Subject: Y2K Act Limits Litigation

On July 20, 1999, President Clinton signed into law a bill, officially called the Y2K Act. The Act is designed to provide uniform standards of legal liability, provide for the right to remediate Year 2000 disputes and limit certain forms of liability.

With lawsuit estimates totaling US $1-trillion, high tech and business interests fear being crippled by litigation. The Act requires a plaintiff to submit a 30-day notice to the defendant on the plaintiff's intention to sue with a description of the Y2K failure. This is a prerequisite to filing a lawsuit. After receiving the 30-day notice, the potential defendant has 30 days to respond to the plaintiff with a remediation plan for the Y2K failure. Although the response must be made within 30 days after the 30-day notice, the remediation must be completed within 60 days after the 30-day notice. However, the parties may agree to a longer remediation period. If the defendant fails to respond to the notice, or does not explain how it plans to remediate, the plaintiff may sue 30-days after giving notice.

The Act establishes a limit on punitive damages of US $250,000 or three times compensatory damages, whichever is less, against small businesses (those with fewer than 50 employees) and individuals with a net worth of up to US $500,000. It ensures that defendants pay only for damages for which they were responsible. The Act also confirms the application of existing law that plaintiffs have to limit damages and cannot collect damages that could have reasonably been avoided.

The Act applies to any Y2K action brought after January 1, 1999 for a Y2K failure occurring before January 1, 2003. It defines a Y2K failure as a failure of a computer system, software or chip to process, calculate, compare, sequence, display, store, transmit, or receive year 2000 date-related data. The Act does not preclude any contract term, including a limitation or exclusion of liability or a disclaimer of warranty. It also exempts personal injury and wrongful death claims from its coverage. The Act encourages, but does not require, alternative dispute resolution procedures. Punitive damages in a Y2K action may not be awarded against a federal, state or local government entity.

The Act supersedes state law to the extent that it establishes a rule applicable to a Y2K action that is inconsistent with state law, but does not preclude the ability of a state to defend itself against any claim on the basis of sovereign immunity. The provisions of the Y2K Act do not apply to a claim that arises under the federal securities laws. The Act allows class action cases to be tried in federal courts if they involve US $10-million in claims or 100 or more plaintiffs.

John McCain first introduced the Y2K Act in the Senate in January 1999. Soon thereafter, a companion piece of legislation was introduced in the House of Representatives and it is that version, amended after a lengthy conference committee procedure, which was passed. The Republican majority, supported by high-technology and business interests, had supported the legislation, while the Democrats, backed by the trial lawyers and consumer groups, argued that the provisions of the Act were too favorable to business.

The President, historically supported by high tech interests and trial lawyers, was at first reluctant to see such limitations but eventually was convinced of the need to limit litigation and agreed to the legislation. The House of Representatives approved H.R. 775, on July 1, 1999, and that same day the Senate passed it. Using digital signature technology, leaders of the House and Senate electronically signed the bill and sent it to the President by email. This was a historic "first" - legislation has never before been forwarded to the president for approval, without using paper.

This is the second act related to the Y2K bug to be signed into law during the past year. The first Act, the Year 2000 Information Readiness Disclosure Act, providing limited liability for truthful disclosures of information about products, methods and activities taken by companies to prepare for the onset of the Year 2000, was signed last fall.

Please note. This law is separate from the Year 2000 Information and Readiness Disclosure Act which we reported on previously.