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Congress Moves to Limit Y2K Lawsuits: Is Anyone at Fault?

by Shelley M. Liberto, Esq.

Congress is now working on a bill known as the "Y2K Fairness in Litigation Act" as a preemptive step to protect the United States from what it fears will be a "significant volume of insubstantial litigation" stemming from the Y2K problem. The Bill, H.R. 1319, would impose new procedural and legal standards in state and federal courts across the nation to slow the projected onslaught of litigation that, according to the Bill, would waste technical and financial resources, threaten our network of business and customer relationships, and strain the nation's legal system. The Act suggests a substantial compromise of commercial legal rights in favor of protecting the nation's commercial stability. It does so by invoking the power of the Commerce Clause of the United States Constitution. The question that the public should address is whether the feared litigation poses so great a threat as to warrant such a compromise of legal rights.

New Litigation Procedures

Presently, anyone who wishes to sue need only file a lawsuit in any state or federal court, and simply state enough facts in the allegations to put the defendant on due process notice of the nature of the lawsuit. A defendant has 30 days to answer the complaint. The new, more defendant-oriented, procedures would come into play whenever a so-called "Year 2000 Failure" is alleged.

H.R. 1319 defines a "Year 2000 Failure" as follows:

The term "Year 2000 Failure" means any failure by any device or system...or any software [or] firmware.. including (A) the failure to accurately administer or account for transitions or comparisons from, into, and between the 20th and 21st centuries, and between 1999 and 2000; or (B) the failure to recognize or accurately process any specific date, and the failure accurately to account for the status of the year 2000 as a leap year.

Before filing a Y2K lawsuit, a plaintiff must give written notice that specifically identifies and describes a "material" defect alleged to have caused injury, the injury alleged, and the damages sought. No lawsuit may be filed until expiration of the 90-day notice period. Within 30 days after receipt of the written notice, a prospective defendant must provide the plaintiff with a written acknowledgment of receipt of the notice, and describe any actions that the defendant will take, or has taken, to remedy the Y2K defect. If the defendant fails to respond to the written notice, the plaintiff may go ahead and file its lawsuit. If the plaintiff ignores the 90-day waiting period, the defendant may seek a stay of the litigation until the time period has expired.

During or after the notification period, the Bill suggests, but does not require, that either party request that the dispute be submitted to mediation. The resort to these "alternative dispute resolution" procedures is purely voluntary. If, however, the parties do choose to mediate, payment of damages required by a resulting settlement agreement are due within 30 days of the settlement. If the case proceeds to litigation, however, the plaintiff is saddled with strict pleading requirements in the complaint.

With regard to each Y2K Claim, a plaintiff must define with particularity the nature and amount of each monetary element of damages, and the specific factual basis for the calculation of the damages. Furthermore, a plaintiff who alleges that a product or service is defective must identify with particularity each specific defect, and facts supporting a conclusion that the defects were "material." If the complaint pleads a cause of action requiring proof of a state of mind, such as bad faith or fraud, the complaint must state in detail the facts showing a strong inference that the defendant acted with the required state of mind.

Under normal circumstances, a complaint, which is filed at the initial stages of a lawsuit, is not expected to contain such detail. Rather, the plaintiff conducts the "discovery" portion of the lawsuit, such as depositions, to ascertain the detailed facts supportive of his or her case. In effect, the Bill would appear to require the plaintiff to be able to prove his or her case before the lawsuit is filed. Absent the pleading of such detailed facts and evidence, a defendant may move to have the lawsuit dismissed.

Softening of Contract and Tort Liability

In addition to imposing strict procedural requirements on Y2K plaintiffs, the Bill also increases the substantive legal requirements by allowing Y2K defendants new defenses. If the Y2K Claim involves a breach of contract such as a promise or warranty of software or hardware, defendants are permitted to offer evidence of "reasonable performance of contract" in light of the circumstances. This is a sharp departure from standard contract law which does not provide the "I did the best I could" excuse. This portion of the Bill is intended to motivate Y2K technology vendors to make some effort to remedy Y2K defects, knowing that doing so may absolve them from Y2K liability. The Bill proposes yet another feature, however, that affords special breaks for defendants who are found to be liable in tort.

