The DTSA’s Ex Parte Seizure Order: The “Ex” Stands for “Extraordinary” (Guest Blog Post)
[By guest blogger Paul M. Mersino. Paul is an attorney with the Detroit-based law firm Butzel Long, P.C. He specializes in Trade Secret disputes throughout the nation. He defended against the first ex parte seizure application in the nation under the DTSA and obtained the first Temporary Restraining Order under the DTSA in federal courts in Michigan.]
As readers of this blog know, the Defend Trade Secrets Act provides a significant weapon for plaintiffs to obtain ex parte seizure orders. If a company’s trade secrets are stolen, it can seek a court order to seize the trade secrets, and even the computers they are in, without providing notice to the defendant. This means federal marshals could show up at an offender’s doors to confiscate computers or servers without the defendant even being heard. Such seizures are intended only in “extraordinary circumstances” where an injunction would not suffice and it can be shown that the person who misappropriated the trade secrets would destroy or hide the trade secrets if given notice.
Not all judicial opinions regarding ex parte seizure are known at this time because many are under seal. Based on a review of all known cases, however, at the time of writing there have been only two orders granting an application compared to five in which it was denied. It appears that ex parte seizures have not been abused, as some feared. As intended, it appears that it will only be granted in extraordinary cases. Below is a review of those known cases:
Court Denied Seizure Request
The first court to analyze an ex parte seizure application under the DTSA was the Eastern District of Michigan. In Dazzle Software II, LLC v. Kinney, No. 2:16-cv-12191-MFL-MLM (E.D. Mich. 2016), the plaintiff filed an application for ex parte seizure of the defendant’s computers. The court denied the application, noting that it was not “persuaded that there has been a showing that the defendants would not comply with an order  issued by way of an injunction under Rule 65.” Second, the court noted that “the relief that’s sought here isn’t going to solve the problem because [plaintiff’s attorney] candidly acknowledged that there are so many questions, so even if he grabbed every single computer I don’t think that would give assurance that there wouldn’t be continued misappropriation.” Lastly, the court acknowledged that such an order would “impose serious consequences on the [defendant’s] business,” and that the balance of interests did not persuade it to grant the order. The court denied the motion and began a trend.
In Balearia Caribbean Ltd. Corp. v. Calvo, No. 1:16-cv-23300-KMV (S.D. Fla. Aug. 5, 2016), the Southern District of Florida analyzed an application the plaintiff brought against its former CEO, whom it alleged had misappropriated its trade secrets just before departing. The court began by noting that “[i]n order to justify an ex parte seizure order, the moving plaintiff must meet an exacting standard” and that “[w]hen the defendant’s identity is known and notice could feasibly be given, ex parte seizures are proper only if providing notice to the defendant would render fruitless the further prosecution of the action.” The court quoted legislative history from Senator Grassley as to what constitutes an “extraordinary circumstance” as “instances in which a defendant is seeking to flee the country or planning to disclose the trade secrets to a third party immediately or is otherwise not amenable to the enforcement of the court’s orders.”
The court held that “a plaintiff may not rely on bare assertions that the defendant, if given notice, would destroy relevant evidence. Rather, the plaintiff must show that the defendant, or persons involved in similar activities, had concealed evidence or disregarded court orders in the past.” The court noted that ex parte seizure orders are generally only granted where it has been shown by actual facts that “destruction of evidence is likely and where entities similar to the defendants had a history of destroying evidence and disobeying court orders.” The court held that mere generic allegations with no substantiation did not constitute “extraordinary circumstances” and denied the application.
In Jones Printing, LLC v. Adams Lithographing Co., 1:16-cv-442 (E.D. Tenn. Nov. 3, 2016), the Eastern District of Tennessee denied an application for ex parte seizure, noting that “Plaintiff provides only selective portions of the specific information and legal arguments required” and “the alleged facts that are set forth are largely conclusory in nature.” “Perhaps most importantly,” the court continued, “Plaintiff does not specify why relief under Rule 65 is inadequate in this case,” noting that ordinary injunctive relief “appears to be the preferred form of injunctive relief under § 1836 to date.” Thus, the court concluded that the “bare and conclusory application presented by Plaintiff is insufficient to warrant the extraordinary relief requested” and denied the application.
