EMERGING TRENDS IN FACEBOOK, TWITTER, AND OTHER SOCIAL MEDIA IN NEW YORK STATE COURT LITIGATION AND CRIMINAL PROCEEDINGS

Litigation

As Facebook, Twitter, and other forms of social media evolve and morph on a daily basis, such profound change in how the world communicates presents a growing challenge for attorneys and judges in the practice of law in New York State court litigation. The juxtaposition between what has become widely accepted forms of communication in the social media world, versus long standing traditions and body of law, rules and ethics governing communications and research in the practice of law has created modern challenges for the legal system. Recently, the state and local bar, as well as the judiciary, have attempted to address these concerns through a series of ethics opinions, and an emerging body of case law, in order to provide some guidance as to the permissible standards to be followed in the use of social media in the context of state court litigation. These developments and emerging trends can be seen in recent Supreme Court decisions and a New York City bar opinion highlighted below.

Jury Research and Social Media (NYLJ) NYC Bar Association Opinion No. 2012-02-2

On June 4, 2012, the New York City Bar released an ethics opinion titled “Jury Research and Social Media,” governing the use of social media to research potential or sitting jurors. Click here to review N.Y.C. Bar Opinion No. 2012-02. The central question that the Opinion attempts to address is: “What ethical restrictions, if any, apply to an attorney’s use of social media websites to research potential or sitting jurors?”

In answering this question, a recent article by Thomson Reuters, dated June 4, 2012, notes that the opinion “focuses on what constitutes a forbidden ex parte communication on websites like Facebook and Twitter, which many lawyers are using to dig up information on potential jurors or monitor for signs of misconduct during trials.” For a complete copy of this article, click here.

In particular, the Opinion states that “[c]ommunication, in this context, should be understood broadly, and includes not only sending a specific message, but also any notification to the person being researched that they have been the subject of an attorney’s research efforts.” The Opinion cautions that “[e]ven if the attorney does not intend for or know that a communication will occur, the resulting inadvertent communication may still violate the rule.”

Notably, the article points out that, previously, “in 2011, the New York County Lawyers Association issued an advisory opinion restricting attorneys’ social media research to publicly available information and warning against using the sites to contact individuals. But the question of what constitutes a ‘communication’ has become increasingly difficult for attorneys to navigate, given the myriad of ways in which users can find out who has attempted to view their social media pages, the city bar opinion states.”

For example, “a request to add someone as a ‘friend’ on Facebook would be prohibited under American Bar Association Formal Opinion 319, which prohibits ex parte communication with potential or sitting jurors, according to the opinion. Chats and messages sent to users over such sites would also be prohibited.”

With regard to the ‘Duty of the Attorney,’ the article notes that “[t]he opinion cautions against the ‘ethical risk’ that may arise if research is done on a social media service that alerts users when another individual has viewed their information. Professional networking site LinkedIn and some dating websites, for instance, show users who have viewed their profile.” In this regard, “[t]he central question an attorney must answer before engaging in jury research using a particular site or service is whether her actions will cause the juror to learn of the research.”

The analysis suggests that “[t]he same prohibition against communication via social media websites applies to anyone doing research on the lawyer’s behalf, according to the opinion, as well as midtrial research to investigate potential instances of misconduct. The bar group acknowledged that it intentionally left its definition of ‘communication’ open-ended to account for the evolution in how social media sites function. But ultimately it’s the lawyer’s ethical obligation to be aware of how each site works, according to the opinion.”

Moreover, the Opinion states “[i]t is the duty of the attorney to understand the functionality and privacy settings of any service she wishes to utilize for research, and to be aware of any changes in the platforms’ settings or policies to ensure that no communication is received by a juror or venire member.”

The Opinion ultimately concludes by stating that “[l]awyers can make use of any information made publicly available on social media websites under New York Rules of Professional Conduct 3.5 and Rule 8.4(c).” Nonetheless, as the article clarifies, “[b]ut if it seems the individual has misunderstood the site’s privacy settings and didn’t intend the information to become public, a lawyer should proceed with caution.”

