisions

So what can we learn about ex parte seizure from the cases in the first year of the Defend Trade Secrets Act?

First, lawyers seeking to preserve their client’s confidential information or prevent it from being disclosed should usually opt for seeking a Temporary Restraining Order under Rule 65. There is no need to take on the higher burden of obtaining an ex parte seizure order if a TRO would be adequate.

Second, most federal judges are rightly hesitant to order a defendant’s property seized without giving the defendant some chance to respond to the plaintiff’s allegations. A TRO issued without notice is still an extraordinary remedy, but when a judge enters an ex parte TRO requiring the defendant to come to a hearing to turn over his computer for imaging of the hard drive, the defendant at least has some opportunity to respond before turning over his property.

In contrast, when a federal marshal shows up at the defendant’s door and says “I have a court order to seize your MacBook,” the defendant doesn’t have a lot of options.

Of course, the disadvantage of serving the defendant with a TRO first is that the defendant—who presumably already violated some duty of confidentiality—will ignore the commands of the TRO and conceal, delete, or transmit confidential information before turning over his devices. But this risk can be mitigated. Conduct like that almost always leaves some electronic trail, and judges have options like spoliation sanctions for dealing with disobedient litigants.

*Update: The second year of the DTSA was not much different. See The DTSA’s Ex Parte Seizure Remedy — Two Years Later. In the rare cases where federal courts have granted ex parte seizure orders, there is usually some aggravating conduct by the defendant, such as dishonesty, spoliation of evidence, or disobeying the court.

For example, in Solar Connect, LLC v. Endicott, No. 2:17-cv-1235, 2018 WL 2386066, at *2 (D. Utah April 5, 2018), the court reasoned that a Rule 65 order would be inadequate where the tech-savvy defendants had attempted to delete computer data, provided false information to conceal their identities, and “shown a willingness to hide information and move computer files rather than comply with requests to cease use of Plaintiff’s proprietary materials.”

Even four years after the DTSA, the number of ex parte seizure cases was underwhelming. See Ex Parte Seizure Under the Defend Trade Secrets Act: Insights on the New Remedy (Finnegan, April 8, 2020) (reporting fewer than 20 ex parte seizures requested, with about half being granted).

As the Finnegan article says, the nabbing-the-culprit-at-the-airport scenario Congress may have envisioned was more like a Hollywood action movie. The reality has been more prosaic. In most cases a TRO ordering a defendant to surrender a laptop is adequate. And most cases where courts ex parte seizure has been ordered involve some aggravating factor, such as the defendant trying to “hide prior misconduct.” See id.

On the other hand, the mere fact that a former employee engages in some kind of post-termination misconduct–a very common scenario–does not necessarily justify an ex parte seizure order. In ARB Labs Inc. v. Woodard, No. 19-cv-116, 2019 WL 332404 (D. Nev. Jan. 25, 2019), the court denied ex parte seizure, even where the defendant allegedly kept his company computer containing the company’s trade secrets, continued using his company email account, and removed three boxes from the company’s office. The court reasoned that these facts did not necessarily establish that the defendant would ignore a Rule 65 order. Id. at *3-4. The court simply issued a TRO instead. Id. at *4.

__________________

Zach Wolfe (zach@zachwolfelaw.com) is a Texas trial lawyer who handles non-compete and trade secret litigation at Zach Wolfe Law Firm (zachwolfelaw.com). Thomson Reuters named him a Texas “Super Lawyer”® for Business Litigation in 2020, 2021, and 2022.

These are his opinions, not the opinions of his firm or clients, so don’t cite part of this post against him in an actual case. Every case is different, so don’t rely on this post as legal advice for your case.

[1] Mission Capital Advisors, LLC v. Ramaka, No. 1:16-cv-05878-LLS (S.D.N.Y. July 29, 2016).

[2] Balearia Caribbean v. Calvo, No. 16-23300 (S.D. Fla. Aug. 5, 2016).

[3] Magnesita Refractories Co. v. Mishra, No. 2:16-CV-524, 2017 WL 655860 (N.D. Ind. Feb. 17, 2017).

Leave a Comment

Your email address will not be published. Required fields are marked *