This analysis revolving around Rule 65 injunctions is the most common. In OOO Brunswick Rail Mgt. v. Sultanov, 2017 WL 67119 (N.D. Cal. Jan. 6, 2017), the court denied an application for ex parte seizure, holding that “the Court finds that seizure under the DTSA is unnecessary because the Court will order that [Defendant] must deliver the devices to the Court at the time of the hearing scheduled below, and in the meantime the devices may not be accessed or modified.” The Court also did not limit its analysis to whether a Rule 65 injunction would suffice, but also whether any “form of equitable relief” would be adequate.
In Digital Assurance Certification, LLC v. Pendolino, 2017 WL 320830 (M.D. Fla. Jan. 23, 2017), the court reviewed an application brought by a plaintiff who, relying on forensic evidence obtained from its former employee’s computer, alleged that the defendant had stolen customer lists. Along with its application for ex parte seizure, the plaintiff filed a motion to seal its exhibit listing its trade secrets. The court, though, held that the plaintiff “has not explained the method by which the list was created or otherwise shown that the information is not readily available from a public source,” and consequently that the plaintiff “has not met its burden to show that the information is a trade secret.” Thus, the court denied the motion to permit the exhibits to be filed under seal. While the order does not express it, presumably the application for ex parte seizure was also not granted.
Court Granted Seizure Request Per DTSA
There have been only two known cases to actually grant applications for ex parte seizure. The first was issued by the Southern District of New York in Mission Capital Advisors, LLC v. Romaka, No. 1:16-cv-05878-LLS (S.D.N.Y. July 29, 2016). Initially, the court denied the plaintiff’s application for an ex parte seizure order and instead simply granted a TRO; ordered the defendant to appear and show cause why an injunction not be entered; ordered that the trade secrets not be accessed, disclosed, or copied; and ordered that notice be served by personal service and email. The plaintiff served the order by email, but the defendant evaded personal service on five separate occasions. The defendant then failed to appear for the show cause hearing.
It was only after the defendant ignored the Court’s order and failed to appear that the court permitted ex parte seizure (though, because notice of the action had already been served, it was not entirely ex parte and clearly there was notice). Because of the defendant’s evasive actions, the court held that “an order issued pursuant to Rule 65 would be inadequate because Defendant would evade, avoid, or otherwise not comply with such an order.” This was based on the fact that although the defendant was given notice of the hearing, he “did not appear for the July 25 conference as ordered, and appeared to evade personal service of the order after the email was sent.” Thus, the showing that a Rule 65 order would not be followed was exhibited by the defendant himself.
The court also held in its order that all of the other eight (8) requirements for an ex parte order were met as well, including a finding of immediate and irreparable harm, a balance of the harms, likelihood of success, and all other requisite elements. Arguably, because the defendant failed or refused to comply with a court order, the court would have had the authority to enforce its order even without reliance on the DTSA. But it is clear from the order granting the application and the subsequent orders to law enforcement and the third-party technical expert that the court was granting the ex parte seizure under the DTSA.
The court ordered Marshals to seize the trade secrets. The plaintiff was ordered to pay a non-refundable fee of $2000 to the Marshals, to recommend a technical expert to assist in the seizure, to file a proposed non-disclosure agreement to bind the expert, and to post a bond of $1000 as security for damages resulting from a wrongful or excessive seizure. The order also set the hours for seizure and noted that “no forced entry shall be used to effectuate the seizure.” The court then appointed the expert to assist and ordered that the seized materials be held by the court.
It has also come to the author’s attention that an application for ex parte seizure was granted by a federal court in Florida in October 2016. To date, unfortunately, all information has been held under seal and is not yet public. Once it is made public, we will have a better idea of why the court was willing to grant the application. It is also possible that there are other such successful cases under seal.
Court Granted Expedited Discovery Without Relying on the DTSA
Lastly, it should be noted that some courts have, in their own language, ordered the “seizure” of property, even on an ex parte basis, without relying on the DTSA’s ex parte seizure provision. In Magnesita Refractories Co. v. Mishra, 2:16-cv-524, 2017 WL 365619 (N.D. Ill. Jan. 25, 2017), the Northern District of Illinois “entered an ex parte temporary restraining order authorizing the seizure of a laptop computer owned by defendant.” The court expressly noted, however, that it did not do so based on the DTSA’s ex parte seizure provision, but rather did so under Fed. R. Civ. P. 65. The court noted that “[t]he DTSA seizure provision provides that the Court may not grant a request for seizure unless it finds that it clearly appears from specific facts that, among other things, ‘an order issued pursuant to Rule 65 . . . would be inadequate.” The court reasoned that its “seizure of [defendant’s] personal laptop by way of Rule 65 was still appropriate because the DTSA’s seizure provision would only apply if seizure could not be accomplished by way of Rule 65.” But in that case, the court noted, “Rule 65 did the trick.”
