Sponsors' Summary of HR ___, Year 2000 Readiness and Responsibility Act.
Re: Year 2000 technology problem litigation.
Date: February 23, 1999.
Source: Office of Rep. David Dreier (R-CA). This summary was written by the staff of sponsors of the bill.

Year 2000 Readiness and Responsibility Act
Bill Summary

The Year 2000(Y2K) Readiness and Responsibility Act creates a legal framework by which Y2K-related disputes will be resolved. It is specifically designed to help consumers by creating incentives for businesses to address the Y2K computing crisis. This crisis presents a unique set of circumstances and its remediation requires urgent action. Time is currently the enemy to consumers and efforts to ensure that they are not negatively affected by Y2K-related problems cannot afford to be slowed down or obstructed by lawsuits.

Undoubtedly, consumers will be negatively affected if this emergency they are confronted with is not addressed. The Y2K Readiness and Responsibility Act will create an environment that promotes efforts to fix Y2K-related problems, as opposed to an environment of fear that will restrict those essential efforts. Below is a section-by-section summary of the Y2K Readiness and Responsibility Act:

Year 2000 Computer Failure Loan Guarantee Program—Small business will be able to receive up to $50,000 in federal partially guaranteed loans to fix their Y2K computer failures.

Suspension of Penalties for Certain Year 2000 Failures by Small Business Concerns—If a year 2000 failure causes a small business to become a first-time violator of a Federal requirement regarding the collection of information by a Federal agency, then the agency cannot impose a civil penalty on that business unless certain exceptions apply.

Attorneys Fees—Attorneys in year 2000 actions cannot earn a contingent fee greater than the lesser of the attorney’s hourly billings (not to exceed $1000 per hour) or an agreed upon percentage of the total recovery. Furthermore, an attorney billing on a non-contingent fee basis cannot receive a fee greater than $1000 per hour. At the beginning of a year 2000 class action, the presiding judge decides the appropriate hourly rate (not to exceed $1000 per hour) and the maximum percentage of the recovery (not to exceed one third of the recovery) to be paid in attorneys fees.

Alternative Dispute Resolution—Parties are encouraged by this legislation to resolve their Y2K disputes through alternative dispute resolution mechanisms.

Pleading Requirements—Plaintiffs must clearly and specifically plead the facts of their Y2K cases when seeking money damages. This is to ensure the clear identification of the symptoms of the year 2000 defect as well as the nature and amount of the damages claimed by the plaintiff.

Damages Limitations—In order to be liable for punitive damages, a plaintiff must show by clear and convincing evidence that the defendant specifically intended to cause the injury to the plaintiff. Any punitive damages that can be assessed against a defendant are limited to the greater of three times actual damages or $250,000, or for small companies (those with less than 25 employees), to the lesser of three times actual damages or $250,000. This limitation does not apply to claims for personal injury.

In breach of contract and warranty cases, the plaintiff can only recover damages expressly provided for by the contract or if the contract is silent on that point, then the only allowed damages are those authorized under applicable law at the time the contract was entered into.

Proportional Liability—In tort actions, other than claims for personal injury, each defendant is only liable for the plaintiff’s loss in direct proportion to such defendant’s responsibility for the harm.

Pre-Trial Notice—Before filing a lawsuit, potential plaintiffs would have to give written notice identifying their Y2K concerns and provide potential defendants with an opportunity to try to fix the Y2K problem outside of the courtroom. The potential defendants would have to respond within 30 days, detailing what actions they have taken or will take to fix the problem. If they deny responsibility or fail to respond, a lawsuit could be filed right away, but if the potential defendants agree to fix the problem, they would have 60 additional days to do so. Once the 60 days expire, if the plaintiffs are not satisfied, they could still file a lawsuit. This provision is expected to accelerate the remediation process if failures occur, and thereby eliminate the need for many lawsuits.

Duty to Mitigate—As an incentive to fix year 2000 problems before they occur, damages awarded in a year 2000 action must exclude any damages that the plaintiff could reasonably have avoided.

Contract Preservation—Except when a court finds a written contract as a whole to be unenforceable, the terms contained in the contract are fully enforceable. When interpreting a contract, the court would have to use the law in effect at the time the contract was entered into.

Defenses—In breach of contract actions, the defendant may introduce evidence that its implementation of or efforts to implement the contract were reasonable in light of the circumstances. This evidence can be used to limit or eliminate a defendant’s liability. The contract defenses of commercial impracticability and impossibility are preserved as of January 1, 1999.

State of Mind and Foreseeability— There will be no strict liability for a Y2K problem.

Reasonable Efforts Defense—Defendants cannot be held liable in tort or other non-contract actions if they establish that they took reasonable steps to prevent the year 2000 failure. This provision will encourage remediation.

Exclusivity of Contract Remedies—The provision codifies the common law economic loss rule. A plaintiff cannot recover economic losses in a tort action unless the contract between the plaintiff and defendant expressly allows for their recovery, or there is either personal injury or damage to tangible property.

