Intellectual Property Litigation

NY Court Adopts Federal Standard for Destruction of E-Mails

For the first time in a NY state court case, an Appellate Division court has adopted the standard set forth in 2003 in Zubulake v. UBS Warburg LLC, which set forth guidelines when a party can be punished for the destruction of emails. The NY case, Voom HD Holdings v. EchoStar Satellite LLC, involved a clash of the titans – Voom is subsidiary of Cablevision and Echo Star a subsidiary of the Dish Network. Echo Star had agreed to carry Voom channels if Voom spent $100 MM per year on the Echo Star Service. It seems that $100MM was light as EchoStar found it cost more to distribute the channels as not enough subscribers were coming on from Voom to make it profitable for EchoStar. Executives at EchoStar began to look at ways to get out of the deal in early 2007 and started sending emails and notices to Voom by June 2007. Even when Echo Star’s own audit confirmed that Voom spent $102MM on the Echo Star service, the Echo Star execs kept sniping at Voom.
The legal posturing continued until February 2008 when Echo Star sent a letter terminating the contract. Voom filed suit shortly thereafter. During the course of discovery, it was learned that EchoStar had in place a seven-day automatic email deletion policy; so every days old emails would be auto-deleted from Echo servers. Voom moved for sanctions saying that Echo Star should have preserved those emails since it was reasonable back in mid-2007 to anticipate litigation between the parties. Echo Star claimed it should only be blamed for email destruction that occurred after the lawsuit was filed, as the parties were engaged in settlement negotiations up until the complaint was filed.
The Appellate Division, First Department, held that the proper standard to apply was the one set by Judge Shira Scheindlin which mandated 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.” The court said that this trigger occurred when Echo Star execs first realized that they might consider terminating the agreement and/or claiming that Voom had breached the agreement. It did not help Echo Star that in a Maryland Federal court case in 2005, Broccoli v. Echo Star they got hit with penalties for the same conduct. The court here stated that EchoStar had been on notice of its “substandard document practices” at least since the Broccoli decision, yet continued those very same practices.”
In deciding how to punish Echo Star, the lower court (affirmed by the Appellate Division on this point as well) held that since Voom had copies of the emails it received and since some Echo Star emails that touched upon this subject matter had been preserved as part of a separate lawsuit Echo Star was involved in, Voom was not entitled to an automatic win (the punishment given in Zubulake and many other cases that followed it) because it could still prove its case without the destroyed emails. The court noted that had this other evidence not been available, it would have imposed the harsher standard of striking the answer, based on the egregiousness of EchoStar’s conduct.The sanction chosen by the court was an adverse inference -that at the time of trial, the jury would be told that it is allowed to infer that the destroyed emails would likely have either hurt Echo Star or helped Voom.
The case is a cautionary tale for NY businesses, large and small. Once a demand letter from a vendor comes across your desk, or an email from an unhappy client, or any document which may make you reasonably believe that you may be involved in litigation, you have an obligation to secure your servers and preserve your electronically stored information. Remember that this information may exist on employees’ home computers, on flash drives, on smartphones, in a cloud computing infrastructure, or on back-up tapes, or off-site on a remote server. All of these have to be protected from deletion and destruction and preserved for the course of the litigation or until the other side has had an opportunity to search and copy what they want from the source. That means that businesses must issue litigation holds to all employees advising them of their responsibility. While a small company may get away with doing this by talking to each employee, its best for businesses of all sizes to issue the litigation hold in writing. Failure to do so may find your company up the creek without a paddle – or worse, in a lawsuit without a defense.

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