Opening Statement of Eleanor Acheson (DOJ).
Re: Senate Judiciary Committee hearing on S 461, the 'Year 2000 Fairness and Responsibility Act.'
Date: March 1, 1999.
Source: Senate Judiciary Committee.

Testimony of Eleanor D. Acheson
Assistant Attorney General
Year 2000 Fairness and Responsibility Act
March 1, 1999 10:00 am

Good morning. I appreciate the opportunity to appear before the Committee on the Judiciary to express the Justice Department’s very preliminary views regarding the proposed Year 2000 Fairness and Responsibility Act.

Introduction

The Year 2000 Fairness and Responsibility Act (“the Act”) was introduced last Wednesday. As many components of the Department are still in the process of considering its provisions, my testimony today will outline only the Department’s initial reactions to some of the Act’s more significant provisions.

The Administration has no quarrel with the objectives of this legislation insofar as it seeks to curtail frivolous Y2K actions and to encourage companies and individuals to focus their efforts on fixing Y2K problems before they occur. In crafting legislation to serve these objectives, however, we must be careful not to bar small businesses and consumers who have legitimate Y2K claims from the courts and not to create disincentives to Y2K readiness. We must also be mindful that Congressional amendment of state substantive laws, as well as state procedures and practices, is not a step to be taken without real and compelling reasons. And, even in such circumstances, there may be constitutional and significant federalism policy reasons to avoid those extraordinary means.

With these principles in mind, this proposed legislation raises a number of questions for us to consider. First, does the legislation support – or does it undercut – the incentives that encourage companies to fix Y2K problems now (thereby avoiding costly malfunctions before they occur)? Second, has the factual predicate been established for the unprecedented changes that would be wrought by this bill, including the wholesale rewriting of state law? Prior litigation reform measures have been based upon detailed study by both Houses of Congress and have been justified by demonstrated abuses. Before acting with respect to Y2K litigation, we should be comfortable in our estimation of what type of litigation is likely to arise, who the parties are likely to be, and which sectors of the economy are likely to be affected. If, for example, Y2K failures involving large businesses may be resolved more by negotiation than litigation, a bill directed primarily at Y2K litigation between such businesses might well be unnecessary. The need for justification is even more pressing when the legislation imposes dramatically different rules upon a relatively discrete subset of cases that are in many respects similar to those cases not affected by the legislation. Third, is the legislation targeted at frivolous lawsuits or will it prevent businesses and consumers with legitimate claims from vindicating their rights? Fourth, does the legislation comport with the Constitution and do so in a way that forecloses reasonable challenges to its constitutionality? Finally, would the legislation create more public policy and practical implementation problems than it would solve? While we share with the desire to act responsibly and expeditiously in this context, we feel it is important to answer these questions thoughtfully before enacting any legislation.

We have yet to answer any of these questions fully with respect to the bill before the Committee. But our preliminary analysis indicates that this bill would be by far the most sweeping litigation reform measure ever enacted if it were approved in its current form. The bill makes extraordinarily dramatic changes in both federal procedural and substantive law and in state procedural and substantive law. For all of the issues we have identified with the current bill, the Department is absolutely committed to working with the Committee to craft an appropriately tailored bill that responds to genuine Y2K-related litigation problems.

I will now outline the Department’s initial thoughts on the current bill, and will begin with the provisions that alter substantive law affecting Y2K claims.

Modification of Pre-Existing Y2K Contracts

Title II of the Act amends federal and state contract law as it applies to “year 2000 claims” and, in so doing, effectively modifies the terms of already-negotiated contracts and existing contractual relationships. Most of these provisions appear to narrow, and in some cases eliminate entirely, the grounds and extent of relief available in breach-of-contract actions.