Defendants Granted Disclosure of ‘Facebook’ Postings Pre-, Post-Dating Accident (NYLJ) D’Agostino v. YRC, Inc., et al., (Sup. Ct. Orange Cty., May 17, 2012)

On May 17, 2012, in a case entitled D’Agostino v. YRC, Inc., et al., the Orange County Supreme Court issued an order granting the disclosure of ‘Facebook’ posting pre- and post-dating a car accident. Click here for the D’Agostino decision.

In D’Agostino, Defendants, transportation companies, moved for an order compelling plaintiff to respond to a supplemental notice for discovery and inspection demanding plaintiff’s Facebook account postings pre-dating the accident which is the subject of the action.

In their motion, Defendants argued that plaintiff is claiming psychological and emotional damages. In support of their argument, Defendants pointed to the fact that plaintiff’s own deposition testimony reveals that she suffered emotional and psychological problems and stressors predating the action and actually posted on the Facebook social media website comments concerning her mental and emotional state prior to this accident.

Specifically, Defendants requested all social media postings and photographs contained on plaintiff’s social media accounts whether posted by her or others concerning any mental, emotional or physical condition suffered by plaintiff for which she claims an injury in the action. The Court noted that such postings both pre- and post-date the accident.

As the Court explained, “[p]laintiff claims depression and emotional and mental injuries in the lawsuit, but now wants to prevent the defendants from ascertaining the extent that those conditions existed prior to the accident and the extent they may have been exacerbated or not from this accident.” The Court reasoned that “[b]y bringing this action, plaintiff placed her own mental, emotional and physical conditions at issue.” Further, the Court noted “[t]he fact that [plaintiff] testified that she regularly posted her feelings on social media websites prior to and subsequent to this accident is wholly relevant information concerning [plaintiff’s] mental, physical and emotional states both before and after the accident.”

In reaching its decision, the Court held that “[p]laintiff cannot now claim an expectation of privacy when she share her feelings online, testified that she did so, and now makes claims for related injuries to this action.”

This case demonstrates the diminishing expectation of privacy that litigants, and their counsel, can expect in the disclosure of material or exculpatory evidence, where the content of social media postings and communications bear upon the relevance of the claims that are the subject matter of the litigation.

‘Public’ Tweets Are Subject to D.A.’s Subpoena, Judge Says (NYLJ) People v. Harris, 2011 NY080152 (Crim. Ct. N.Y. Cty., June 30, 2012)

On June 30, 2012, in a case entitled People v. Harris, Criminal Court Judge Matthew Sciarrino Jr., sitting in Manhattan, held, in a case of first impression, that Twitter, Inc. must produce tweets and user information of an Occupy Wall Street protestor. Click here for the Harris decision.

In particular, Judge Sciarrino ordered the site to produce in chambers Malcolm Harris’ use information and tweets from a more than three-month period—information the Manhattan District Attorney’s Office is seeking for its prosecution of a disorderly conduct case charge against Harris. Harris was one of 700 Occupy Wall Street protestors arrested on October 1, 2011, during a march across the Brooklyn Bridge.

In reaching its conclusion, the Court reasoned that “[t]he Constitution give you the right to post, but as numerous people have learned, there are still consequences for your public posts. What you give to the public belong to the public. What you keep to yourself belong only to you.”

Like D’Agostino (discussed above), this case also demonstrates the diminishing expectation of privacy that litigants, and their counsel, can expect where the content of social media postings and communications bear upon the relevance of the claims that are the subject matter of the litigation.

Indeed, the emergence of social media presents a myriad of issues for attorneys litigating in both civil and criminal courts in New York State. Being current in this area will prevent “impermissible” communications or the appearance of such, and will assist counsel in avoiding potentially sanctionable conduct. With these emerging trends, the difficulty lies in conforming good practices and ethics to an area of unchartered and evolving territory. We will continue to provide further updates if any changes occur in this area of the law.

