Edward J. Davila, during his confirmation hearing, before the Senate Judiciary Committee, to be United States District Judge for the Northern District of California. September 29, 2010. Photo by Diego M. Radzinschi/THE NATIONAL LAW JOURNAL. ()
A San Jose federal judge has ordered a freeze on the personal email of two executives accused of misappropriating trade secrets, while instructing one to turn over a company-owned laptop and mobile phone to the court.
U.S. District Judge Edward Davila’s Jan. 6 order stops short of invoking the seizure power of the new Defend Trade Secrets Act, but gives Moscow-based OOO Brunswick Rail Management most of what it wants through traditional remedies.
Brunswick and its Orrick, Herrington & Sutcliffe counsel had asked Davila to direct U.S. marshals to seize physical copies of Richard Sultanov and Paul Ostling’s digital accounts from Google and Rackspace Hosting Inc., and to impound Sultanov’s mobile devices.
Davila said that would not be necessary. Instead he ordered the email be preserved under traditional federal rules and issued a TRO directing that nothing be deleted from the mobile devices until they can be turned over to the court at a Jan. 20 hearing.
Passed last spring, the Defend Trade Secrets Act (DTSA) empowers federal courts to order seizures on ex parte applications if needed to prevent trade secret theft or dissemination, “but only in extraordinary circumstances.”
Trade secret specialists say they’re still waiting for the first seizure order under the DTSA. Paul Hastings employment partner Bradford Newman, who’s not involved in OOO Brunswick Rail Management v. Sultanov, said the case follows a recent pattern of plaintiffs requesting seizure under the DTSA and federal judges using more traditional methods to satisfy them.
In Newman’s view, “extraordinary circumstances” would mean a person at San Francisco International Airport about to board a plane headed overseas while carrying a laptop with pilfered secrets. “I don’t think the federal courts are going to want to send the sheriffs out at moment one of every trade secrets suit,” he said.
Ostling and Sultanov have hired Venable partner Thomas Wallerstein to represent them in the case.
Ostling promised in an email that the courts will see the dispute differently once he’s had his say. “I will be responding fully at the appropriate time in the appropriate forum, when I will clearly demonstrate the utterly frivolous nature of their case,” Ostling said, adding that the suit is “aimed at deflecting attention away from the ongoing problems of Brunswick Rail.”
Headquartered in Moscow, Brunswick leases a fleet of 25,000 railcars to corporate clients in Russia. Its ex parte motion alleges that Ostling, who served as interim CEO until November, and marketing director Sultanov have arranged to shared confidential information with Brunswick creditors who are in negotiations to restructure the company’s debt.
“These sensitive negotiations are critical to Brunswick maintaining its business and its solvency,” Orrick partners Gabriel Ramsey and Michael Tu stated in their motion to Davila.
They accuse Sultanov of forwarding sensitive information from his work email to his personal email. When the company demanded the return of its laptop and mobile phone, Sultanov “doubled down” by threatening to complain to regulatory authorities unless Brunswick dropped its investigation of him, according to the motion.
The suit was filed in the Northern District of California because Google Inc.’s and Rackspace’s servers are located there, according to Brunswick’s complaint. Sultanov splits his time between Russia and Monterey, while Ostling works in Russia and Connecticut.
Wallerstein said Monday that Brunswick “was well aware that the defendants frequently used personal email addresses to conduct company business. There was nothing nefarious, improper or surprising about that.” He noted that neither Ostling nor Sultanov is accused of opening a competing business or trying to profit from any alleged secrets.
Davila ruled Friday that it was “unnecessary” to use the U.S. marshals to seize evidence. Instead, relying on the Federal Rules of Civil Procedure, he ordered Google and Rackspace to preserve data from Ostling and Sultanov’s accounts.
“The court finds that seizure under the DTSA is unnecessary because the court will order that Sultanov must deliver these devices to the court at the time of the hearing,” Davila wrote, “and in the meantime, the devices may not be accessed or modified.”
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