Time Sensitive Year 2000 Information and Readiness Disclosure Act Requirements


On October 19, 1998, the Year 2000 Information and Readiness Disclosure Act (the "Act") was signed into law by President Clinton. The intent of the Act is to promote and encourage the disclosure and exchange of information relating to the Year 2000 readiness of companies and governmental entities. Towards that goal, the Act provides certain limited protection for Year 2000 Statements, which are defined as communications concerning the Year 2000 readiness of products or services made by one party to another party from July 14, 1998 through July 14, 2001.

Subject to significant limitations in the Act which are outlined below, the Act provides makers of Year 2000 Statements with immunity from liability in civil actions based on allegedly false, inaccurate or misleading Year 2000 Statements. In addition, Year 2000 Statements which qualify as Year 2000 Readiness Disclosures are generally inadmissible in civil actions to prove the accuracy or truth of any Year 2000 Statements contained in such disclosures. Although the Act only applies to Year 2000 Statements which are made on or after July 14, 1998 and to Year 2000 Readiness Disclosures which are made after October 19, 1998, the Act does provide companies with a time-sensitive opportunity to reclassify statements made during the period from January 1, 1996 and before October 19, 1998 as Year 2000 Readiness Disclosures, if they follow certain procedures set forth in Section I(C) below by December 3, 1998.

I. Protection Provided By The Act.

A. Limited Immunity from Liability.

The Act generally provides that the maker of any Year 2000 Statements will not be liable for civil actions of any kind under federal or state law to the extent such actions are based on the Year 2000 Statement being false, inaccurate or misleading, unless the claimant in the civil action establishes by clear and convincing evidence that the statement was material and the maker made the statement: (1) with knowledge that it was false, inaccurate or misleading, or (2) with intent to deceive or mislead, or (3) with reckless disregard as to the statement.s accuracy. The Act does expressly state, however, that it does not preclude any claims that are not based exclusively on Year 2000 Statements. For example, the Act will not preclude or limit liability in an action based on an actual Year 2000 processing failure.

B. Defamation or Similar Claims Arising from Year 2000 Statements.

The Act further provides limited protection against defamation or trade disparagement claims arising from Year 2000 Statements made by one person or entity regarding another person.s or entity.s goods or services. For example, the Act requires in a defamation action that the party whose goods and services are the subject of the Year 2000 Statement must prove through clear and convincing evidence that the Year 2000 Statement was made with either actual knowledge of its falsity or reckless disregard as to its truth, in addition to proving all other requisite elements of the applicable action.

C. Limited Evidentiary Exclusion.

The Act also provides that in any federal or state civil action, Year 2000 Readiness Disclosures are not admissible against the maker of such statements to prove the accuracy or truth of the information in that disclosure. To qualify as a Year 2000 Readiness Disclosure, a Year 2000 Statement must:

. Be clearly identified on its face as a Year 2000 Readiness Disclosure,

. Be written on a tangible medium, or in an electronic or other medium that is retrievable in perceivable form, and

. Be issued or published by or with the approval of the entity making the disclosure.

The evidentiary exclusion has several exceptions. First, the Act provides that a Year 2000 Readiness Disclosure may be admissible to serve as the basis for a claim for anticipatory breach, repudiation of a contract or a similar claim. Thus, a Year 2000 Readiness Disclosure which discloses a processing problem that will constitute a breach of an existing contract could be admissible in a claim of anticipatory breach of that contract. Second, Year 2000 Readiness Disclosures which are made fraudulently or in bad faith are also admissible into evidence. Finally, the Act excludes Year 2000 Readiness Disclosures only if they are offered into evidence to prove the accuracy or truth of the information. Other evidentiary uses of such disclosures, such as for impeachment purposes, are not addressed and presumably would be allowable.

1. Retroactive Protection for Year 2000 Statements Made before October 19, 1998:

Anyone who made a written Year 2000 Statement (which, but for the failure to legend it as a Year 2000 Readiness Disclosure would have qualified as a Year 2000 Readiness Disclosure as defined above) during the period from January 1, 1996 to October 19, 1998 can have that statement designated as a Year 2000 Readiness Disclosure by meeting the following notice requirements by December 3, 1998.

2. What to do if you want to designate a prior statement as a Year 2000 Readiness Disclosure:

. You must send a notice to the recipients of the prior Year 2000 Statement that the prior statement is being designated as a Year 2000 Readiness Disclosure.

. The notice must include a copy of the prior statement with a legend labeling it a Year 2000 Readiness Disclosure.

