Unreasonable Delay in the Age of E-Discovery: The Zubulake "Reasonable Anticipation" Standard Applied in State Court
Unreasonable Delay in the Age of E-Discovery: The Zubulake "Reasonable Anticipation" Standard Applied in State Court

In the age of e-discovery, businesses across the nation have been challenged with seemingly insurmountable hurdles when facing litigation.  The costs of conducting e-discovery can be extraordinarily high, given the volumes of data often at issue in complex commercial litigation.  The recent case VOOM HD Holdings LLC v. EchoStar Satellite L.L.C., 2012 NY Slip Op 00658 (Jan. 31, 2012) decided by the New York State Supreme Court Appellate Division admonishes potential litigants that mishandling the e-discovery process comes at a much higher price.  Despite protests from litigants that the “reasonable anticipation” of litigation standard established in the federal courts by Zubulake v UBS Warburg LLC 220 FRD 212 (S.D.N.Y. 2003) and Pension Comm. of the Univ. of Montreal Pension Plan v Banc of Am. Sec., LLC., 685 F Supp 2d 456, 473 (S.D.N.Y. 2010) is too vague and provides no guidelines for establishing when a duty to preserve information arises, the EchoStar court upheld the Zubulake standard and imposed sanctions against Echostar for spoliation of evidence for failing to impose a timely litigation hold and failing to suspend routine deletion of electronic documents.  The sanction imposed: an adverse inference instruction, which can be outcome determinative in many cases.  EchoStar makes clear that the filing of a complaint is not the trigger that a company should be waiting for to begin efforts to preserve potentially relevant information.  So, when should one reasonably anticipate litigation? 

 Zubulake established 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.”  220 FRD at 218.  In Zubulake, the duty to preserve information relevant to reasonably anticipated litigation began at least four months prior to any administrative action being filed with the EEOC and nearly a year prior to initiation of a court action.  The court noted that “because one or two employees contemplate the possibility that a fellow employee might sue does not generally impose a firm-wide duty to preserve.”  Id. at 217. However, based on emails labeled “Attorney Client Privileged” and the subject matter of the emails being legal in nature and calling for plaintiff’s termination, the court explained “it appears that almost everyone associated with Zubulake recognized the possibility that she might sue” prior to filing the EEOC complaint.  Id.  The defendant had failed to take any steps to direct that information be preserved until after the EEOC complaint had been filed and failed to suspend deletion of required backup tapes until a year after litigation had commenced.

 The unquestionable deterioration of the business relationship was the trigger identified by the court in EchoStar In EchoStar, the parties were engaged in back and forth communications regarding potential breaches of their agreement as early as June 2007 and internal emails with counsel reflected potential litigation was contemplated.  The plaintiff had initiated a litigation hold in July 2007, while the defendant failed to initiate a litigation hold until January 31, 2008, the day after the complaint was filed.  Further, the defendant failed to suspend routine deletion of electronic documents until four months after the complaint had been filed.  The court imposed an adverse inference charge as a spoliation sanction, reasoning that “[t]he destruction of emails during the critical time when the parties' business relationship was unquestionably deteriorating reflects, at best, gross negligence. Further, the destruction of e-mails after litigation had been commenced, when EchoStar was unquestionably on notice of its duty to preserve, was grossly negligent, if not intentional.”   EchoStar, 2012 NY Slip Op 00658.  EchoStar had been sanctioned for similar conduct in a prior litigation. 

 Federal courts and now state courts are looking to Zubulake for guidance on defining “reasonable anticipation.”  North Carolina’s Rules of Civil Procedure, as revised in 2011, address deletion of electronically stored information:

 NC Rule Civil Procedure 37(b1): Failure to provide electronically stored information. – Absent exceptional circumstances, a court may not impose sanctions under these rules on a party for failing to provide electronically stored information lost as a result of routine, good-faith operation of an electronic information system.

 Commentary to NC rule 37 explains, however:

 The good faith requirement of subsection (b1) means that a party is not permitted to exploit the routine operation of an information system to thwart discovery obligations by allowing that operation to continue so that specific stored information that it is required to preserve will be destroyed. When a party is under a duty to preserve information because of pending or reasonably anticipated litigation, intervention in the routine operation of an information system is one aspect of what is often called a “litigation hold.”  (Emphasis added).

 The Zubulake court explained that practically speaking “an adverse inference instruction often ends litigation -- it is too difficult a hurdle for the spoliator to overcome. The interrorem effect of an adverse inference is obvious. When a jury is instructed that it may ‘infer that the party who destroyed potentially relevant evidence did so out of a realization that the [evidence was] unfavorable,' the party suffering this instruction will be hard-pressed to prevail on the merits.”  220 FRD at 220. Given the magnitude of the consequences for getting it wrong, Zubulake and EchoStar should serve as guiding principles for companies potentially facing litigation in federal and state courts of North Carolina.

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