New York Appellate Court Adopts Strict Rule for Preservation of Electronically Stored Information

Preserving electronic data is a party's duty even before litigation commences, according to a new unanimous ruling of a panel in the Appellate Division, First Department. The ruling moves cases brought in state courts in New York in line with prevailing rulings applicable in New York's federal courts.

The state court, upholding a trial court's decision to impose sanctions against the defendant for failing to preserve e-mails after it should have reasonably anticipated that litigation would likely follow its dispute with the plaintiff, concluded that the commencement of the litigation itself is too late for the party to comply with electronic discovery obligations. The action, Voom HD Holdings v. EchoStar Satellite LLC, adopted the standard for spoliation of electronic evidence that was established in 2003 in the case of Zubulake v. UBS Warburg LLC, heard in the federal court in New York's Southern District.

The Voom Court, citing defendant EchoStar's letters threatening to terminate the parties' contract and providing notice of breach of the contract, affirmed that EchoStar should have reasonably anticipated litigation well before the action was filed. 

Voom imposes an obligation on litigants to direct employees to preserve all relevant documents — both paper and electronic — once a party reasonably anticipates litigation.  The decision also requires that litigants suspend their routine document retention/destruction policy and put in place a “litigation hold” to ensure the preservation of all potentially relevant information.  

In addition to issuing a late litigation hold, EchoStar was penalized for failing to meet the standard for a litigation hold.  Specifically, allowing e-mails to be automatically deleted (as is often standard company practice) for four months after the action was commenced constituted gross negligence.  The finding of gross negligence creates the presumption that the destroyed electronic data is relevant to the action.  As a result of EchoStar's actions in automatically purging its emails, the First Department upheld the trial court's “adverse inference charge” as an appropriate spoliation sanction.  With an adverse inference charge, the judge instructs the jury that it may assume that the missing and/or purged information is detrimental to EchoStar's legal position. 

This decision provides an important reminder of the critical importance of preserving electronic data when litigation is a likely eventuality.  Without an appropriate litigation hold and a careful review of standard company procedures for the automatic purging of emails and other electronic information, New York courts have and will impose serious discovery sanctions.