[Congressional Record Volume 145, Number 29 (Wednesday, February 24, 1999)]
[Senate]
[Pages S1913-S1916]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
DRAFT Y2K LIABILITY LEGISLATION
Mr. McCAIN. Mr. President, the Senior Senator from Washington state,
Slade Gorton, and I have committed to working on legislation to address
liability issues arising out of Y2K problems. To this end, I introduced
S. 96. As Senator Gorton and I agreed before the bill was filed, we
have been listening to concerns and views of the varied constituencies
interested in limiting wasteful litigation and encouraging prevention
and timely remediation of Y2K problems. I am very pleased that today we
are offering into the record a revised working draft for additional
input and discussion.
Mr. GORTON. Mr. President, the Y2K problem should not be
underestimated. Before the session began, Senator McCain and I
committed to working on legislation that will allow entities to focus
their efforts on remediation and prevent unproductive litigation. We
have solicited and obtained input from sources representing both
potential plaintiffs and potential defendants in Y2K actions. We want
to continue listening and working on this issue, but do not have much
time--the countdown had begun. The draft measure that we are putting on
the record today reflects principally the measure proposed by a large
coalition of business groups including the Chamber of Commerce, the
National Association of Manufacturers, the National Federation of
Independent Business, and many others. The draft will, I hope, invite
more feedback, and focus the efforts of all interested parties. I
invite our colleagues and all interested parties to continue to provide
us with comments and suggestions so that we can improve the measure
before it is marked up by the Commerce Committee on March 3.
Mr. McCAIN. I intend to mark up Y2K liability legislation in the
Commerce Committee next week so that it can be considered by the full
Senate as soon as possible. If the bill is to serve the needs for which
it is designed, it must be passed expeditiously. We cannot have the
intended effect of encouraging businesses to be proactive in preventing
Y2K failures if we delay action on this bill until later in the
session. This bill addresses an immediate need, and the Senate must act
on it accordingly. I ask unanimous consent that the draft measure be
printed in the Congressional Record.
There being no objection, the draft was ordered to be printed in the
Record, as follows:
Amendment--
Strike out all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE; TABLE OF SECTIONS.
(a) Short Title.--This Act may be cited as the ``Y2K Act''.
(b) Table of Sections.--The table of sections for this Act
is as follows:
Sec. 1. Short title; table of sections.
Sec. 2. Findings and purposes.
Sec. 3. Definitions.
Sec. 4. Application of Act.
Sec. 5. Punitive damages limitations.
Title I--Opportunity to Resolve Y2K Problems
Sec. 101. Pre-filing notice.
Sec. 102. Pleading requirements.
Sec. 103. Duty to mitigate.
Sec. 104. Proportionate liability.
Title II--Y2K Actions Involving Contract-related Claims
Sec. 201. Contracts enforced.
Sec. 202. Defenses.
Sec. 203. Damages limitation.
Sec. 204. Mixed actions.
Title III--Y2K Actions Involving Tort Claims
Sec. 301. Damages in tort claims.
[[Page S1914]]
Sec. 302. Certain defenses.
Sec. 303. Liability of officers and directors.
Title IV--Y2K Class Actions
Sec. 401. Minimum injury requirement.
Sec. 402. Notification.
Sec. 403. Forum for Y2K class actions.
SEC. 2. FINDINGS AND PURPOSES.
The Congress finds that:
(1) The majority of responsible business enterprises in the
United States are committed to working in cooperation with
their contracting partners towards the timely and cost-
effective resolution of the many technological, business, and
legal issues associated with the Y2K date change.
(2) Congress seeks to encourage businesses to concentrate
their attention and resources in short time remaining before
January 1, 2000, on addressing, assessing, remediating, and
testing their Y2K problems, and to minimize any possible
business disruptions associated with the Y2K issues.
(3) It is appropriate for the Congress to enact legislation
to assure that Y2K problems do not unnecessarily disrupt
interstate commerce or create unnecessary caseloads in
Federal courts and to provide initiatives to help businesses
prepare and be in a position to withstand the potentially
devastating economic impact of Y2K.
(4) Y2K issues will potentially affect practically all
business enterprises to at least some degree, giving rise
possibly to a large number of disputes.