Liability of Officers and Directors—The personal liability of a business’ directors or officers for any damages resulting from their company’s liability for year 2000 failures cannot exceed an aggregate amount of the greater of $100,000 or the amount of cash compensation they earned from the business in the previous twelve months.

Minimum Injury Requirement—A majority of the members of a class in a year 2000 class action must have suffered a real injury before a year 2000 class action can be brought.

Notification—In a year 2000 class action, the court must verify that the class members actually received notice of the action. The class members whose receipt of the notice cannot be verified must be excluded from the class.

Dismissal Prior to Certification—In a year 2000 class action, the court may dismiss the case prior to certifying the class.

Federal Jurisdiction in Year 2000 Class Actions—This legislation grants the U.S. district courts original jurisdiction over any year 2000 class action where a plaintiff is a citizen of a State different from any defendant.

Y2K Liability FAQ

Frequently Asked Questions & Answers on the “Year 2000 Readiness & Responsibility Act”

What is the Y2K problem?
The Y2K computer problem potentially affects every computer system that uses date information. It arises from computer programs designed to process year dates with only the last two digits used, such as “00” for “1900,” and which thereby may misread dates after the year “2000.”

Why is it such a big deal?
Modern life is very dependent on computerized systems. Whether a person is trying to use an ATM, make a long distance phone call or simply get a muffler for their car; a computer is usually involved in the process. This makes a technical glitch as universal as the Y2K bug a potentially major problem for the delivery of almost all goods and services.

What is “Y2K Liability Legislation?”
The Year 2000 Readiness and Responsibility Act is a bipartisan attempt to help computer users responsively solve their Y2K computer problems and avoid potential disruptions that could affect millions of American businesses and consumers. The bill’s narrowly tailored legal reforms protect the right of Americans to sue for damages, while limiting excessive legal strategies that directly hinder good faith efforts to solve the problem. A broad based coalition of almost 100 associations and companies supports the legislation, from corporations to small business groups to technology firms.

Who is really at fault for the Y2K computer problem?
Assigning blame for the Y2K computer problem is difficult, because it’s essentially a technical programming issue based on decisions made decades ago. At the time, any amount of data was expensive to save within electronic systems, therefore, even removing the century from a date saved valuable memory space. Unfortunately, no one had any idea that the programming decisions made decades ago would still have an effect on computer systems today.

Isn’t the real purpose for Y2K liability legislation to protect businesses and corporations from the costs of being shortsighted and unprepared?
No, because those who have been irresponsible and negligent can still be held liable. However this Y2K liability reform legislation provides incentives to both potential plaintiffs and defendants to work together on solutions. In fact, the broad based coalition that supports the bill is made up of many private sector firms who are likely to be plaintiffs in Y2K, but who all agree that the bill creates fair ground rules for Y2K litigation.

What are some of the specific legal changes?
While consumers and businesses will continue to able to sue for Y2K related losses, punitive damages will be limited to three times the value of actual damages, or $250,000, whichever is greater when suing large corporations, or smaller when the defendant is a small business. The bill requires prospective defendants receiving notice of Y2K litigation to respond within 30 days, including a description of the actions to be taken to address the problem. It requires plaintiffs to take reasonable steps to avoid failures they know are likely. It also establishes a 90 day pre-trial notice period for dealing with Y2K-related problems, limits attorney fees to $1,000 per hour, encourages alternative arbitration options to reduce legal system overload, and links the share of damages a defendant must pay to their contribution to the failure. Finally, the bill sets a federal standard for Y2K liability, thereby removing much of the confusion with differing state standards.

What’s wrong with the current legal framework?
Unfortunately, the current legal framework is not designed to deal with a “once in a lifetime” universal problem like the millennium bug. In particular, it is not designed to foster a universal problem solving approach. The deterrent aspect of punitive damages, which are intended to avoid a recurrence of the conduct in question, is not applicable in the Y2K case.

Isn’t this whole Y2K liability effort a distraction from actually fixing the glitch? Aren’t scarce resources being wasted?
No, in fact, reforming the Y2K liability structure will assure that more resources are devoted to fixing the problem. Efforts in support of Y2K liability legislation are a drop in the bucket compared to the resources Americans are pouring into fixing the problem. Policy makers establishing sound uniform standards will allow technical personnel to tackle the problem free from the constraints often imposed by their own legal counsel. This will assure that more resources are devoted to solving Y2K problems.

Are there any estimates as to how many lawsuits there will be and what they will cost?
The potential amount and costs of Y2K lawsuits are difficult to estimate. Many lawsuits may be individual while others will be class action suits with multiple plaintiffs. Undoubtedly, there will be thousands of suits, and potential litigation costs could easily run into the hundreds of billions of dollars. Clearly the more successful efforts are towards finding solutions, the less lawsuits will ultimately occur.

This FAQ information sheet prepared by the staff of the bipartisan sponsors of “The Year 2000 Liability Readiness and Responsibility Act”