The Amendments to the Federal Rules of Civil Procedure, the Court of Appeals’ Pegasus Aviation Decision and What They Mean for New York Litigators
January 21, 2016
For a long time, New York state and federal courts were out of sync with one another with regard to a litigant’s discovery obligations. For example, the state courts in New York required a party to take steps to preserve discovery materials upon the commencement of a litigation, while the federal courts required preservation upon the reasonable anticipation of litigation. This divergence in standards placed counsel in a quagmire when advising clients, because a party did not necessarily know if their anticipated litigation would eventually be commenced in New York state or federal court.
The Appellate Division, First Department, put an end to this debate in 2012, when it adopted in VOOM HD Holdings LLC v. EchoStar Satellite L.L.C., the federal standard. Specifically, the Appellate Division adopted the standard for preservation set forth in Zubulake v UBS Warburg LLC (220 FRD 212 [SD NY 2004]) 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.” The Voom court also adopted a negligence and gross negligence standard in analyzing ESI spoliation, holding that “[s]ince EchoStar acted in bad faith or with gross negligence in destroying the evidence, the relevance of the evidence is presumed.”
The Court of Appeals in Pegasus Aviation further adopted the negligence standard applied in Zubulake to determine if a party should be held liable for failing to timely issue a litigation hold.
Specifically, the Court of Appeals held that:
A party seeks sanctions for spoliation of evidence must show that the party having control over the evidence possessed an obligation to preserve it at the time of its destruction, that the evidence was destroyed with a “culpable state of mind,” and “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 that claim or defense.” On the other hand, if the evidence is determined to have been negligently destroyed, the party seeking spoliation sanctions must establish that the destroyed documents were relevant to the party’s claim or defense.
Pegasus Aviation, however, did not acknowledge that the holdings in Zubulake were recently undermined by changes to Federal Rule of Civil Procedure 37(e) effective, December 1, 2015. The change was adopted to establish a uniform standard in light of conflicting standards between the Federal Circuits: the Second, Sixth and Ninth Circuits on the one hand, which had authorized sanctions for negligent destruction of e-mails, and the First, Fifth and Tenth Circuits on the other hand which had held that mere negligence was not sufficient to obtain sanctions. The new rules provides:
(e) Failure to Preserve Electronically Stored Information. If electronically stored information that should have been preserved in the anticipation or conduct of litigation is lost because a party failed to take reasonable steps to preserve it, and it cannot be restored or replaced through additional discovery, the court:
(1) upon finding prejudice to another party from loss of the information, may order measures no greater than necessary to cure the prejudice; or
(2) only upon finding that the party acted with the intent to deprive another party of the information’s use in the litigation may:
(A) presume that the lost information was unfavorable to the party;
(B) instruct the jury that it may or must presume the information was unfavorable to the party; or
(C) dismiss the action or enter a default judgment.
This new standard allows an adverse inference instruction only upon a finding that a party “acted with the intent to deprive another party of the information’s use in the litigation” (emphasis added). The new Rule 37(e) removes any negligence from the standard.
Indeed, Judge Shira Scheidlin recognized that the new rule was out of step with her prior holding in Zubulake and other Second Circuit precedence. In Sekisui American Corp. v. Hart, she noted that “[u]nder the proposed rule, parties who destroy evidence cannot be sanctioned . . . even if they were negligent, grossly negligent, or reckless in doing so” and “would require the innocent party to prove that it has been substantially prejudiced by the loss of relevant information, even where the spoliating party destroyed information willfully or in bad faith.” This would be a change from existing Second Circuit law in that it would “abrogate” the Second Circuit’s holding in Residential Funding insofar as the Second Circuit previously held “that sanctions may be appropriate in instances where evidence is negligently destroyed.”
While the New York Court of Appeals may have intended to bring New York in line with Federal practice, and adopt what was the-then Second Circuit negligent spoliation standard, it failed to do so in as much as the Federal Rules changed just two-weeks before it issued the Pegasus Aviation decision. Only time will tell if the Court of Appeals will revisit this issue in light of the new Federal Rules.