[Senate Report 106-10]
[From the U.S. Government Publishing Office]





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106th Congress                                                   Report
  1st Session                    SENATE                          106-10
_______________________________________________________________________



 
                          YEAR 2000 (Y2K) ACT

                               __________

                              R E P O R T

                                 OF THE

           COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                                    on

                                 S. 96

                             together with

                             MINORITY VIEWS



                                     

                 March 10, 1999.--Ordered to be printed

                               --------

                    U.S. GOVERNMENT PRINTING OFFICE                    
69-010                     WASHINGTON : 1999





       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                     JOHN McCAIN, Arizona, Chairman

TED STEVENS, Alaska                  ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana                DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington             JOHN D. ROCKEFELLER IV, West 
TRENT LOTT, Mississippi              Virginia
KAY BAILEY HUTCHISON, Texas          JOHN F. KERRY, Massachusetts
OLYMPIA SNOWE, Maine                 JOHN B. BREAUX, Louisiana
JOHN ASHCROFT, Missouri              RICHARD H. BRYAN, Nevada
BILL FRIST, Tennessee                BYRON L. DORGAN, North Dakota
SPENCER ABRAHAM, Michigan            RON WYDEN, Oregon
SAM BROWNBACK, Kansas                MAX CLELAND, Georgia

                       Mark Buse, Staff Director

                  Martha P. Allbright, General Counsel

     Ivan A. Schlager, Democratic Chief Counsel and Staff Director

                Kevin Kayes, Democratic General Counsel

                                  (ii)





106th Congress                                                   Report
  1st Session                    SENATE                          106-10
_______________________________________________________________________



                          YEAR 2000 (Y2K) ACT

                                _______
                                

                 March 10, 1999.--Ordered to be printed

                                _______


       Mr. McCain, from the Committee on Commerce, Science, and 
                Transportation, submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                          [To accompany S. 96]

    The Committee on Commerce, Science, and Transportation, to 
which was referred the bill (S. 96) ``A Bill to regulate 
commerce between and among the several States by providing for 
the orderly resolution of disputes arising out of computer-
based problems related to processing data that includes a 2-
digit expression of the year's date'', having considered the 
same, reports favorably thereon with an amendment (in the 
nature of a substitute) and recommends that the bill (as 
amended) do pass.

                          Purpose of the Bill

  To regulate interstate commerce by making provisions for 
dealing with losses arising from Year 2000 Problem-related 
failures that may disrupt communications, intermodal 
transportation, and other matters affecting interstate 
commerce.

                          Background and Needs

  The purpose of S.96 is to provide incentives for solving 
technical issues related to Y2K problems before failures occur, 
encourage efficient resolution of Y2K problems when they do 
occur, and to impose reasonable limits on liability. The 
potential Y2K failures result from the use of a two-digit code 
for defining the year in computer programs, software, chips and 
systems. Lawsuits have already been filed either based upon 
failures or anticipated failures. The potential for litigation 
to overwhelm the nation's judicial system, and to cause severe 
damage to the nation's economy require incentives for proactive 
solution of the problems before they occur, and prompt 
resolution of those failures which do occur.
  The ``Y2K'' problem arises from the manner in which dates are 
coded and computed in computerized information systems. 
Computer systems have historically been programmed using two 
digits to represent the year, for example ``98'' instead of 
1998, in order to minimize data storage requirements, 
especially in earlier computers, and reduce operating costs. 
Using a two-digit format, however, makes 2000 indistinguishable 
from 1900, or 2001 from 1901. In addition, 2000 is a leap year, 
raising additional date coding concerns. When a computer is 
unable to recognize or compute the 00 date code used in 2000, 
it may fail to operate, process or transmit the data, or may 
fail altogether. Because of the widespread use of computers in 
our society, the problem extends from the desktop PC to bank 
systems to national power grids. An example of a Y2K failure 
occurred last year when credit card machines used by some 
retailers were unable to process sales for credit cards 
expiring in 2000. The problem is international in scope, posing 
concerns for the entire global economy.
  The massiveness of the problem, and the corrections required 
to prevent or remedy the potential computer, have resulted in 
concern as to whether our society will be faced with a crisis 
situation on January 1, 2000. The cost of fixing the problem in 
all affected systems, both public and private, is astronomical. 
Chase Manhattan Bank was quoted as spending $250 million to fix 
the problem within its 2000 million lines of computer code. The 
estimated overall cost of fixing the problem in the United 
States ranges from $200 billion to $1 trillion. Lloyd's of 
London has estimated the cost of litigation which will be 
generated in the United States alone at over $1 trillion.
  The actual impact of the problem remains unclear. Some 
technical analysts predict that widespread failures in systems 
across the country, including power outages, stalled assembly 
lines, and halted international transactions could result in a 
major nationwide, or even worldwide, recession. Others contend 
that the efforts already underway or completed will ensure a 
nearly disruption-free transition into 2000.
  A number of Y2K lawsuits have already been filed. The threat 
of litigation has resulted in a climate of fear and reluctance 
by many companies to acknowledge the potential problems which 
may be caused by their products. This atmosphere is 
counterproductive to the cooperative efforts necessary to 
ensure a seamless transition from 1999 to 2000, and is 
disruptive to the stability of the nation's interstate 
commerce.

