Digital Assurance v. Pendolino: The Merits Gate on DTSA Seizure

When Congress created the ex parte civil seizure remedy in the Defend Trade Secrets Act of 2016, most of the early commentary focused on the drama of the tool: federal marshals dispatched without notice to carry off a defendant’s computers. Digital Assurance Certification, LLC v. Pendolino, No. 6:17-cv-72-Orl-31TBS, 2017 WL 320830 (M.D. Fla. Jan. 23, 2017), is a useful corrective. Decided by Magistrate Judge Thomas B. Smith of the United States District Court for the Middle District of Florida about eight months after the statute took effect, it turned away a company that had walked in with an ex parte seizure application in hand, not because the marshals were an overreach, and not because a temporary restraining order would do instead, but because the plaintiff never established that it had a trade secret at all. Strictly speaking, the order rules on a companion motion to seal and never expressly reaches the seizure application. That is part of the lesson. The trade-secret showing failed so early that the seizure machinery was never engaged. The decision is a reminder that the seizure remedy has a substantive floor, and that the floor is the same one every misappropriation claim must clear.

At a glance

• Case: Digital Assurance Certification, LLC v. Pendolino, No. 6:17-cv-72-Orl-31TBS, 2017 WL 320830 (M.D. Fla. Jan. 23, 2017)
• Decided: January 23, 2017, by Magistrate Judge Thomas B. Smith; motion to seal the customer-list exhibit denied without prejudice, with the ex parte seizure application filed alongside it left unaddressed in the order
• Holding: A plaintiff that has not explained how its customer list was created, and has not shown that the list is not readily available from a public source, has not met its burden to show the list is a trade secret, and so cannot have it sealed or build a seizure application on it.
• Significance: One of the first DTSA-era orders to turn on trade-secret status itself rather than on the availability of lesser relief, illustrating that the substantive trade-secret inquiry the seizure statute also demands is where many applications fail.

Digital Assurance Certification, a firm in the municipal-bond continuing-disclosure business, sued a former broker-dealer liaison, Alex Pendolino, Jr., alleging that he took confidential information, including a customer list, when he left. Invoking 18 U.S.C. 1836(b)(2), the company asked the court, without notice to Pendolino, to seize documents, computers, and storage devices it believed held its trade secrets, and it moved at the same time to file the exhibit listing that information under seal. The short order that followed is more consequential than its length suggests.

The seizure remedy and its findings

Section 1836(b)(2)(A)(i) authorizes a court, “upon ex parte application but only in extraordinary circumstances,” to order the seizure of property “necessary to prevent the propagation or dissemination of the trade secret that is the subject of the action.” The remedy is extraordinary by design, and Congress hedged it with a checklist. Before a court may issue a seizure order, section 1836(b)(2)(A)(ii) requires it to make eight distinct findings. Two of them frame Pendolino: clause (ii)(I), that an order under Rule 65 or other equitable relief would be inadequate because the party would evade or not comply with it, and clause (ii)(IV), that “the applicant is likely to succeed in showing” both that the information “is a trade secret” and that the person against whom seizure is ordered misappropriated it or conspired to do so.

That second finding folds the entire substantive law of trade secrets into the seizure inquiry. The DTSA defines a trade secret in 18 U.S.C. 1839(3) as information that the owner has taken reasonable measures to keep secret and that “derives independent economic value” from “not being generally known” or “readily ascertainable through proper means.” A customer list is a classic borderline category. It can be a trade secret when it reflects real compilation effort and non-public knowledge, and it is nothing of the sort when it merely collects names a competitor could gather from public directories, regulatory filings, or the customers themselves. The seizure statute does not relax that distinction. If anything, the ex parte posture sharpens it, because the applicant asks the court to act on a one-sided record.

Why the application failed

Judge Smith found that Digital Assurance never carried its burden on the threshold trade-secret question. Applying the Florida rule that a customer list is a trade secret only if it was compiled through the owner’s own industry rather than gathered from information commonly available to the public, and only if the owner took reasonable efforts to keep it secret, the court accepted the company’s account of its security practices: password protection, ninety-day password rotation, restricted remote access, and confidentiality agreements. The record failed on the other half. Digital Assurance, in the court’s words, “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 “[c]onsequently, DAC has not met its burden to show that the information is a trade secret.” The secrecy-measures element was not the problem. Compilation and public availability were, and that alone was enough to sink the showing.

The point that makes the case worth teaching is what the court did not treat as sufficient. Digital Assurance had forensic indications of trouble. Its expert reported that Pendolino attached a USB drive to his work computer and accessed every file on the company’s shared network drive days before he left, though the expert could not yet conclude that anything had actually been transferred to the drive. But evidence that a departing employee accessed or copied a document is evidence of access and copying, not evidence that the document was a trade secret. Misappropriation under 18 U.S.C. 1839(5) requires acquisition, disclosure, or use of a trade secret; strip out the trade-secret element and what remains is the taking of ordinary business information, which the DTSA does not reach. The seizure remedy cannot be used to skip past that element. A plaintiff who cannot show the information is protectable cannot show it is likely to succeed on misappropriation, and a plaintiff who cannot show likely success cannot satisfy section 1836(b)(2)(A)(ii)(IV).

The ruling the court actually entered was on the motion to seal, and it followed directly from the same conclusion: information not shown to be secret is not sealed as if it were, because the company had not demonstrated the legitimate privacy interest that overcomes the public’s common-law right of access. The denial was without prejudice, so a better showing remained possible. The seizure application went unaddressed, which is itself telling. A plaintiff that cannot clear the trade-secret bar for a routine sealing request is nowhere near the far higher bar section 1836(b)(2)(A)(ii) sets for sending marshals to a defendant’s door.

