Legal Developments in E-Discovery

Client Advisory

July 10, 2012

New York Appellate Division Announces Standards for Document Preservation Obligations and Clarifies Which Party Bears Costs of Discovery

In two significant decisions rendered this year, New York’s Appellate Division, First Department addressed the discovery of electronically stored information (ESI) in the context of litigation. In VOOM HD Holdings LLC v. EchoStar Satellite L.L.C., 93 A.D.3d 33 (1st Dep’t 2012), the court adopted strict standards concerning the obligation to preserve documents, specifically ESI, which had been promulgated in federal court decisions from Judge Shira Scheindlin of the United States District Court for the Southern District of New York. In U.S. Bank N.A. v. GreenPoint Mortgage Funding, Inc., 94 A.D.3d 58 (1st Dep’t 2012), the court resolved some uncertainty regarding which party should bear the costs of litigation-related discovery, holding that the party from whom discovery is sought bears the initial cost of searching for, retrieving, and producing documents, including ESI.

The Obligation to Preserve Documents and ESI

VOOM v. EchoStar involved a dispute between EchoStar, a satellite television broadcaster, and Voom, a cable television media company, arising out of the parties’ 15-year agreement for EchoStar to distribute Voom’s programming. Less than two years after the agreement commenced, EchoStar notified Voom that Voom had breached the agreement. The parties engaged in a letter writing campaign, culminating in EchoStar’s termination of the agreement and Voom’s commencement of a suit against EchoStar. EchoStar did not put a document hold in place until four months after the litigation was commenced by Voom, and some relevant documents were destroyed. 

Voom sought sanctions for EchoStar’s spoliation of documents, arguing that EchoStar should have reasonably anticipated litigation prior to Voom’s commencement of its action and should have taken steps to preserve relevant documents. The trial court found that EchoStar’s failure to preserve electronic data constituted “gross negligence” and granted Voom’s motion for sanctions, which included an adverse inference jury instruction at trial (in which the judge would instruct the jury that they may presume the relevance of destroyed electronic data).

On appeal, the appellate court affirmed the trial court’s award of sanctions, and adopted the spoliation standards announced by Judge Scheindlin in Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003), and Pension Committee of the University of Montreal Pension Plan v. Banc of America Securities, LLC, 685 F. Supp. 2d 456, 473 (S.D.N.Y. 2010), which require a party, when it “reasonably anticipates litigation, [to] suspend its routine document retention/destruction policy and put in place a ‘litigation hold’ to ensure the preservation of relevant documents.” The First Department emphasized that this “reasonable anticipation” standard had been adopted by all four federal district courts in New York and by the Delaware Chancery Court. The court noted that a party’s obligation to preserve documents could arise before litigation is commenced, and affirmed the finding that EchoStar was grossly negligent in failing to implement a litigation hold until after litigation had commenced. Further, the court adopted the standards set forth in Pension Committee, which permit an inference of gross negligence when parties fail to issue a written litigation hold, fail to identify key custodians of information and preserve their records, or fail to suspend the automatic destruction of potentially relevant documents. 

Producing Party Bears Production Costs

U.S. Bank N.A. v. GreenPoint Mortgage Funding, Inc. involved a dispute regarding mortgage-backed notes issued by GreenPoint (a now-defunct lender). In response to U.S. Bank’s discovery requests, GreenPoint claimed that U.S. Bank should pay for its costs incurred in searching for, retrieving, and producing documents. The trial court ruled that U.S. Bank should pay the costs incurred by GreenPoint in producing documents, and U.S. Bank appealed. 

On appeal, the First Department held that the rule in New York is that the producing party must initially bear the costs of production. The court noted that the New York Civil Practice Law and Rules are silent on this issue, but concluded that the standard articulated in Zubulake v. UBS Warburg LLC, 217 F.R.D. 309, 317-18 (S.D.N.Y. 2003) — which requires a producing party to initially bear the cost of production but permits judges to consider whether shifting of costs is warranted — “presents the most practical framework for allocating all costs in discovery, including the searching for, retrieving and producing” ESI. Pursuant to this standard, where a party seeks to shift the costs of its searching for, retrieving, and producing documents to the requesting party, the court will assess whether the discovery requests are unduly burdensome and will examine factors such as “the total cost of production, compared to the amount in controversy; . . . the total cost of production, compared to the resources available to each party; [and] the relative ability of each party to control costs,” among others.  In reversing the trial court, the First Department directed that GreenPoint bear its own discovery costs, subject to GreenPoint demonstrating that some or all of its discovery costs should be shifted to U.S. Bank pursuant to the Zubulake standards.  


The Voom and U.S. Bank decisions provide much needed clarity for parties in New York state court litigation, who can now anticipate with greater certainty at what time their obligation to preserve documents prior to litigation is triggered, the potential consequences for failing to meet that obligation, and the financial burdens they might face during discovery. 

These decisions serve as a reminder of the following practical considerations relating to electronic discovery and a party’s document preservation obligations:

  • A potential party to litigation has an obligation to preserve relevant documents and ESI when it has notice of an actual litigation, government investigation, etc. or when it reasonably anticipates a future litigation or investigation. This obligation may arise well before litigation is commenced.
  • Once a party has a duty to preserve documents and ESI, it must (a) identify all possible sources of discoverable and relevant documents and ESI, and (b) put in place a litigation hold and suspend any routine document destruction to ensure the preservation of relevant documents and ESI.
  • A litigation hold is a mechanism designed to advise appropriate persons of pending or anticipated litigation and of their obligation to preserve relevant records and to suspend routine document retention policies as they relate to potentially relevant records. 
  • A litigation hold should be communicated in writing to the key players and to a party’s information technology personnel, describe the relevant ESI and documents, order that any routine destruction should be suspended, set forth a procedure for collecting relevant documents and ESI, and explain the consequences of failing to preserve.
  • A party should confer with counsel about its obligations and the communication of a litigation hold, and internal or outside counsel should supervise and monitor compliance with the litigation hold (particularly for large companies).
  • Parties may be sanctioned for the failure to preserve documents and ESI. Possible sanctions include preclusion of evidence, dismissal of claims, an adverse inference jury instruction, or monetary sanctions (for the attorneys’ fees and expenses incurred by an adversary).
  • While the general rule in New York and in the federal courts is that the producing/responding party must bear its own costs in responding to discovery requests, a court may shift such costs to the requesting party if the discovery requests are unduly burdensome.

Questions regarding this advisory should be addressed to Matthew D. Dunn (212-238-8706, or Theodore Y. McDonough (212-238-8788,

Carter Ledyard & Milburn LLP uses Client Advisories to inform clients and other interested parties of noteworthy issues, decisions and legislation which may affect them or their businesses. A Client Advisory does not constitute legal advice or an opinion. This document was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. © 2018 Carter Ledyard & Milburn LLP.
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