New York Court Strictly Enforces The Imposition Of Sanctions Due To Spoliation Of Evidence
In Voom HD Holdings LLC v. Echostar Satellite LLC, 2012 WL 265833 (1st Dep't 2012), the appellate court unanimously adopted a rule promulgated by the U.S. District Court for the Southern District of New York. The rule requires a party to cease destruction of potentially relevant evidence by issuing a litigation hold when the party reasonably anticipates litigation and the failure to do so will result in a high risk of sanctions.
This case involves a breach of contract action between a television programmer and a distributor. Id. at 1. In November, 2005, the distributor and television programmer entered into an agreement whereby the distributor agreed to distribute the channels of the television programmer. Id. The agreement required the distributor to include the television program channels as part of its widely distributed package of HD programming services. Id. The distributor had the right to terminate the agreement if the television programmer failed to spend $100 million on the service in any calendar year, and retained the right to audit the television programmer's expenses and investments. Id.
The television programmer contends that in mid-2007 the distributor determined that the deal was disadvantageous and therefore, decided to falsely claim that the television programmer had fallen short of its financial commitment in 2006 or had failed to meet its programming content obligations. Id. The distributor allegedly sought to terminate the contract; this would cause the television programmer to lose billions of dollars. Id. As a result of this dispute, there were several meetings between the chairman and attorneys of both the distributor and television programmer. Id. These meetings took place over the course of June, 2007, through January 23, 2008, and resulted in several emails over the course of this time. Id. at 3. During this time, a letter was also sent from the television programmer's corporate counsel to the distributor notifying it that it was in breach of its agreement. Id. at 3. Finally, the emails that were being exchanged between the parties were being designated by the distributor as "work product" relating to "potential litigation." Id. at 4.
On January 30, 2008, the distributor terminated the agreement. Id. at 3. The television programmer commenced suit against the distributor the next day. Id. The distributor did not implement a litigation hold until after the television programmer filed suit. Id. Yet, this purported "hold" did not suspend the distributor's automatic deletion of emails. Id. Thus, any emails sent and any emails deleted by an employee were automatically and permanently purged after seven days. Id. It was not until June 1, 2011, four months after the commencement of the lawsuit, and nearly one year after the distributor was on notice of an anticipated litigation, the distributor suspended the automatic deletion of relevant emails. Id.
The television programmer moved for spoliation sanctions, arguing that the distributor's actions and correspondence demonstrated that it should have reasonably anticipated litigation prior to the television programmer's commencement of this action. Id. at 3. The lower court granted the television programmer's motion for spoliation citing to the distributor designation of the emails as "work product" prior to the litigation and the television programmer's corporate counsel's letter to the distributor advising it that it was in breach of contract. Id. The lower court also stated that no steps whatsoever were taken by the distributor to prevent the purging of the emails by employees. Id. at 4.
The lower court adopted the rule that is so widely followed in the federal districts and was established in Zubulake v. UBS Warburg, LLC, 200 F.R.D. 212 (S.D.N.Y. 2003), that once 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. Id. at 5. The distributor did not issue a litigation hold until four months after the instant litigation was initiated. Id. Again applying Zubulake, the court held that failure to timely issue a litigation hold is indicative of a grossly negligent mental state. Id.
The distributor appealed the decision. Id. at 6. The distributor argued that the Zubulake rule is unworkable because it provides no guideline for what "reasonably anticipated" means. Id. The Appellate Court disagreed and stated that the distributor should have reasonably anticipated litigation when there were meetings and emails which took place from June, 2007, through January, 2008, involving the distributor's repeated threat to terminate the agreement with the television programmer and a breach letter by the television programmer's corporate counsel was sent to it. Id. The distributor's appeal was denied and the Court upheld the lower court's decision.
This case marks another adoption of Zubulake. The Zubulake standard has been increasingly adopted in jurisdictions throughout the U.S., and has provided guidance to lawyers and clients alike in determining when and how to issue litigation holds.