United States: DTSA And Ex Parte Seizure – Lessons From The First Ex Parte Seizure Under The DTSA

The Defend Trade Secrets Act (DTSA) Ex Parte Seizure mechanism allows victims of trade secret misappropriation to quickly prevent further dissemination of confidential information by asking a court to direct federal marshals to seize stolen trade secret material and secure that material during the pendency of a formal DTSA case. The DTSA directs that civil seizure only be used in "extraordinary circumstances," however, and courts entertaining requests for civil seizure have hewed closely to this directive. See, e.g., OOO Brunswick Rail Mgt. v. Sultanov, Case No. 5:17-cv-00017 (N.D. Cal. Jan. 6, 2017) (denying request for civil seizure and instead ordering preservation of devices at issue pursuant to Rule 65); Magnesita Refractories Co. v. Mishra, 2:16-cv-524 (N.D. Ind. Jan. 25, 2017) (same); Dazzle Software II, LLC v. Kinney, Case No. 1:16-cv-12191 (E.D. Mich. July 18, 2016) (denying request for civil seizure where court not convinced that defendant would not comply with order under Rule 65); Balearia Caribbean Ltd. Corp. v. Calvo, Case No. 1:16-cv-23300 (S.D. Fla. Aug 5, 2016) ("a plaintiff may not rely on bare assertions that the defendant, if given notice, would destroy relevant evidence").

In what appears to be the first civil seizure order under the DTSA, in Mission Capital Advisors LLC v. Romaka, No. 16-cv-5878 (S.D.N.Y. July 29, 2016), the U.S. District Court for the Southern District of New York ordered federal marshals to seize contact lists and other electronically-stored information that was allegedly misappropriated by Defendant, a former employee of Plaintiff. The circumstances of this case provide insight into what "extraordinary circumstances" are necessary for a district court to order civil seizure under the DTSA.

On July 22, 2016, Plaintiff Mission Capital Advisors LLC, a real estate finance firm, filed a complaint alleging that Defendant, a former employee, downloaded Mission's entire contact list and other confidential data prior to his termination from the company. In its motion seeking seizure under the DTSA, Mission explained that the files downloaded by Defendant included "confidential finance and deal documents and the entire firm's 65,000 person client and contact list," including "Mission's entire contact list, clients, service providers, confidential employee information, brokers, referrals sources, key personnel within investing firms and clients, etc." Defendant initially claimed that he deleted the files at issue from his personal computer, but after a computer-forensic vendor later discovered a "trove" of misappropriated files on the Defendant's computer, he stopped responding to Mission's efforts to contact him. Mission also specifically set forth the valuable nature of the information taken by Defendant, explaining that the misappropriated information took "more than a decade for Mission to gather," and that "having a list of active real-estate investors and lenders/clients would be a boon to Mission's competitors."

In its order granting Mission's seizure request, the court found that "[a]n order issued pursuant to Rule 65 of the Federal Rules of Civil Procedure or another form of equitable relief would be inadequate because Defendant would evade, avoid, or otherwise not comply with such an order." In coming to this determination, the court highlighted as persuasive a number of the factual circumstances set forth in Mission's complaint and motion papers, specifically explaining that Defendant failed to appear before the court after being ordered to do so to show cause why a preliminary injunction should not be entered. The court further recounted Defendant's repeated failure to acknowledge receipt of court orders and evasion of personal service. The court also referenced the significant investment in time and money by Mission that the contact list and other misappropriated confidential material represented, that the misappropriated material was likely a trade secret due to its immense business value and steps taken by Mission to keep the information confidential, and that Mission would suffer irreparable harm by the dissemination of this information.

The Southern District of New York's order granting Mission's civil seizure request provides helpful clues as to what types of "extraordinary circumstances" likely need to be plead for a court to grant a seizure request. Perhaps most importantly, in addition to satisfying the other requirements for a civil seizure order set forth in 18 U.S.C. § 1836(b)(2)(A)(ii), plaintiff must show that the defendant will not comply with a court order before a court will find that an order under Rule 65 or other equitable relief would be inadequate. Such a demonstration will likely require circumstances akin to those in the present case, where the Defendant's failure to appear and evasion of service convinced the court that he would evade an order under Rule 65. Mere assertions that a defendant will evade a court directive will likely be insufficient, as plaintiffs will likely be required to show that a defendant's past actions demonstrate a propensity to disobey a future court order.

The Southern District's order in this case gives companies seeking seizure of misappropriated materials important clues as to what circumstances merit a seizure order. Specifically, companies seeking to employ the civil seizure mechanism should be alert to circumstances in which the potential target of a seizure order is evading court mandated actions. Additionally, companies seeking grant of a seizure order can take affirmative steps to support a motion for civil seizure by (1) diligently seeking return of misappropriated materials and memorializing any failure by a civil seizure target to return misappropriated materials, and (2) memorializing actions taken by the seizure target to evade court orders.

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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Authors
Michael T. Renaud
Nicholas W. Armington
 
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