Section 202 of the Act, for example, appears -- either intentionally or unintentionally -- to create a “reasonable efforts” defense in Y2K contract actions that would allow a defendant who had otherwise breached the terms of a contract to show that the efforts it took to implement the contract were “reasonable” so that it could “limit[]” or “eliminat[e]” its liability. As far as we are aware, this would be a novel defense in contract law. As a general matter, a party to a contract is obligated to fulfill its promises and is liable to the other party for damages to the latter resulting from the former’s breach of the contract absent force majeure or other extremely rare circumstances. It does not matter whether the party breaching the contract made reasonable efforts to avoid a breach. This widespread rule of basic contract law has been in existence for hundreds of years in the common law, is currently reflected in our contract statutory schemes (e.g., the Uniform Commercial Code), and is essential to commerce.

In a similar fashion, § 201 of the Act would require a court, unless there is some defect in the formation of the contract, to enforce all written terms of a contract, even if those terms disclaim certain kinds of warranties, are unconscionable, or render the contract an unenforceable “adhesion contract.” Most state legislatures, however, have adopted some version of the Uniform Commercial Code (“UCC” or “the Code”), which renders unenforceable in commercial contracts certain warranty disclaimers, as well as unconscionable contract terms and “adhesion contracts.” These sections of the Code are designed to protect both individual and business consumers from particularly egregious contract terms imposed upon them by contracting parties with far greater economic power. The Act would appear to validate such terms, even though they were ineffective or illegal at the time they were made. Following in much the same pattern, Title II “freezes” the state law regarding the defenses of impossibility and commercial impracticability -- and, in some cases, damages -- to what it was on a specific date in the past: January 1, 1999 (for the defenses) or the time of contract formation (for damages).

Some of the provisions of Title II may be unfair both to American business and to American consumers. Creating a post hoc “reasonable efforts” defense that absolves parties to Y2K-related contracts of their contractual obligations seems to be unfair to the contracting plaintiffs who bargained – and paid – for contract compliance by the other party. That a breach resulted from a Y2K malfunction does not change the fact that the proposed reasonable efforts defense deprives parties to a contract of their paid-for bargain. Similarly, mandatory enforcement of only the written terms of a contract will upset the expectations of those businesses and consumers who relied upon the UCC for protection against unconscionable terms and illegal disclaimers. Together, these provisions seem extremely unfair and may, in many cases, leave without any remedy legitimately aggrieved plaintiffs who prudently bargained for protection against Y2K failures.

The reasonable efforts defense, in particular, appears also to undercut the incentives for potential contract defendants to discharge their contractual duties to prepare for – and prevent – potential Y2K errors. Presumably, under most bargained-for contracts, these defendants would be fully liable for a breach of contract if Y2K malfunctions occur; as modified by the Act, these defendants would be able to reduce or avoid liability, even if Y2K errors occur, as long as they made “reasonable efforts” to implement the contract. By curtailing the extent of their contractual liability, the Act may also curtail their incentives to meet the terms of the contract. Thus, the Act may actually fail to serve its own avowed purpose – “giv[ing] all businesses and users of technology products reasonable incentives to solve year 2000 computer date-change problems before they develop.”1 John Koskinen, the Chairman of the President’s Y2K Council, expressed these same concerns about the bill as currently written in his letter to this Committee.

We also preliminarily note that Title II may implicate constitutional interests and issues. There may be contracts for which a legislatively imposed post hoc reasonable efforts defense would raise issues under the Takings Clause of the Fifth Amendment. Contracts for computer services or software often contain explicit allocations of responsibility for remedying defects. Businesses that paid for maintenance and for commitments by vendors to remedy software defects, including defects that might cause Y2K failures, could file claims for compensation from the government if federal legislation invalidated those commitments. Title II’s requirement that state courts in some circumstances apply substantive state law as that law existed on a particular date in the past may also raise some constitutional concern. These provisions effectively deny to state legislatures (and apparently state common law courts) the power to modify their own substantive law as they see fit to respond to changing circumstances.

