This paper will focus on two different acts, the Y2K Act and the Y2K Information and Readiness Disclosure Act. Of these, the Y2K Act gets into the more obscure legal territory, particularly with respect to what kinds of damages can be awarded. Hopefully, the following definitions will clarify some of the terms used in the legislative texts we will be examining. All of these definitions come from the Lawyers.Com online glossary [LAW99].
actual damages-
damages awarded in cases of serious or malicious
wrongdoing to punish or deter the wrongdoer or deter others from behaving
similarly
general damages-
1 damages for a loss that is the
natural, foreseeable, and logical result of a wrongful act
2 damages for losses (as pain
and suffering, inconvenience, or loss of lifestyle) whose monetary values
are difficult to assign
punitive damages-
damages awarded in cases of serious or malicious
wrongdoing to punish or deter the wrongdoer or deter others from behaving
similarly
Also note that it is fairly well established under
State law to award damages for breaches of implied contract: that is, even
though there is no document stating that a contractual relationship has
been established, certain types of obligations can be assumed, and can
be grounds for a lawsuit if not met.
With these points in mind, let us turn to our discussion
of the legal issues of the Y2K bug.
Most types of computer products are acquired pursuant to written contracts. Many such products are also subject to support agreements which require the supplier to correct bugs or deficiencies in the product. The responsibility of a supplier to correct a product that is not year 2000 compliant may depend on the obligations and warranties contained in such contracts. Implied warranties or conditions of merchantability and fitness for a particular purpose may also be applicable. However, suppliers' responsibilities and liability may be limited by disclaimers, limitations on liability and by any applicable statute of limitations [Man97].Clearly, the scope and omnipresence of the Y2K bug differentiate it from most other problems with contract-bound software. In the U.S., with its huge population of lawyers and its tradition of heavy litigation, the sheer volume of possible Y2K liability cases is a cause for concern. As Larry Kraus, president of the U.S. Chamber Institute for Legal Reform, recently told the Austin Business Journal, "When computers start going down, it will not be a question of readiness, it will be a question of who is to blame and how to recuperate losses" [Muk99]. The litigation costs were recently predicted to soar as high as $1 trillion.
Indeed, while few Y2K liability lawsuits have been filed to date, there is evidence that many are tensed to spring as soon as more failures begin to occur. Paul Strassman, who often addresses Y2K conferences, spoke in a recent article about the meticulous manner in which lawyers are preparing for the millennium bug. He described a lawyers' conference he attended as being "like a tank commanders' briefing just prior to an attack. Each presentation was sharp . . . lawyers have scouted the terrain and have zeroed in on their targets" [Str99]. According to Strassman, lawyers have already begun to collect advertisements, technical manuals, and other potentially incriminating materials for use in a variety of different types of Y2K suits. The potential "targets" of these lawsuits range from huge corporations, as the recent class action suit brought against AT&T and Lucent Technologies demonstrates, to smaller technology firms, consulting firms, and even individuals [].
The number of potential cases has prompted the U.S. Chamber of Commerce to request that Congress set up a special court system to deal with Y2K issues only [ Muk99]. While it is not clear whether or not this request will be granted, it is clear that there is a good chance that litigation for Y2K issues may receive some special treatment in the U.S. The German Federal Government has issued a statement that "a general release from liability is out of the question. The contractual assignment of responsibilities in the triangular relationship between software manufacturer, user, and customer remains in place. The Federal Government has no reason to intervene in these contracts, one reason for this being that the cause of any potential problems, namely the date change, has been known for a long time" [Ger98]. However, as Gary North, who runs a World Wide Web site on Y2K problems, comments, "Of course, they don't have 800,000 lawyers in Germany. The United States does. With lots more on the way" [Nor98].
