NY State Court adopts Zubulake Standard: Reasonable Anticipation of Litigation Triggers Duty to Preserve

Voom Holdings LLC v. EchoStar Satellite LLC, —N.Y.S.2d—, 2012 WL 265833 (N.Y. App. Div. Jan. 31, 2012)

In this case, the appellate court held that the lower court “properly invoked the standard for preservation set forth in Zubulake v. UBS Warburg LLC”, which requires that a party place a litigation hold once it “reasonably anticipates litigation” and affirmed the lower court’s order imposing an adverse inference for defendant’s spoliation of ESI.

The parties to this action entered into a 15-year contract which governed EchoStar’s distribution of Voom HD’s television programming.  Two years later, EchoStar began searching for ways to end the contract. On June 20, 2007, EchoStar’s corporate counsel sent Voom a letter expressing EchoStar’s belief that Voom had not fulfilled its contractual obligations and that EchoStar was therefore “entitled to terminate the Agreement.”  Voom responded that it had fulfilled its contractual obligations, but EchoStar continued to pursue its termination efforts.  On January 30, 2008, EchoStar formally terminated the parties’ agreement.  The next day, Voom filed suit.

Despite significant lead up to the termination of the contract, EchoStar did not implement a litigation hold until after Voom filed suit.  Four days later, a snapshot of relevant email accounts was taken.  Four months later, EchoStar suspended the automatic deletion of emails.  Until that time, EchoStar relied on its employees to identify emails relevant to the litigation and to preserve them by moving them to separate folders.  Without such action, employees’ sent and deleted emails were permanently deleted after 7 days.  In the course of discovery, certain emails were produced from EchoStar which Voom argued demonstrated that EchoStar should have anticipated litigation prior to Voom’s commencement of the action (thus triggering an obligation to preserve relevant evidence).  Voom moved for spoliation sanctions.  Notably, the highly relevant emails were available only because they had been preserved in email snapshots taken in connection with other litigation.

Sparing many details, the lower court found that EchoStar should have anticipated litigation on June 20, 2007, when it sent the letter containing its express notice of breach, a demand, and an explicit reservation of rights.  In addition to failing to institute a litigation hold, the court also faulted EchoStar’s failure to suspend its automatic deletion of email and its reliance on its employees to identify relevant information.  The court also noted that EchoStar had been on notice of its “substandard document practices” since it was sanctioned for the “same bad faith conduct” in 2005 (See Broccoli v EchoStar Commc’ns Corp., 229 F.R.D. 506 (D. Md. 2005)).  Accordingly the lower court imposed an adverse inference sanction.

On appeal, the appellate court affirmed the imposition of sanctions.  Opening its opinion, the appellate court explicitly approved of the lower court’s reliance on the Zubulake standard requiring preservation upon anticipation of litigation reasoning that the standard was “harmonious with New York precedent in the traditional discovery context and that it provides litigants with sufficient certainty as to the nature of their obligations in the electronic discovery context and when those obligations are triggered.”  The court later explained that “[t]he ‘reasonable anticipation of litigation,’ as discussed by Zubulake and its progeny, is such time when a party is on notice of a credible probability that it will become involved in litigation.”  In upholding the standard, the appellate court rejected the suggestion of EchoStar and amicus that “in the absence of ‘pending litigation’’ or ‘notice of a specific claim,’ defendant should not be sanctioned for discarding items in good faith and pursuant to normal business practices” reasoning that to adopt such a rule "ignores the reality of how business relationships disintegrate.  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.  EchoStar and amicus’s approach would encourage parties who actually anticipate litigation, but do not yet have notice of a ‘specific claim’ to destroy their documents with impunity.”

Like the lower court, in addition to faulting EchoStar for failing to implement a litigation hold, the appellate court also took issue with EchoStar’s failure to take a snapshot of its email account until four days after the lawsuit commenced, its failure to suspend the automatic deletion of emails for four months, and its reliance on employees to identify potentially relevant information.

Addressing the imposition of sanctions, the appellate court found that the adverse inference was “a reasonable sanction in light of EchoStar’s culpability and the prejudice to Voom” noting that relevance had been presumed because EchoStar had acted in bad faith or with gross negligence in destroying the evidence.  The appellate court also found that an adverse inference was an “appropriate and proportionate” sanction which recognized the prejudice to Voom while at the same time recognizing that there was other available evidence to prove its case.

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