By Michael Hoenig - New York Law Journal -
March 12, 2012
In two decisions issued, respectively, at
the end of January and February, New York's Appellate Division,
First Department, in effect, "federalized" the scope of a
party's duties in the electronic discovery context—duties to
preserve electronically stored information (ESI), to suspend
routine document retention/destruction practices, to collect and
produce electronic documents, records and data in a litigant's
possession, custody or control, and to incur the costs of doing
so, subject to the potential of later court intervention when
those costs prove to be excessive or oppressive. On Jan. 31 the
court issued its decision in
Voom HD Holdings LLC v. EchoStar Satellite LLC,1
holding that major aspects of electronic discovery practice set
out in two federal district court decisions—one called
Zubulake,2 and the other called
Pension Committee3—should provide the
preservation and disclosure standards in New York state courts.
On Feb. 28, the appellate court issued its
U.S. Bank N.A. v. GreenPoint Mtge. Funding Inc.,4
determining which party, the requester or the producer, should
incur the cost of searching for, retrieving and producing ESI
requested in the discovery process. Consistent with the court's
adoption in Voom of the Zubulake standards for
handling ESI preservation and disclosure, the First Department
in U.S. Bank decided that Zubulake also "should be
the rule in this Department," requiring the producing party to
bear the costs of ESI production, subject to possible relief, in
the court's discretion, following a "proper motion by the
Is this a big new deal for state court
practitioners? You bet! At least in some respects. The
Zubulake ESI standards are "old hat" for federal court
mavens but, for those whose "home" turf is the state courts and
whose practice Bible is the CPLR, getting up to speed on the
federal approach to ESI handling is required. It is not all that
easy. Complexities abound. Although electronic discovery
challenges are familiar fare to some in the New York Commercial
Divisions, which handle large, complex cases, that's only a
fraction of the caseload affected. And now that Voom and
U.S. Bank have made it "official," even practice in the
Commercial Divisions may need some adjustments.
Further, readers should note that, in
U.S. Bank, the court referred to the "Rules of the
Commercial Division for Supreme Court, Nassau County," as "the
most sophisticated rules concerning discovery, including ESI, in
the state."5 Those ESI Guidelines, in turn,
"substantially rely" on a "Suggested Protocol for Discovery of
ESI" developed by Chief Magistrate Judge Paul W. Grimm of the
U.S. District Court for the District of Maryland in
collaboration with members of the bar of that court and
technical consultants.6 Infusion of federal practices
comes at a time when modifications to federal ESI rules and
practices are being considered by a federal civil rules advisory
committee seeking to curtail excesses and costs and to promote
efficiencies in discovery.7
Readers need to acquaint themselves with
the Zubulake and Pension Committee decisions, both
authored by Southern District of New York, U.S. District Court
Judge Shira A. Scheindlin, one of the country's foremost experts
on electronic discovery. Judge Scheindlin, teaming with Fordham
Law School Professor Daniel J. Capra and The Sedona Conference,
has issued a helpful casebook titled, "Electronic Discovery and
Digital Evidence: Cases and Materials" (West 2009), a text cited
The Pension Committee decision
carried the title, "'Zubulake' Revisited: Six Years Later," so
both federal decisions are must reading. This writer's column in
February 2010, "E-Discovery
Requirements Clarified in New Decision,"8
elaborated on the Pension Committee opinion. Much of the
article is in simplified "Question" and "Answer" format.
Further, since the First Department in U.S. Bank
mentioned the Nassau County Commercial Division's Guidelines for
Discovery of ESI, readers should consider that work product as
Now, let's zoom in on Voom.
Plaintiff (P) and defendant (D) entered into a 15-year contract
in November 2005 by which D would distribute P's television
programming. Things didn't work out. P contends that D
determined in mid-2007 that the deal was disadvantageous and
that D decided to falsely claim that P failed to meet its
obligations. A series of meetings and letters between the
parties in 2007-2008 ensued.
D formally terminated the agreement on Jan.