Carey Heckman, a Consulting Professor of Law at Stanford University, expressed the opinion in our recent interview that establishing special courts to handle Y2K cases would probably not do much to help solve the court resource crunch. Most special courts simply involve a different allocation of the judges currently working, and not the hiring of new judges, so unless the new system were set up with a screening process, like that of traffic court, there would probably be little or no increase in the speed at which cases could be heard. He also pointed out that one of the most interesting and relevant questions of limitation has to do with what kinds of damages can be awarded in Y2K cases: even if there is no cap on compensatory awards, what of the possibility of capping punitive damages, or eliminating them outright? Professor Heckman put forth his view that limitations on compensatory awards would "allow externalization of the cost of profits" for software companies: that is, those companies which profited from the kinds of software practices that produced non-compliant software could escape paying the costs of making that software run as advertised, i.e. putting in Y2K fixes. Heckman feels that limitation on punitive damages would be more appropriate, as these are not a well-established part of civil law, and would seldom be truly applicable in Y2K cases, because the use of 2-digit dates was for a long time almost an industry standard. He points out, however, that the Association of Trial Lawyers of America (ATLA) will certainly fight any such limitation [Kie99].
The volume of Y2K cases, as well as the equitable fulfillment of contractual obligation and legally proper treatment of both vendors and consumers of non-Y2K-compliant products, present a fresh challenge for the United States legal system. Under pressure from the Chamber of Commerce and several industry groups, including the powerful Information Technology Association of America (ITAA), U.S. Senate Commerce Committee Chairman John McCain, an Arizona Republican, to author the Y2K Act. This bill, brought before the Senate on January 19th, 1999, attempts to address all of these issues. If passed, it will give district courts in which Y2K cases are pending the power to appoint a "special master to hear the matter and to make findings of fact and conclusions of law." While not limiting economic damages, it does include a somewhat severe cap on non-economic damages, as well as eliminating punitive damages, limiting joint liability, and requiring that businesses and individuals not litigate until they have notified the prospective defendant in writing and "afforded the defendant the opportunity . . . to fix the problem" [McC99].
There can be little doubt that the Y2K Act, if passed, will become one of the most defining documents in litigation for years into the beginning of the new millennium. This being the case, it is appropriate for us to examine some of its more salient points, and to test them against the arguments of those who oppose the bill. The Justice Department has recently stated that it opposes the bill, and it is by no means alone: as Professor Heckman suggested, the ATLA has been quite vocal in this respect. The articles on the ATLA site speculate mostly on how the Act would, if passed, render powerless small businesses who have fallen victim to Y2K bugs, making them unable to win suits against their technology vendors, often larger firms. While the members of the ATLA certainly have a vested interest in seeing that litigation surrounding Y2K is as profitable as possible, let us with this in mind review the Y2K act in the context of their arguments, many of which have considerable merit. [ATLA99]
Perhaps most significant in the Y2K Act is the elimination of joint liability. The following text appears in the Act: "SEC. 6. SEVERAL LIABILITY. The liability of more than 1 defendant in a Y2K action may be several but may not be joint." Bouviers Law Dictionary (1856 Edition ) defines these two terms as follows:
SEVERAL. A state of separation or partition. A several agreement or covenant, is one entered into by two or more persons separately, each binding himself for the whole; a several action is one in which two or more persons are separately charged; a several inheritance, is one conveyed so as to descend, or come to two persons separately by moieties. Several is usually opposed to joint. Vide 3 Rawle, 306. See Contract; Joint Contract, Parties to action.
JOINT. United, not separate; as, joint action, or one which is brought by several persons acting together; joint bond, a bond given by two or more obligors. [Bou1856]Thus, the plaintiff in a Y2K case involving a complex product would not be able to sue all parties responsible for the problems en masse. The ATLA puts forth this argument:
By eliminating joint liability for all damages, proposed legislation would allow the parties responsible for Y2K losses to avoid the consequences of their mistakes. To fully recover even its economic loss, a small business would be forced to identify and sue each potentially liable party in the supply chain. Not only would this encourage defendants to blame others not part of the suit, but also may let guilty parties off the hook. Worst of all, injured small businesses, which have little capital to begin with, may be left largely uncompensated. [ATLA99]Certainly the fate of small business is an issue: the Y2K readiness of these companies, whose systems are small but critical is still one of the biggest unknowns as we approach the new year. Because they lack the budget to retain information technology experts, or the funds to absorb the cost of converting and testing noncompliant systems, or even detect the presence of noncompliance in their systems, many stand to lose the capability to operate for some time. And with the looming possibility of a Y2K credit crunch, they may not even be able to stay in business by going into debt.