Posted by Adam H. Koblenz

New York’s Appellate Division, First Department, Adopts Federal Zubulake Standards for Discovery of Electronically Stored Information

Litigation

Earlier this year, New York’s First Department adopted federal standards for discovery of electronically stored information (“ESI”) set forth in the case of Zubulake v. UBS Warburg LLC, No. 02 Civ. 1243(SAS) (S.D.N.Y.). The First Department’s decisions in two cases will likely have significant effects on litigants in New York courts as the role of ESI in the discovery process continues to expand and become ever more expensive.

In Voom HD Holdings LLC v. Echostar Satellite L.L.C., 93 A.D.3d 33 (1st Dep’t 2012), the First Department adopted Zubulake’s standard for preservation of ESI. In Zubulake, the federal district court held 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.” Zubulake v. UBS Warburg LLC, 220 F.R.D. 212, 218 (S.D.N.Y. 2003) (“Zubulake IV”). The failure to properly preserve documents when one reasonably anticipates litigation can result in substantial court ordered sanctions, such as a negative inferences, monetary sanctions and even case dismissal. See 915

Broadway Assoc. LLC v. Paul, Hastings, Janofsky & Walker, LLP, 34 Misc 3d 1229(A) (Sup. Ct. N.Y. Co. Feb. 16, 2012).
Voom involved a contract dispute between Voom HD Holdings LLC, a producer of television programming, and Echostar Satellite L.L.C., a satellite broadcast provider. 93 A.D.3d at 36. Specifically, Echostar sought to terminate a 15 year affiliation agreement between the two entities after only a year and a half. Id. at 36-37. Accordingly, in June 2007, Echostar began sending notices to Voom indicating that it intended to terminate the agreement and that Voom had failed to abide by its conditions. Id. at 37. As a result of Echostar’s notices, Voom became “extremely concerned” about the possibility of litigation and implemented a litigation hold, automatically preserving all of its e-mails. Id. at 38. Echostar however, even though it began consulting in-house litigation counsel about “potential litigation” between July and October of 2007, did not implement a litigation hold until after the lawsuit commenced in January 2008, and did not suspend its automatic deletion of emails until four later. Id. at 39. Up to that time, Echostar’s litigation hold had relied upon the discretion of its employees to determine what was to be preserved as relevant to the litigation. Id. at 40.

In its decision, the First Department noted that Zubulake’s standard has been interpreted to mean that the duty to preserve evidence is triggered “when an organization is on notice of a credible probability that it will become involved in litigation, seriously contemplates initiating litigation, or when it takes specific actions to commence litigation.” 93 A.D.3d at 43. Therefore, Echostar should have “reasonably anticipated” litigation when it began sending notices to Voom indicating its intention to terminate the agreement. Id. at 39. At the very least, Echostar should have reasonably anticipated litigation when it began consulting its in-house litigation counsel in July 2007. Id. Either way, the First Department found that Echostar had failed to preserve evidence by implementing a proper litigation hold as soon as it “reasonably anticipated” litigation and affirmed the trial court’s decision to sanction Echostar with a negative inference. Id. at 40-41.

The trial court had rejected Echostar’s argument that it could not have reasonably anticipated litigation as early as June or July of 2007 because the parties were seeking an amicable business solution. Id. at 40. The trial court reasoned that “EchoStar’s argument ignores the practical reality that parties often engage in settlement discussions before and during litigation, but this does not vitiate the duty to preserve. EchoStar’s argument would allow parties to freely shred documents and purge emails, simply by faking a willingness to engage in settlement negotiations.” Id. The First Department agreed.

Accordingly, parties involved in litigation in New York courts should give careful consideration to its document preservation policies and procedures. Because the duty to preserve documents is triggered as soon as a party “reasonably anticipates” litigation, companies must ensure that a litigation hold is implemented as soon as it is on notice that there is a credible probability that it will become involved in litigation.