                      Summary of Major Provisions

  This bill was introduced January 19, 1998. The sponsors are 
Senators McCain, Gorton, Abraham, Frist, and Burns.
  The goal of the bill is to encourage companies to prevent Y2K 
failures, to remedy problems quickly if they occur, and to 
impose reasonable limits on liablity. The bill also encourages 
resolution of disputes arising from Y2K failures through 
alternative dispute resolution rather than through expensive 
and time consuming litigation.
  The bill provides incentives for companies to be proactive in 
preventing Y2K failures through, e.g., a ``good faith'' defense 
to non-contract claim damages is provided which requires a 
showing that the company has used reasonable efforts to detect 
and correct a Y2K problem. The bill also states that plaintiffs 
have a duty to mitigate potential damages.
  The bill also requires a prospective plaintiff to notify a 
company it intends to sue and provide the company an 
opportunity to correct the problem and offer remedies to 
resolve the dispute.
  The bill preserves contractual rights and obligations of 
parties. Where the parties have already contracted for remedies 
and resolution of Y2K problems, the contract will control.

                            Estimated Costs

  In the opinion of the Committee, it is necessary under 
paragraph 11(a)(3) of Rule XXVI of the Standing Rules of the 
Senate to dispense with the requirements of paragraphs 11(a)(1) 
and 11(a)(2) of the Rule and section 403 of the Congressional 
Budget Act of 1974 in order to expedite the business of the 
Senate.

                      Regulatory Impact Statement

  In accordance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following evaluation of the regulatory impact of the 
legislation, as reported:
  Because S. 96 does not create any new programs, the 
legislation will have no additional regulatory impact, and will 
result in no additional reporting requirements. The legislation 
will have no further effect on the number or types of 
individuals and businesses regulated, the economic impact of 
such regulation, the personal privacy of affected individuals, 
or the paperwork required from such individuals and businesses.

                      Section-by-Section Analysis

SECTION 1. SHORT TITLE; TABLE OF SECTIONS

  Section 1 states the short title, the ``Y2K Act'', and 
provides a table of contents for the bill.

SECTION 2. FINDINGS AND PURPOSES

  Section 2 provides findings and purposes of Congress in 
enacting the bill. The primary purposes of the bill are to 
ensure that the problems associated with the two-digit date 
code used in computer programming which impedes recognition of 
the year 2000 and related date codes associated with the change 
in millennium, including leap year on February 29, 2000, do not 
result in undue strain on the national economy or the nation's 
judicial system. The bill encourages all companies to prevent 
Y2K failures where possible, to remediate them quickly and 
without litigation, and to engage in alternate dispute 
resolution opportunities. The purpose of the bill is also to 
limit liability for persons acting in good faith and making 
reasonable efforts to prevent Y2K failures, and to provide a 
reasonable opportunity to correct Y2K failures upon their 
occurrence prior to the commencement of legal action.

SECTION 3. DEFINITIONS

  Section 3 sets forth definitions of certain terms used in the 
bill. These include the term ``Y2K action'', the definition of 
which prescribes the scope of the bill. The definition of 
``person'' specifically includes Federal, State, and local 
government entities.

SECTION 4. APPLICATION OF ACT

  Section 4 contains general provisions governing the 
application of the bill. It applies to any Y2K action brought 
in a Federal or State court after February 2, 1999. The bill 
creates no new causes of action. The bill does not cover claims 
for personal injury or wrongful death. The bill does not 
supersede a valid, enforceable written contract between a 
plaintiff and defendant. The bill preempts State law to the 
extent that it establishes a rule of law for Y2K actions that 
is inconsistent with State law.

