Zubulake Discovery Standards Adopted By New York State Courts

Business Litigation Update

Date: March 01, 2012

Overview

On February 28, 2012, a New York state appellate court adopted the widely accepted federal Zubulake standard as the default approach in New York state courts clarifying which party initially bears the costs of document production in discovery. Under the decision, U.S. Bank N.A. v. GreenPoint Mortgage Funding, Inc., the costs of production will be borne by the producing party, which may seek cost-shifting in certain circumstances. This ruling follows another recent decision, Voom HD Holdings LLC v. EchoStar Satellite LLC, which adopted Zubulake in the context of document preservation and spoliation.

In U.S. Bank N.A. v. GreenPoint Mortgage Funding, Inc., the trustee for certain mortgage-backed securities brought an action against the loan originator, GreenPoint, for violations of the representations and warranties under which the loans were originated, underwritten and serviced. The discovery sought from GreenPoint concerned 30,000 loans and was expected to be extensive and costly. GreenPoint moved for a protective order under which each party would pay the costs associated with responding to the requests it issued. The trial court declined to issue the protective order but endorsed the view that "the well-settled rule in New York State" was that the party seeking discovery bears the costs incurred in its production.

The Appellate Division, First Department, reversed. New York procedural rules were silent on the issue of cost allocation and state case law had become inconsistent. The court noted that there was a trend among other courts to adopt the standard articulated in the Southern District of New York in Zubulake v. UBS Warburg, LLC and was persuaded that "the courts adopting the Zubulake standard are moving discovery, in all contexts, in the proper direction."

Zubulake requires the producing party to bear the initial cost of searching for, retrieving and producing discovery where "readily accessible," but permits the shifting of costs between the parties based on seven factors:

  • The extent to which the request is specifically tailored to discover relevant information
  • The availability of such information from other sources
  • The total cost of production, compared to the amount in controversy
  • The total cost of production, compared to the resources available to each party
  • The relative ability of each party to control costs and its incentive to do so
  • The importance of the issues at stake in the litigation
  • The relative benefits to the parties of obtaining the information

According to the court, the prudent course of action for GreenPoint would have been to first make a motion to limit or strike the discovery requests. If, following the resolution of that motion, GreenPoint still believed the costs of production were prohibitive, it could file a motion for the costs to be shifted to the plaintiff. The court cautioned that the Zubulake factors above should guide the trial court in determining cost allocation but not serve as a checklist. The case was then remanded for further proceedings.

The further adoption of Zubulake follows on the heels of Voom HD in which the same appellate court endorsed the rule articulated in Zubulake regarding "litigation holds." The court held that 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 and prevent the routine destruction of relevant electronic data. Failure to issue a timely litigation hold notice is indicative of a grossly negligent mental state and may lead to sanctions for spoliation of evidence.

According to the court, the defendant in Voom HD failed to institute a litigation hold despite sending the plaintiff written notice of the parties' agreement, a demand and an explicit reservation of its rights. For four months after the litigation commenced, the defendant allowed its automatic email purging function to continue deleting employee emails, and instead of implementing a litigation hold, relied on its employees to determine which documents were relevant to the litigation and preserve the emails by moving them to separate folders. The court found that the defendant's actions met the standard for the imposition of sanctions for spoliation of evidence and that an adverse inference charge was appropriate.

In adopting the Zubulake "reasonable anticipation of litigation" standard, the court noted that it had been adopted by courts in all four federal districts in New York. To adopt a different rule, such as one that would require actual litigation or notice of a specific claim, would "ignore ... the reality of how business relationships disintegrate," when the parties "may appear, on the surface, to be attempting to work things out, while preparing frantically for litigation behind the scenes."