The First Department’s decision in Voom outlines an appropriate litigation hold policy that companies should implement once it reasonably anticipates litigation. According to the First Department, a litigation hold must accomplish the following:

[It] must direct appropriate employees to preserve all relevant records, electronic or otherwise, and create a mechanism for collecting the preserved records so they might be searched by someone other than the employee. The hold should, with as much specificity as possible, describe the ESI at issue, direct that routine destruction policies such as auto-delete functions and rewriting over e-mails cease, and describe the consequences for failure to so preserve electronically stored evidence. . . .[W]here a party is a large company, it is insufficient, in implementing such a litigation hold, to vest total discretion in the employee to search and select what the employee deems relevant without the guidance and supervision of counsel. Voom, 93 A.D.3d at 41-42.

In U.S. Bank National Assoc. v. Greenpoint Mortgage Funding, Inc., 94 A.D.3d 58 (1st Dep’t 2012), the First Department held that the cost of discovery, including searching for, retrieving and producing ESI should be initially placed on the producing party, relying upon the standard set forth in Zubulake v. UBS Warburg, LLC, 217 F.R.D. 309, 317-18 (S.D.N.Y. 2003).

Prior to this decision by the First Department, courts in New York have issued conflicting decisions on the issue. The First Department noted that the “question of which party is responsible for the cost of searching for, retrieving and producing discovery has become unsettled because of the high cost of locating and producing electronically stored information.” Greenpoint, 94 A.D.3d at 62. Greenpoint Mortgage had argued that it was well-settled in New York law that the “party seeking discovery bears the costs incurred in its production.” Id. at 62. But, the First Department held that, due to the significant costs of discovery involving ESI, the Zubulake standard “presents the most practical framework for allocating all costs in discovery, including document production and searching for, retrieving and producing ESI.” Id. at 63.

Under the Zubulake standard, the producing party bears the initial cost of searching for, retrieving and producing ESI. However, upon the discretion of the trial courts, the costs may be shifted upon consideration of seven factors:

(1) [t]he extent to which the request is specifically tailored to discover relevant information; (2)[t]he availability of such information from other sources; (3)[t]he total cost of production, compared to the amount in controversy; (4)[t]he total cost of production, compared to the resources available to each party; (5)[t]he relative ability of each party to control costs and its incentive to do so; (6)[t]he importance of the issues at stake in the litigation; and, (7)[t]he relative benefits to the parties of obtaining the information. Zubulake, 217 F.R.D. at 322.

Consequently, litigants in New York courts should ensure that a cost-effective retrieval and review process is being used by counsel. Parties may want to inquire as to the appropriateness and effectiveness of newer and potentially cheaper technologies such as predictive coding.

Posted by Joseph R. Bjarnson

DIRECTORS AND OFFICERS LIABILITY AND THE FIDUCIARY DUTY OWED TO THE CORPORATION AND ITS SHAREHOLDERS UNDER NEW YORK LAW

Litigation

Directors and officers play a critical role in the management of the business affairs of a corporation. Under New York law, “the business of a corporation is to be managed by its board of directors.” COR Marketing & Sales, Inc. v. Greyhawk Corp., 994 F. Supp. 437, 441 (W.D.N.Y. 1998); N.Y. Business Corporation Law § 701 (McKinney 1997). It is well established under New York law that “officers, directors and majority shareholders of a corporation stand in a fiduciary relationship to the corporation and owe their undivided and unqualified loyalty to the corporation.” Young v. Chiu, 49 A.D.3d 535, 536 (2d Dep’t 2008); Alpert v. 28 Williams Street Corp., 63 N.Y.2d 557, 568 (1984).

In New York, “[a] fiduciary relationship arises where ‘one party’s superior position or superior access to confidential information is so great as virtually to require the other party to repose trust and confidence in the first party,’ and the defendant was ‘under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation.’” Anwar, et al. v. Fairfield Greenwich Ltd., et al., 728 F. Supp. 2d 372, 415 (S.D.N.Y. 2010) (quoting Pension Comm., 446 F. Supp. 2d 163, 195 (S.D.N.Y. 2006)).