SECTION 5. PUNITIVE DAMAGES LIMITATIONS

  Section 5 sets forth a punitive damage standard and 
limitations. The bill does not establish a right to punitive 
damages where none is provided in applicable State law. The 
bill establishes a threshold for the award of punitive damages 
in Y2K actions, ``conscious and flagrant disregard for the 
rights and property of others.'' The bill prohibits punitive 
damage awards against government entities. The bill caps 
punitive damages at the greater of $250,000 or three times 
actual damages for big businesses, or the lesser of these 
figures for small businesses.
  The Committee notes that the State of Alaska allows and 
encourages the award of attorney fees to the prevailing party 
in civil actions. One policy behind the State statute is to 
prevent frivolous lawsuits. Under Alaska law, the award of 
prevailing party attorney fees is not considered a punitive 
measure and should not be included in the calculation of the 
part of a plaintiff's recovery subject to punitive damage caps.

SECTION 101. PRE-FILING NOTICE

  Section 101 requires plaintiffs to give 30 days notice to 
defendants before commencing a Y2K action against defendants 
(except when seeking only injunctive relief). If the defendants 
don't respond to the notice within 30 days and describe what 
action they will take, plaintiffs may commence suit, but if the 
defendants respond favorably, 60 days are permitted to fix the 
problem before the plaintiff may commence suit. If the 
plaintiff files suit without giving notice, the defendant may 
treat the filing as a notice and the court shall stay discovery 
and all other proceedings for 90 days.

SECTION 102. PLEADING REQUIREMENTS

  Section 102 requires a complaint in a Y2K action to specify 
the nature and amount of damages and the factual basis for 
calculation.
           Materiality requirement: If the plaintiff 
        alleges that a product or service is defective, the 
        complaint must contain specific information about the 
        manifestations of the material defects and facts 
        supporting a conclusion that the defects are material.
           Required state of mind: If a plaintiff is 
        required to prove the defendant's state of mind, the 
        complaint must state with particularity the facts 
        giving rise to a strong inference that the defendant 
        acted with the required state of mind.

SECTION 103. DUTY TO MITIGATE

  Section 103 provides that damages in a Y2K action shall 
exclude damages that the plaintiff could reasonably have 
avoided in light of disclosures or other information that the 
plaintiff was, or reasonably could have been aware of, 
including defendants' reasonable efforts to advise purchasers 
or users about ways to remedy or avoid the Y2K failure. While 
the duty to mitigate is generally considered an obligation of a 
plaintiff to determine and take measures to lessen the impact 
and to limit the amount of damages resulting from defendants' 
actions, the intent of this provision is also to highlight that 
it is in the best interest of a defendant to make Y2K solutions 
readily available so that potential plaintiffs can use them in 
mitigation. A defendant that proactively provides solutions and 
remediation in this manner will reduce its potential liability.

SECTION 104. PROPORTIONATE LIABILITY

  Section 104 provides that liability in a Y2K action is 
several and not joint, and defendants are liable only for their 
share of responsibility as a percentage of the responsibility 
of all persons (whether parties or not) at fault. This 
provision prevents plaintiffs from selecting a defendant to pay 
damages based upon ability to pay rather than responsibility 
for the problem and harm.

SECTION 201. CONTRACTS ENFORCED

  Section 201 provides that, in any Y2K action, any written 
term or condition of a valid and enforceable contract between a 
plaintiff and defendant, including limitations or exclusions of 
liability and disclaimers of warranty, is fully enforceable. 
Courts can determine that contract as a whole is unenforceable. 
If the contract is silent on a matter, the interpretation of 
the contract with respect to that matter shall be determined by 
applicable law at the time the contract was executed.

SECTION 202. DEFENSES

  Section 202 establishes a ``reasonable efforts'' defense. If 
breach of contract is alleged, the party against whom the 
breach is alleged can offer evidence that its efforts to 
implement the contract were reasonable in light of the 
circumstances for the purpose of limiting or eliminating the 
defendant's liability.
  It also provides that, if breach of contract is alleged, the 
doctrines of impossibility and commercial impracticability in 
force under applicable law on January 1, 1999, shall apply.

SECTION 203. DAMAGES LIMITATION

  Section 203 provides that, in any Y2K action for breach or 
repudiation of contract, no party may claim or be awarded 
consequential or punitive damages unless those damages are 
allowed (1) by the express terms of the contract; or (2) if the 
contract is silent on such damages, by the operation of State 
law at the time the contract was executed or by the operation 
of Federal law.

