VOOM HD Holdings LLC v. Echostar Satellite L.L.C.

• Decision Date: 31 January 2012
• Parties: VOOM HD HOLDINGS LLC, Plaintiff–Respondent, v. ECHOSTAR SATELLITE L.L.C., Defendant–Appellant.Lawyers for Civil Justice, Amicus Curiae.
• Court: New York Supreme Court — Appellate Division

2012 N.Y. Slip Op. 00658
93 A.D.3d 33
939 N.Y.S.2d 321

VOOM HD HOLDINGS LLC, Plaintiff–Respondent,
v.
ECHOSTAR SATELLITE L.L.C., Defendant–Appellant.Lawyers for Civil Justice, Amicus Curiae.

Supreme Court, Appellate Division, First Department, New York.

Jan. 31, 2012.

[939 N.Y.S.2d 324]

Simpson Thacher & Bartlett LLP, New York (Roy L. Reardon, Blake A. Bell and Ryan A. Kane of counsel), and Morrison & Foerster LLP, New York (Charles L. Kerr, Ronald G. White and J. Alexander Lawrence of counsel), for appellant.

Gibson, Dunn & Crutcher LLP, New York (Orin Snyder of counsel), for respondent.

Goldberg Segalla LLP, Buffalo (John J. Jablonski of counsel), for amicus curiae.

TOM, J.P., SAXE, CATTERSON, MOSKOWITZ, MANZANET–DANIELS, JJ.

MANZANET–DANIELS, J.

[93 A.D.3d 36] [1] This case requires us to determine the scope of a party's duties in the electronic discovery context, and the appropriate sanction for failure to preserve electronically stored information (ESI). We hold that in deciding these questions, the motion court properly invoked the standard for preservation set forth in Zubulake v. UBS Warburg LLC, 220 F.R.D. 212 [S.D.N.Y.2003]; 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], which has been widely adopted by federal and state courts. In Zubulake, the federal district court stated, “Once 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” ( Zubulake, 220 F.R.D. at 218). The Zubulake standard is harmonious with New York precedent in the traditional discovery context, and provides litigants with sufficient certainty as to the nature of their obligations in the electronic discovery context and when those obligations are triggered.

VOOM HD is a Delaware limited liability company owned by Rainbow Media Holdings LLC, which, in turn, is owned by the public company Cablevision Systems Corporation. EchoStar is a provider of direct broadcast satellite television services through its “DISH Network,” using a satellite distribution system to deliver to subscribers digital television programming licensed from owners of programming services.

On November 17, 2005, Voom and EchoStar entered into an “affiliation agreement,” a 15–year contract whereby EchoStar agreed to distribute Voom's television programming. The agreement required EchoStar to include the Voom channels “as part of its most widely distributed package of HD programming services”—i.e., EchoStar could not “tier” the channels and charge its customers more for Voom than the standard fee charged to customers for HD. EchoStar had the right to terminate the agreement if Voom failed to spend $100 million on the “service” in any calendar year, and retained the right to audit Voom's expenses and investments.

[939 N.Y.S.2d 325]

Voom contends that in mid–2007 EchoStar determined that the deal was disadvantageous, and therefore decided to falsely claim that Voom had fallen short of its financial commitment in 2006 or had failed to meet its programming content obligations. EchoStar allegedly sought to terminate the contract or to “tier” [93 A.D.3d 37] Voom's channels; under either scenario, Voom insists it stood to lose billions of dollars. Voom also charges that EchoStar made the related decision in mid–2007 to remove Voom's channels from its most widely distributed HD channel package.

At a meeting in June 2007, Carl Vogel, EchoStar's vice chairman, purportedly stated that the high cost of Voom “did not fit Echostar's market position as the low-cost video provider,” and that the deal was a “mistake” by prior senior management. Eric Sahl, senior vice-president of programming called the agreement a “lead balloon,” noting that Voom's cost was outweighing its value because Voom was not driving enough HD subscribers to justify Voom's high price.

On June 19, 2007, Carl Vogel, EchoStar's Vice Chairman, told his subordinates: “If [Voom doesn't] give us the free programming can we tier them? What are the breach remedies? I need a full summary of what we can do today.” “Trigger the audit now. Given their balance sheet there is no way they've met the commitment ... Prepare the breach notice.”

On June 19, 2007, Kevin Cross, EchoStar's senior corporate counsel, sent a letter advising Voom of its intent “to avail itself of its audit right[s].”

The following day, June 20, 2007, Cross sent a second letter to Voom, expressing EchoStar's “belie[f] that Voom failed to spend $100 million on the Service in calendar year 2006,” and that “EchoStar is thus entitled to terminate the Agreement,” and reserving EchoStar's “rights and remedies.”

