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Facing Liability In The Year 2000 - Or Is It 1900?
Periodical: For The Defense
Date: February 1998
Doomsayers
have predicted impending global catastrophe at the turn of each millennium.
Last time around it was fire, flood, earthquake and other
natural disasters. While
a wrathful Mother Nature may still figure in modern prognostications
of doom - California could, after all, finally sink into the Pacific -
this millennium's predictions of peril are more likely to be of a
high-tech nature: alien
spaceships could land, global warming could submerge Kansas,
genetically enhanced vegetables could turn mutinously ambulatory
.
Or, a single computer glitch could
ruin businesses, force government to grind to a halt and leave
millions without access to food, housing or medical care.
While seismic cataclysms are
mercifully infrequent and the odds against being assaulted by hordes
of murderous endive are prohibitive, the aforementioned software
defect - known colloquially as the Year 2000 (or "Y2K")
problem - is unfortunately a very real possibility. The cost of
preventing the problem through preemptive reprogramming has been
estimated at $300 to $600 billion! In addition, failure adequately to
address potential Y2K problems may result in substantial losses to
businesses and hardship to individuals.
Thus, companies which have not performed adequate Y2K fixes may
face future liability equaling or exceeding the not-insubstantial
present cost of fixing their software.
THE
NATURE OF THE PROBLEM
The Y2K problem arises because many
computer programs - and almost all older ones - use only two digits to
identify dates, with the software being programmed to assume that the
year begins with a "19."
Thus, when the year 2000 rolls around, any systems using such
software will read the date as January 1, 1900.
This may seem like a fairly minor defect, but the consequences
can be catastrophic, as the following example illustrates.
Suppose your mother was born in
1934. In the year 1999,
computers using two-digit date codes will calculate her age by simply
subtracting "34" from "99" and correctly conclude
that she is 65 years old. In
the year 2000, however, the same computers will subtract
"34" from "00" and determine her age to be
negative 34. What will
the computer do with this miscalculation?
There are two possibilities.
First, the software may simply "crash" because of the
anomalous result. More
likely, and perhaps even worse, the computer may be programmed to
disregard the minus sign and conclude that Mom is 34 years old instead
of 66, the correct answer.
The possible consequences of this
are alarming. For
example, whereas a government computer will authorize the issuance of
a Social Security check to a 66-year-old, it generally won't make
payments to healthy 34-year-olds.
Similarly, while 66-year-olds are entitled to withdraw funds
from IRAs and 401(k) plans without penalty, 34-year-olds cannot.
Thus, if Mom is dependent on Social Security distributions,
pension funds or annuities to defray her living expenses, she may be
left without crucial resources as the result of Y2K glitches.
Moreover, mistakes may not always work against the individual:
older persons may see their life and health insurance premiums
drop as the result of Y2K glitches and younger persons may receive
age-dependent benefits they would not be entitled to for years. In such cases, companies who wrongly lose revenues or
disburse monies will be faced with the choice of seeking recovery from
the individuals benefited, suing one or more companies connected with
the faulty computer systems, or swallowing the loss.
Some have minimized the possibility
of such catastrophic consequences of Y2K glitches, pointing out, for
example, that lenders managed to issue mortgages with 30-year terms in
1970 without incident. It
is probably true that the popular press (and many legal commentators)
have overstated the possible results of the Year 2000 bug:
both businesses and governments are well aware of the negative
publicity and potential liability associated with starving senior
citizens and have taken steps to avoid at least the most dramatic
adverse Y2K outcomes. However, it would be a mistake to therefore
assume that all is well.
Indeed, one Y2K-related lawsuit has
already been filed by a produce supplier which alleges that its
computerized cash register system crashes every time a customer
attempts to pay for items using a credit card with an expiration date
after 1999. In a case
which has not yet led to litigation, an insurance company's computer
system determined which policy files to destroy by adding five years
to the date when the file was last "touched," determining
whether the resulting date had already passed and, if so, marking the
file for destruction. Naturally,
for any file last accessed after 1994, the computer would conclude
that the file had been dormant for nearly a century and recommend that
it be destroyed. Similarly,
and perhaps most disturbingly, one medical device manufacturer was
forced to recall its cardiac defibrillators for fear that the machines
would shut down in the year 2000 because the devices' microchips would
conclude the defibrillators had not been serviced since 1900.