Finally, Title II raises some fundamental policy and practice implementation problems that bear greater consideration. Initially, it is not clear how modifying the rules of liability that apply to meritorious contract actions will necessarily deter frivolous Y2K claims, which by definition will be filed regardless of the rules of liability. Moreover, the provisions requiring enforcement of all written contract terms would seem to displace the judgment of nearly all state legislatures that certain types of contract terms in commercial contracts are against public policy. We strongly question whether sufficient study has been made to justify hastily discarding a principle of contract law that has become a cornerstone of consumer protection in so many states for very good reasons. In the same vein, requiring courts to apply state law as it existed at some date in the past withdraws from states their authority to respond reasonably to changing circumstances. The Act may also require courts to apply state law to various parts of a contract from three different time periods -- the current law, the law as of January 1, 1999, and the law at the time of contract formation. This would, at a minimum, complicate what might otherwise be a relatively straightforward application of state contract law.

Modification of Substantive Tort and Other Civil Law

Title III of the Act modifies federal and state substantive tort law (and other civil law) as applied to “year 2000 actions” for money damages not involving personal injury. The various sections place a greater burden of proof upon Y2K plaintiffs in these lawsuits, create new defenses, and significantly limit the damages that may be recovered. Several sections appear to preclude liability or recovery even when a defendant is clearly at fault. Is it sound policy for Congress to displace state law in such a dramatic way?

Sections 302 and 303 significantly alter the rules of liability for Y2K actions involving money damages. Section 302, for example, appears to foreclose some Y2K actions premised on a theory of negligence. Under ordinary principles of tort law, some Y2K negligence claims are likely to require proof that the defendant “should have been aware” of the potential Y2K failure and/or its likelihood to injure the plaintiff. Section 302(a), however, requires the plaintiff in any cause of action requiring proof of the defendant’s actual or constructive awareness to prove that the defendant was “actually aware” or “recklessly disregarded a known and substantial risk.” This “recklessness plus” standard would seem to preclude any such claim premised on culpability short of recklessness – that is, the standard appears to exclude negligence.

Section 302 clearly would require plaintiffs to satisfy a greater burden of proof in their civil actions. Instead of prevailing upon proof of their claims by a “preponderance of the evidence,” Y2K plaintiffs would have to establish the critical elements of their actions – the defendant’s knowledge and foreseeability – by “clear and convincing evidence.”

Similarly, § 303 erects a “reasonable efforts” defense similar to that contained in Title II. This section provides a complete defense to liability -- no matter how much the defendant was at fault (for example, the defendant could have recklessly disregarded a known risk of Y2K failure). Such a defendant would have no responsibility for the damages suffered by the plaintiff as long as the defendant made reasonable, albeit unsuccessful, efforts to fix the defect.

Section 104, while titled “Duty to Mitigate,” appears to create two more new defenses – one complete and one partial – neither of which bears much resemblance to the common-law duty to mitigate. At common law, plaintiffs are not usually permitted to recover from defendants any damages they could reasonably have avoided after they are injured. By contrast, § 104(a) seems to bar recovery of any damages if a defendant can show that the plaintiff should have known of information that “could reasonably” have aided the plaintiff in avoiding the injury upon which his Y2K claim is based. Even when § 104(a) does not act as a complete bar, § 104(b) seems to preclude recovery for those damages that could have been avoided by consulting this Y2K information. By imposing an affirmative duty on Y2K plaintiffs to seek out publicly disseminated information or else lose their right to maintain an action at all, § 104 sweeps far beyond the fairness concerns that animate the common law duty to mitigate. Again, these defenses would appear to be available even when the defendant was clearly at fault.

Other portions of Title III significantly curtail the types and amount of damages a Y2K plaintiff may collect should he prevail in establishing liability. Most dramatically, § 305 would appear to foreclose the recovery of “economic losses” – that is, financial damages that flow from the defendant’s tortious activity – unless they are incidental to personal injury or property damage claims. This provision apparently grants defendants full immunity from civil suits involving fraud and misrepresentation (including securities fraud), where financial loss is unlikely to be unaccompanied by any personal injury or property damage. Indeed, this section appears to preclude recovery in any case that does not involve personal injury or damage to tangible property.

