The New York Supreme Court, Appellate Division's opinion in Voom HD Holdings LLC v. EchoStar Satellite LLC,–N.Y. S. 2d–, 2012 WL 265833 (N.Y.A.D. 1st Dept. Jan. 31, 2012) is a significant electronic discovery decision that warrants the attention of any enterprise doing business in New York. EchoStar has since filed a Petition for Leave to Appeal to the New York Court of Appeals. Voom is noteworthy for four reasons:
- It defines "reasonably anticipates litigation," the trigger for issuing a litigation hold notice, as occurring when the party 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." In Voom, the triggering event was Voom's issuance of a demand letter.
- The opinion states that the litigation hold instructions should "direct that routine destruction policies such as auto-delete functions and rewriting over e-mails cease . . ." and states that "EchoStar's reliance on its employees to preserve evidence 'does not meet the standard for a litigation hold.'"
- It indicates that prior electronic discovery-related sanctions from unrelated cases can be considered in determining the severity of the sanction.
- It is one of a small number of appellate level cases relating to electronic discovery and is from a state court in a prominent commercial jurisdiction.
Company counsel may wish to consider how the Voom decision might affect their current records management and litigation hold processes.
The parties' dispute in Voom arose from a distribution contract in which the Plaintiff Voom HD, a television programming service, agreed to produce programming to be distributed by the Defendant Echostar. The contract imposed minimum spending requirements by Voom HD. Echostar disputed whether those requirements were met and after a six month period of negotiations, terminated the contract. Voom HD filed suit for breach of contract.
Voom HD sought spoliation sanctions in the motion court because e-mails were destroyed as a result of the automatic email deletion function used with EchoStar's e-mail program. Even though EchoStar had threatened to terminate the contract and had been negotiating with Voom HD for six months, it did not issue a formal litigation hold notice until after Voom HD filed suit in February, 2008. It suspended its automatic email deletion system four months after the litigation commenced. Echostar had set its email auto-delete function to delete certain messages after seven days. Although it issued a litigation hold shortly after the filing of the suit, emails sent during a critical four day period immediately preceding suit, were automatically deleted and could not be recovered.
The motion court granted Voom HD's motion for sanctions, finding that Echostar should have reasonably anticipated the litigation as early as June of 2007, when its in house counsel sent the letter to Voom HD containing an express notice of breach, a demand and a reservation of rights. The motion court imposed an adverse inference based on Echostar's gross negligence, requiring that the jury be instructed as to the destruction of the evidence. The court chose the adverse inference as a sanction instead of a harsher sanction–striking Echostar's answer–because other evidence was available to Voom HD to prove its claims. If the court had stricken the answer, it would have effectively ended the litigation, resulting in a potential $2.5 billion judgment against the defendant.
The Appellate Division affirmed the decision in all respects and provided additional guidance to companies facing potential litigation. In affirming the lower court's decision, the Court adopted the standard set forth in Zubulake v UBS Warburg LLC, 220 F.R.D. 212 (S.D.N.Y. 2003) and the Sedona Conference legal hold guidelines, and held that companies must adopt a litigation hold in "reasonable anticipation" of the litigation, which the Court defined as arising when the company is on notice of a "credible probability that it will become involved in litigation." (emphasis supplied) (Voom HD, at *6.) The Court found that EchoStar could reasonably have anticipated litigation by no later than the date its corporate counsel sent Voom a letter containing express notice of Voom's breach of contract, a demand, and an express reservation of rights. The court rejected the defendant's argument that ongoing settlement negotiations forestalled any preservation duty, because that argument would allow parties to freely destroy documents and e-mails, while "faking a willingness to engage in settlement negotiations."
The Court appears to agree with the motion court's ruling that EchoStar should have disabled the auto-delete function on its email system: "The hold should . . . direct that routine destruction policies such as auto-delete functions and rewriting over e-mails cease . . .." The opinion continues: "[W]here a party is a large company, it is insufficient, in implementing such a litigation hold, to vest total discretion in the employee to search and select what the employee deems relevant without the guidance and supervision of counsel." (Id. at *5)(emphasis supplied).
In determining whether Echostar's actions constituted gross negligence, the Court looked beyond Echostar's actions in the case before it and considered Echostar's actions in unrelated litigation in another state. The Court noted that Echostar had been sanctioned for spoliation in unrelated litigation in 2005, in Broccoli v. EchoStar Communications Corp., 229 F.R.D. 506 (D. Md. August 4, 2005), treated the earlier case as evidence that Echostar was aware of its preservation duty, and used that awareness as part of the basis for its finding that EchoStar's conduct was grossly negligent.
The Court then turned to the question of sanction. The Court affirmed the motion court's decision to give an adverse inference instruction instead of striking Echostar's answer. The Court agreed with the lesser sanction despite the fact Echostar was found to have acted with gross negligence, suggesting that what would have been a terminating sanction should be reserved for cases where all evidence that would allow the other side to prove its case had been destroyed.
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