Tort law, as opposed to contact law, holds defendants liable for all damages that naturally flow from a defendant's negligence or intentional acts. The doctrine of "joint and several liability" holds each of multiple defendants completely liable to a plaintiff regardless of their individual degree of fault. H.R. 1319 would do away with joint and several liability in negligence actions and require each individual defendant's liability to reflect the percentage of responsibility of that person for damages. This avoids the motivation of a plaintiff to sue "deep pocket" defendants, who may be minimally at fault, for all damages incurred as a result of the negligence of others. Typical "deep pocket" targets are large corporate entities and governments. At trial, the court or a jury must make a specific finding of the percentage of responsibility of each defendant for the damages proved.

On the other hand, to avoid an unjust result when a financially weak plaintiff cannot collect on a judgment against a financially weak defendant, the Bill carves out an exception. If the plaintiff is an individual whose net worth is less than $200,000 and damages are more than 10% of his or her net worth, joint and several liability would apply, and the plaintiff would be allowed to collect 100% percent of the judgment from any single defendant regardless of the defendant's percentage of responsibility. Not only does the Bill make it more difficult to collect on a Y2K negligence judgment, but it also increases the burden on the plaintiff to establish liability in the first place.

Under the principles of common law negligence, a plaintiff need only show that the defendant caused damage by breaching his or her duty of care as defined by common standards of "reasonableness." But H.R. 1319 dramatically increases the burden on a plaintiff:

Negligence. With respect to any year 2000 claim for money damages, the defendant shall not be liable unless the plaintiff establishes, in addition to all other requisite elements of the claim, that the actions of the defendant created an unreasonable risk of harm to the plaintiff.

In other words, a plaintiff must do more than merely show that a defendant acted unreasonably. Plaintiff must now prove that the acts of the defendant "created an unreasonable risk of harm." The focus of inquiry shifts from the acts of the defendant, to the unreasonableness of the risk that the defendant created. This raises the whole issue of what sorts of risks are "unreasonable" in light of the fact that the Y2K problem, as the Bill itself states, "may affect virtually all businesses and other users of technology products to some degree." Apparently the sponsors of the Bill would require a plaintiff to prove that a defendant was not merely negligent, but reckless in causing a Y2K failure. On the other hand, the Bill affords the defendant a defense of mere reasonableness to avoid liability altogether.

While a plaintiff must prove that a defendant created an unreasonable risk of harm, a defendant need only prove that it took measures that were "reasonable under the circumstances" to prevent the Y2K failure. Such a showing operates as a complete defense to the claim. Just as the Bill motivates parties to a contract to make an effort of "reasonable performance," so does the Bill impose a duty on Y2K technology vendors, whether or not under contract, to take reasonable efforts to avoid a Y2K failure.

Class Actions

The nightmare anticipated by the drafters of H.R. 1390 envisions mass technological destruction giving rise to harm to the economy of the United States and its citizenry. Accordingly, the class action scenario is addressed by the Bill. In addition to the procedural and substantive obstacles to litigation described above, H.R. 1319 requires class action plaintiffs to be composed of a majority of members who suffer damages as the result of a material defect in a product or service. In other words, the technological problem giving rise to liability under contract or tort described above must be "material" as to most of the class members. This would disqualify a class action resulting from a mere minor defect that affects many people in the aggregate. The Bill defines a "Material Defect" as:

A defect in any item, whether tangible or intangible, or in the provision of a service, that substantially prevents the item or service from operating or functioning as designed or intended.

The Bill expressly excludes any defect that affects only a component of a system that continues to substantially operate or function as designed. Apparently the drafters of the Bill envision a legitimate class action to be only one that entails major widespread damage. This is a new requirement of the normal class certification process that would bar class action lawsuits as a means of collecting damages that are substantial in the aggregate, but only minimal on an individual level.


It would appear a foregone conclusion that the technological bind that we now find ourselves in will, even without lawsuits, adversely impact the operation of business and government in the United States. The concern of Congress is that the unleashing of our civil legal system in reaction to the Y2K threat will compound the commercial burden that already awaits us. H.R. 1319 represents a compromise of both procedural and substantive legal rights, in favor of whatever commercial stability would result from temporarily restraining our legal system. Only the implementation of these restraints in the months and years following January 1, 2000, will demonstrate whether that compromise was a wise and fair one.


Shelley M. Liberto is an attorney practicing Internet and intellectual property law, and general business litigation, in Santa Ana, California.


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