Additionally, § 304 caps the punitive damages that may be awarded on Y2K claims, limiting damages against most defendants at the greater of $250,000 or three times the plaintiffs’ actual damages, and limiting damages for individuals and small-business defendants at the lesser of $250,000 or three times the plaintiffs’ actual damages. Section 306 would apply in suits against corporate directors and officers and would cap their personal liability in Y2K actions at the greater of $100,000 or their past 12-months’ compensation, as long as they did not intentionally make misleading statements or withhold material information with the specific intent to harm the plaintiff. This latter standard likely would not often, if ever, be met, so the cap on liability would apply in almost every case, even those in which fraud were proved.

Title III may also significantly impact whether a prevailing Y2K plaintiff will actually be able to recover his damages. Section 301 provides that a Y2K plaintiff may recover from each defendant only the amount of damages that defendant was responsible for causing. This would abolish all species of “joint and several liability,” which in varying forms permits tort plaintiffs to hold any one defendant responsible for more than its share of damages. Because Y2K malfunctions may be caused by the complex interaction of software programs and computer hardware from several defendants, § 301's rule of absolute proportionate liability will, at the very least, place a greater burden on plaintiffs who will be forced to track down all potential defendants in order to receive a full recovery. Moreover, because many of these software and hardware companies are mid- to small-sized companies that are created and dissolved with some regularity, it is more likely that the rule of “proportionate liability” will create “orphan” liability that cannot be assigned to any still-existing defendant. As a result, a small business forced to shut down temporarily because of Y2K malfunctions may not be able to recoup its losses, which may be essential if it is to remain in business. Small business owner Mark Yarsike, for example, testified to the Commerce Committee earlier this month that his fledgling grocery store would have failed had he not been permitted to recover the losses he incurred when he was unable to process credit cards expiring after 1999.

In examining these changes to substantive state law, the Department has a number of concerns. First, we are troubled that the need for some of these provisions has yet to be demonstrated. With regard to § 301's rule of “proportionate liability,” for example, the Department understands why a pure “joint and severable liability” rule may, on occasion, be deemed unfair to defendants, but only a handful of states currently follow such a pure rule. Instead, many limit a defendant’s “joint and several” exposure to certain defendants (for example, those who are at least X% responsible for the plaintiff’s injury) or to certain percentages (for example, X times the defendant’s proportional liability). As a result, we would urge the Committee to further investigate the need to foreclose modest forms of “joint and several liability” before resorting to an absolute “proportional liability” rule – which lies at the extreme end of the spectrum of potential options. We would also ask the Committee to consider further whether the case has been made for overhauling state law by abolishing recovery for most “economic loss.” Also, we are not yet convinced that it is necessary to cap the liability of corporate directors and officers, who are already protected in most states by the “business judgment rule” that insulates them – and the insurance companies who insure them – from liability as long as they act reasonably in governing the affairs of the corporation. Indeed, the practical effect of this provision might well constitute a windfall to insurance companies, who have been paid for unlimited coverage but will have to pay only up to the cap.

Second, it appears that a number of Title III’s provisions might provide disincentives to achieve Y2K readiness. Again, John Koskinen shares these concerns. Limiting a defendant’s liability by circumscribing his duty of care with a “reasonable efforts” defense may in fact undercut the incentives to take all necessary steps to make computer systems and other machinery Y2K-compliant. Although some of the proponents of the Act argue that limiting liability in advance gives potential defendants more incentive to fix Y2K problems now because they will get some “credit” for their “reasonable efforts,” this argument is unpersuasive to us at this stage. Given that the goal today is to get ready for Y2K problems before they happen, rewarding a person for only making “reasonable efforts” -- instead of fixing the problems completely – seems counterintuitive. By the same token, capping punitive damages for Y2K defendants would reduce the deterrent effect of those damages, and accordingly leave such prospective defendants with less reason to take action now to avoid Y2K problems before they occur. We share the sponsors’ worry about the potential effect of punitive damage awards on small business, but are concerned that an across-the-board cap may create the wrong incentives.