How did society get in such a mess?
There actually is a simple, rational explanation for why
programmers did not simply use four digit date codes from the outset,
and, unsurprisingly, it involves money. In the 1960s, when much of the affected software was
generated, data storage was at a premium - a gigabyte of memory might
cost up to $1 million dollars. Today,
the same amount of memory can be had for less than $20.
In addition, the use in the 1960s of four digits to represent
dates would have taxed the relatively meager processing capacity of
computers then in use. Thus,
programmers' decisions to minimize the amount of computer space
necessary to store dates was not necessarily short-sighted nor
inexplicable, and may have been a reasonable accommodation to the
technological and financial realities of the day.
What's the solution?
Many may think it's as simple as setting some geeky genius to
the task of writing software that automatically corrects the problem.
Unfortunately, this is incorrect:
the only sure solution is to actually rewrite all the affected
programs line by line. This is a manageable task in the case of small, discrete
applications. However, if
a business is heavily computer dependent, its programs may run to the
millions of lines of code. For example, it has been estimated that a
major financial institution like the Chase Manhattan Bank would
require over 200 million lines of code.
Moreover, since the cost of converting two-digit programs to
four digits presently runs about $1.00 to $1.50 a line of code, a Y2K
makeover for a business like Chase Manhattan may cost between $200 and
$300 million.
In addition, it is likely that the
costs of addressing and correcting Y2K problems will increase as time
goes on: as more and more
businesses seek the services of software consultants to remedy Year
2000 glitches, the law of supply and demand will enable those
increasingly scarce consultants to charge more per line for rewriting
non-compliant software. This is especially the case because many
non-compliant software programs were written in early computer
languages such as COBOL and FORTRAN. Because these languages are no longer in use, those few
programmers familiar enough with them to rewrite non-compliant
programs are at a premium. More
importantly, however, delay in commencing a Y2K compliance program may
well result in a complete or partial inability to correct the problem
in a timely manner. This is due both to the anticipated shortage of competent
reprogrammers and to the fact that any Y2K fix will require a
considerable amount of time both for the actual reprogramming and for
a testing and debugging program.
Accordingly, delay in implementing a Y2K compliance program may
result in a partial or total inability to correct any problems in a
timely manner. Despite the undeniable urgency of the Year 2000
problem, many businesses have been reluctant to address the issue. This may stem to some degree from a disinclination to spend
the considerable sums that may be necessary to address the problem,
especially when the substantial outlay on Y2K fixes will result in no
additional revenues. However,
any impulse to avoid addressing the problem should be forcefully
rejected, as pro-crastination may itself suffice to create liability.
WHO FACES LIABILITY?
Although it is tempting, and to some
degree accurate, to warn that all businesses that use computers face
potential liability arising out of the Y2K problem, it is possible to
distinguish those enterprises most likely to be affected by the defect
in ways that give rise to the possibility of substantial liability.
The following list is intended to be exemplary, not exhaustive.
Financial Institutions
Those most likely to face liability
because of Y2K glitches clearly would include businesses and
individuals that use date-sensitive information (particularly if
stored on older mainframe computers), and especially if that data is
used for the purpose of calculating benefits due to others or
obligations due from others. Obviously,
every business will fit this description to some extent; those most at
risk, however, are those companies which earn their revenues from such
calculations. Some likely
suspects are banks, insurance companies, issuers of bonds and/or
annuities, mortgage companies, loan companies, ERISA (Employee
Retirement Income Security Act of 1974) trustees and administrators,
and some accountants and lawyers. Fortunately, many such businesses
are among those who have been most diligent in preparing for the
coming millenium.
Software Vendors
Companies which designed and/or
manufactured software using two-digit date codes certainly face
liability, to the extent such businesses still exist.
This last qualification is a significant one, however, for the
computer industry is notoriously volatile, with many former industry
leaders falling by the wayside in the wake of new technological
developments. However, to
the extent a company which designed a business's faulty software still
exists, it is likely to be called upon by its customers to bear the
costs of achieving Y2K compliance.