SECTION 204. MIXED ACTIONS

  Section 204 provides that, if a Y2K action includes claims 
based both on contract and on tort and other non-contractual 
premises, Title II applies to the contract claims and Title III 
to the non-contract claims.

SECTION 301. DAMAGES IN TORT CLAIMS

  Section 301 establishes a modified ``economic loss rule.'' 
Subject to applicable State and Federal law, a party making a 
tort claim cannot recover economic loss damages, unless such 
damages are provided for in a contract to which the party 
making a claim is a party. Economic losses result directly from 
a personal injury claim resulting from a Y2K failure or losses 
result directly from damage to tangible property other than the 
property that is the subject of the contract.

SECTION 302. CERTAIN DEFENSES

  Section 302 provides for defenses based on good faith and 
reasonable efforts. Section 302(a) provides that, in any Y2K 
action except an action for breach or repudiation of contract, 
the party against whom the claim is asserted can establish as a 
complete defense to the claim that they acted in good faith and 
took measures reasonable under the circumstances to prevent the 
Y2K failure from occurring or causing the damage. While what 
constitutes reasonable efforts and good faith will depend on 
the facts and circumstances of each situation, generally it 
will require affirmative actions which, when viewed 
objectively, are calculated to prevent the Y2K failure or the 
damage resulting from the Y2K failure.
  With regard to the defendant's state of mind, section 302 
provides that, in a claim for money damages in which the 
plaintiff must prove the defendant's actual or constructive 
knowledge of an actual or potential Y2K failure, the plaintiff 
must prove by clear and convincing evidence that the defendant 
knew or recklessly disregarded a known and substantial risk 
that the failure would occur.
  With regard to foreseeability, section 302 provides that, in 
a Y2K action making a claim for money damages, the defendant is 
not liable unless the plaintiff proves by clear and convincing 
evidence that the defendant knew or should have known that the 
defendant's action or failure to act would harm the plaintiff.
  Section 302 also establishes as a rule that the fact that a 
Y2K failure occurred in a facility, system, etc within a 
person's control shall not be the sole basis for recovering 
damages against that person.

SECTION 303. LIABILITY OF OFFICERS AND DIRECTORS

  Section 303 provides that for officers, directors, trustees, 
and employees in a Y2K action brought in a State where that 
liability is not subject to lower monetary caps in State law, 
charter, or bylaw authorized by State law, the liability of 
directors, trustees, officers, or employees is capped at 
$100,000 or pre-tax compensation in the year preceding the act 
or omission. The caps do not apply if it is shown by clear and 
convincing evidence that the person intentionally made 
misleading statements about the Y2K problem or intentionally 
withheld information she had a legal duty to disclose regarding 
the businesses' Y2K problem that would likely result in an 
actionable Y2K failure.

SECTION 401. MINIMUM INJURY REQUIREMENT

  Section 401 provides that, in any Y2K action involving a 
claim that a product or service is defective, the action can be 
maintained as a class action as to that claim only if the court 
finds that the alleged defect was material as to a majority of 
the class members.

SECTION 402. NOTIFICATION

  Section 402 provides that, in addition to any other notice 
required by law, the court shall direct notice of a Y2K action 
to each member of the class return receipt requested. If the 
receipt is not verified, the person in excluded from the class 
unless they notify the court in writing before trial or 
settlement that they want to be in the class. The notice must 
describe the nature of the action, the jurisdiction, and the 
fee arrangement with counsel,

SECTION 403. FORUM FOR Y2K CLASS ACTIONS

  Section 403 expands original jurisdiction of U.S. District 
Courts for Y2K actions where there is minimal diversity, but 
provides that district courts may abstain from hearing the case 
if there is a predominant State interest (most members are from 
same State as primary defendants and State law will apply) or 
where the amount in controversy is minimal, the class is small, 
or the primary defendants are States or other entities against 
whom the district court may not order relief. In Y2K actions, 
permits removal by any defendant or any plaintiff class member.

