The Appellate Division, First Department Rules When Under State Law an Entity Must Preserve Electronic Documents

The Appellate Division, First Department for the State of New York just adopted the Federal Court standard that a party must preserve electronic documents once litigation is “reasonably anticipated” or as phrased elsewhere, when there is a “credible probability that it will be involved in litigation.”  Voom HD Holdings LLC v. EchoStar Satellite LLC, 2012 NY Slip OP 00658 (App Div 1^st Dept, Decided Jan 31, 2012).

The United States Southern District Court had previously ruled in Zubulake that the duty to preserve documents attaches once litigation is reasonably anticipated.  The Zubulake court further ruled that sanctions were appropriate if this obligation is ignored.  In Ahroner v. Israel Discount Bank of New York, 79 AD3d 481(1^st Dept, 2010) the First Department adopted the Zubulake standard for applying sanctions when a party failed to preserve documents.  The Voom case is significant because in it, the First Department reached the issue of when under State law an entity must preserve electronic documents.  The primary issue in the case is when a preservation obligation attaches.  This issue was fully addressed in another Southern District case, Pension Committee which held it was as soon as litigation was “reasonably anticipated.” The First Department in Voom agreed with this standard and also described the trigger as when there is a “credible probability” that an entity will become involved in litigation.  This is also the standard adopted by the Sedona Conference.

As found by the First Department, EchoStar anticipated litigation one year prior to the commencement of the suit but failed to issue a litigation hold.  Further, when it did issue the litigation hold, it failed to suspend the automatic deletion of emails for nearly four months thereafter.  EchoStar defended its action by arguing that employees were aware of the litigation hold and could move relevant emails to preservation folders so they would not be deleted.  Further, it took a “snap shot^[1]” of all the emails four days after the litigation was commenced.  EchoStar argued that this effectively preserved everything in existence at that time.  EchoStar also argued that its duty to preserve did not attach until after the litigation was commenced because it was engaging in negotiations to amicably resolve dispute without recourse to the Courts.

The First Department rejected all of EchoStar’s argument.  First, it found that moving emails into a litigation folder by employees to preserve documents was insufficient since the decision to preserve was being made by non-attorneys.  The Department did not go so far as to find that these employees may also be biased against preserving embarrassing emails though some courts have reached this finding.  Further, the Court rejected

EchoStar’s defense that since it was trying to reach an amicable business agreement with Voom, its duty to preserve did not attach until after litigation was formally commenced.  The court held that almost every organization tries to avoid litigation and thus this is a meaningless reason to not preserve documents and if accepted would promote the willful destruction of many relevant documents while a company feigns some desire to engage in settlement negotiations.  Going forward, we recommend that even if an entity is making good faith negotiations to head off a potential legal proceedings, they implement a full litigation hold because if the negotiations fail this will not be recognized as an excuse for lost emails and it would be hard to argue under the circumstance that litigation was not “reasonably anticipated.”  The most problematic holding was the court’s finding that a snapshot of the emails was not a sufficient preservation strategy since the company continued to allow emails to be permanently deleted after that point in time.  Many organizations would be challenged to retain all emails as their computer systems may not be able to hold the load.  Thus it is important for defense counsel to address this issue early on as part of any meet and confer process and develop a workable preservation order in state court litigation.

Following Voom, the preservation relevant documents will become significantly more formal than many parties facing litigation may expect.  The standard of care for preserving and collecting electronic documents is a constantly evolving practice impacted both by the Court’s understanding of what is possible and reasonable and by what technology exists at the organization or is available at reasonable cost.  Lackluster effort will be penalized by adverse inference charges, entries of judgments or dismissals of complaints.  This will be particularly challenging for smaller organizations that lack significant computer infrastructure and support.  Even for organizations with strong IT support, legal counsel should be involved as soon as the specter of litigation is raised since IT professionals are not trained in the law surrounding litigation holds, may not be able to accurately assess what is a reasonable effort or scope under the circumstances of the litigation.  Accordingly, they may over preserve and cost the organization significant money and effort or under-scope the preservation and make missteps from which it will be difficult to recover.  Further, IT departments of many clients simply do not understand how serious preservation is to the courts and fail to implement an appropriate hold because of the burden it causes to their email and file servers.  They may even conclude on this basis that it can’t be done simply because it is hard to do.  A lawyer skilled in IT infrastructure can work with your IT department to develop the proper hold - balancing the stakes of the litigation against the cost of implementation.

For more information or assistance, please contact Harris Beach attorney, Alan M. Winchester, at (212) 313-5403 / awinchester@harrisbeach.com, or the Harris Beach attorney with whom you usually consult.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York state, including Albany, Buffalo, Ithaca, New York City, Niagara Falls, Rochester, Saratoga Springs, Syracuse, Uniondale, Yonkers, and White Plains, as well as Newark, New Jersey, and New Haven, Connecticut.