The court defended its actions by noting that “at least two other courts presiding over cases involving DTSA claims have issued temporary restraining orders under Rule 65 ordering the seizure of property,” citing Earthbound Corp. v. MiTek USA, Inc., C16-1150 RSM, 2016 WL 4418013 (W.D. Wash. Aug. 19, 2016) and Panera, LLC v. Nettles, 4:16cv1181-JAR, 2016 WL 4124114 (E.D. Mo. Aug. 3, 2016). This entire discussion, however, appears to be one surrounding nomenclature more so than statutory interpretation. The Magnesita court noted that both cases it cited required the defendant to “turn over” certain evidence. That is, those courts ordered expedited production of discovery, not the ex parte seizure of property. The Magnesita order is unclear, but it is presumable that this was the same situation in that case. The court’s reference to the ordered disclosure as “seizure” was, respectfully, perhaps misapplied. Parties should be careful in their language to differentiate between requests for orders for expedited production of discovery and requests for ex parte seizure.
Above is the current landscape of opinions and orders regarding the DTSA’s ex parte seizure provision, though there may be other cases currently under seal and there are sure to be more to come. At this time, however, we know that, for the most part, courts are hesitant to grant ex parte seizures, are more likely to grant injunctions and/or expedited discovery, and will only grant applications for ex parte seizure under truly extraordinary circumstances.
Prior to Paul’s outreach, I had not seen the Mission Capital case. The papers are a little confusing, but my take is that the case was *not* appropriate for a DTSA ex parte seizure order. The order recites the statutory requirements, but it involved a very typical employee-departure situation with nothing indicating that this was an “extraordinary” case–other than, perhaps, the defendant no-showing in court, though that isn’t very unusual either.
I also was confused about the statutorily required “immediate” injury. The court order’s supporting facts:
a. Plaintiff is a company that engages in commercial real estate finance, loan portfolio evaluation and loan sale support and advice, both nationally and internationally. Plaintiff avers that it has made a significant investment of time, money, and experience to source its key investors and other contacts; that these confidential Contact Lists materially contribute to its success as an ongoing business; and that the dissemination of the Contact Lists will give Plaintiff’s competitors an unfair advantage and result in damage to the viability of Plaintiff’s business.
b. The circumstances indicate that Defendant intends to misuse Plaintiffs’ trade secret information. The verified Complaint avers that Defendant was Plaintiff’s director of debt and equity finance; he downloaded the Contact Lists on to his personal computer without authorization; he did so when he was absent from work for several weeks; Defendant falsely represented that he had deleted the data and permitted a forensic computer investigator to copy and review the data on his computer; the Contact Lists were found on his computer, along with other proprietary information of Plaintiff, but under a different name and a masked file type; Defendant, on information and belief, had concurrently received several offers of employment; although originally cooperative, Defendant now does not respond to Plaintiff’s attempts to contact him and his employment has been terminated.
Notice what’s missing: Though the dissemination of the Contact Lists allegedly would cause injury, the court doesn’t recite any evidence that such dissemination is about to occur. At most, there’s an implication that, if the defendant is hired by a competitor, he may hand off the Contact Lists. However, that type of scenario has been occurred in hundreds of cases without an ex parte seizure order. So my take is that the court was irritated that the defendant no-showed; and without any rebutting arguments from the defendant, went ahead and granted the plaintiff’s request. To me, that’s not what the DTSA ex parte seizure provision was meant to do. Therefore, unlike Paul, I think the Mission Capital case provides some evidence that courts will misapply the DTSA ex parte seizure provision.
Worse, the court says an FRCP 65 order would be ineffectual because the defendant no-showed, yet (as Paul explains) the court could have issued a seizure order under Rule 65 without the DTSA. So I’m not concerned the court got the result wrong (we’d only know that if the defendant spoke up), but I am confused how the DTSA helped the court in any way that mattered.