                      Rollcall Votes in Committee

  In accordance with paragraph 7(c) of rule XXVI of the 
Standing Rules of the Senate, the Committee provides the 
following description of the record votes during its 
consideration of S. 96:
  The bill was ordered reported with an amendment in the nature 
of a substitute by a rollcall vote of 11 yeas and 9 nays as 
follows:
        YEAS--11--                    NAYS--9
Mr. McCain-                         Mr. Hollings
Mr. Stevens\1\-                     Mr. Inouye\1\
Mr. Burns--                         Mr. Rockefeller
Mr. Gorton -                        Mr. Kerry\1\
Mr. Lott\1\--                       Mr. Breaux\1\
Mrs. Hutchison\1\-                  Mr. Bryan\1\
Ms. Snowe--                         Mr. Dorgan\1\
Mr. Ashcroft-                       Mr. Wyden\1\
Mr. Frist\1\-                       Mr. Cleland
Mr. Abraham--
Mr. Brownback- ---

    \1\By proxy

                        Changes in Existing Law

  In compliance with paragraph 12 of rule XXVI of the Standing 
Rules of the Senate, the Committee states that the bill as 
reported would make no change to existing law.

                   Minority Views of Senator Hollings

  In offering the dissenting views to the reporting of this 
bill, let me make it clear that I take the Y2K issue very 
seriously. Because of the significance of this issue to the 
entire country, Congress is certainly warranted in taking 
action to prevent potential adverse consequences that may be 
associated with it.
  In pursuing this objective, however, Congress must make sure 
that any action it takes is necessary, justified, and will 
achieve the goals of encouraging readiness and preparedness on 
behalf of public and private sector organizations. I have 
objected to the bill reported by this Committee (S. 96) on the 
grounds that it fails to meet these justifications.
  The essence of this bill is to impose severe restrictions on 
the ability of plaintiffs to recover damages in Y2K actions. 
These restrictions include: (1) expansive pleading requirements 
that parties would have to meet before even being afforded the 
opportunity to a jury trial or judicial review; (2) elimination 
of joint and several liability; (3) the granting of highly 
favorable defenses to defendants to assist them in avoiding 
liability and the payment of damages; and (4) exceptionally 
stringent caps on punitive damages. These limitations will 
apply to both commercial and tort related Y2K civil actions.
  The bill's supporters claim these restrictions are needed to 
prevent unnecessary and frivolous Y2K litigation. Yet, they 
have provided no factual proof that there actually will be 
unnecessary and frivolous claims. Additionally, because the 
legislation applies to all cases regardless of the nature or 
seriousness of the claims, it goes well beyond addressing the 
issue of frivolous suits. For example, if a small business 
owner experiences major losses due to a computer failure caused 
by the use of defective software, would it be frivolous for 
that business owner to sue the product seller to recover his or 
her damages? What if there is evidence that the company 
knowingly sold the product in a defective condition, and then 
attempted to profit from the sale by offering to upgrade the 
software at a cost higher than the original price? Would it be 
illegitimate for the aggrieved party to reject such an offer 
and pursue his or her right to recover damages in a court of 
law? Moreover, would Congress be justified in passing 
legislation that shields the seller of the product potentially 
from any liability? Of course, the answers to these questions 
are obvious; unfortunately, this would be the actual effect of 
this legislation.
  Proponents of the bill argue that the legislation will 
benefit all parties involved in civil Y2K actions. However, the 
way the bill is currently drafted, it will work to the 
advantage of defendants only. It is obvious from the provisions 
in the bill that the proponents intend to use the powers of the 
federal government to reform state law in the broadest fashion 
possible, so as to tailor the law in favor of defendants, and 
more specifically entities that are likely to be responsible 
for losses and injuries caused by potential Y2K disruptions. An 
illustration of these intentions is a provision that would 
allow a defendant to avoid paying damages in contract cases 
based on evidence that the defendant made a reasonable effort 
to comply. Generally under contract law, a party's subjective 
intentions or conduct are immaterial. The only relevant issue 
is whether the defendant party failed to meet the terms of the 
contract, either by selling a defective product, or failing to 
perform the required services. This legislation, however, would 
allow defendants to use evidence relating to their conduct and 
subjective intentions to avoid the payment of damages, 
regardless of whether they breached the contract. This is one 
example of how this legislation will drastically change civil 
law.
  Among the parties that will be affected adversely by the bill 
are small businesses, and professional practitioners, such as 
medical doctors. The Committee received testimony from 
representatives of both groups. It is important to acknowledge 
that they were not associated with any local trade association. 
They testified in their capacity as independent proprietors. 
They requested to appear to discuss their experiences with 
litigation involving Y2K computer failures. In beseeching the 
Committee not to pass this legislation, they made it clear that 
if the provisions of the bill were the law at the time they 
filed their claims, it is doubtful that they would have been 
able to recover any sufficient amount damages, and most likely 
would have been involved in protracted litigation.
  Finally, proponents contend that the legislation is needed to 
provide uniformity and clarity regarding possible Y2K claims. 
This supposedly will help reduce the volume of litigation. If 
