Statement by Sen. John McCain (R-AZ). Re: McCain-Dodd Substitute Amendment to S 96, the Y2K Act. Date: June 9, 1999. Source: Office of Senate McCain. Hypertext links were added by Tech Law Journal.

WEDNESDAY, JUNE 9, 1999
FOR IMMEDIATE RELEASE
CONTACT:
PIA PIALORSI (202)224-2670
NANCY IVES (202)224-7130

McCAIN STATEMENT ON S.96, THE Y2K ACT

WASHINGTON, D.C. -- Following are the prepared remarks of Senator John McCain (R-AZ), Chairman of the Committee on Commerce, Science, and Transportation, for today's debate on S.96, the Y2K Act:

"I am pleased to offer a substitute amendment to S.96, the Y2K Act. This substitute amendment is truly a bipartisan effort. It represents spirited discussion, hard fought compromise, and agreement with a number of my colleagues on both sides of the aisle, lead by Senators Dodd, Wyden, Hatch, Feinstein, Bennett, Lieberman, Gorton, Lott, Abraham, Santorum and Smith of Oregon.

"I want to thank Senator Wyden for being one of the true leaders on this bill. He said at our committee mark-up that he wanted to get to ‘yes' and has worked tirelessly with me to get there. Senator Dodd offered an important perspective and provided excellent suggestions and comments which I think make this substitute we bring today a better piece of legislation. I am grateful to my colleagues, especially my good friend, the senior Senator from Connecticut, for the unflinching dedication to dialogue, to working through our differences and remaining focused on the common goal of enacting this critical piece of legislation. Without the leadership of Senators Dodd and Wyden, this bipartisan effort would not have been possible.

"I want to walk through the details of this substitute amendment, the background and history of this bill. But let me first summarize what this substitute contains. Specifically, this substitute amendment does the following:

Provides time for plaintiffs and defendants to resolve Y2K problems without litigation.

Reiterates the plaintiff's duty to mitigate damages, and highlights the defendant's opportunity to assist plaintiffs in doing that by providing information and resources.

Provides for proportional liability in most cases, with exceptions for fraudulent or intentional conduct, or where the plaintiff has limited assets.

Protects governmental entities including municipalities, school, fire, water and sanitation districts from punitive damages.

Eliminates punitive damage limits for egregious conduct, while providing small businesses some protection against runaway punitive damage awards.

Provides protection for those not directly involved in a Y2K failure.

Does not cover personal injury and wrongful death cases -- same as in original bill.

"The specific changes that this substitute makes from the version of the bill which Senator Wyden and I offered in April are those proposed by Senator Dodd: it eliminates the director and officer liability caps; eliminates the punitive damages caps for businesses with more than 50 employees; it provides that state evidentiary standards will be used in specific situations; and it preserves the protections provided in the Year 2000 Information and Readiness Disclosure Act of 1998.

"Let me be quite blunt. These revisions represent significant compromise. They move this bill a considerable distance from the Y2K bill which was passed by the House. Even with these compromises, I believe that the bill will accomplish the goals for the legislation -- to encourage remediation and prevention of Y2K problems, and eliminate frivolous and opportunistic litigation which can only serve to damage our economy. However, I do not believe that any additional compromises are necessary or warranted.

"I am committed to passing legislation which is effective. I am not interested in passing a meaningless facade. We would do the public a great disservice to claim victory in passing legislation which leaves loopholes for spurious litigation. If we aren't going to legitimately fix the problem, then we must be forthright with the public and tell them that it could not be done. I think that would be a disastrous result, but it would be more honest than to pretend to provide a solution and not.

"This bill deserves the support of every member of the Senate. It is fair, practical and legally justifiable. This bill is important not only to the ‘high tech' industry, or only to ‘big business,' but carries the strong support of small businesses, retailers, and wholesalers. The coalition of support for this bill is compelling. Yesterday a press conference was held to reiterate the support of the overwhelming majority of the nation's GNP -- the United States Chamber of Commerce, the National Association of Manufacturers, the National Retail Federation -- virtually every high tech industry association, including the ITAA, Business Software Alliance, and others participated to emphasize the need for the bill and for their support for the compromises which have been made.