The biggest potential loophole for defendants to be found in the Y2K Act certainly seems to be the clause stating that a plaintiff cannot file a case until the potential defendant has been notified and given time to fix the problem. This implies that in the case of a truly insidious bug, which does not manifest in the testing a company is capable of performing, a bug that does not become apparent until it is already exerting a crippling influence on the company's business, the supplier would not be liable for even the economic loss suffered while the bug is being fixed. This essentially places small businesses in a position where they are powerless to avert disaster before it happens, and where those who could have prevented it through producing a better product or detecting the faults and fixing them before disaster struck have no liability for the destruction their faulty product has caused.
In defense of the bill, the Senators who support the Y2K Act point to the bigger picture: the possible shutdown of both the court system and the world economy. They cite the need to encourage cooperation instead of litigation, and argue that the way to do this is by making litigation more limited, and rewarding efforts to fix the problem with limited liability. Rep. David Dreier, co-sponsoring a virtually identical bill in the House of Representatives, says that this kind of legislation will "replace the adversarial blame game with the kind of private sector cooperation that will get this problem solved in the best tradition of American ingenuity" [CNN99].
The Act, having passed 11-9 in a Republican-majority
committee that split down party lines, is now before the Senate. A similar
bill that would, in addition, limit lawyers' fees to $1000 per hour, is
before the House. If a bill like the Y2K Act is passed, it will doubtless
have a great effect on litigation in the near future. Senator McCain is
determined to see the bill passed, and states that he is willing to see
it amended, but "not willing to permit delay to defeat the purpose of the
bill" [Ent99].
Thus, the future of litigation with respect to Y2K
failures within the U.S. lies to a great extent in the hands of Congress
and the President. Little precedent has been set in the courts, with most
significant cases settling out of court thus far. If the Y2K act, or other
similar litigation is passed, it will drastically affect the flow of money,
and perhaps the fate of the American, and thus the world economy in the
next few years. Whether such legislation would help maintain stability,
and at what cost, remains to be proven.
Here we can see the impact that the Act may have on affected parties with limited resources. Is this sort of litigation equitable for the small businessman undergoing Y2K failures in products he purchased with spoken guarantees from larger companies? Perhaps not. Is it necessary to stem the flood of litigation that threatens to carry our court system and indeed our entire economy out to sea? Perhaps. So where does the balance lie? We must acknowledge that the solution to the Y2K litigation problem may require us to compromise some of our national ideals of justice and fairness in order to avoid major economic recessions and even collapse.
The Executive Order
In an Executive
Order issued on February 4, 1998, President Clinton formally acknowledged
the seriousness and pervasiveness of the Y2K problem. The President
prefaced the Order with the recognition that citizens should be able to
have trust in their government to provide reliable and accurate services.
Unlike consumers in a capitalistic society such as ours who have direct
control and more numerous options from which to choose, a government is
an institution that greatly influences our lives with little alternative
if one wishes to remain in this country. To this end, the Executive
Order enumerates a policy to which all Executive Branch agencies will adhere.
The first statement assures that no critical Federal program controlled
by an agency of the Executive branch will falter due to a Y2K problem.
Rather than promise that the agencies strive for compliance, Clinton promises
compliance, a more definitive statement. Given the government's reliance
on interconnected computer systems and the fact that, besides the Social
Security Agency, most government agencies started preparing for the millennium
within the past couple of years, this statement seems over expectant of
the capabilities of the bureaucracy.