(5) Resorting to the legal system for resolution of Y2K
problems is not feasible for many businesses, particularly
small businesses, because of its complexity and expense.
(6) The delays, expense, uncertainties, loss of control,
adverse publicity and animosities that frequently accompany
litigation of business disputes can only exacerbate the
difficulties associated with the Y2K date change, and work
against the successful resolution of those difficulties.
(7) Congress recognizes that every business in the United
States should be concerned that widespread and protracted Y2K
litigation may threaten the network of valued and trusted
business relationships that are so important to the effective
functioning of the world economy, and which may put
unbearable strains on an overburdened and sometime
ineffective judicial system.
(8) A proliferation of frivolous Y2K lawsuits by
opportunistic parties may further limit access to courts by
straining the resources of the legal system and depriving
deserving parties of their legitimate rights to relief.
(9) Congress encourages businesses to approach their Y2K
disputes responsibly, and to avoid unnecessary, time-
consuming and costly litigation about Y2K failures,
particularly those that are not material. Congress supports
good faith negotiations between parties when there is a
dispute over a Y2K problem, and, if necessary, urges the
parties to enter into voluntary, non-binding mediation rather
than litigation.
SEC. 3. DEFINITIONS.
In this Act:
(1) Y2K action.--The term ``Y2K action'' means a civil
action commenced in any Federal or State court in which the
plaintiff's alleged harm or injury resulted directly or
indirectly from an actual or potential Y2K failure, or a
claim or defense of a defendant is related directly or
indirectly to an actual or potential Y2K failure.
(2) Y2K failure.--The term ``Y2K failure'' means failure by
any device or system (including any computer system and any
microchip or integrated circuit embedded in another device or
product), or any software, firmware, or other set or
collection of processing instructions to process, to
calculate, to compare, to sequence, to display, to store, to
transmit, or to receive date-related data, including
failures--
(A) to deal with or account for transitions or comparisons
from, into, and between the years 1999 and 2000 accurately;
(B) to recognize or accurately process any specific date in
1999, 2000, or 2001; or
(C) accurately to account for the year 2000's status as a
leap year, including recognition and processing of the
correct date on February 29, 2000.
(3) Actual damages.--The term ``actual damages'' means
direct damages for injury to tangible property, and the cost
of repairing or replacing products that have a material
defect.
(4) Economic loss.--Except as otherwise specifically
provided in a written contract between the plaintiff and the
defendant in a Y2K action (and subject to applicable State
law), the term ``economic loss''--
(A) means amounts awarded to compensate an injured party
for any loss other than for personal injury or damage to
tangible property (other than property that is the subject of
the contract); and
(B) includes amounts awarded for--
(i) lost profits or sales;
(ii) business interruption;
(iii) losses indirectly suffered as a result of the
defendant's wrongful act or omission;
(iv) losses that arise because of the claims of third
parties;
(v) losses that must be pleaded as special damages; and
(vi) consequential damages (as defined in the Uniform
Commercial Code or analogous State commercial law); but
(C) does not include actual damages.
(5) Material defect.--The term ``material defect'' means 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 term ``material defect'' does not include a
defect that--
(A) has an insignificant or de minimis effect on the
operation or functioning of an item or computer program;
(B) affects only on a component of an item or program that,
as a whole, substantially operates or functions as designed;
or
(C) has an insignificant or de minimis effect on the
efficacy of the service provided.
(6) Personal injury.--The term ``personal injury''--
(A) means any physical injury to a natural person,
including death of the person; but
(B) does not include mental suffering, emotional distress,
or like elements of injury that do not constitute physical
harm to a natural person.
(7) State.--The term ``State'' means any State of the
United States, the District of Columbia, Commonwealth of
Puerto Rico, the Northern Mariana Islands, the United States
Virgin Islands, Guam, American Samoa, and any other territory
or possession of the United States, and any political
subdivision thereof.
(8) Contract.--The term ``contract'' means a contract,
tariff, license, or warranty.
(9) Person.--
(A) In general.--The term ``person'' has the meaning given
to that term by section 1 of title 1, United States Code.
(B) Government entities.--The term ``person'' includes an
agency, instrumentality, or other entity of Federal, State,
or local government (including multijurisdictional agencies,
instrumentalities, and entities) when that agency,
instrumentality, or other entity is a plaintiff or a
defendant in a Y2K action.
