On July 20, 1999, President Clinton signed into law the "Y2K Act," which seeks to limit liability for harm or injury allegedly arising from or related to actual or potential Year 2000-related computer failures. The Y2K Act applies to both state and federal Y2K actions commenced after January 1, 1999 for a Y2K failure occurring before January 1, 2003, or for a potential Y2K failure that could occur or has allegedly caused harm or injury before January 1, 2003. The Y2K Act provides in relevant part for the following:
- Prelitigation Notice: Prospective plaintiffs are required to provide potential defendants with a prelitigation notice setting forth "specific and detailed information" about the "manifestations" of any material defect alleged to have caused harm, the harm or loss suffered, how the plaintiff would like the problem solved, the basis upon which the plaintiff seeks that remedy, and the name, address and telephone of a representative authorized to settle the matter. Defendants must respond to the notice within 30 days, indicating how they will address the identified Y2K problem and whether they are willing to engage in alternative dispute resolution ("ADR"). Defendants then have an additional 60 days to complete the proposed remediation or ADR before proceeding to trial. If a plaintiff fails to provide a prelitigation notice, the defendant may, on notice to the plaintiff, treat any complaint filed in a lawsuit as a prelitigation notice.
- Special Pleading Requirements: In all Y2K actions in which damages are sought, the complaint must contain a statement of "specific information" as to the "nature and amount of each element of damages and the factual basis of the damage calculation." Where the case involves allegations of a "material defect in a product or service," the complaint must contain a statement of "specific information regarding the manifestations of the material defects and the facts supporting the conclusion that the defects are material." Finally, where the plaintiff's claim depends upon a defendant's state of mind, the complaint must contain a statement regarding each element of the claim, and "a statement of facts giving rise to a strong inference the defendant acted with the required state of mind.
- Class Action Threshold: The threshold for class actions to be filed in or removed to federal court for claims of "material defects" in products and services is $10 million in claimed damages for a class of more than 100 persons.
- Federal Referees: A special master or magistrate judge may be appointed for cases brought in federal court.
- No Absolute "Control" Liability: Liability cannot be predicated solely upon the fact that a Y2K failure occurred in an entity, facility, system, product or component that was sold, leased, rented or otherwise within the control of a party.
- "By Stander" Liability: In actions in which the defendant is not the manufacturer, seller, or distributor of a product, or the provider of a service that suffers or causes a Y2K failure, is not in contractual or substantial privity with the plaintiff, and in which defendant's actual and constructive awareness of an actual or potential failure is an element of the claim under applicable law (e.g., claims for fraud, constructive fraud, breach of fiduciary duty, negligent misrepresentation, interference with contract or economic advantage, but not negligence), the defendant cannot be liable unless the plaintiff proves that the defendant actually knew, or recklessly disregarded a known or substantial risk, that a Y2K failure would occur.
- Duty to Mitigate Damages: A plaintiff has a duty to mitigate damages that could have reasonably been avoided in light of any disclosure or other information of which the plaintiff was, or reasonably should have been, aware, unless the defendant has engaged in intentional fraud.
- No Economic Loss on Tort Claims: A plaintiff asserting a tort claim may not recover damages for economic loss (e.g., lost profits or sales, business interruption, third-party claims) unless specifically provided for in a contract with a defendant or unless they result from damage to tangible personal or real property caused by the Y2K failure.
- Proportional Fault: A defendant in a non-contract action would be liable solely for the portion of the judgment proportionate to his responsibility, unless the trier of fact specifically determines that the defendant specifically intended to injure the plaintiff or knowingly committed fraud.
- Uncollectibility: If a court determines that a judgment is uncollectible from one defendant, the remaining defendants may become jointly liable for that share if the plaintiff's net worth is less than $200,000 and the recoverable damages are more than 10% of the plaintiff's net worth. If the plaintiff does not meet such criteria, the remaining defendants would be liable for the uncollectible share in proportion to its percentage of responsibility as noted above.
- Punitive Damages: Punitive damages awarded against small businesses and individuals with a net worth less than $500,000 may not exceed the lesser of three times the amount awarded for compensatory damages or $250,000, unless the plaintiff proves by clear and convincing evidence that the defendant acted with "specific intent" to injure.
In general, the Y2K Act does not apply to: (i) actions brought by federal, state or local governments in regulatory, supervisory or enforcement roles; (ii) Y2K actions where the underlying claim arises under the securities laws; or (iii) claims for wrongful death or personal injury. *
Y2K Act, Publ. L. No. 106-37, 113 Stat. 185 (July 20, 1999).