Sponsors' Summary of S __, the Year 2000 Fairness and Responsibility Act.
Re: Year 2000 technology problem litigation.
Date: February 24, 1999.
Source: Senate Judiciary Committee. This document was created by scanning a paper copy, and then converting it into HTML.

SUMMARY OF THE
YEAR 2000 FAIRNESS AND RESPONSIBILITY ACT
Introduced by Sens. Orrin Hatch and Dianne Feinstein

PURPOSE OF THE BILL

The bill's main purpose is to promote Y2K readiness and remediation by discouraging a wasteful diversion of resources that would otherwise support readiness and remediation toward Y2K-related litigation. Such a costly diversion of resources could exacerbate the risk of nationwide economic dislocation that the Y2K problem poses. Accordingly, the bill aims not to prohibit Y2K-related litigation but to impose a slight delay in its commencement so as to promote resolution of Y2K problems and disputes without resort to litigation. This will benefit plaintiffs, defendants, consumers, businesses, and innocent users.

HOW THE BILL WORKS

Perhaps the most important feature of the new Y2K bill is that it provides for a waiting period before Y2K-related litigation may commence. The waiting period is designed to allow prospective plaintiffs an opportunity to describe the nature of the problem for which they seek a legal remedy and give the prospective defendants an opportunity to respond and, if necessary, correct any material Y2K defect. In no way does this provision deny any prospective plaintiff the right to sue; rather, it merely imposes a waiting period before any suit may be prosecuted and during which all discovery is stayed. It is hoped-but by no means required-that the parties may be able to resolve their disputes during the waiting period, thus forestalling the need for litigation.

SUMMARY OF THE BILL'S PROVISIONS

Pre-litigation Waiting Period (§ 101)

If a person aggrieved by a year-2000-related (Y2K-related) problem wants to file a lawsuit based on that problem, he must first provide the prospective defendant, at least 90 days before filing suit, with notice regarding how the Y2K defect manifests itself, what injury he suffered or risk he bore as a result, and what relief he seeks. The only exception to this mandatory 90-day waiting period is if the prospective plaintiff is party to a contract that provides for a period of delay before suit for breach of contract may commence. In that case, the contract's waiting period prevails over the bill's.

if the prospective plaintiff fails to give notice to the prospective defendant, as outlined above, and sues anyway, the defendant can treat the plaintiffs lawsuit itself as a substitute notice, thus triggering the 90-day waiting period. If the 90-day waiting period is triggered by an actual lawsuit (instead of the notice) all discovery will be stayed and pleading deadlines will be tolled for the duration of the period.

The bill imposes responsibilities on prospective defendants as well as plaintiffs. if a defendant has been given notice, as outlined above, he must respond to this notice within 30 days of receiving it. In this response, the prospective defendant must state in writing his acknowledgement of receipt of the notice and what actions he will take or has taken to address the Y2K problem identified in the plaintiff s notice. Even if the plaintiff has not given notice and the defendant treats his actual lawsuit as substitute notice, the defendant must still respond to that notice within 30 days with all required particulars.

If the defendant fails to respond to the plaintiff s notice, then the waiting period terminates at the expiration of the defendant's 30-day response deadline; the lawsuit can then proceed.

Also of particular significance, the 90-day waiting period may be extended as part of mutual agreement of the parties to engage in alternative dispute resolution. See § 102(a).

Pleading Requirements (§ 103)

The bill requires all Y2K plaintiffs seeking money damages to make a detailed statement in their lawsuits of the nature and amount of the damages they seek to recover, specific facts that form the basis for calculating those damages, and how material Y2K defects manifest themselves. In addition, if the claim being pursued requires proof that the defendant acted with a particular state of mind, the plaintiff must "state in detail the facts giving rise to a strong inference that the defendant acted with the required state of mind."

The bill allows the court to dismiss a Y2K lawsuit that fails to meet the above pleading requirements. However, the plaintiff can re-file his lawsuit with the required detailed statements and still get a chance to pursue his claim.

Duty to Mitigate (§ 104)

This provision codifies the common-law rule that bars recovery of damages for injuries that the plaintiff could reasonably have been avoided.

Contract Defenses (§ 202(a))

This provision creates a reasonable-efforts defense, by which a defendant can mitigate or avoid entirely liability for breach of contract if his performance was "reasonable in light of the circumstances."

Contract Damages Limit (§ 203)

Contract damages are limited either to those provided for in a liquidated damages clause or by operation of law that governed the contract's interpretation at the time of contract formation.

Proportionate Liability in Tort Cases (§ 301(b))

This provision essentially codifies the doctrine of pure comparative negligence in that it requires the court to assign a percent share of liability to each person determined to have caused or contributed to the plaintiff s loss in proportion to the relative fault of each. Personal injury cases are exempt from this provision.

State of Mind and Foreseeability Requirements in Tort Cases (§ 302)

This provision requires, in cases that require proof of some state of mind, that the plaintiff prove by clear and convincing evidence one of three elements: (1) that the defendant "actually knew, or recklessly disregarded a known and substantial risk, that [a Y2K] failure would occur-" (2) that the defendant "actually knew, or recklessly disregarded a known and substantial risk, that plaintiff would suffer [actual or potential] harm; or (3) that the defendant "knew or reasonably should have known that its actions would cause harm to the plaintiff.". Personal injury cases are exempt from this provision.

Reasonable Efforts Defense in Tort Cases (§ 303)

Under this provision, a plaintiff may not recover simply by showing that a Y2K failure occurred in something that was under the control of the defendant. Also, the bill provides the defendant with a complete defense to liability if he can show that he took reasonable efforts under -the circumstances to prevent the Y2K failure or its attendant damages. Personal injury and breach of contract cases are exempt from this provision.

Tort Punitive Damages Limit (§ 304)

This provision limits punitive damages to either: (1) lesser of three times actual damages or $250,000 for individuals whose net worth is $500,000 or less and for small businesses; or (2) the greater of three times actual damages or $250,000 for all other defendants. Personal injury cases are exempt from this provision.

Limit on Economic Loss Recovery in Tort Cases (§ 305)

This provision essentially codifies the common-law economic loss rule. Accordingly, the provision allows recovery of economic losses only when permitted by statute or judicial decision and (1) where permitted under a contract to which the plaintiff is a party; (2) where permitted under applicable law that governed interpretation of the contract at the time of contract formation; (3) when they are incidental to a Y2K-related personal injury claim; or (4) when they are incidental to a Y2K-related property damage claim.

Liability of Officers and Directors (§ 306)

This provision limits the personal liability of corporate officers and directors to the greater of $100, 000 or the amount of cash compensation such officer or director received in the year preceding the act or omission for which he was found liable. This limitation on personal liability does not apply where it is proven by clear and convincing evidence that the officer or director specifically intended to harm the plaintiff by (1) intentionally making materially misleading statements on which the plaintiff relied or (2) intentionally withholding material information regarding a Y2K failure that he had a duty to disclose. This provision expressly does not preempt State law on liability of officers and directors.

Class Action Requirements

Regarding Y2K-related class suits, the bill allows these actions to proceed only if a majority of class members' claims involve material defects. Also, only those individuals who have actual notice, as certified by the court, of the suit are entitled to join the class, unless they inform the court in writing prior to commencement of trial or entry of judgment of their desire to join the class.

Finally, the bill changes the requirements of Federal jurisdiction for Y2K-related actions in three respects: (1) there is no amount in controversy requirement for Federal diversity jurisdiction; (2) diversity of citizenship can be established as to any member of the class, not just the named members; and (3) plaintiffs as well as defendants can remove Y2K-related actions from State court to Federal court.