Internet Business Law Alert

Congress is currently considering four Y2K-related bills that have been introduced since the beginning of the year. In October 1998, Congress passed the first piece of federal Y2K legislation, the "Year 2000 Information and Readiness Disclosure Act." This Act shields companies from liability for making statements or "disclosures" regarding their Y2K compliance.

Senator John McCain's bill, titled the "Y2K Act" (S. 96), was introduced in the Senate on January 19, 1999. The act would apply to any civil action regarding a computer system or software's failure to accurately store, process or receive data containing a year 2000 date.

McCain's bill proposes limiting damages in Y2K lawsuits to economic loss plus a maximum of $250,000 in punitive and other damages. If the defendant is a company with less than 25 employees and a net worth of less than $500,000, the cap on punitive and other damages would be $50,000.

The Y2K Act also contains a "good faith limitation" barring any damages (except for economic loss) against defendants who can show they exercised due diligence and reasonable care to prevent or remedy the Y2K failure according to generally accepted standards of care and effort.

Sellers of noncompliant products would be protected unless plaintiffs could show that the seller made an express warranty of its own (beyond the warranty provided by the manufacturer) or engaged in intentional wrongdoing. The Y2K Act would not apply retroactively and would not limit contractual remedies.

McCain's bill also includes a notice requirement. A plaintiff may not commence a Y2K action until it has notified the defendant and given it an opportunity to remedy the problem. Within 30 days of receipt of notice, each prospective defendant must furnish the plaintiff with a written statement acknowledging receipt of notice and stating what the prospective defendant plans to do about the problem identified by the plaintiff.

If the prospective defendant does not respond to the notice or does not describe what it plans to do in order to address the plaintiff's problem, the 90-day period will be shortened to 30 days, at the end of which the plaintiff may begin the action.

In the event that a plaintiff commences an action without providing notice, the defendant may treat the plaintiff's complaint as notice and the court will stay all proceedings for 90 days.

A 90-day waiting period is also the centerpiece of another bill. The Year 2000 Fairness and Responsibility Act ("Y2K FR") (S. 461) was introduced by Senators Orrin Hatch and Dianne Feinstein on February 24, 1999. In line with the McCain bill, the Y2K FR would establish a 90-day period for notice. It would also require that, during the 90 days, plaintiffs inform the potential defendant of the injury they have suffered, and permit the defendant to respond and fix the problem.

Unlike McCain's bill, the Y2K FR would not place a cap on damages. However, the Act does offer some direction on damage awards. For example, the personal liability of corporate officers and directors is limited to the greater of $100,000 or the amount of cash compensation the officer or director received in the preceding year, unless they intended to harm the plaintiff. Senators Hatch and Feinstein believe that the Y2K FR could help prevent frivolous litigation, but that an individual's ability to sue to mitigate real damages would not be restricted.

A third Y2K bill, the Year 2000 Readiness and Responsibility Act ("Y2K RR") (H.R. 775), is primarily concerned with shielding small businesses from crippling damage awards. The bill was introduced on February 23, 1999. House members sponsoring the bill expressed concern that, without such a shield, small businesses will spend more time addressing their potential legal worries than finding out what Y2K problems they need to fix.

The Y2K RR requires a plaintiff to show, by clear and convincing evidence, that the defendant specifically intended to injure the plaintiff. Provided that showing is made, the Y2K RR would cap damages at the greater of $250,000 or three times actual damages. If the showing is not made, there will be no liability (unless, of course, it has been otherwise agreed to by the parties). For small businesses, the cap would be the lesser of $250,000 or three times actual damages.

The Act also enumerates caps for breach-of-warranty, contract, tort and class action cases. In a shift away from litigation, the fourth bill currently being considered by the Senate would require that all Y2K lawsuits be referred to a mandatory arbitration proceeding.

The bill, The Consumer Protection Plan Act of 1999 (H.R. 192), was introduced in the House on January 6, 1999. It does not state whether the arbitration would be binding. Among the bill's other provisions is a two-year limitations period for any Year 2000 computer lawsuit, beginning on January 1, 1999. c

*Ann Mrkic is a 3rd-year law student at Fordham Law School.