"Many of those supporting the bill will find themselves as both plaintiffs and defendants. They have weighed the benefits and drawbacks of the provisions of this bill and have overwhelmingly concluded that their chief priority is to prevent and fix Y2K problems and make our technology work, not divert their resources into time consuming and costly litigation.

BACKGROUND OF NEED FOR THE BILL

"Let me remind my colleagues of how this legislation came to be, its genesis and rational. The origins of the Y2K problem was in the 1950's and 60's when computer memory was oppressively expensive. According to the February 24, 1999, report of the Senate's Special Committee on the Year 2000 Technology Problem, headed by Senators Bennett and Dodd, in the IBM 7094 of the early 60's, core memory cost around $1 per byte. By comparison, today's semiconductor memory costs around $1 per million bytes. Thus, there was a strong incentive to minimize the storage required for a program and data.

"A two-digit date code became the industry standard in order to economize on storage space. It was presumed that sometime during the 40 to 50 years before the end of the millennium the coding would be changed as computer memory became more accessible. Unfortunately, although memory costs fell dramatically, the interface requirements of old software with new discouraged and slowed the changeover process. Computer equipment and software that was expected to become obsolete survived many layers and programming updates. The result is that the two-digit programs are not designed to recognize dates beyond 1999, and may not be able to process date-related operations beyond December 31.

"Although some who oppose this litigation charge that the solutions are simple and should have been completed long ago, the reality is not that simple. First, there over 500 programming languages in use. A universally compatible Y2K solution would have to be compatible with most, or many, of these languages. Embedded processors in embedded chips have to be found and replaced. There are also several ways to reprogram, causing additional interfacing issues.

"Technical approaches to solving the problem include reprogramming all two-digit date codes with a four-digit date code, ‘windowing' the date codes to make programs think the two-digit codes are applicable to the year 2000 and beyond, and ‘encapsulation,' which, like the windowing method, ‘tricks' the computer program into thinking that the two-digit date code is applicable beyond 1999. Unless the same approach is taken in all computers, additional programming is required to allow interface of four-digit codes with two-digit codes which have been ‘windowed' or ‘encapsulated.'

"Let me read from a recent publication of the National Legal Center for the Public Interest, The Year 2000 Challenge: Legal Problems and Solutions, which summarizes why the Year 2000 problem is so difficult to solve. (Read from the attached pages)

"In addition to the technical problems with solving the problem, we must consider the cost dimension of the Y2K problems. From the ITAA (Information Technology Association of America) Year 2000 website, I have the following information: (Read from the attached website information)

"In addition, the Senate Year 2000 Committee in its report cites figures for several specific companies, as well as total costs which include estimated litigation costs. (Read from the attached 2/24 report)

"The point here is that this is a complex technical problem with no easy, cheap solution. Although the opponents of this legislation would have us believe that Y2K failures can only result from negligence or dereliction on the part of the technology industry, and all those who use computer hardware and software, in truth, massive efforts are underway, and have been for some time, to prevent the Y2K problem from occurring.

"Even with the nearly incomprehensible amounts of money being devoted to reprogramming date codes in virtually every business and industry in our country, there are going to be failures. Well-intentioned companies, acting in good faith, are nevertheless going to encounter problems in their systems, or in the interface of their systems with other systems, or as a result of some other company's system.

WHY WE NEED TO DISCOURAGE LITIGATION

"But what experts are also concluding is that the real problems and costs associated with Y2K may not be the January 1 failures, but the lawsuits filed to create problems where none exist. An article in USA Today on April 28 by Kevin Maney sums it up: ‘...Experts have increasingly been saying that the Y2K problem won't be so bad, at least relative to the catastrophe once predicted. Companies and governments have worked hard to fix the bug. Y2K-related breakdowns expected by now have been mild to nonexistent. For the lawyers, this could be like training for the Olympics, then having the games called off... The concern, though, is that this species of Y2K lawyer has proliferated, and now it's got to eat something. If there aren't enough legitimate cases to go around, they may dig their teeth into anything....In other words, lawyers might make sure Y2K is really bad, even if it's not.'

"The sad truth in our country today is that litigation has become an industry. While there are many fine, scrupulous attorneys representing their clients in ethical fashion, there are also many opportunistic lawyers looking for new ‘inventories' of cases. The Y2K problems provide these attorneys with a lottery jackpot.