this is the goal of the bill, however, it is not evident in the 
legislation. For example, although uniformity is to be achieved 
through the preemption of state law, the bill preempts state 
law only to the extent that it benefits defendants. In 
addition, the legislation, as drafted, will not provide clarity 
to the law, nor is it likely to reduce litigation. In fact, 
because the bill alters in part, but not in whole, complex tort 
and commercial state law, the bill actually serves to create 
more uncertainty about the law and liability, which is likely 
to result in more, rather than less, litigation.
  I also question why the majority members of this Committee 
feel the need to act expeditiously on this legislation. A 
number of studies have shown that large commercial entities in 
general, and the computer industry specifically, have known 
about the existence of the Y2K problem for more than 30 years, 
as well as the availability, and likely feasibility, of 
technology that could have corrected the problem. 
Notwithstanding this reality, this Committee is intent on 
providing these entities with broad legal protections.
  Not only is the Committee's decision premature, however, it 
contradicts the purported goal of the legislation, which is to 
provide businesses with an incentive to become compliant. I am 
baffled, however, as to how legislation that shields entities 
from liability for not becoming compliant will, in turn, 
inspire them to become compliant. The proponents' view is that 
the legislation will create an opportunity for these entities 
to direct resources into becoming compliant that they otherwise 
would reserve for litigation. It appears to be a simple 
proposition, however, that compliance and readiness in 
themselves will eliminate concerns about liability and 
litigation. This is, in fact, the essence of the liability and 
civil justice systems. Additionally, I find it unacceptable 
that Congress should pass laws to shield an entity either from 
liability for wrongful acts it already has committed, or from 
liability it might face for not doing what it is obligated to 
do. At a minimum, this legislation will encourage organizations 
to conduct a cost benefit analysis to determine whether it is 
more economically feasible to resort to the legal protections 
of the legislation, rather than expending the funds to become 
compliant.
  Both the Administration and the Senate have established 
special committees to address the Y2K issue. Conducting the 
review for the Administration is the ``President's Council on 
Year 2000 Conversion.'' The group that has been working on 
behalf of the Senate is the ``Special Committee on the Year 
2000 Technology Problem.'' These committees have been in 
existence for almost a year, and are considered the leaders and 
experts on the Y2K issue. Their primary focus has been the 
passage of measures to educate and provide incentives to public 
and private sector organizations to actively address potential 
Y2K problems. In keeping with this objective, they have 
recommended passage of legislation, such as the Year 2000 
Information Readiness and Disclosure Act [P.L. 105-271]. This 
law encourages companies to share information about their Y2K 
readiness by shielding them from liability solely on the basis 
of such disclosures. They also recommended legislation recently 
passed by the Senate that will ensure the availability of loans 
to small business to aid them in becoming Y2K compliant. Both 
of these measures were unanimously supported by the Senate.
  Interestingly, neither the ``President's Council on Year 
2000,'' nor the Senate's ``Special Committee on the Year 2000 
Technology Problem,'' has endorsed the legislation reported by 
the Committee. In fact, the ``President's Council on Year 
2000,'' has expressed strong reservations about the need and 
timing of the legislation. On March 1, 1999, John Koskinen, the 
Chairman of the President's Council, released the following 
statement regarding the legislation:
  ``The bills before the Judiciary and Commerce Committees 
focus on liability litigation, which is not a Year 2000 
readiness issue. In fact, I have serious doubts that these 
bills will do anything to enhance readiness and increase the 
number of systems able to effectively make the century 
transition. In addition, we need to ensure that discussion 
speculating about the possibility of voluminous litigation does 
not inadvertently increase the possibility of unnecessary 
overreaction by the public as a result of a misperception about 
the magnitude of the number of systems that will fail.''.
  In testimony before the Senate Judiciary Committee last week 
on an almost identical bill, a representative of the Justice 
Department advised against the passage of any bill that would 
bar small businesses and consumers who have legitimate Y2K 
claims from the courts. In the view of the Justice Department, 
this legislation would represent ``by far the most sweeping 
litigation reform measure ever enacted...'' At a minimum, the 
Department believes Congress should conduct a careful and 
thorough review of these measures.
  In closing, I would like to reiterate my opposition to this 
legislation. According to the Justice Department, this bill 
goes well beyond restrictions contained in previous federal 
litigation reform bills. The dangers of this bill are reflected 
in the organizations that are opposed to its passage. Almost 
every major consumer organization is opposed to the bill. 
Members of the trial bar, including the Association of Trial 
Lawyers of America (ATLA), are opposed to the bill. The 
American Medical Association (AMA), which has traditionally 
supported federal tort reform bills, is opposed to the 
legislation. I strongly urge my colleagues to reject this bill 
and to focus the Senate's energies on policies that are more 
likely to achieve the goals of ensuring Y2K compliance, and 
avoiding potentially widespread computer failures.

