[Congressional Record Volume 145, Number 85 (Wednesday, June 16, 1999)]
[Senate]
[Pages S7120-S7122]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                         THE Y2K LIABILITY BILL

  Mr. REED. Mr. President, I would like to take this opportunity to 
discuss S. 96, the McCain bill concerning Y2K litigation. It is 
unfortunate that this bill has, to some extent, been utilized by those 
on both extremes of the tort reform debate: with proponents arguing 
that opposition to the bill reflects contempt for our economy and a few 
opponents accusing the bill's supporters of contempt for consumers' 
rights. The truth, as usual, is somewhere in between these two poles.
  As our economy evolves, becoming national and international in scope, 
situations will arise that demand procedural and substantive changes to 
our legal system. Moderate, balanced tort reform is an issue on which I 
have worked for some years. I approach each issue with the same 
question: can our legal system be made more efficient while continuing 
to provide adequate, just protections to consumers? This approach has 
led me to support reforms which have been validated by the test of 
time.
  Mr. President, in 1994, I supported one of the first tort reform 
measures to pass Congress, the Aviation Revitalization Act of 1994. At 
that time small plane manufacturers had been almost extinguished by 
costly litigation. This narrowly-tailored legislation limited the 
period, to eighteen years, in which manufactures could be sued for 
design or manufacturing defects. In the six

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years since enactment, the industry has reemerged to create thousands 
of new jobs while providing consumers with safe products.
  In 1995, I sought to apply this same principle to all durable goods, 
some of which remain in the workplace for forty, fifty, sixty years or 
more. Tool and machine manufacturers in Rhode Island and the nation 
were saddled with costs stemming from litigation over products they 
made a half century ago, some of which had been modified by others. As 
a result, I supported tort reform for durable goods which limited the 
statute of repose, reasonably capped punitive damages, and implemented 
proportionate liability to de minimis tortfeasors. In an effort to 
further the reform effort, I voted for this bill even though I was 
concerned that its punitive damage caps and proportionate liability 
sections were too broad. My support for the bill included a vote to 
override President Clinton's veto.
  My concerns about this bill were borne out by the fact that the veto 
override was not successful. Proponents of tort reform allowed their 
view of perfection to become an enemy of good, sensible reform. Indeed, 
their stubbornness continues to frustrate progress to this day.
  Just last year, a compromise tort reform bill negotiated by Senator 
Rockefeller between the Clinton Administration and members of the 
business community was rejected by some who wanted only sweeping 
changes to current tort law. I am afraid that some have brought this 
same sentiment to the Y2K issue.
  In addition to addressing the products liability reform issue in 
1995, I was also approached by members of the securities industry 
seeking to amend litigation rules pertaining to securities law. The 
industry wished to combat frivolous litigation. Indeed, it was obvious 
that some class action suits were being filed after a precipitous drop 
in the value of a corporation's stock, without evidence of fraud. Such 
lawsuits frequently inflict substantial legal costs upon corporations, 
harming both the business and its shareholders. This sort of activity 
benefitted no one but the attorneys who brought the cases.
  As a result, I supported both procedural changes and requirements 
that specific examples of fraud be listed in a lawsuit as embodied in 
the Private Securities Litigation Reform Act of 1995. Again, my support 
for this legislation required my vote to override a veto. This time, 
that override was successful. In my view, that success was due to the 
moderate, balanced approach of the bill.
  In practice, the legislation successfully ended frivolous lawsuits in 
federal courts such that I worked with colleagues and the Chairman of 
the Securities and Exchange Commission to implement the same rules at 
the state level. This effort resulted in the Securities Litigation 
Uniform Standards Act of 1998. Again, this bill only received 
Presidential support after an attempt to inject overly broad provisions 
into the bill were defeated. Courts are now applying this standard in a 
manner that balances the interest we all have in ensuring consumer 
protection, while also deterring nonmeritorious law suits.
  I think the record is clear. When Congress addresses identifiable 
inequalities or inefficiencies in our legal system, progress can be 
made. However, when legislation focuses on broader, philosophical 
debates, directly pitting the interests of consumers against 
manufactures, consensus cannot be reached. It is my hope that the 
Senate will keep this lesson in mind when the Y2K legislation goes to 
conference.
  As the work of the Senate's Y2K Committee and the President's Council 
on the Year 2000 Conversion have shown, the millennium bug will cause 
disruptions. These disruptions will inflict costs on individuals and 
businesses. The question is: how will we adjudicate who will bear the 
burden of these costs?
  Thus far, as demonstrated by a recent report by the Congressional 
Research Service, there have been only 48 Y2K related lawsuits filed. 
Recently, the Gartner Group, a consulting firm specializing in Y2K 
redress, reported that a quarter of all Y2K failures have already 
occurred. Given the paucity of Y2K lawsuits today, one could question 
whether the dire predictions of billions of dollars in Y2K litigation 
is overestimated. At the very least, it is certain that the current 48 
suits have not provided much in the way of proof concerning the 
inequities in our legal system that will allow attorneys to compound 
and exacerbate the costs associated with the Y2K problem.

