To the extent New York State practitioners held out hope that the stringent e-discovery standards applied in federal courts would not be as strictly enforced on the state level, the Appellate Division, First Department has just dispelled that notion.
The Court in Voom HD Holdings LLC v. EchoStar Satellite L.L.C., has made clear that New York state courts will follow the standards articulated in the well-known Zubulake line of cases:
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.
2012 WL 265833 (N.Y.A.D. 1st Dept. Jan. 31, 2012).
In 2003 and 2004, Judge Shira A. Scheindlin issued five decisions in Zubulake v. USA Warburg LLC, four of which were relevant in the e-discovery context. 217 F.R.D. 309 (SDNY 2003); 216 F.R.D. 280 (SDNY 2003); 220 F.R.D. 212 (SDNY 2003); and 229 F.R.D. 422 (SDNY 2004). Six years later in a decision titled, “Zubulake Revisited”, Judge Scheindlin further developed the obligations of counsel and client in connection with the production and preservation of electronically stored information (ESI) in Pension Committee v. Bank of America Securities, 685 F. Supp. 2d 456 (SDNY 2010).
Zubulake requires parties to suspend its routine document retention and destruction policies once litigation is “reasonably anticipated” and to put in place a litigation hold ensuring the preservation of relevant documents. In adopting the federal standard, the EchoStar Court found that “Zubulake’s reasonable anticipation trigger for preservation has been widely followed…[and] has been adopted by courts in all four federal districts of the State.” In defining “reasonably anticipated” the Court looked to Guideline 1 of the Sedona Legal Hold Guidelines:
[A] reasonable anticipation of litigation arises when an organization is on notice of a credible probability that it will become involved in litigation, seriously contemplates initiating litigation, or when it takes specific actions to commence litigation.
Among other things, litigation holds must:
- Direct appropriate employees to preserve all relevant records, electronic or otherwise;
- Create a mechanism for collecting and preserving records;
- Ensure someone other than the custodian or creator of the ESI at issue searches and selects the records;
- Specify the ESI at issue;
- Ensure counsel provides guidance and supervision in the search and selection process;
- Direct the suspension of routine destruction policies and auto delete or rewriting functions; and
- Describe the consequences for failure to preserve ESI.
The Court disagreed with defendant’s claim that the “reasonably anticipates” standard is too vague and fails to provide guidance. The Court further rejected EchoStar’s argument that it should not be sanctioned for failure to preserve “in the absence of pending litigation or notice of a specific claim” and that EchoStar did not have a duty to preserve while the parties were engaged in settlement negotiations.
The Court adopted Zubulake’s and Pension Committee’s definition of “culpable state of mind,” holding that a culpable state of mind includes mere negligence. Relevance should be presumed where there is intentional or gross negligent destruction of evidence, but when such destruction is merely negligent, relevance must be proven by the party seeking spoliation sanctions. Citing Pension Committee, the Court found that the following conduct constitutes gross negligence where the duty to preserve has been triggered: 1) failure to issue a written litigation hold; 2) failure to identify all the key players and ensure their electronic and other records are preserved; and 3) the failure to cease the deletion of email. Other federal courts have declined to apply such a bright line rule.
Consistent with the federal court decisions, the presumption of relevance is rebuttable. Thus where the spoliating party can demonstrate that there could not have been any prejudice to the innocent party, no adverse jury instruction will be warranted.
Applying the Zubulake Standard, Sanctions Against EchoStar Were Warranted
In November 2005, the parties entered into an affiliation agreement whereby defendant EchoStar, a provider of satellite television services, agreed to distribute plaintiff’s television programming.
By mid-2007 the relationship soured, and purportedly defendant wanted to terminate the contract. In June 2007, EchoStar sent Voom notice of breach and reserved its “rights and remedies.” By July 2007, EchoStar involved its in-house counsel in the dispute. On October 23, 2007, EchoStar’s privilege log showed it discussing “potential litigation” with counsel. In mid-November 2007, EchoStar sent another letter threatening to terminate the agreement and did formally terminate the agreement in a letter dated January 30, 2008.
Despite the above communications, EchoStar did not implement a litigation hold until after Voom filed suit, and the hold that was issued did not suspend EchoStar’s automatic deletion of emails. Per EchoStar’s policy, emails sent and deleted by employees were automatically and permanently purged after seven days. Not until four months after the suit was commenced and one year after EchoStar was on notice of anticipated litigation, on June 1, 2008, did EchoStar suspend its automatic deletion of relevant emails. Some of the email exchanges were recovered in unrelated EchoStar litigations, while others were found to be destroyed.
In affirming the lower’s court granting of spoliation sanctions, the Court found that EchoStar should have reasonably anticipated litigation prior to commencement of the suit and certainly no later than the June 2007 letter when EchoStar notified plaintiff it was in breach of the agreement and reserved its rights. In addition, EchoStar failed to turn off its automatic delete function, permanently deleting key employee emails for up to four months after commencement of the action. Finally the Court found that EchoStar did not adequately supervise or give guidance to its employees in the preservation, collection and production processes. Instead, citing to Pension Committee, the Court found that EchoStar relied on its employees to determine which documents were relevant, which “does not meet the standard for a litigation hold.”
As a result, the Court determined, EchoStar acted in bad faith or with gross negligence and presumed relevance of the destroyed data. While the Court stopped short of striking the Answer, it held that issuance of an adverse inference was an appropriate sanction.
This decision sends a clear message to both counsel and employers of a heightened obligation regarding the preservation and production of ESI and other records. As in federal court, state court litigators must be pro-active in helping client’s manage this process, familiarizing themselves with their client’s systems, working with IT departments, identifying key custodians and providing guidance to those custodians to ensure relevant data is not lost or destroyed. Failure to do so can have severe and costly consequences and knowledgeable counsel should be consulted.