. The notice relating to such prior statements can be provided in either of two ways. You may either (a) provide individual notice to all recipients of the previously made statement on or before December 3, 1998, or (b) post a notice on your Year 2000 Internet Web Site (as described in Section I(D) below) on or before December 3, 1998, which runs for 45 consecutive days and also use the same method you originally used to make the Year 2000 Statement.

3. What to do if you receive a notice which seeks to reclassify an earlier statement as a Year 2000 Readiness Disclosure:

The Act provides that the recipient of a notice, which seeks to reclassify an earlier statement as a Year 2000 Readiness Disclosure, will have no right to object to the reclassification unless the recipient is able to show by clear and convincing evidence the following: (a) the recipient has relied on the prior statement to the recipient.s detriment, and (b) the recipient objects in writing to the designation within 45 days of receiving individual notice or 180 days of receiving notice via a Year 2000 Internet Web Site (as described in Section I(D) below). Thus, if you receive a notice attempting to designate a prior statement as a Year 2000 Readiness Disclosure, you should consider whether you need to file a timely response objecting to such a reclassification of the statement as a Year 2000 Readiness Disclosure.

D. Benefit of Posting Year 2000 Statements on a Website.

The Act provides a significant advantage for entities that post Year 2000 Statements on their Year 2000 Internet Website, which is defined as a website or web page clearly identified by an entity as the location where its Year 2000 Statements are made available. In any civil action in which notice about Year 2000 processing capability is at issue, the posting of a notice for a commercially reasonable duration on a Year 2000 Internet Website will be deemed adequate notice. This statutory benefit does not apply to actions relating to personal injury or in situations where the notice: (1) is contrary to a mechanism of notice that the parties had previously agreed upon, or (2) is materially inconsistent with the regular course of dealing between the parties. If the parties have no such agreement or regular course of dealing, the Act requires actual notice, if such notice would clearly be the most reasonable means of providing notice.

E. Anti-Trust Exception for Information Sharing Purposes.

The Act also provides a limited and temporary antitrust exemption to permit companies to share information solely for the purpose of facilitating Year 2000 remediation, and to enter into agreements to correct or avoid Year 2000 processing failure.

II. Limitations Of The Act.

Despite the benefits of the Act, caution should be exercised by companies when making Year 2000 Statements under the assumption that the Act prevents such statements from being used against them, given the broad set of exceptions to protection set forth in the Act. In addition to the exemptions and limitations described above, the following exemptions and limitations apply:

A. Consumer Products. The Act does not apply to a Year 2000 Statement expressly made in a solicitation, advertisement or offer to sell to a consumer a product which is normally used for personal, family or household purposes.

B. Contractual Rights. The Act also does not affect any contractual rights, or alter or amend any rights established by contract or warranty, unless one of the following conditions is met: (1) the party whose Year 2000 Statement is alleged to have amended or altered a contract or warranty has otherwise agreed in writing to so alter or amend the contract or warranty; (2) the Year 2000 Statement is made in conjunction with the formation of the contract or warranty; or (3) the contract or warranty specifically provides for its amendment or alteration through the making of a Year 2000 Statement.

C. Securities Disclosures. Statements in documents filed with the Securities and Exchange Commission or with federal banking regulators pursuant to Section 12(i) of the Securities and Exchange Act of 1934, or that when made accompanied an offer or sale of securities are specifically excluded from the Act.s protection.

D. Government Actions. The Act does not apply to any action brought by a federal, state, or other public entity, agency or authority acting in a regulatory, supervisory or enforcement capacity.

E. Injunctive Relief. The Act does not preclude a claimant from seeking injunctive relief with respect to Year 2000 Statements.

F. Pending Lawsuits. The Act does not apply to lawsuits pending on July 14, 1998.

G. Remediation Products. The Act contains provisions regarding "Remediation Products" which are defined as software programs or services designed to detect or correct the Year 2000 processing problems of an entity or person other than the one providing such software program or service. Year 2000 Statements which accompany a solicitation or offer to sell a Remediation Product, including an advertisement by the seller or provider of such Remediation Product, are not provided protection under the Act unless the seller or provider also provides the following notice:

"Statements made to you in the course of this sale are subject to the Year 2000 Information and Readiness Disclosure Act. In the case of a dispute, this Act may reduce your legal rights regarding the use of any such statements, unless otherwise specified by your contract or tariff."

Given the potential benefits, but keeping in mind its limitations, we urge you to take appropriate action to avail yourself of the Act.s protections.