How Pendolino fits the early DTSA seizure cases

The first wave of DTSA seizure decisions splits into two families. One family, exemplified by OOO Brunswick Rail Management v. Sultanov, No. 5:17-cv-00017-EJD (N.D. Cal. Jan. 6, 2017), denies seizure on the adequacy ground: the court can protect the evidence with a preservation order, a TRO, and a delivery-to-the-court directive, so the marshals are unnecessary. That line is about remedy selection. Pendolino belongs to the second family, which fails on the merits: the applicant has not shown a protectable secret, so the court never reaches the choice of remedy. The distinction matters because the two failures are cured in different ways. An adequacy problem can be solved by pleading facts about an evasive defendant; a merits problem can only be solved by actually proving a trade secret.

Both families reflect the same drafting choice. Congress front-loaded the seizure statute with findings precisely so that courts would not rubber-stamp ex parte raids. Pendolino shows why that matters. An applicant who cannot establish a trade secret has nothing to feed the likelihood-of-success finding, and the request collapses before the more exotic questions about extraordinary circumstances or the narrowest seizure ever arise. The comparison to Mission Capital Advisors, LLC v. Romaka, No. 1:16-cv-05878-LLS (S.D.N.Y. July 29, 2016), one of the very few cases to grant an ex parte seizure, where a court authorized a narrow seizure only after the defendant evaded service repeatedly, underscores how rare the granted orders are and how much a plaintiff must establish to reach them.

Open questions

Because the court disposed of the motion on the trade-secret threshold, it left the harder seizure mechanics untouched. It did not decide what showing on compilation method or secrecy measures would have sufficed, so the opinion marks the floor without mapping the room above it. It did not address how a court should handle a mixed request in which some claimed secrets are well pleaded and others are not, or whether partial seizure is available on a partial showing. Nor did it reach the questions that dominate the adequacy line of cases: how a court segregates personal from business data on a seized device, how seized material is held and reviewed, or when notice itself would defeat the remedy. Those issues await an applicant who clears the merits gate that Digital Assurance did not.

Implications for inventors and businesses

• Prove the secret before you ask for the marshals. A seizure application must establish likelihood of success on trade-secret status, which means explaining how the information was compiled and why it is not publicly ascertainable. Skipping that step because you have forensic proof of copying is the exact mistake that sank the showing in Pendolino.
• Treat customer lists as contested, not assumed. A customer list is protectable only with a record of compilation effort and secrecy measures. Document how the list was built, what non-public knowledge it embeds, and what steps kept it confidential, before litigation, not after.
• Match the remedy to the defect. If your risk is evidence destruction by an identifiable defendant, a TRO and preservation order are usually enough and far easier to obtain. Reserve the seizure request for cases where you can both prove a secret and show that notice would defeat protection.
• Assume an adversarial reading on a one-sided record. In an ex parte posture the court supplies the skepticism the absent defendant would. Build the application as if a hostile judge will test every element of the trade-secret definition, because one will.

Frequently asked questions

Why did the court rule against Digital Assurance if there was evidence of copying? Because copying is not misappropriation of a trade secret unless the information copied is a trade secret. The court found that Digital Assurance had not explained how its customer list was compiled or shown that the information was not readily available from a public source, so it had not met its burden to show the list was a trade secret. That failure defeated its motion to seal the list, and it is the same failure that would defeat the ex parte seizure application it had filed alongside, because seizure requires a likelihood of success in showing a trade secret. Evidence that a departing employee took files does not cure a failure to establish the files were protectable.

Does a customer list automatically qualify as a trade secret? No. A customer list can be a trade secret, but only if the owner shows it was built through effort and expense and is not readily ascertainable from public sources such as directories, public filings, or the customers themselves. Courts require the owner to explain the method of compilation and the secrecy measures taken. A bare list of names and contacts that could be reassembled from public information does not qualify.

What should a plaintiff prove to obtain a DTSA seizure order? All eight findings in 18 U.S.C. 1836(b)(2)(A)(ii), including that ordinary equitable relief would be inadequate, that the applicant is likely to succeed in showing misappropriation of a trade secret, that immediate and irreparable injury will occur, that the defendant has the property, and that the defendant would evade or destroy it if given notice. Pendolino shows that the trade-secret element is itself a hard gate: a plaintiff that cannot establish it never gets near the rest of the list.

Authorities and sources

• Digital Assurance Certification, LLC v. Pendolino, No. 6:17-cv-72-Orl-31TBS (M.D. Fla. Jan. 23, 2017), order on the motion to seal (Doc. 11): M.D. Fla. ECF (PDF)
• 18 U.S.C. 1836 (Defend Trade Secrets Act, civil seizure provision): Cornell LII
• 18 U.S.C. 1839 (definitions of “trade secret” and “misappropriation”): Cornell LII
• Eric Goldman, “The DTSA’s Ex Parte Seizure Order: The ‘Ex’ Stands for ‘Extraordinary’”: Technology & Marketing Law Blog
• Berkeley Technology Law Journal, DTSA Seizure Worksheet: BTLJ
• OOO Brunswick Rail Management v. Sultanov, No. 5:17-cv-00017-EJD (N.D. Cal. Jan. 6, 2017), order granting in part and denying in part the ex parte application: order (PDF)