New York law provides the statutory mechanism for a shareholder to sue individually “when the wrongdoer [corporate director] has breached a duty owing to the corporation wronged.” Anwar, 728 F. Supp. 2d at 400-01 (citing Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt. LLC, 376 F. Supp. 2d. 385, 409 (S.D.N.Y. 2005) (quoting Abrams v. Donati, 66 N.Y. 2d 951, 498 N.Y.S.2d 782, 489 N.E.2d 751, 751-52 (1985)) (holding that a direct action was allowed because the “principal wrong” was a valuation fraud, in which the defendants concealed declines in the value of fund assets that injured the Plaintiffs rather than the funds and the fiduciary duty was owed independently to the plaintiffs).

To state a cause of action, the elements of a claim for breach of fiduciary duty are “breach by a fiduciary of a duty owed to plaintiff; defendant’s knowing participation in the breach; and damages.” Anwar, 728 F. Supp. 2d at 415 (citation omitted). “Whether the [fiduciary] duty exists is a fact-specific inquiry” for a trier of fact. Id.

Notwithstanding the above, “[u]nder New York law, the business judgment rule ‘bars judicial inquiry into actions of corporate directors taken in good faith and in the exercise of honest judgment in the lawful and legitimate furtherance of corporate purposes.’ ” RSL Comm. v. Bildirici, 649 F. Supp. 2d 184, 198 (S.D.N.Y. 2009) (citing In re 1st Rochdale Co-op Group, Ltd., No. 07 Civ. 7852(DC), 2008 WL 170410, at *1 (S.D.N.Y. Jan. 17, 2008) (quoting Auerbach v. Bennett, 47 N.Y.2d 619, 419 N.Y.S.2d 920, 926, 393 N.E.2d 994 (1979)); see also Stern v. Gen. Elec. Co., 924 F.2d 472, 476 (2d Cir.1991) (“[U]nder the New York business judgment rule, the actions of corporate directors are subject to judicial review only upon a showing of fraud or bad faith.”).

Moreover, “[u]nder the business judgment rule, there is ‘a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company.’” In the Matter of Bear Stearns Litigation, 870 N.Y.S.2d 709 (N.Y. Cty, Dec. 4, 2008) (citation omitted). “The rule operates to preclude a court from imposing itself unreasonably on the business and affairs of a corporation.” Id. (citation omitted). To this end, “the board of directors’ decisions ‘will not be disturbed if they can be attributed to any rational business purpose.’” Id. (citation omitted).

“At the same time, to earn the protection of the business judgment rule, directors must do more than merely avoid fraud, bad faith, and self-dealing,” however. RSL Comm., 649 F. Supp. 2d at 199 (citing In re 1st Rochdale Co-op Group, Ltd., 2008 WL 170410, at *1 (citing Hanson Trust PLC v. ML SCM Acquisition, Inc., 781 F.2d 264, 274 (2d Cir.1986)). “It is not enough that directors merely be disinterested and thus not disposed to self-dealing or other indicia of a breach of the duty of loyalty. Directors are also held to a standard of due care. They must meet this standard with ‘conscientious fairness.’ ” Hanson Trust, 781 F.2d at 274 (quoting Alpert v. 28 Williams St. Corp., 63 N.Y.2d 557, 483 N.Y.S.2d 667, 674, 473 N.E.2d 19 (1984)).

Consequently, a director “does not exempt himself from liability by failing to do more than passively rubber-stamp the decisions of the active managers.” RSL Comm., 649 F. Supp. 2d at 199 (citing Barr v. Wackman, 36 N.Y.2d 371, 381, 368 N.Y.S.2d 497, 329 N.E.2d 180 (N.Y.1975). Nor does the business judgment rule “protect directors in ‘omission’ cases where an injury results from the inaction of a director.” Frater v. Tigerpack Capital, Ltd., No. 98 Civ. 3306(SAS), 1999 WL 4892, at *4 (S.D.N.Y. Jan. 5, 1999).

Indeed, the business judgment rule serves an important role in the protection and insulation of directors from liability for the business decisions made on behalf of the corporation. However, as the case law demonstrates, this rule is not insurmountable, where directors veer from their fiduciary duties to their shareholders and the corporation. We will continue to provide further updates if any changes occur in this area of the law.

Posted by Adam H. Koblenz