E-Discovery Alert: Heavy Burden on Corporations Upheld by NY Appellate Court

E-Discovery Alert: Heavy Burden on Corporations Upheld by NY Appellate Court

February 27, 2012

A New York appellate court adopted a hotly contested standard for preservation of documents and electronically stored information (ESI) that places an unfair — and increasingly costly — burden on corporations to preserve data in business dealings over which they haven’t even been sued. This decision may influence courts in other states, so it places corporations that do business in New York and elsewhere at potential risk for legal sanctions for failing to comply with what has been called “an unattainable standard of practice.”

In Voom HD Holdings v. Echostar Satellite, decided January 31, 2012, the New York State Appellate Division, First Department affirmed an earlier decision by the Manhattan Supreme Court to impose spoliation sanctions against Echostar for failing to preserve e-mails and other ESI when it entered into a contract dispute with Voom. The appellate court relied on the 2004 federal ruling in Zubulake v. UBS IV, the decision that created the “reasonable anticipation” standard that defendants must preserve all documents and ESI relating to business negotiations once they reasonably expect to be a party in litigation.

In its role as amicus counsel for Lawyers for Civil Justice, a national organization of corporate counsel and defense lawyers advocating for legal reform, Goldberg Segalla had filed an amicus curiae brief in April 2011 asking the First Department to overturn the earlier Voom v. Echostar verdict. The brief, of which John J. Jablonski, Chair of Goldberg Segalla’s E-Discovery Practice Group and a member of Lawyers for Civil Justice, was a principal author, argued that the Zubulake standard is vague and impractical: “Essentially,” the brief noted, “this new standard triggers the duty to preserve based on a mere ‘possibility’ of litigation, which is far too broad considering the potential cost.” As Lawyers for Civil Justice Executive Director Barry Bauman pointed out in a press release following this week’s decision, it “places an unfair burden on corporations and creates an unattainable standard of practice that will leave even the best-intentioned corporations vulnerable to unwarranted legal sanction.” He noted litigants are now spending billions of dollars to preserve enormous amounts of data without any clear or consistent guidelines as to when or how it should be preserved.

John was interviewed by Alison Frankel of Thomson Reuters for her “On the Case” report on this decision and the efforts by Lawyers for Civil Justice and others to enact state and federal rule changes that would clarify procedural and evidentiary rules pertaining to discovery of ESI. “We’re trying to put in more specific parameters,” John said in the article. “People who are experts on this seem to agree we should be moving away from the Zubulake standard.”

In light of the recent decision by New York’s First Department, businesses and their counsel need to pay close attention to their data preservation policies and practices. We will continue to monitor this issue and keep you updated.

For more information on how this decision may impact your business, please contact John Jablonski (716.566.5469; jjablonski@goldbergsegalla.com).

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