While the problem is easy to rectify for a single line of programming code, if one multiplies the problem millions of times over for each time a date field appears, it is not hard to imagine why the tab for fixing this Year 2000 ("Y2K") computer problem is placed as high as $75 billion in the United States and $600 billion worldwide.
Significantly, the costs of Y2K inspired litigation may exceed the costs of this fix. In particular, costs of suit are estimated from $2 billion to as high as $1 trillion while the costs of damages and punitive awards are placed in the $100 billion range.
Who will be sued and why? Computer systems and software companies will certainly become targets because they will be blamed for designing and manufacturing products with an inherent Y2K flaw. Yet, there are many other, less obvious choices. One such group is companies who provide a product or service adversely effected by the Y2K problem. Another is a director or officer of a corporation who could be held liable for failure to address the problem or for self-dealing based on non-public information about the issue. Such a list is not exhaustive. Generally speaking, any company or individual that uses computers to perform tasks for others is in danger of falling prey to a lawsuit based on the Y2K problem. For example, if a financial transaction fails, an elevator falls or an airplane crashes due to a Y2K problem, it is all but certain that anyone associated with the problem will be sued.
The computer industry faces the greatest challenge in fending off Y2K lawsuits. Hardware and software vendors and maintenance contractors will face liability not only for the Y2K problem itself, but also for Y2K fixes that may go awry. Such companies will be sued for breach of warranty, fraud or negligence. Breach of warranty claims will be based on an explicit provision in a sales or service contract or an implicit understanding that the computer system will operate beyond the year 2000. Likely defenses include that any warranty expired by the time a claim was made or that any damages are severely circumscribed under the terms of the contract. Fraud claims are difficult to prove because they require a showing of intent. Nonetheless, it is expected that many lawsuits filed against computer companies will contain an allegation that the defendant knowingly sold a flawed product. Negligence claims will be easier to prove than fraud claims. The basis for such negligence claims will be that these companies failed to exercise due care in developing or selling a defective product. Defenses for such claims will include statutes of limitation and waivers in sales or service contracts that limit damages.
Directors and officers face two types of liability from their shareholders. First, they may face claims that they breached their fiduciary duty of care owed to the corporation because they did not engineer a Y2K fix in time. The result of such a lawsuit will depend on the facts of each case, but directors and officers will be judged to a large extent based upon comparing their actions with their corporate peers. A second, less likely claim will arise if a director or officer allegedly sells stock based on insider information about Y2K problems before the price drops. Such self-dealing could be another basis for liability, but again proof would depend on the facts of each case.
The last group of potential defendants -- anyone who uses a computer to sell a product or provide a service -- includes practically every business in this computer dependant age. Most such claims will be based on negligence. They will allege that the defendant's failure to respond to the Y2K problem caused foreseeable damage to third parties. While defenses to such a claim will be that the Y2K problem and its consequences were unforeseeable, such a defense may be difficult to make given all the attention that the subject has received of late.
Although the millennium is over a year away, at least two Y2K lawsuits have been filed already. In Produce Palace International v. Tec-America, plaintiff supermarket owners allege that they lost more than $10,000 and experienced more than 100 computer system failures due to a Y2K glitch. In the other, a class action captioned Atlaz v. Software Business Technologies (SBT), plaintiffs contest SBT's failure to provide, at no cost, Y2K compliant versions of its accounting software.
What can businesses do now to lessen the impact of the Y2K problem on their bottom line? First, companies must undertake a realistic assessment of the scope of the Y2K problem in-house as well as with respect to suppliers and customers. Once companies know the scope of the problem, they must take immediate efforts to either correct it or, at the very least, engineer a partial fix. Procedures should also be put into place to cope with Y2K-related disruptions. In particular, companies can and should think creatively to work around the expected Y2K snafus. Legally, companies' options are somewhat limited; however, efforts should be made to write advantageous Y2K provisions in all future contracts.
In sum, the Y2K problem challenge to business is much more than a technical fix. Such a challenge requires business to take a proactive approach to the prospect of Y2K liability.