(10) Alternative dispute resolution.--The term
``alternative dispute resolution'' means any process or
proceeding, other than adjudication by a court or
administrative proceeding, in which a neutral third party
participates to assist in the resolution of issues in
controversy, through processes such as early neutral
evaluation, mediation, minitrial, and arbitration.
SEC. 4. APPLICATION OF ACT.
(a) General Rule.--This Act applies to any Y2K action
brought in a State or Federal court after February 22, 1999.
(b) No New Cause of Action Created.--Nothing in this Act
creates a new cause of action under Federal or State law.
(c) Actions for Personal Injury or Wrongful Death
Excluded.--This Act does not apply to a claim for personal
injury or for wrongful death.
(d) Written Contract Controls.--The provisions of this Act
do not supersede a valid, enforceable written contract
between a plaintiff and a defendant in a Y2K action.
(e) Preemption of State Law.--This Act supersedes State law
to the extent that it establishes a rule of law applicable to
a Y2K action that is inconsistent with State law.
SEC. 5. PUNITIVE DAMAGES LIMITATIONS.
(a) In General.--In any Y2K action in which punitive
damages may be awarded under applicable State law, the
defendant shall not be liable for punitive damages unless the
plaintiff proves by clear and convincing evidence that the
defendant acted with conscious and flagrant disregard for the
rights and property of others.
(b) Caps on Punitive Damages.--
(1) In general.--Punitive damages against a defendant in
such a Y2K action may not exceed the larger of--
(A) 3 times the amount awarded for actual damages; or
(B) $250,000.
(2) Special rule.--In the case of a defendant--
(A) who--
(i) is sued in his or her capacity as an individual; and
(ii) whose net worth does not exceed $500,000; or
(B) that is an unincorporated business, a partnership,
corporation, association, unit of local government, or
organization with fewer than 25 full-time employees,
paragraph (1) shall be applied by substituting ``smaller''
for ``larger''.
(c) Government Entities.--Punitive damages in such a Y2K
action may not be awarded against a person described in
section 3(8)(B).
TITLE I--OPPORTUNITY TO RESOLVE Y2K PROBLEMS
SEC. 101. PRE-FILING NOTICE.
(a) In General.--Before commencing a Y2K action, except an
action that seeks only injunctive relief, a prospective
plaintiff with a Y2K claim shall serve on each prospective
defendant in that action a written notice that identifies
with particularity--
(1) the manifestations of any material defect alleged to
have caused harm or loss;
(2) the harm or loss allegedly suffered by the prospective
plaintiff;
(3) the remedy sought by the prospective plaintiff;
(4) the basis upon which the prospective plaintiff seeks
that remedy; and
(5) the name, title, address, and telephone number of any
individual who has authority to negotiate a resolution of the
dispute on behalf of the prospective plaintiff.
(b) Delay of Action.--Except as provided in subsection (d),
a prospective plaintiff may not commence a Y2K action in
Federal or State court until the expiration of 90 days from
the date of service of the notice required by subsection (a).
[[Page S1915]]
(c) Response to Notice.--Within 30 days after receipt of
the notice specified in subsection (a), each prospective
defendant shall serve on each prospective plaintiff a written
statement acknowledging receipt of the notice, and proposing
the actions it has taken or will take to address the problem
identified by the prospective plaintiff. The written
statement shall state whether the prospective defendant is
willing to engage in alternative dispute resolution.
(d) Failure to Respond.--if a prospective defendant--
(1) fails to respond to a notice provided pursuant to
subsection (a) within the 30 days specified in subsection
(c); or
(2) does not describe the action, if any, the prospective
defendant will take to address the problem identified by the
prospective plaintiff, then the 90-day period specified in
subsection (a) will terminate at the end of the 30-day period
at to that prospective defendant and the prospective
plaintiff may commence its action against that prospective
defendant.
(e) Failure to Provide Notice.--If a defendant determines
that a plaintiff has filed a Y2Y action without providing the
notice specified in subsection (a) and without awaiting the
expirations of the 90-day period specified in subsection (a),
the defendant may treat the plaintiff's complaint as such a
notice by so informing the court and the plaintiff. If any
defendant elects to treat the complaint as such a notice--
(1) the court shall stay all discovery and all other
proceedings in the action for 90 days after filing of the
complaint; and
(2) the time for filing answers and all other pleadings
shall be tolled during this 90-day period.