Third, we fear that some portions of Title III may, as a practical matter, have undesirable (and perhaps unintended) collateral consequences. As currently drafted, the bill covers civil actions initiated by government entities, including regulatory agencies. The SEC, for example, currently has responsibility for safeguarding the integrity of the securities markets, and towards that end has been active in bringing cases designed to promote timely Y2K compliance by market intermediaries.2 Title III, and § 306 in particular, would likely interfere with these SEC actions. The Act is also likely to engender confusion in private securities fraud actions, which are already covered by specialized provisions in the federal securities laws that contain liability protections, such as the 1998 Securities Litigation Uniform Standards Act and the 1995 Private Securities Litigation Reform Act. Overlaying an additional layer of liability protection on top of these existing protections threatens to create a confusing and possibly conflicting set of legal standards that would lead to more complex, prolonged litigation over which set of liability protection provisions applies. Title III’s comprehensive reform provisions may have a second, unintended effect – creating federal court jurisdiction over Y2K-related civil actions. Because it would amend rules to govern liability, and require courts to apply a federally prescribed rule that differs from the rule prescribed by current state law, the Act might be construed to create a federal question over which federal courts would have jurisdiction.

I have flagged some of the Department’s chief initial concerns regarding the provisions of the bill that amend the substantive law applying to Y2K-related claims. Indeed, the Act’s extensive amendments to state substantive law raises many unknowns about how Y2K litigation would operate under such a regime. For example, will small businesses and consumers injured by wrongful conduct still be able to obtain compensation for the harm that they suffer? The changes to current law appear to make it much more difficult, if not impossible, for small businesses and consumers to invoke traditional contract remedies, and significantly limit claims under statutory and tort law even in the face of reckless or intentional wrongdoing.

The Act amends state procedural requirements attendant to Y2K litigation as well, and it is to those provisions I will now turn.

Pre-Litigation Procedures

Title I of the Act would impose some pre-litigation obligations upon plaintiffs seeking to bring civil claims premised on Y2K malfunctions. Section 101 requires plaintiffs to notify potential defendants of their intention to file a lawsuit 90 days in advance, and requires defendants to respond by explaining what actions they have taken, or will take, to “cure” the Y2K defect that forms the basis for the plaintiff’s lawsuit. Section 102 encourages parties to use alternative dispute resolution mechanisms for resolving their Y2K claims. Section 103 imposes heightened pleading requirements on plaintiffs’ Y2K-related claims by mandating that they plead with particularity the facts supporting their allegations of material defects, their prayer for damages, and their proof of the defendant’s state of mind. Section 103 also stays discovery while any motion to dismiss based on failure to comply with these pleading requirements is pending.

The Department supports mechanisms that encourage parties to settle their disputes without litigation, and looks forward to working with the Committee in securing passage of appropriate provisions. We are not at this time convinced, however, that the need for heightened pleading requirements – or the need for stays of discovery pending a pleading-based motion to dismiss – has been established. We would welcome the opportunity to work with the Committee in exploring the need for these requirements and in fashioning a provision that avoids the constitutional concerns that arise from imposing procedural requirements upon state courts.

Federalizing Y2K Class Actions

The provisions of Title IV would grant the federal district courts jurisdiction (either original or by removal) over any Y2K-related class action as long as at least one of the defendants and one of the class plaintiffs are from different states. While the Act requires district courts to decline jurisdiction over certain Y2K class actions involving securities and grants them discretion to decline jurisdiction over class actions that involve primarily in-state parties and issues or that involve few plaintiffs or little money, it is unlikely that either of these discretionary grounds will be invoked very often. We note that these provisions are markedly similar to those contained in legislation proposed in the last Congress and to which the Department had significant objections. Title IV also imposes new and possibly onerous notification requirements on the class plaintiffs.