                  Legislation is Substantively Flawed

  I have provided below a few examples of how this legislation 
will substantively provide enormous advantages to defendants in 
Y2K actions to the detriment of aggrieved parties.

                    I. Major Definitions (Section 3)

DEFINITION OF A Y2K ACTION

  Y2K action is defined as any civil action that involves an 
alleged harm or a loss resulting directly or indirectly from an 
actual or a potential Y2K failure. Allegations that a claim is 
associated with a Y2K failure can be made by the plaintiff when 
filing a pleading, or by a defendant when responding to a 
plaintiff's complaint. As a result of the advantages provided 
to defendants by the legislation, they will have strong 
incentives to designate as many civil suits as possible as Y2K 
actions. The broadness of the definition, which permits any 
claim that is remotely related to a Y2K failure to be governed 
by the bill, means that defendants will have wide latitude in 
defining civil claims as Y2K action.

DEFINITION OF A Y2K FAILURE

  A Y2K failure is defined as any device or system, including 
computers and computer parts, such as microchips and embedded 
chips, as well as software or hardware, that fails to process, 
calculate, compare, store, display, or receive date-related 
data. These include, but are not limited to, failures of 
computer systems to accurately process specific data in 1999, 
2000, or 2001. However, the bill will not be limited to systems 
disruptions in these years exclusively. A computer systems 
failure in any year beyond enactment of the bill that is 
related to a faulty transmission of date-related data will be 
covered by the legislation.

                     II. Application of Legislation

COVERED ACTIONS

  The legislation will apply to commercial and tort claims 
involving property damage and personal injuries relating to 
emotional distress. A potential class of emotional distress 
cases includes persons whose medical records have been exposed 
to the public because of a Y2K failure.

               III. Caps on Punitive Damages (Section 5)

  The legislation caps punitive damages at an amount equal to 
the greater of three times actual damages or $250,000; however, 
for entities with fewer than 25 full-time employees, and a 
$500,000 or lesser net worth, the cap is the smaller of three 
times actual damages or $250,000. This provision is 
significantly more stringent than the punitive damage caps in 
previous product liability bills. In those bills, the 
multiplier was tied to all economic damages. Under this bill, 
the multiplier is tied to actual damages only. Actual damages 
under the legislation are limited to damages to tangible 
property, along with replacement and repair costs. 
Additionally, this means that in cases such as emotional 
distress cases, punitive damages may be completely barred.

                  IV. Pleading Requirements (Title I)

PRE-FILING NOTIFICATION TO DEFENDANTS/ 90 DAY WAITING PERIOD FOR 
                    PLAINTIFF (SECTION 101)

  Before commencing a Y2K action, a plaintiff is required to 
provide a written notice to each prospective defendant that 
identifies, with particularity, (1) the manifestations of any 
material defect that allegedly caused the harm; (2) the actual 
harm or loss suffered; (3) the remedy plaintiffs plan to seek 
in court; (4) the basis upon which plaintiff plans to seek that 
remedy; and (5) the name, title, address and telephone number 
of any individual who has authority to negotiate a resolution 
of the matter. Once the pre-trial written notice is provided to 
each prospective defendant, a plaintiff will be barred from 
commencing the action in court for 90 days. This purportedly is 
to give the defendant time to respond to the plaintiff's pre-
trial notice with recommendations to resolve the matter before 
litigation ensues. However, the bill imposes no requirement on 
the defendant to fix the problem. This means the defendant, 
after acknowledging the receipt of the plaintiff's notice, can 
sit and allow the 90 days to expire without taking any remedial 
action.
  This provision also will result in a significant change to 
current law. Although in some contract cases plaintiffs are 
required to provide pre-trial notices to defendants, they are 
normally not required to wait three months to file their claims 
in court. This provision will be advantageous to defendants. It 
will permit them to prepare their defense before plaintiffs can 
officially pursue formal discovery. Considering the likelihood 
that many small businesses will not be able to wait three 
months before filing a claim, defendants are likely to use the 
provision to pressure small business plaintiffs into accepting 
unreasonably low settlements.
  Mark Yarsike, owner of a produce store, encountered problems 
because of the failure of a newly purchased computerized cash 
register to process credit cards with expiration dates of 2000 
and beyond. Yarsike, who testified at the Committee's February 
9, 1999 hearing, has stated that if this rule was in place at 
the time he filed his claim, he would have been virtually put 
out of business.