(f) Effect of Contractual Waiting Periods.--In cases in
which a contract requires notice of non-performance and
provides for a period of delay prior to the initiation of
suit for breach or repudiation of contract, the period of
delay provided in the contract is controlling over the
waiting period specified in subsections (a) and (e).
(g) State Law Controls Alternative Methods.--Noting in this
section supersedes or otherwise preempts any State law or
rule of civil procedure with respect to the use of
alternative dispute resolution for Y2Y actions.
SEC. 102. PLEADING REQUIREMENTS.
(A) Nature and Amount of Damages.--In all Y2Y actions in
which damages are requested, the complaint shall provide
specific information as to the nature and amount of each
element of damages and the factual basis for the damages
calculation.
(b) Material Defects.--In any Y2Y action in which the
plaintiff alleges that a product or service defective, the
complaint shall contain specific information regarding the
manifestations of the material defects and the facts
supporting a conclusion that the defects are material.
(c) Required State of Mind.--In any Y2Y action in which a
claim is asserted on which the plaintiff may prevail only on
proof that the defendant acted with a particular state of
mind, the complaint shall, with respect to each element of
that claim, state with particularity the facts giving rise to
a strong inference that the defendant acted with the required
state of mind.
SEC. 103. DUTY TO MITIGATE.
Damages awarded in any Y2Y action shall exclude
compensation for damages the plaintiff could reasonably have
avoided in light of any disclosure or other information of
which the plaintiff was, or reasonably could have been,
aware, including reasonable efforts made by a defendant to
make information available to purchasers or users of the
defendant's product or services concerning means of remedying
or avoiding Y2Y failure.
SEC. 104. PROPORTIONATE LIABILITY.
(a) In General.--A person against whom a final judgment is
entered in a Y2K action shall be liable solely for the
portion of the judgment that corresponds to the relative and
proportional liability of that person. In determining the
percentage of responsibility of any defendant, the trier of
fact shall determine that percentage as a percentage of the
total fault of all persons, including the plaintiff, who
caused or contributed to the total loss incurred by the
plaintiff.
(b) Several Liability.--Liability in a Y2K action shall be
several but not joint.
TITLE II--Y2K ACTIONS INVOLVING CONTRACT-RELATED CLAIMS
SEC. 201. CONTRACTS ENFORCED.
In any Y2K action, any written term or condition of a valid
and enforceable contract between the plaintiff and the
defendant, including limitations or exclusions of liability
and disclaimers of warranty, is fully enforceable, unless the
court determines that the contract as a whole is
unenforceable. If the contract is silent with respect to any
matter, the interpretation of the contract with respect to
that matter shall be determined by applicable law in force at
the time the contract was executed.
SEC. 202. DEFENSES.
(a) Reasonable Efforts.--In any Y2K action in which breach
of contract is alleged, in addition to any other rights
provided by applicable law, the party against whom the claim
of breach is asserted shall be allowed to offer evidence that
its implementation of the contract, or its efforts to
implement the contract, were reasonable in light of the
circumstances for the purpose of limiting or eliminating the
defendant's liability.
(b) Impossibility or Commercial Impracticability.--In any
Y2K action in which breach of contract is alleged,
applicability of the doctrines of impossibility and
commercial impracticability shall be determined by applicable
law in existence on January 1, 1999, and nothing in this Act
shall be construed as limiting or impairing a party's right
to assert defenses based upon such doctrines.
SEC. 203. DAMAGES LIMITATION.
In any Y2K action for breach or repudiation of contract, no
party may claim, nor be awarded, consequential or punitive
damages unless such damages are allowed--
(1) by the express terms of the contract; or
(2) if the contract is silent on such damages, by operation
of State law at the time the contract was executed or by
operation of Federal law.
SEC. 204. MIXED ACTIONS.
If a Y2K action includes claims based on breach of contract
and tort or other noncontract claims, then this title shall
apply to the contract-related claims and title III shall
apply to the tort or other noncontract claims.