The Department is concerned about the practical effect of federalizing every class action that involves a Y2K claim. Granting defendants the power to remove all Y2K class actions to federal court may result in the dismissal of a number of meritorious class actions that would have otherwise proceeded to resolution in the state courts. It is possible that some Y2K class actions will be brought by primarily in-state plaintiffs who wish to apply their state’s law against defendants from the same state. While a district court might have discretion to deny this removal, it may not do so when defendants face a number of similar, single-state class actions. Instead, the court is likely to grant removal and consolidate the cases into a single class action under § 1407 of Title 28. In that case, the federal court hearing the now-consolidated class action will be required to apply the substantive law of several different states. While the differences in law may be ameliorated to some extent by the Act’s amendment of state substantive law, there will still be differences in the various states’ laws. The court would at the very least be obligated to spend time canvassing the substantive law of many states to determine whether a class action applying those laws presented any common legal issues. If, as is often the case, the states’ laws were sufficiently dissimilar, the court would find few common legal issues and would accordingly be unable to certify the class.3 Under this latter scenario, the Act requires that the class actions be remanded to their respective state courts, but stripped of their class allegations. For those plaintiffs whose individual claims are so small as to make an individual action impractical, relief would be unlikely (because any attempts to reconstitute the class in state court will again prompt removal, consolidation, and remand stripped of class allegations). Thus, granting defendants the power of removal effectively grants them the power to terminate meritorious state-based Y2K class actions and to leave large numbers of plaintiffs without redress for their legitimate Y2K-related damage claims.

Moreover, the Department is not yet convinced that the benefit to be gained by federalizing Y2K class actions outweighs the cost. Unlike Titles II and III that alter substantive state law, Title IV – by permitting removal and then remand stripped of class allegations – does little more than effectively impose federal procedural law on Y2K class actions. We do not believe that it is appropriate – or desirable – to supplant the state courts’ class action procedures. Because, in our federal system, states are encouraged to experiment and take different approaches to judicial administration and substantive law, the Act’s imposition of federal standards on state class actions may be perceived to be an attack on federalism itself and the Constitution’s allocation of authority between the state and federal governments.

Section 402 would impose a heightened notice requirement on Y2K class actions. Instead of the constructive notice now permitted in “opt-out” class actions under the Federal Rules of Civil Procedure, § 402 requires plaintiffs to send direct notice to every class member via first-class mail with a return receipt requested. If the plaintiffs cannot verify individual class members’ actual receipt of the notice, those members are excluded from the class unless they affirmatively “opt in” to the class action. This may severely cripple the ability of private parties to bring some legitimate class actions. For example, these notice requirements might preclude a securities class action premised on a fraud on the market theory because it is often impossible to identify (and hence notify) the victims of such schemes in advance. At a minimum, this new notice requirement imposes significant costs on the Y2K class action plaintiffs that no other class action plaintiff must bear, and is not guaranteed to provide any benefits.

Coverage

As a final matter, the Department has a number of concerns regarding the scope of the Act. For example, we are very concerned that the Act appears to cover Y2K lawsuits initiated by federal and state governments and their agencies, which are explicitly included within the Act’s definition of “person.”4 Applying the Act’s substantive and procedural limitations to these sovereigns may interfere with their ability to enforce their own laws. Title II’s modifications to state and federal contract law seem likely, for instance, to alter government contracts law significantly and, more specifically, the provisions of the Contract Disputes Act, which controls contract disputes involving the federal government. Title III’s modifications to substantive law in civil suits may have a similar effect on government-initiated actions under consumer protection statutes. The limitations on the financial liability of corporate officers and directors contained in § 306 may, as discussed above, curtail the SEC’s enforcement powers. The Department would urge this Committee to give fuller consideration to whether it is either necessary or advisable to reach Y2K actions in which governmental entities are parties, either as plaintiffs or defendants.

