Hiscock & Barclay
Hiscock & Barclay

Legal Alert

Anticipate Litigation? Better Saved Than Sanctioned: When to Preserve Electronically Stored Information - Federal Courts' Zubulake Standard Adopted in New York

On January 31, 2012, in Voom HD Holdings v. EchoStar Satellite LLC,1 New York’s Appellate Division, First Department, adopted the standard for preserving electronically stored information (“ESI”) initially set out in Zubulake, a federal court decision requiring potential litigants to take affirmative steps to preserve ESI as soon as they reasonably anticipate litigation. With the First Department’s decision, state and federal law in New York are now closely aligned, not only in preservation requirements but also with respect to potential remedies. And the stakes remain high, with possible sanctions against parties failing to timely preserve ESI as draconian as the entry of a default judgment.

The Zubulake standard requires that “[o]nce 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.”2 A party can reasonably anticipate litigation once it is on notice that there is a credible probability it will become involved in litigation. Additionally, the First Department’s adoption of Zubulake requires large companies to seek supervision and guidance from counsel to search and select relevant ESI to preserve instead of the more typical practice of allowing a company employee to make the determinations of what ESI is and is not relevant. Essentially, potential litigants are charged with preserving relevant ESI as well as preventing the destruction of relevant ESI.

In Voom HD Holdings v. EchoStar Satellite LLC, the court sanctioned defendant, EchoStar, for failing to halt automatic deletion of e-mails and for neglecting to institute an appropriate litigation hold in a timely fashion. The court concluded EchoStar was aware it could have been sued – and therefore should have initiated a litigation hold -- approximately seven months before Voom, the plaintiff, actually commenced the law suit. The event triggering EchoStar’s duty was a letter its counsel sent advising Voom that EchoStar believed it was entitled to terminate the contract because Voom failed to meet a necessary contract term. The letter reserved EchoStar’s rights and included a demand. After sending the letter, EchoStar and Voom continued to communicate regarding whether EchoStar was entitled to terminate the contract. Approximately one month after receiving EchoStar’s letter, Voom instituted a litigation hold and suspended automatic deletion of its e-mails. In contrast, even though EchoStar had consulted its in-house counsel and had sent additional letters reserving its legal rights and threatening to terminate the contract, EchoStar did not institute a hold until after Voom filed suit and failed to suspend automatic deletion of e-mails until four months later. Prior to taking these steps, EchoStar relied on employees to identify and save “relevant” ESI.

The court determined that EchoStar’s failure to preserve ESI was at least grossly negligent and possibly done in bad faith, especially given that EchoStar had been sanctioned previously for similar conduct in a different case in another jurisdiction.3 The court imposed an “adverse inference” charge against EchoStar and suggested it would have entertained imposing a default except for the fact that Voom had other evidence available to it on the subject matter of the dispute.

The lesson from EchoStar is that the stringent standard previously adopted by federal courts is equally relevant to New York state courts. Thus, it remains important for all potential litigants to review internal litigation hold policies, protocols, and safeguards to insure they are meeting their preservation obligations and to avoid possible sanctions. It also is critical for potential litigants to carefully monitor when a preservation obligation may be triggered. When in doubt, individuals and organizations should seek counsel as to whether a litigation hold is necessary.

If you require further information regarding the issues presented in this Legal Alert and its impact on your organization, please contact any of the members of the Commercial Litigation Practice Area.

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1 VOOM HD Holdings LLC v EchoStar Satellite L.L.C.,2012 NY Slip Op 00658, ___ N.Y.S.2d ___, 2012 WL 265833 (1st Dep’t January 31, 2012)

2 (Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003)

3 See Broccoli v EchoStar Commc’ns Corp., 229 F.R.D. 506 (D. Md. 2005)