The United States Senate recently passed the "Y2K Act" ("the Act"), which some believe could avoid an economic crisis created by an onslaught of lawsuits against companies with year 2000 computer problems.
The Act, sponsored by Senator John McCain, applies to litigation brought in either state or federal courts after January 1, 1999 for Y2K failures occurring before January 1, 2003. The Act permits the strict enforcement of any limitation, exclusion of liability or disclaimer of warranty in a contract between a computer vendor and its customer. The Act also preempts any state law which stands inconsistent with provisions in the Act.
The Act caps punitive damages at the amount of $250,000 or three times the amount awarded for compensatory damages and requires that a plaintiff must prove by clear and convincing evidence that the applicable standard for awarding punitive damages has been met. The cap does not apply if the plaintiff establishes by clear and convincing evidence that a defendant acted with specific intent to injure the plaintiff.
The Act also provides for "proportionate liability." Specifically, a person against whom a final judgment is entered in a Y2K action is liable solely for the portion of the judgment that corresponds to the relative responsibility of that person. Similar to a comparative fault analysis, the Act requires a jury in Y2K litigation to determine the percentage of responsibility of all persons, including the plaintiff, who caused or contributed to the total loss incurred by the plaintiff. The Act also calls for courts to instruct juries to answer special interrogatories regarding fault, or, if there is no jury, the court must make specific findings with respect to the fault of each defendant, even those who have entered into settlements with the plaintiff.
The Act provides for joint and several liability of all defendants in Y2K actions if the trier of fact specifically determines that the defendants acted with intent to injure the plaintiff, committed fraud or acted recklessly in harming the plaintiff.
Special rules are set forth in the Act regarding the collection of any Y2K judgment. Within six months from the date of judgment, upon motion by the plaintiff, the court may determine that all or part of the share of the judgment for compensatory damages is not collectible in that event, each remaining defendant in the action is liable for the uncollectible share as determined by a calculation that is largely driven by the remaining defendant's net worth.
The Act also requires a plaintiff to give pre-litigation notice to each respective defendant in the action, providing specific information about the defects alleged that led to the harm or loss, the nature of the harm or loss, the requested remedy and other information important to the case. The prospective defendant must respond within 30 days and describe, among other things, the measures it has taken or will take to address the problem identified by the prospective plaintiff in the notice. The Act presents pleading requirements that go well beyond the notice pleading rules in the Rules of Civil Procedure. The Act prohibits the recovery of damages for a tort claim under an economic loss theory unless the recovery of such loss is provided for in a contract to which the plaintiff is a party or in the event such loss is a result directly from damage to tangible personal or real property caused by the Y2K failure.
Finally, the Act sets out restrictions on class actions and permits a district court to appoint a special master or magistrate judge to hear Y2K litigation.
The Act's sweeping limitations on Y2K litigation is an apparent effort to curb the practice of targeting large, wealthy corporations for Y2K lawsuits. At the time this article went to press, it was entirely unclear whether President Clinton would sign the Act into law. Press reports indicate the congressional vote in favor of the Act did not rise to a level of two-thirds, which would be necessary to override a presidential veto. Nevertheless, if the Act becomes law, the high-tech community will have gained major liability protections against Y2K litigation.
EDITOR'S NOTE: "The Y2K Act" was signed into law by President Clinton after the time this article was submitted to press.