With respect to private litigation, we are concerned that the Act may reach more than Y2K lawsuits even though the stated purpose of the Act is to “encourage the resolution of year 2000 computer date-change disputes involving economic damages without recourse to unnecessary, time consuming, and wasteful litigation.”5 Titles II and III of the Act, which extensively modify state tort and contract law, apply to any “year 2000 claim.” As currently drafted, however, a “year 2000 claim” involves any cause of action or defense that directly or indirectly asserts “any failure by any device or system . . . or software . . . in processing, calculating, comparing, sequencing, displaying, storing, transmitting, or receiving date-related data including [Y2K data].”6 The term “including” strongly implies that Y2K date-related failures are simply one species within a larger universe of date-related failures covered by the Act. In that same vein, a “year 2000 claim” also includes any “failure to recognize or accurately process any specific date,” without limiting the coverage to Y2K problems.7 Title IV of the Act has a noticeably broader scope because it creates federal jurisdiction over class actions even if only one of the plaintiffs’ claims is a “year 2000 claim,” thereby subjecting non-Y2K claims to the provisions of the Act.

It seems very likely that even a well-tailored definition will invite considerable dispute over whether or not certain lawsuits are subject to the Act. Plaintiffs’ lawyers are likely to avoid styling their claims as “year 2000 claims,” and often will not know if a particular problem has indeed been caused by a Y2K failure. Conversely, defense lawyers will likely assert Y2K-related defenses in order to bring the claims under the terms of the Act. State and federal courts will then be forced to determine whether the Act, or normal state substantive law, controls. In light of the fact that the Act works great changes in state law, which may have a substantial impact on the outcome of any given Y2K-lawsuit, substantial disputes about the Act’s coverage are likely to be common and will occupy much judicial time, significantly adding to the length and complexity of civil litigation.

Even clear definitions are unlikely to aid courts forced to grapple with questions of the Act’s coverage when a single cause of action has both Y2K and non-Y2K bases. If, for instance, a building security system fails because a Y2K computer chip malfunctioned and the security company also failed to secure the emergency exit door, a court would still need to determine whether to apply the Act notwithstanding the contributing non-Y2K cause or whether (and how) to sever the claim given the two causes. Wasteful use of scarce judicial resources on these coverage issues seems inevitable, with greatly increased costs of litigation for both plaintiffs and defendants.

Concluding Remarks

In my testimony today, I have outlined the more important of the preliminary concerns of the Justice Department regarding the Year 2000 Fairness and Responsibility Act. As noted above, there are ideas in the Act – alternative dispute resolution and provisions for pre-notice filing with an opportunity to “cure,” to name two – that the Department would like to aid the Committee in developing and crafting into appropriate legislative provisions. While we have concerns about some of the other provisions in terms of constitutional issues, public policy, practicality, and their effect on Y2K readiness incentives, we are eager to work with the Committee to address these concerns.

In closing, let me say again that we are sympathetic to the need to act responsibly and expeditiously with any Y2K litigation legislation, but we believe that we need to know more about the nature and scope of any liability- or litigation-related problems that are likely to develop and with which current law, procedure, and practice would be unable to cope. Above all, we must do nothing that will undermine Y2K readiness. Accordingly, the Department urges the Committee not to act hastily. Rather, we urge you to reflect carefully before enacting legislative provisions, like the bill before you today, that would greatly alter the substantive and procedural law of the states with regard to Y2K lawsuits. Indeed, it would be useful to know the view of the states as to any novel approaches to Y2K liability or litigation and to study what the states are doing to prepare for Y2K lawsuits, as sufficiently responsive action by the states may obviate the need for Congressional action. We are committed to working with the Committee to formulate mutually agreeable principles that would form the basis for a needed, targeted, responsible and balanced approach to Y2K litigation reform.

I thank you for the opportunity to address this Committee.