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Adopting Zubulake, New York Appellate Court Upholds Sanctions for Spoliation of E-Mail
In Voom HD Holdings v. EchoStar Satellite LLC, No. 600292/08, New York’s Appellate Division, First Department became the first New York Appellate Court to adopt the standard for the preservation of electronic evidence set forth in Zubulake v. UBS Warburg LLC, 220 FRD 212 (S.D.N.Y. 2003), while directly addressing the issue of “when a party reasonably anticipates litigation.”
The Zubulake standard states that “once a party reasonably anticipates litigation, it must suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.” Voom HD Holdings v. EchoStar Satellite LLC, 2012 NY Slip Op 00658, at *2 (citing 220 FDR at 218).
The Appellate Division found that the Zubulake standard is “harmonious with New York precedent in the traditional discovery context, and provides litigants with sufficient certainty as to the nature of their obligations in the electronic discovery context and when those obligations are triggered.” Id.
A bullet point outline of the facts in Voom leading to a spoliation finding is instructive to show how companies can act to avoid sanctions and an adverse inference instruction at trial.
- In 2005 EchoStar Satellite, the TV broadcasting company, entered into a contract with Voom HD Holdings.
- Voom alleges that, as a subterfuge for terminating the contract, in 2007 EchoStar attempted to invoke a contractual provision allowing termination if Voom failed to spend $100 million on “service” each year.
- In June 2007, EchoStar’s Chief Executive stated in a meeting: “Prepare the breach notice,” and its corporate counsel sent Voom a letter containing a notice of breach, a demand and an explicit reservation of rights.
- Voom asserted rights to an audit, and in October 2007, EchoStar delivered an audit to Voom.
- In November 2007, EchoStar re-asserted breach by Zoom and attempted to get pricing and delivery changes to a contract that would become effective February 1, 2008.
- On February 1, 2008, Voom refused the proposed changes, EchoStar terminated the contract, and Voom sued EchoStar the next day.
- Only upon being sued did EchoStar issue a litigation hold to its employees, but that hold failed to extend to the automatic deletion of e-mails from EchoStar’s computers.
- In June 2008, four months after being sued and 12 months after sending Voom the notice of breach, demand and reservation of rights letter, EchoStar finally suspended the automatic deletion of its e-mails.
- The pre-suit communications between EchoStar and Voom that survived the “automatic deletion” of e-mails were preserved only because they happened to be captured in “snapshots” of executives’ e-mail accounts taken for purposes of other, unrelated litigations.
Voom moved for spoliation sanctions for EchoStar’s failure to preserve the critical pre-suit e-mails. The trial court, citing Zubulake, granted the motion, finding that EchoStar should have put in place a litigation hold—including a stop to automatic deletion of e-mails—on June 20, 2007, at the earliest, when its corporate counsel sent Voom a letter containing a notice of breach, a demand and an explicit reservation of rights. The Court also stated that EchoStar’s conduct rose to the level of bad faith, noting that EchoStar had previously been sanctioned for similar conduct.
EchoStar argued to the Appellate Division that the Court should not adopt the Zubulake standard because it does not provide a clear meaning of “reasonably anticipated.”
In rejecting EchoStar’s arguments, the Appellate Division took particular aim at how such disputes develop:
- “To adopt a rule requiring actual litigation or notice of a specific claim ignores the reality of how business relationships disintegrate[.]” Voom HD Holdings, 2012 NY Slip Op 00658, at *7.
- “Sides to a business dispute may appear, on the surface, to be attempting to work things out, while preparing frantically for litigation behind the scenes. [This] approach would encourage parties who actually anticipate litigation, but do not yet have notice of a ‘specific claim’ to destroy their documents with impunity.” Id.
Instead the Court held that:
- “The destruction of e-mails during the critical time when the parties’ business relationship was unquestionably deteriorating reflects, at best, gross negligence.” Id. at *9.
- “Further, the destruction of e-mails after litigation had been commenced, when EchoStar was unquestionably on notice of its duty to preserve, was grossly negligent, if not intentional.” Id.
- “An adverse inference was a reasonable sanction in light of EchoStar’s culpability and the prejudice to Voom. The record shows that EchoStar acted in bad faith in destroying electronically stored evidence.” Id.
The fate of EchoStar should serve as a warning to litigants that, at least in the trial and appellate courts covering Manhattan, a party’s preservation obligations will be measured against the Zubulake standard as adopted by the First Department in Voom.
For more information on the matters discussed in this Locke Lord QuickStudy, please contact the authors:
Gregory T. Casamento | T: 212-812-8325 | email@example.com