30, 2008, and P filed suit the next day. D, however, did not
implement a "litigation hold" until after P filed suit. As a
result, D's e-mails were deleted. Only on June 1, 2008—four
months after P commenced suit and nearly one year after D was on
notice of anticipated litigation—did D suspend the automatic
deletion of relevant e-mails. Some of the deleted e-mails were
produced only because they were captured as "snapshots" of
executives' e-mail accounts taken in connection with other
P moved for spoliation-of-evidence
sanctions. It argued that D should have reasonably anticipated
litigation prior to P's commencement of this lawsuit. The motion
court, citing Zubulake, concluded that D should have
reasonably anticipated litigation no later than June 20, 2007,
the date D's counsel sent to P a letter containing D's notice of
breach, a demand and a reservation of rights. Then, the court
found that D took no steps to halt the purging of e-mails during
the four-month period after the complaint was filed, leaving it
to non-attorney employees to determine which documents were
relevant in response to litigation. Accordingly, the motion
court concluded that D destroyed relevant documents that should
have been preserved.
D had previously been sanctioned for
substandard document practices in another federal court
litigation, yet continued those same practices. The motion court
in Voom determined that D's conduct, at a minimum,
constituted gross negligence. Therefore, a negative or adverse
inference against D at trial was considered an appropriate
sanction. The Appellate Division agreed and affirmed the motion
court's decision. Formally adopting the standards for
preservation, disclosure and sanctions set forth in Zubulake
and Pension Committee, the First Department said the
Zubulake standard was "harmonious" with New York precedent
in the traditional discovery context and provides litigants with
sufficient certainty as to the nature of their electronic
discovery obligations and when such obligations are triggered.
The following are some of the major points
made by the appellate court. Once a party "reasonably
anticipates litigation," it must suspend routine document
retention/destruction policy and put in place a "litigation
hold" to "ensure the preservation of relevant documents." The
duty to preserve and issue a hold can fall upon a party even
before litigation is filed. A party facing litigation "must take
active steps to halt" the purge process. An "appropriate"
litigation hold preventing the routine discovery of electronic
data is a "minimum."
The "best practice" is for the hold to be
in writing. In footnote 2, however, the court observed that
there might be circumstances (e.g., a small company with only a
few employees) where an oral hold "would suffice." The hold
"must direct appropriate employees" to preserve all relevant
records, "electronic or otherwise." It "must create a mechanism"
for collecting the preserved records "so they might be searched
by someone other than the employee." The hold should, with as
much specificity as possible, describe the ESI at issue. In its
footnote 3 the court observed that ESI "may exist on employees'
home computers, on flash drives or Blackberr[y]s, in a cloud
computing infrastructure or off-site on a remote server or
The litigation hold should direct that
routine destruction policies "such as auto-delete functions and
rewriting over e-mails cease" and should describe the
consequences for failure to preserve ESI. Where a party is a
large company, it is "insufficient" in implementing the
litigation hold to vest total discretion in the employee to
search and select what the employee deems relevant "without the
guidance and supervision of counsel."
Quoting from the Sedona Conference
Guidelines, the court said that "[A] reasonable anticipation of
litigation arises when an organization is on notice of a
credible probability that it will become involved in litigation,
seriously contemplates initiating litigation, or when it takes
specific actions to commence litigation."9 In Voom,
the First Department said D should have reasonably anticipated
litigation as of June 20, 2007, the date it sent P a letter
demanding an audit and threatening termination of the contract.
Spoliation sanctions here were appropriate.
Under Zubulake, the showing required is: (1) the party
with control over the evidence had an obligation to preserve it
at the time it was destroyed; (2) the records were destroyed
with a "culpable state of mind"; and (3) that the destroyed
evidence was relevant to the party's claim or defense such that
the trier of fact could find that the evidence would support the
claim or defense. In evaluating a party's "state of mind,"
failures supporting a finding of "gross negligence" include:
failure to issue a written litigation hold, when appropriate;
failure to identify "all of the key players" and to ensure that
their electronic and other records are preserved; and the
failure to cease deletion of e-mails.10
When the destruction of evidence is
intentional or willful, "relevance" is presumed. So, too, with
destruction resulting from gross negligence. Merely negligent
destruction, however, requires proof by the party seeking
spoliation sanctions that the destroyed evidence was relevant. A
presumption of relevance is rebuttable. The alleged spoliator
could show, for example, that the innocent party had access to
the evidence or that the ESI would not support that party's
claims or defenses. If the spoliator shows no prejudice was
suffered then the adverse inference instruction will not be
given, though a lesser sanction may still be required. In
Voom, D acted in bad faith or with gross negligence. Hence,
the adverse inference sanction was appropriate.