      V. Elimination of Joint and Several Liability (Section 104)

  The bill abolishes joint and several liability in all actions 
covered by the legislation. Defendants will be liable only for 
their specific share of harm that the plaintiff is able to 
prove in relation to all other actual or prospective 
defendants. The Justice Department has advised that this 
provision will place considerable burdens on the plaintiffs' 
ability to recover their full damages.

         VI. Rules Governing Contract-Related Claims (Title II)

ENFORCEABLE CONTRACTS (SECTION 201)

  The legislation will require enforceability of all contracts, 
including written disclosures and disclaimers of warranties, 
unless the court determines the contract, as a whole, is 
unenforceable. Generally, contracts can be nullified by courts 
if they are found to violate public policy, especially as it 
concerns fairness with respect to bargaining power of the 
parties. For example, if one party, such as a large business, 
has enormous bargaining power in comparison to the other party, 
a court may act to overturn the contract upon evidence that the 
disadvantaged party was placed in an unconscionable position, 
notwithstanding the written agreement.

REASONABLE EFFORTS DEFENSE FOR DEFENDANTS (SECTION 202)

  The legislation grants defendants a ``reasonable efforts'' 
defense with respect to any Y2K contract action. Under this 
defense, a defendant is permitted to introduce evidence that 
its efforts to implement the contract were reasonable under the 
circumstances, for the purpose of limiting or eliminating its 
liability. Generally, under contract law, the defendant's 
conduct is immaterial to a breach of contract. Normally, the 
only relevant issue is whether the product is defective or the 
service lacks the required performance standard. It is not 
clear how the actions involving reasonable measures will be 
determined, since there is not much history regarding these 
types of cases. What is likely, however, is that the standard 
will be measured by like parties (the manner in which 
defendants generally seeks to respond to potential problems). 
No matter how minimal or ineffective such efforts might be in 
informing plaintiffs, to the extent such conduct becomes common 
among potential Y2K defendants, it could be used to exonerate 
defendants from any damages owed to a plaintiff.

          VII. Rules Governing Tort-Related Claims (Title III)

GOOD FAITH DEFENSE FOR DEFENDANTS (SECTION 302)

  In all tort claims covered by the bill, a defendant will be 
permitted to offer into evidence, as a complete defense to any 
damages, that it acted in good faith and took reasonable 
measures under the circumstances to prevent the Y2K failure 
from occurring. This provision will likely have the same effect 
as Section 202 relating to contract suits. The main difference, 
however, is that the reasonable efforts defense relating to 
contract suits allows defendants to use the defense to reduce 
damages, with the possibility of eliminating all damages. The 
good faith defense relating to tort claims, however, operates 
as a complete defense, precluding any possibility of damages 
being awarded to plaintiffs.

HIGHER BURDENS OF PROOF FOR PLAINTIFFS IN TORT SUITS (SECTION 302)

  The legislation will require plaintiffs to meet a substantial 
burden of proof to recover in tort cases. The bill provides 
that in any tort action involving the plaintiff's state of 
mind, the necessary burden of proof will be clear and 
convincing evidence that the defendant knew, or recklessly 
disregarded a known and substantial risk, and that the failure 
would cause the actual and specific injury suffered by the 
plaintiff. This is one of the highest standards of proof 
required in a civil action. It is generally reserved for 
punitive damages. However, because it is tied to any case 
involving the defendant's state of mind, it will apply even in 
cases involving ordinary negligence. The ordinary negligence 
standard requires plaintiffs to prove that the defendant knew, 
or should have known, that a product in a certain condition 
could be defective, which involves proof of a defendant's state 
of mind. However, not only must a plaintiff meet this burden to 
prove simple negligence, the plaintiff must also prove the 
defendant was aware of the specific injury that the plaintiff 
suffered. This standard will make it extremely difficult to 
recover damages in property loss cases. Moreover, the burden of 
proof is not in lieu of, but in addition to, any burdens of 
proof the plaintiff is required to meet under state law.

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