Software Consultants
Many companies have responded to the
impending Y2K problem by hiring software consultants to locate and fix
the bugs in their date-sensitive programs.
Obviously, this has meant substantial revenues for
entrepeneurial programmers. If
these consultants' fixes are flawed, however, they can expect to hear
from their erstwhile clients when the millenium bug persists,
especially if any Y2K problems result in litigation against those
companies.
Hardware Manufacturers
While much of the publicity and
attention accorded Y2K problems focus on the potential liability of
software manufacturers, hardware manufacturers may also be targeted by
lawsuits, as some chips have been designed to default to a date such
as 1980 or 1984 if there is a date malfunction.
Corporations
Corporate management may be liable
not only to shareholders under theories of negligence or breach of
fiduciary duty for failing to address Y2K problems soon enough or in
an appropriate manner, but also under various state and federal
securities laws for failing to inform securities purchasers of the
nature and extent of potential Y2K-related liability.
Accountants and Attorneys
Accountants and - as unpleasant as
it may be to contemplate - attorneys also face the potential of being
sued for malpractice in connection with millenium bug problems.
Accountants may face liability arising from their activities in
connection with alleged financial misstatements and violations of
securities laws. Attorneys
may be alleged to have committed malpractice in connection with the
giving of securities advice, with the drafting of agreements which do
not provide adequate Y2K protections, and with failing to perform due
diligence in connection with corporate acquisitions or joint ventures.
POSSIBLE THEORIES OF LIABILITY
If the Y2K problem has the
disastrous effects some have predicted, those persons suffering as the
result of the problem will undoubtedly seek relief in court.
These potential plaintiffs may include both individuals, such
as pensionholders whose distributions have ceased, and businesses,
such as computer-dependent companies seeking to shift to manufacturers
or software designers the burden of correcting the Y2K problem.
Many such lawsuits might be configured as class actions, thus
adding to the complexity and cost of defending such cases.
Although it is impossible to foresee
precisely what types of claims will typically be asserted by those
seeking recovery for Y2K-related losses, the following appear to be
likely candidates.
Negligence
Many persons adversely affected by
millenium glitches are likely to seek recovery on a negligence theory. Thus, if an annuityholder stops receiving payments due to a
Y2K problem, she is likely to sue the issuer of the annuity, claiming
the issuer negligently failed to foresee and guard against the
problem. That defendant
then doubtless will cross-claim against the software vendor, alleging
that the software was negligently designed and caused the problem, and
against any consultant it had employed to upgrade and/or fix the
software, claiming that its negligence contributed to or failed to
avert the problem.
In such situations, the vendor may
have better luck than the issuer and consultant.
A negligence defendant accused of breaching its duty of
reasonable care may be entitled to invoke the "state of the
art" defense, demonstrating that its actions were consistent with
the best available scientific and technical knowledge at the time it
allegedly committed the negligent act. Thus, a company which programmed a 1960s mainframe computer
to use two-digit date codes could argue that its decision to do so was
reasonable because it was necessitated by the data storage and
processing limitations of the time.
Additionally, software manufacturers can plausibly argue that,
given the speed with which computer hardware and software becomes
obsolete, they could not reasonably have foreseen or expected that
software they designed in the 1960s, 1970s or even the 1980s would
still be in use at the turn of the century.
Such defenses would not be available
to the issuer of the annuity and the software
consultant, whose failure to foresee
and take appropriate steps to prevent Y2K problems would be evaluated
under late 1990s standards. Because
business and popular periodicals are replete with articles trumpeting
the dangers of the Year 2000 problem, a company which failed to take
appropriate steps to correct the problem would appear to be subject to
potential liability for negligence.
Products Liability
Y2K problems attributable to
defective software or computer chips may provoke lawsuits based on a
theory of strict product liability.
Although most such actions will likely involve allegations of
property damage, in some cases a Year 2000 glitch may cause bodily
injury. For example,
mechanisms as traffic lights, elevators, some medical devices and even
weapons systems are heavily computer-dependent.
Although most Y2K problems with these devices would not result
in bodily injury, it is clearly possible to conceive of situations in
which such a result would ensue.