In its U.S. Bank decision, the
Appellate Division focused on the issue of "which party is to
incur the cost of searching for, retrieving and producing" both
ESI and physical documents. Again the court decided that
Zubulake "should be the rule in this Department, requiring
the producing party to bear the cost of production." The IAS
court can modify this rule in the exercise of its discretion "on
a proper motion by the producing party." Plaintiff U.S. Bank
sued defendant GreenPoint over mortgage loan transactions.
Plaintiff served a request for documents. Defendant moved for a
protective order tendering a proposed discovery protocol, asking
for plaintiff to pay for costs of the search as well as
defendant's pre-production attorney review time in asserting
privilege and confidentiality. The court denied approval of the
discovery protocol and denied defendant's request to be
compensated for the privilege review by attorneys. However, the
court did hold that the party seeking discovery bears the costs
incurred in its production.
On appeal, the First Department disagreed.
Following the lead of Zubulake, the cost of search,
retrieval and production of ESI, at least initially, is on the
producing party. Should circumstances warrant, the federal rules
permit the shifting of costs between the parties. New York
courts have discretion to do the same under article 31 of the
Seven factors set forth in Zubulake
bear upon that inquiry: "(1) [t]he extent to which the request
is specifically tailored to discover relevant information; (2) [t]he
availability of such information from other sources; (3) [t]he
total cost of production, compared to the amount in controversy;
(4) [t]he total cost of production, compared to the resources
available to each party; (5) [t]he relative ability of each
party to control costs and its incentive to do so; (6) [t]he
importance of the issues at stake in the litigation; and (7) [t]he
relative benefits to the parties of obtaining the information."11
Motion courts should not follow these factors as a "checklist"
but, rather, as a guide to the exercise of discretion in
determining whether the document request is an "undue burden or
expense" on the responding party.
Defendant's motion here was premature. The
"more prudent course of action" was for defendant to first move
to limit or strike the discovery requests that defendant found
overbroad, irrelevant or unduly burdensome. Following resolution
of that motion, if defendant still believes the costs associated
with search, retrieval and production of ESI are prohibitive,
defendant could then file a motion for the costs to be shifted
to plaintiff. Here, however, because there was no evidence in
the record supporting the fee structure proposed by defendant,
the matter was remanded for further proceedings.
The slow infusion into state court practice
of federal standards regarding the handling of ESI has been
hastened with the Appellate Division's decisions in Voom
and U.S. Bank. This step likely will bring with it a slew
of attendant problems, many of which have vexed federal courts
for years and some of which the federal rules advisory committee
is analyzing for possible rules changes. Further, because state
court caseloads and institutional frameworks are different, a
period of adjustment likely will be necessary. A big problem may
surface regarding ESI discovery from non-parties where
production costs may be high and personnel to do searches may be
scant. One thing is clear, however. Practitioners not now
familiar with the federal ESI discovery standards need to learn
them, sooner rather than later.
Michael Hoenig is a
member of Herzfeld & Rubin.
1. 2012 NY Slip
Op 00658 (1st Dept. Jan. 31, 2012).
v. UBS Warburg LLC, 220 FRD 212 (S.D.N.Y. 2003).
F.Supp.2d 456, 473 (S.D.N.Y. 2010).
4. 2012 NY Slip
Op 01515 (App. Div., 1st Dept. Feb. 28, 2012).
5. U.S. Bank,
2012 NY Slip Op 01515, at p. 5 (referring to Commercial
Division, Nassau County, Guidelines for Discovery of
Electronically Stored Information (ESI)).
6. A copy of
that Suggested Protocol for Discovery of ESI can be found at
7. The Civil
Rules Advisory Committee met in April 2011 at the University of
Texas Law School in Austin. The committee decided to schedule a
mini-conference on "preservation" and "spoliation" issues in
September 2011. See T.Y. Allman, Rulemaking: the September 2011
Mini-Conference of the Civil Rules Subcommittee, 79 U.S.L.W.
2457, 2011 WL1643848 (May 3, 2011).
8. Hoenig, New
York Law Journal, Feb. 17, 2010, p. 3.
9. "The Sedona
Conference Commentary on Legal Holds: The Trigger and the
Process," 11 Sedona Conf. J. 265, 269 (Fall 2010).
2012 NY Slip Op 00658, at p. 11 (citing Pension Committee,
685 F.Supp.2d at 471).
11. U.S. Bank, Slip Op at p. 6 (quoting Zubulake,
217 F.R.D. at 322).
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