"Let me read from an article published in March of this year, by the Public Policy Institute of the Democratic Leadership Council, written by Robert D. Atkinson and Joseph M. Ward: (Read attached article on litigation)

"Already at least 65 lawsuits, some report as many as 80, have been filed, and we are still 6 months away from January 1. Most of these lawsuits involve potential problems that have not even occurred yet. Our nation's legal system is not designed to handle the tidal wave of litigation which will undoubtedly occur if we do not act to prevent it. We must reserve the courts for the cases with real harm, real factual support, and which cannot be otherwise resolved through mediation and resolution.

"The classic example of opportunistic litigation is a class action suit filed in California by Tom Johnson against six major retailers. Tom Johnson, acting as a ‘private attorney general' under California consumer protection laws, has brought an action against a group of retailers, including Circuit City, Office Depot, Office Max, CompUSA, Staples, Fryes, and the good guys, inc. for failing to warn consumers about products that are not Y2K compliant.

"He has not alleged any injury or economic damage to himself, but, pursuant to state statute, has requested relief in the amount of all of the defendants' profits from 1995 to date from selling these products, and restitution to ‘all members of the California general public.' Although he claims that ‘numerous' products are involved, he has not specified which products are covered by his allegations, but has generally named products by Toshiba, IBM, Compaq, Intuit, Hewlett Packard, and Microsoft.

"It is crystal clear that the real reason for this lawsuit is not to fix a problem that Mr. Johnson has with any of his computer hardware or software, but to see whether he can convince the companies involved that it's cheaper to buy him off in a settlement than to litigate -- even if the case is eventually dismissed or decided in their favor.

"And, even more interesting, is the history of how this case came to be filed. The Wall Street Journal carried a story on Friday, May 14, 1999, in its Politics and Policy column by Robert S. Greenberger. (Read from article)

"This is precisely the type of frivolous and opportunistic lawsuit which would be avoided by S.96. Rather than have all of these named companies wasting time and resources preparing a defense for this case, S.96 would direct the focus to fixing real problems. In this instance, Mr. Johnson does not have an actual problem, but if he did, he would need to articulate what is not working due to a Y2K failure. The company or companies responsible would then have an opportunity to address and fix the specific problem. If the problem isn't fixed, then Mr. Johnson would be free to bring his suit.

"This case is the tip of the iceberg -- if thousands of similar suits are brought after January 1, the judicial system will be overrun -- and the nation's economy will be thrown into turmoil. This is a senseless and needless abuse that we can avoid by passing S.96.

IMPORTANT PROVISIONS OF S.96
WITH AMENDMENTS PROPOSED,
DISCUSSION OF LEGAL ISSUES

"Let me turn to the substance of the substitute amendment offered today. Without going through every paragraph of the bill, let me highlight the most important provisions.

The centerpiece of the bill are the provisions of Section 7 regarding notice. This section requires plaintiffs to give defendants 30 days notice before commencing a lawsuit. This provides an opportunity for someone who has been harmed by a Y2K failure to make the person responsible aware of the problem and to fix it. If the defendant doesn't agree to fix the problem, then the plaintiff can sue on the 31st day. If the defendant does agree to fix the problem, 60 days are permitted to accomplish the remediation before a lawsuit can be filed. This offers a reasonable time and opportunity for people to work out legitimate problems with sincere solutions, without the cost of litigation. It focuses on the fact that most people want things to work -- they don't want to sue.

A corresponding critical element of this legislation is the requirement for specificity in pleadings found in Section 8. Not written nor intended to cause loopholes for lawyers, the thrust of this requirement is that there must be a real problem in order to sue. Our judicial system should not be clogged with possible Y2K failures, nor novel complaints to ensure the payment of lottery style settlements and attorneys fees. We must reserve our judicial resources for real problems which have caused real injury which can be redressed by the court.

The Duty to Mitigate in Section 9 is also important. While it is in some respects merely a statement of current law, it highlights the emphasis to be placed on preventing problems and injury to the maximum extent possible, and articulates the role that prevention information made available by the affected industries can play in limiting injury to product users.