Recognizing the pervasiveness of the Y2K threat, the policy also emphasizes the importance of cooperation in surviving the Y2K threat intact. Because the interdependent nature of computer systems and the different parts of society, Y2K is not an every man for himself type of threat. Consequently, the Order declares that the Executive agencies will "assist and cooperate" with the different levels of government, specifically, State, local and tribal. An interesting clause is inserted here to narrow the scope of the Federal government's responsibility:
In addition to the Policy, the Executive Order created a mechanism to further bring the desire for compliance into reality. This mechanism, the Year 2000 Conversion Council, lends more concrete support to the idea that the Y2K problem is of utmost importance to the President and thus, by transference, to the nation. The Council's chair is given the duty of chief national and international spokesperson of the United States' status of Y2K readiness and reports directly to President Clinton at least quarterly. The Council members are composed of a representative from each executive department as well as other Federal agencies deemed important (as determined by the Chair). The Chair coordinates and oversees the progress of the agencies represented in the Council and determines what resources are and will be necessary on the path to compliance. Each representative is chosen for his/her responsibility, experience, and authority to gather and make available the necessary materials within his/her agency.
Once again we can see the integral principles of
cooperation and information underlying the Council. Besides the fact
that each agency is represented by a official, this official is required
to be experienced and have the authority to provide the Council with the
most complete information possible. In addition, the Chair reports
to the President frequently and directly. In fact, the President bestows
the position of "Assistant to the President" on the Chair.
Despite these definitive statements and delegation
of manpower, we question the real purpose of this Executive Order.
The parting clause, Section 5, puts a different spin on the content of
the Executive Order:
Even so, the Order is valuable not only because it
lends the Y2K problem the national importance it merits, though perhaps
a little late, but also because it elucidates the interdependent nature
of computer systems and thus the need for cooperation by all parties on
many levels to overcome the Y2K problem. It also places the exchange
of information at the top of the list of priorities.
The Year 2000 Information and Readiness Disclosure Act
We can see the same issues underlying the Year
2000 Information and Readiness Disclosure Act. Enacted on January
27, 1998, it has three purposes:
We can see how this Act, with its protections, promotes
the free dissemination of thorough disclosure. Unlike the Executive
Order, this Act lawfully enforces the idea of good will through reduced
liability. Because individuals and corporations will not be held
liable for statements made, exchanging information will not be so guarded.
But then we must look at the quality of the information being disclosed.
Consider this: In all the cases of exception, the burden of proof lies
with the claimant to provide "clear and convincing evidence". The
evidence that the claimant must conclusively provide is essentially the
past thoughts of the defendant. With such a burden of proof, the
makers of the statements are basically given free range just as long as
they do not have traceable (i.e. tangible) accounts of their deceptive
and/or fraudulent motivations. Even further, we see this in the definition
of Year 2000 Disclosure:
Where contract litigation is concerned, whether or not the Y2K Act is passed seems to be the most relevant issue. Certainly this will have a profound effect on who can sue whom, and what kind of damages plaintiffs can hope to be awarded. The ATLA's claims about the probable effects of the Y2K Act on small businesses which, based on legal precedent, seemingly should be able to sue their technology providers, are well taken. The elimination of joint liability could render impotent those without the resources to file - and win - suits against suppliers on several different fronts and levels. The cap on non-economic and punitive damages included in the bill would also drastically affect the kinds of cases brought to court: considering the difficulty currently involved in winning cases of this type, the cost of the case could easily exceed the award. The threats to both established precedent in the court system and the litigative power of small business are of particular interest.
With so much uncertainty surrounding the effects, both immediate and legal, of the Y2K problem, there is an understandable reluctance in companies of all sizes to disclose their status with respect to Y2K. Although new laws require disclosure, and a presidential mandate encourages it, many companies find themselves in "damned if we do, damned if we don't" cases, when they feel that the eventual effects of full disclosure would be more damaging than any costs litigation could bring upon them. Again, we see that the name of the game is dependency, and a chain of dependencies stands to break down if a company reveals that it is in shaky shape with Y2K.