TITLE III--Y2K ACTIONS INVOLVING TORT CLAIMS
SEC. 301. DAMAGES IN TORT CLAIMS.
A party to a Y2K action making a tort claim may not recover
damages for economic loss unless--
(1) the recovery of such losses is provided for in a
contract to which the party seeking to recover such losses is
a party;
(2) such losses result directly from a personal injury
claim resulting from the Y2K failure; or
(3) such losses result directly from damage to tangible
property caused by the Y2K failure (other than damage to
property that is the subject of the contract),
and such damages are permitted under applicable Federal or
State law.
SEC. 302. CERTAIN DEFENSES.
(a) Good Faith; Reasonable Efforts.--In any Y2K action
except an action for breach or repudiation of contract, the
party against whom the claim is asserted shall be entitled to
establish, as a complete defense to any claim for damages,
that it acted in good faith and took measures that were
reasonable under the circumstances to prevent the Y2K
failure from occurring or from causing the damages upon
which the claim is based.
(b) Defendant's State of Mind.--In a Y2K action making a
claim for money damages in which the defendant's actual or
constructive awareness of an actual or potential a Y2K
failure is an element of the claim, the defendant is not
liable unless the plaintiff, in addition to establishing all
other requisite elements of the claim, proves by clear and
convincing evidence that the defendant knew, or recklessly
disregarded a known and substantial risk, that the failure
would occur in the specific facts and circumstances of the
claim.
(c) Foreseeability.--In a Y2K action making a claim for
money damages, the defendant is not liable unless the
plaintiff proves by clear and convincing evidence, in
addition to all other requisite elements of the claim, that
the defendant knew, or should have known, that the
defendant's action or failure to act would cause harm to the
plaintiff in the specific facts and circumstances of the
claim.
(d) Control Not Determinative of Liability.--The fact that
a Y2K failure occurred in an entity, facility, system,
product, or component that was within the control of the
party against whom a claim for money damages is asserted in a
Y2K action shall not constitute the sole basis for recovery
of damages in that action.
(e) Preservation of Existing Law.--The provisions of this
section are in addition to, and not in lieu of, any
requirement under applicable law as to burdens of proof and
elements necessary for prevailing in a claim for money
damages.
SEC. 303. LIABILITY OF OFFICERS AND DIRECTORS.
(a) In General.--A director, officer, trustee, or employee
of a business or other organization (including a corporation,
unincorporated association, partnership, or non-profit
organization) shall not be personally liable in any Y2K
action making a tort or other noncontract claim in that
person's capacity as a director, officer, trustee, or
employee of the business or organization for more than the
greater of--
(1) $100,000; or
(2) the amount of pre-tax compensation received by the
director, officer, trustee, or employee from the business or
organization during the 12 months immediately preceding the
act or omission for which liability was imposed.
(b) Exception.--Subsection (a) does not apply in any Y2K
action in which it is found by clear and convincing evidence
that the director, officer, trustee, or employee--
(1) intentionally made misleading statements regarding any
actual or potential year 2000 problem; or
(2) intentionally withheld from the public significant
information there was a legal duty to disclose to the public
regarding any actual or potential year 2000 problem of that
business or organization which would likely result in
actionable Y2K failure.
(c) State Law, Charter, or Bylaws.--Nothing in this section
supersedes any provision of State law, charter, or a bylaw
authorized by State law, in existence on January 1, 1999,
that establishes lower limits on the liability of a director,
officer, trustee, or employee of such a business or
organization.
[[Page S1916]]
TITLE IV--Y2K CLASS ACTIONS
SEC. 401. MINIMUM INJURY REQUIREMENT.
In any Y2K action involving a claim that a product or
service is defective, the action may be maintained as a class
action in Federal or State court as to that claim only if--
(1) it satisfies all other prerequisites established by
applicable Federal or State law or applicable rules of civil
procedure; and
(2) the court finds that the alleged defect in a product or
service is material as to the majority of the members of the
class.
SEC. 402. NOTIFICATION.
(a) Notice by Mail.--In any Y2K action that is maintained
as a class action, the court, in addition to any other notice
required by applicable Federal or State law, shall direct
notice of the action to each member of the class by United
States mail, return receipt requested. Persons whose receipt
of the notice is not verified by the court or by counsel for
one of the parties shall be excluded from the class unless
those persons inform the court in writing, on a date no later
than the commencement of trial or entry of judgment, that
they wish to join the class.