The economic loss rule found in Section 12 is also a restatement of law in the majority of states. It is critical, however, because it confirms that damages not available under contract theories of law cannot be obtained through tort theories. This is particularly important here where personal injury claims have been excluded.

Punitive damages caps have been retained for small businesses, defined as those with fewer than 50 employees. Punitive damages are permitted under some state laws in certain egregious situations primarily as a deterrent from a repetition of the conduct.

COMMENTS REGARDING KERRY PROPOSAL

"Let me speak to some of the points raised by the proposal of Senators Kerry, Robb, Daschle, Reid, Breaux and Akaka. While it is encouraging that they agree the Y2K problem is one which must be addressed, it is unfortunate that they continue to reject some of the most important goals of the legislation.

"First, their proposal applies only to ‘commercial losses.' It excludes consumer actions from the scope of the bill. I think this exclusion is misguided and merely strengthens the hand of the opportunistic lawyers.

It denies the consumer the protections afforded by S.96, including the ability to have problems fixed quickly and without the need for expensive litigation. It places a burden on those least able to afford legal counsel.

Notwithstanding the purported attempt to cover consumer claims brought as class actions, in fact it provides a ‘lawyer's loophole' by permitting individual claims to be brought and consolidated or aggregated to avoid the notice and pleading requirements of the class action section.

"There are no punitive damage limitations or protections, either for business -- large or small -- or for governmental entities. Punitive damages are intended to punish poor behavior and deter a repeat of it in the future. Punitive damages do not have such an effect in Y2K litigation because of the uniqueness of the problem. Thus, in Y2K litigation, punitive damages become an incentive for ‘jackpot justice' and abusive litigation.

"The proportionate liability provisions are ineffective in preventing ‘deep pocket' companies from being targeted by mass litigation.

The approach of requiring a defendant to prove itself innocent in order to be assured proportionate liability is misguided and ignores the vast array of potential defendants and the myriad of factual situations which may be encompassed in a Y2K action.

In particular, defendants who are in the middle of the supply chain may be sued for a breach of a contract caused not by the failure of the defendant's computers, but by those elsewhere in the supply chain. The requirements in the Kerry proposal would result in that defendant being jointly and severally liable, an injustice. The result is that deep-pocketed defendants will face needless and abusive litigation and will be subjected to either defending or settling such cases, regardless of their share of responsibility for causing the plaintiff's problems.

The Kerry proposal also fails to encourage settlement of cases before trial. Defendants who do settle with the plaintiff should not be subjected to continued liability or responsibility for other defendants. This defeats the purpose and incentive for early settlement and mediation. The Kerry proposal rejects the protections for settling defendants contained in S.96.

The fair rule in this situation is that each defendant pays for the portion of the problem which that defendant causes. S.96 provides that clear rule, with exceptions patterned after the Securities Act, as proposed by Senator Dodd.

"There are important differences as well, the Kerry proposal does not protect contracts as negotiated, but permits them to be revised or overturned by uncertain common law. This results in the parties being uncertain of their duties and obligations under their contracts and will increase the likelihood of litigation. The proposal also too narrowly applies the economic loss rule, subjecting defendants to broader damages than available under current law in most states.

"Taken as a whole, the Kerry proposal simply does not provide the solutions which are needed to the Y2K problem. It is a meager attempt to provide lip service to the business community while protecting the trial lawyers' income stream. I urge my colleagues to carefully review the details of the proposal and reject this ‘form over substance' amendment.

CONCLUSION

"This substitute amendment is a good piece of legislation and it deserves the support of the Senate. It is not perfect. It certainly does not provide a ‘wish list' of product liability or tort reform. The business community clearly would like more. The House passed a bill that contained many of the provisions which we have eliminated to reach this bi-partisan compromise. As in any negotiation process, there must be give and take. We have given a great deal.

"I remain convinced that the Y2K problem is real and must be addressed now. I believe that this substitute offered will achieve a just and reasonable approach to Y2K failure prevention, remediation and litigation. This bill should not be further emasculated. It has the support of the broadest possible cross section of our nation's economy. It is a bill which is good for our country. It will ensure that our economy is not derailed with opportunistic litigation. It is critical that it pass without further delay. I ask each of my colleagues for their support in bringing this bill to its final successful conclusion and enactment into law."