Recovery under a theory of strict
liability may be limited by various defenses.
For example, strict liability generally exists only where the
risks associated with the alleged defect in the product outweigh the
benefits flowing from the product itself, including in the calculus
the cost and feasibility of non-defective alternatives.
As noted above, the decision to utilize two-digit rather than
four-digit date codes was to a large degree motivated by the
extraordinarily high cost of data storage in the 1960s and 1970s, as
well as by the reduction in processing speed which would have resulted
from the need to process additional data if four digit codes were
used. A defendant may
consequently argue that the substantial efficiencies generated by
adopting the two-digit convention outweighed the allegedly defective
elements of two-digit date codes.
In addition, recovery under a theory
of strict liability is generally premised upon the existence of a
"hidden" product defect - one known to the seller but not to
the purchaser. In many cases, especially with large and sophisticated
corporate buyers whose own information systems personnel were
responsible for or involved in selecting which computer systems to buy
or lease, defendants can plausibly argue that the purchasers either
were or should have been aware of the defect at the time of sale.
Breach of Express or Implied Warranty
Companies who incur sizable expenses
in upgrading Y2K-deficient systems will likely wish to recover those
costs from the manufacturers who sold them the problematic computer
hardware and software. As
in any case involving the sale of allegedly defective goods, such
companies can be expected to assert that the vendors in question
breached either an express or implied warranty concerning the
qualities of their computer products. Pursuant to § 2-313 of the Uniform Commercial Code ("UCC"),
a seller is liable if it makes express promises respecting the
qualities of its products, and those products do not conform to the
promises made. Such promises may either be made in the contract for
the sale of the goods itself, or in other documents like
correspondence or advertisements describing the products. In addition,
the UCC creates two different implied warranties - the implied
warranty of merchantability under UCC § 2-314 and the implied
warranty of fitness for a particular purpose under UCC § 2-315 -
which may provide a theory of recovery against hardware or software
manufacturers. Recovery
under a breach of warranty theory is attractive in part because a
buyer is eligible to recover consequential damages like lost profits
or business interruption losses.
There are, however, several
significant obstacles to recovery under breach of warranty theories.
As an initial matter, it is not entirely certain that all
computer programs qualify as "goods" under the UCC - at
least one court has held that a specially designed computer program
was not a "good" covered by Article 2, but rather a
"service" provided by the programmer.
Wharton Management Group v. Sigma Consultants, Inc., 1990
Westlaw 18360, 1990 Del. Super. LEXIS 54.
Thus, companies using specially designed software may be
required to establish that the program is in fact subject to the UCC.
In addition, most states allow a
party to disclaim and/or limit both express and implied warranties
pursuant to UCC § 2-316, and most Y2K breach of warranty defendants
will have incorporated such disclaimers and limitations into their
agreements. Indeed, many
software-related agreements provide that any warranties therein are
voided by customer modifications to the computer program, presumably
including modifications necessary to achieve Y2K compliance. However, the right to disclaim may be limited by UCC §
2-316's provision that limitations on warranties may be deemed
"inoperative to the extent such construction is
unreasonable," and it seems likely that courts will disfavor use
of disclaimer provisions based on modifications necessary to avoid Y2K
problems. However, it is
unclear whether and under what circumstances courts would consider a
specific disclaimer of Y2K warranty lia-bility unreasonable. A final
obstacle to recovery is that § 2-719 of the UCC entitles sellers to
disclaim and/or limit warranty damages to the extent not
unconscionable, limitations which courts will generally uphold.
Fraud, Securities Violations and Directors' and Officers'
Liability
Corporations, as well as their
officers and directors, may also face liability by reason of alleged
misrepresentations, non-disclosures and other malfeasances relating to
Y2K problems. For example, in addition to the principles of common law
fraud, state and federal securities laws require the disclosure of
material information respecting the company in connection with the
offering of stock for sale to the public. Indeed, on October 8, 1997 the U.S. Securities and Exchange
Commission Legal Staff Bulletin No. 5, which concluded that the costs
associated with achieving Year 2000 compliance may in many cases be
"material information" required to be disclosed by publicly
traded corporations.