(b) Contents of Notice.--In addition to any information
required by applicable Federal or State law, the notice
described in this subsection shall--
(1) concisely and clearly describe the nature of the
action;
(2) identify the jurisdiction where the case is pending;
and
(3) describe the fee arrangement of class counsel.
SEC. 403. FORUM FOR Y2K CLASS ACTIONS.
(a) Jurisdiction.--The District Courts of the United States
have original jurisdiction of any Y2K action, without regard
to the sum or value of the matter in controversy involved,
that is brought as a class action if--
(1) any member of the proposed plaintiff class is a citizen
of a State different from the State of which any defendant is
a citizen;
(2) any member of the proposed plaintiff class is a foreign
Nation or a citizen of a foreign Nation and any defendant is
a citizen or lawful permanent resident of the United States;
or
(3) any member of the proposed plaintiff class is a citizen
or lawful permanent resident of the United States and any
defendant is a citizen or lawful permanent resident of a
foreign Nation.
(b) Predominant State Interest.--A United States District
Court in an action described in subsection (a) may abstain
from hearing the action if--
(1) a substantial majority of the members of all proposed
plaintiff classes are citizens of a single State;
(2) the primary defendants are citizens of that State; and
(3) the claims asserted will be governed primarily by the
laws of that State.
(c) Limited Controversies.--A United States District Court
in an action described in subsection (a) may abstain from
hearing the action if--
(1) the value of all matters in controversy asserted by the
individual members of all proposed plaintiff classes in the
aggregate does not exceed $1,000,000, exclusive of interest
and costs;
(2) the number of members of all proposed plaintiff classes
in the aggregate in less than 100; or
(3) the primary defendants are States, State officials, or
other governmental entities against whom the district court
may be foreclosed from ordering relief.
(d) Diversity Determination.--For purposes of applying
section 1322(b) of title 28, United States Code, to actions
described in subsection (a) of this section, a member of a
proposed class is deemed to be a citizen of a State different
from a corporation that is a defendant if that member is a
citizen of a State different from each State of which that
corporation is deemed a citizen.
(e) Removal.--
(1) In general.--A class action described in subsection (a)
may be removed to a district court of the United States in
accordance with chapter 89 of title 28, United States
Code, except that the action may be removed--
(A) by any defendant without the consent of all defendants;
or
(B) any plaintiff class member who is not a named or
representative class member of the action for which removal
is sought, without the consent of all members of the class.
(2) Timing.--This subsection applies to any class before or
after the entry of any order certifying a class.
(3) Procedure.--
(A) In general.--Section 1446(a) of title 28, United States
Code, shall be applied to a plaintiff removing a case under
this section by treating the 30-day filing period as met if a
plaintiff class member who is not a named or representative
class member of the action for which removal is sought files
notice of removal within 30 days after receipt by such class
member of the initial written notice of the class action
provided at the trial court's direction.
(B) Application of section 1446.--Section 1446 of title 28,
United States Code, shall be applied--
(i) to the removal of a case by a plaintiff under this
section by substituting the term ``plaintiff'' for the term
``defendant'' each place it appears; and
(ii) to the removal of a case by a plaintiff or a defendant
under this section--
(I) by inserting the phrase ``by exercising due diligence''
after ``ascertained'' in the second paragraph of subsection
(b); and
(II) by treating the reference to ``jurisdiction conferred
by section 1332 of this title'' as a reference to subsection
(a) of this section.
(f) Application of Substantive State Law.--Nothing in this
section alters the substantive law applicable to an action
described in subsection (a).
(g) Procedure After Removal.--If, after removal, the court
determines that no aspect of an action that is subject to its
jurisdiction solely under the provisions of section 1332(b)
of title 28, United States Code, may be maintained as a class
action under Rule 23 of the Federal Rules of Civil Procedure,
the court shall strike the class allegations from the action
and remand the action to the State court. Upon remand of the
action, the period of limitations for any claim that was
asserted in the action on behalf of any named or unnamed
member of any proposed class shall be deemed tolled to the
full extent provided under Federal law.
____________________