  Some of these 48 lawsuits are class actions against inexpensive 
software manufactured several years ago. The merit of such suits is 
dubious, given that no harm has yet occurred and the ``reasonableness'' 
of a consumer's expectation that $30 software would last several years 
and withstand the millennium bug.
  These 48 lawsuits also contain examples, however, of companies 
attempting to improperly profit from their own Y2K unpreparedness. For 
example, one software company sold a product to small business men and 
women for $13,000 in 1996 with implied warrantees for proper use for a 
decade. A year later the company sent its customers notice that the 
software was not Y2K compatible. The software, would, therefore, not 
work in two years. The company offered its customers a $25,000 
``upgrade'' which would ensure that the software would work properly 
for half the time it was warranted. Needless to say, a free fix was 
quickly offered by this software manufacturer once a class action 
lawsuit was filed.
  The question the Senate must address in this legislation is what 
changes in our legal system will encourage everyone to address Y2K 
problems before they strike while allowing defrauded consumers 
continued opportunity to obtain redress. Indeed, the greatest danger 
would seem to be that this legislation unintentionally rewards bad 
faith companies that fail to address Y2K problems. Again, according to 
the Gartner Group, some $600 billion will be spent by the end of the 
year in trying to find, patch, and test computer systems at risk of 
fault. Bad faith companies that have not taken these responsible steps 
should not be rewarded.
  I supported legislation put forward by Senators Kerry, Robb, Breaux, 
Reid and Leader Daschle which encourages redress not litigation, deters 
frivolous lawsuits, provides good-faith actors with additional 
protections if they are sued, and allows individual consumers the 
protections they are afforded under current law. Specifically, the 
amendment requires that plaintiffs provide defendants with notice of a 
lawsuit and time for the defendant to respond with proposed redress to 
the problem. Additionally, plaintiffs would have to cite with 
specificity the material defect of their product as well as the damages 
incurred. Class action lawsuits are limited to those involving material 
harm. Current redress of Y2K problems is encouraged by the provision of 
the amendment which requires immediate mitigation and limits damages 
for those who fail in this regard. The amendment provides commercial 
transactions with the benefit of their express contract, while omitting 
consumers, who do not have the economic bargaining power or legal 
departments of large corporations, from the scope of the legislation. 
The amendment also discourages plaintiffs from simply suing the 
defendant with the ``deepest pockets'' by providing proportionate 
liability for companies that have acted responsibly in addressing Y2K 
problems in their products.
  On balance, the Kerry/Daschle amendment is a fair method of 
addressing identifiable problems in our litigation system as they 
relate to potential Y2K litigation.
  I must also acknowledge that the McCain legislation has markedly 
improved from its original form due in no small part to the efforts of 
Senator Dodd. As first introduced, the bill appeared to be a wish-list 
for those who have attempted over the past decades, without success, to 
completely overhaul our litigation system. S. 96, however, continues to 
contain provisions that simply appear to transfer Y2K costs from 
defendants to plaintiffs without equitable cause. The bill provides 
protections to plaintiffs not afforded defendants, caps punitive 
damages for bad faith actors, limits joint and several liability for 
bad faith businesses, prohibits states like Rhode Island from awarding 
non-economic damages even in instances of fraud, federalizes all class 
action lawsuits, and fails

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to distinguish between consumers and large corporations.
  Perhaps just as importantly as its substantive problems, the Clinton 
Administration has threatened a veto of S. 96. With six months until 
the end of the year, we do not have two, three, or four months to 
negotiate compromises.
  It is my hope that those of us who are truly in support of reforming 
the current system will prevail in softening some of S. 96's provisions 
to arrive at legislation that the Administration can and will support. 
While this will not result in legislation that organizations can use to 
fuel their drive to overhaul the entire tort system, it will allow us 
to mitigate Y2K litigation costs while protecting those who have been 
wronged.

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