Meanwhile, those companies attempting to bring their systems into Y2K compliance can face problems with infringing upon the copyrights, patents, and trademarks held by their hardware and software suppliers. Even if the supplier does not have the resources, inclination, or obligation to repair the system, particularly in the case of software, the user may be in a very tricky situation indeed if they try to salvage the system by doing the repair. This game is so legally tricky and expensive to lose that Carey Heckman was prompted to title a recent lecture given at Dartmouth College "Navigating the Y2K Remediation Minefield."
Finally, it is important to remember that whatever the outcome of legislation and whatever the conventions of practice in these three areas, the laws will vary from nation to nation, so that the conventions adopted by international courts may be profoundly different than those adopted domestically in the United States. And because of our complex, small, and highly interconnected world, these, too, will affect the U.S. citizenry.
Between these three areas, we must conjecture that precious little of the private sector will not be directly involved in some sort of Y2K lawsuit, and that everyone will be in some way affected by this glut of litigation. Our world will change, however these cases are decided. We can only trust in our democratic system and the responsibility of our citizens and elected officials to ensure that proper legislation stands, and that it is administered to serve the best interests of society and for the equitable treatment of both plaintiff and defender.
We would also like to thank Professor David Kotz of Dartmouth College for his guidance in determining the scope of the paper, and for his editorial help.
| [ATLA99] | Association of Trial Lawyers of America. Web Site. The Bug That Bit Small Business. Visited12 Mar. 1999. |
| [Bou1856] | John Bouvier. Bouvier's Law Dictionary 1856 Edition. Childs and Peterson, 1856. |
| [CNN99] | CNN Interactive. Legislation aims to keep Y2K bug out of the courtroom. 23 Feb. 1999. |
| [DeJ99] | Peter de Jager. Y2K: So many bugs... so little time. Scientific American, 280(1):88-93, January 1999. |
| [Ent99b] | Adam Entous. U.S. Senate takes First Step To Curb Y2K Lawsuits. Yahoo! News, 4 Mar. 1999. |
| [Exe98] | William Clinton. Executive Order. 4, Feb. 1998. |
| [Ger98] | German Federal Government. The Year 2000 Problem in Information Technology.1998 |
| [Kie99] | Brett Kiefer. Personal communication with Carey Heckman. |
| [Lav99] | Louis Lavelle. Suit accuses Lucent, AT&T of Y2K bungle. The Record Online. 4 Feb. 1999. |
| [Law99] | Lawyers.com online glossary |
| [Man97] | J. Fraser Mann and Alan M. Gahtan. The Year 2000 Bug: Legal Issues. Information & Technology Law, Volume 2, No. 1, Sept. 1997. |
| [McC99] | John McCain. Senate Web Site. S.96: Y2K Act (Introduced in the Senate). 9 Feb. 1999. |
| [Muk99] | Sougata Mukherjee. U.S. Chamber lobbies Congress for Y2K court. Austin Business Journal, 4 Jan. 1999. |
| [Nor98] | Gary North. Gary North's Y2K Links and Forums:Litigation. Web Site. Visited 20 Feb.1998. |
| [Par97] | Brian P. Parker. Complaint: Produce Palace International v. TEC-America and All American Cash Register. |
| [S.2392] | Year 2000 Information and Readiness Disclosure Act. 27, Jan. 1998. |
| [Str99] | Paul A. Strassman. The battle of the millennium: CIOs vs. lawyers. Computerworld, 4 Jan. 99. |
| [Wil98] | Richard D. Williams. The Bad Samaritan Law. 02, Nov, 1998. |
| [Yar99] | Mike Yarsike. "Y2K
Defect Wasn't So Sweet For My Fruit Store." ATLANet. Visited12 Mar
1999.
|