New York State Court Applies Zubulake Preservation Standard

Appellate court finds that parties reasonably anticipating litigation, even in the face of settlement discussions, must preserve information.

When a business relationship turns sour, at what point must a party put in place a litigation hold? In a recent decision applying the federal "reasonable anticipation of litigation" standard, a New York state appellate court held that requiring actual litigation or notice of a specific claim before imposing a duty to preserve information "ignores the reality of how business relationships disintegrate" and "would encourage parties who actually anticipate litigation, but do not yet have notice of a 'specified claim' to destroy their documents with impunity."

In its January 31, 2012, ruling in Voom v. EchoStar1the New York Supreme Court, Appellate Division, First Department, affirmed an order of the Supreme Court, New York County, imposing an adverse inference spoliation sanction for failure to implement a timely litigation hold. In doing so, the appellate court ruled that the "reasonable anticipation of litigation" standard for triggering preservation set forth in Zubulake IV2"is harmonious with New York precedent in the traditional discovery context, and provides litigants with sufficient certainty as to the nature of their obligations in the electronic discovery context and when those obligations are triggered."

Background

EchoStar, a provider of direct broadcast satellite television services, entered into a 15-year programming distribution agreement with Voom, which EchoStar could terminate if Voom failed to spend $100 million in any calendar year. In June 2007, EchoStar's senior corporate counsel advised Voom of EchoStar's intent "to avail itself of its audit right[s]." The following day, EchoStar sent another letter expressing its belief that Voom failed to spend $100 million in 2006, thus entitling EchoStar to terminate the agreement, and reserving EchoStar's "rights and remedies." After a series of negotiations and accusations between the parties, in January 2008, EchoStar formally terminated the agreement. Voom sued the next day, alleging EchoStar falsely claimed Voom had fallen short of its $100 million commitment.

According to its privilege log, EchoStar consulted with in-house litigation counsel regarding the agreement dispute as early as June 2007 and regarding potential litigation in October 2007. Despite this consultation and months of often contentious exchanges, EchoStar did not...