On July 10, 2007, Vogel directed an EchoStar executive to “[d]raft the breach letter.”

On July 11, 2007, Voom sent EchoStar an “Analysis,” showing its expenditure of $102,959,000 in 2006. On July 12, 2007, Carolyn Crawford, EchoStar's vice president for programming, forwarded Voom's breakdown of its spending to Vogel and Sahl, describing it as “indicat[ing] a $102.9 m spend for 2006,” and reported that EchoStar “will likely need to lean on the audit lever to accomplish either termination rights ... or tiering rights.”

On July 13, 2007, Cross sent letters to Voom claiming “material breaches” of contractual programming content requirements, and reserving EchoStar's “rights and remedies in equity or at law.”

On July 23, 2007, according to EchoStar's own privilege log, EchoStar's executives began consulting with in-house litigation [93 A.D.3d 38] counsel, Jeffrey Blum, regarding the agreement and the dispute with Voom.

On July 27, 2007, Cross sent another letter rejecting Voom's compliance with content provisions, accusing Voom of “material breaches” of the agreement, and reserving EchoStar's “rights and remedies in equity or at law.”

By July 31, 2007, Voom became “extremely concerned” that the matter was going to be litigated and implemented a litigation hold, including automatically preserving e-mails.

On September 27, 2007, Vogel reminded his executives of the “need to declare [Voom] in default on the content covenants as well [as the $100 million investment].” Crawford responded by advising Vogel that “[w]e are using both the content covenant breach and the concern about the

[939 N.Y.S.2d 326]

$100m investment requirement as leverage to get a tiering deal done.”

During October 2007, EchoStar conducted an audit of Voom's 2006 investment in the service. On October 26, 2007 EchoStar's own auditor concluded, in an e-mail sent to Crawford, that “[e]verything at Voom looks fine ... these guys are clean ... very organized, forthcoming, and from an accounting perspective run a good shop.”

On October 23, 2007, days earlier, EchoStar executives began discussing “potential litigation” with Blum. According to EchoStar's privilege log, these conversations continued through the date that Voom filed suit.

Undeterred by the findings of its own auditor, EchoStar, on November 16, 2007, sent another breach letter, threatening “to terminate the Agreement, effective immediately” if Voom did not agree that, “beginning February 1, 2008, ... ongoing carriage would be on a ‘tiered’ basis, as determined by EchoStar in its discretion.” On December 4, 2007, Voom responded, “[W]e don't agree with your claims/assertions of breach/proposed actions” and suggested a meeting to resolve the issue. Voom maintained that the contemplated re-tiering, without its consent, was a plain violation of the parties' agreement.

On January 23, 2008, Crawford sent an e-mail to Sahl stating that EchoStar was proceeding with “the plan for a full termination.”

By letter dated January 28, 2008, Voom protested that EchoStar had no right to terminate the affiliation agreement and rejected EchoStar's proposed re-tiering.

On January 30, 2008, EchoStar formally “terminate[d] the Agreement effective February 1, 2008.” Voom commenced this [93 A.D.3d 39] action the next day. EchoStar did not implement a litigation hold until after Voom filed suit. Yet this purported “hold” did not suspend EchoStar's automatic deletion of e-mails. Thus, any e-mails sent and any e-mails deleted by an employee were automatically and permanently purged after seven days. It was not until June 1, 2008—four months after the commencement of the lawsuit, and nearly one year after EchoStar was on notice of anticipated litigation—that EchoStar suspended the automatic deletion of relevant e-mails.

The e-mails described above, from September 27, 2007 and January 23, 2008—reflecting EchoStar's intention to terminate the agreement unless Voom agreed to be tiered—were only produced due to the fortunate circumstance that they were captured in unrelated “snapshots” of certain executives' e-mail accounts taken in connection with other litigations. Voom moved for spoliation sanctions, arguing that EchoStar's actions and correspondence demonstrated that it should have reasonably anticipated litigation prior to Voom's commencement of this action.

The motion court granted Voom's motion for spoliation sanctions. The court found that “EchoStar's concession that termination would lead to litigation, together with the evidence establishing EchoStar's intent to terminate, its various breach notices sent to VOOM HD, its demands and express reservation of rights, all support the conclusion that EchoStar must have reasonably anticipated litigation prior to the commencement of this action.” The court, citing Zubulake, concluded that EchoStar should have reasonably anticipated litigation no later than June 20, 2007, the date Kevin Cross, its corporate counsel, sent Voom a written letter containing EchoStar's express notice of breach, a demand, and an explicit reservation of rights. The court found that EchoStar's subsequent conduct also demonstrated that it should have reasonably

[939 N.Y.S.2d 327]

anticipated litigation prior to the filing of the...