United States: Courts Still Heavily Favor Rule 65 TROs Over DTSA Ex Parte Seizures

Last Updated: June 21 2017
Article by Trade Secrets Watch

Written by Robert Shwarts and Alex Fields

The Defend Trade Secrets Act of 2016 was signed into law by President Obama on May 11, 2016. While the DTSA has been on the books for over a year, relatively few courts have addressed the ex parte seizure provision and even fewer have actually granted a seizure under the DTSA. This is likely due to the DTSA's requirement that courts order property seizures only in extraordinary circumstances. In other words, courts are hesitant to grant DTSA ex parte seizure requests unless it is clear that the alleged misappropriator would disobey a TRO or preliminary injunction, or otherwise destroy, move, or hide trade secrets. Courts continue to favor FRCP 65 TROs and preliminary injunctions to protect trade secrets from disclosure or destruction. Under FRCP 65, courts can issue TROs and preliminary injunctions, but cannot order U.S. Marshalls to seize property from a defendant without notice. The following cases are illustrative.

Courts Declining to Grant an Ex Parte Seizure

In OOO Brunswick Rail Mgmt. v. Sultanov (N.D. Cal. Jan. 6, 2017), Brunswick sued two former employees who misappropriated confidential information, alleging that they had already disclosed, and planned to continue to disclose, trade secrets. The court issued an ex parte TRO under Rule 65 prohibiting Sultanov from accessing his company-issued laptop and mobile phone, and ordering him to deliver the devices to the court at an upcoming hearing. But it declined to grant a DTSA ex parte seizure of the devices because it was not clear that a Rule 65 TRO would be ineffective to prevent further dissemination of the trade secrets. The court also issued a TRO directing non-parties Google and Rackspace to preserve material associated with the Defendants' accounts, but declined to order a seizure of physical copies of the data because the TRO requiring Google and Rackspace to preserve the data rendered a seizure unnecessary.

The court in Magnesita Refractories Co. v. Mishra (N.D. Ind. Jan. 25, 2017) issued an ex parte TRO—pursuant to Rule 65—ordering Mishra to deliver his laptop (allegedly containing the trade secrets) to plaintiff's counsel, who delivered it to the court. The court explained that the DTSA seizure provision would only apply if a "seizure" (the court repeatedly referred to its order as an ex parte "seizure," but it did not order the U.S. Marshalls to "seize" property) could not be accomplished by way of Rule 65.

In Balearia Caribbean Ltd. Corp. v. Calvo (S.D. Fla. Aug. 5, 2016), Plaintiff sought an ex parte seizure order to seize the personal laptop of its former CEO, who allegedly misappropriated proprietary financial reports and confidential records. The court explained that under the DTSA, courts may only issue ex parte seizure orders under "extraordinary circumstances"—for example, when a defendant is seeking to flee the country, destroy evidence, or immediately disclose trade secrets to a third party. Plaintiff argued that an ex parte seizure was necessary because Calvo allegedly forwarded a large amount of proprietary info to his personal email address and conspired with a competitor while he was still acting CEO. Thus, Plaintiff reasoned, it was likely Calvo would destroy evidence if he were given notice of a TRO. The court disagreed, explaining that these assertions did not constitute the extraordinary circumstances required by the DTSA. Thus, the court issued a Rule 65 TRO prohibiting Calvo from altering, destroying, or utilizing the Plaintiff's proprietary information in any way, and ordered him to turn over his laptop for forensic imaging.

Court Grants an Ex Parte Seizure

In Mission Capital Advisors LLC v. Romaka (S.D.N.Y. July 29, 2016), the court initially granted a Rule 65 TRO restraining Romaka from accessing, disclosing, or copying the plaintiff's confidential contacts list. But after Romaka evaded personal service five times and failed to appear for the preliminary injunction hearing, the court granted the plaintiff's ex parte seizure request ordering the U.S. Marshall to copy the stolen contacts list and delete the files from Romaka's computer as soon as possible. While the court did not explicitly mention the DTSA, it did find that each of the eight requirements for seizure under the DTSA were satisfied. Notably, the court ordered that no forced entry should be used to enter Romaka's home. Instead, the Marshall was to leave written notice if he could not effectuate the seizure. Then, if the Romaka failed to contact the Marshall within 2 days, the Marshall was to contact the court for further instruction (seemingly the court would order forced entry at this point).

These cases demonstrate that courts are highly averse to invoking the DTSA's ex parte seizure provision unless the alleged misappropriator has already disobeyed a TRO. Theoretically, courts could order a seizure if a plaintiff were to present strong evidence that a misappropriator was likely to destroy, alter, or otherwise abscond with trade secrets, but presently courts are approaching this powerful provision with abundant caution. Thus, while plaintiffs should certainly shoot for an ex parte seizure order when they have evidence that a defendant is likely to destroy or disseminate trade secrets in absence of such an order, they should be wary that these requests are rarely granted.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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