There are at least two types of
non-disclosure or inadequate disclosure which could occur in
connection with Year 2000 glitches.
First, a company could fail adequately to disclose the
contingent liabilities (the above-described tort and breach of
warranty claims) associated with Year 2000 non-compliance.
Second, the corporation could fail to disclose the extent of
costs associated with achieving Y2K compliance - costs which could run
into the millions of dollars. In
many such cases, non-disclosures - or, worse, actual
misrepresentations - respecting a com-pany's Y2K status may be
followed by a subsequent announcement that losses or
lower-than-expected profits are attributable to Y2K liability exposure
or compliance costs. If,
as one would expect, such announcements are accompanied by a drop in
stock price, the company will almost inevitably be faced with lawsuits
seeking recovery under state and federal securities laws such as Rule
10b-5 (1934 Securities Exchange Act of 1934), as well as under common
law fraud and other theories.
Y2K liability may also manifest in
the form of shareholder derivative suits claiming that officers and
directors have breached their duties to the corporation by failing
adequately or timely to address the millenium bug problem.
If corporate management fails properly to address the Y2K
problem, either by delay in addressing the issue or by implementing an
inadequate compliance program, individual officers and/or directors
may potentially be liable under various theories, including negligence
and breach of fiduciary duty.
Miscellaneous Theories of Liability
In addition to the above, there are
a number of other Y2K liability issues to which businesses and their
attorneys should be alert. For
example, Y2K problems might create liability under ERISA by leading to
miscalculations of participants' retirement benefits.
Similarly, intellectual property issues might also arise:
a company and/or software consultant that modifies software to
remedy Year 2000 non-compliance may have infringed the software
manufacturer's right to create derivative works under the Copyright
Act. Although as a
practical matter it would appear unlikely that a software provider
will institute copyright infringement litigation when the alleged
infringement was necessary to cure a defect in the software which
threatened substantial damage to the purchaser, such a cause of action
may be asserted in response to any suit against the provider seeking
recovery of Y2K compliance costs. In any event, the "fair
use" and other defenses to infringement could be asserted in
response to any such claim, with reasonable prospect of success.
HELPING YOUR CLIENTS MINIMIZE THEIR
Y2K EXPOSURE
Initiate A Y2K Compliance Plan Immediately
The initial step in avoiding or
minimizing Y2K problems is, of course, to commence a program dedicated
to addressing the issue, if this has not already been done.
This process should involve, at a minimum:
(1) assembling a committee for the
express purpose of identifying and formulating a plan to rectify
potential Y2K problems;
(2) identifying all computer systems
and components thereof (including both hardware and software) that are
non-Y2K-compliant;
(3) determining what steps are
required to make such systems Y2K-compliant,
(4) reviewing contractual language
to determine what other persons may have an obligation to correct the
identified Y2K problems;
(5) making a decision on how to
address potential Y2K problems, including whether to use in-house
personnel (existing or specially-hired) or outside consultants, or
both; and
(6) ensuring that all future
acquisitions of computer-related products or services be on a
Y2K-compliant basis. (a
surprising amount of non-compliant software and hardware continues to
be sold.)
In addition, the client should also
be alerted to the wisdom of evaluating the Y2K compliance status of
companies with whom it regularly does business, especially if that
other company: (1) is a related entity; (2) is a joint venturer; (3)
acts as a subcontractor to the client; or (4) otherwise provides
date-sensitive products or services upon which the client relies in
its own business. Such
third parties could include suppliers, distributors, affiliated
companies, customers and any companies storing or supplying data for
or to the client.
In many cases, of course,
sophisticated clients will have already begun the above process.
However, some companies may not yet appreciate the necessity
for a Y2K retrofit, and others will not have treated the issue with
the necessary urgency. As
noted above, one stumbling block to instituting a compliance plan may
be the client's unwillingness to invest the not-inconsiderable amount
of money necessary to achieve Y2K readiness, particularly when such
expenditures will not result in any added revenues.
Counsel may best serve such a client by explaining the
potential liabilities which could ensue from a course of inaction.
Care should be taken, however, not to exaggerate the risk:
small privately-held businesses which do not depend to any
great extent on date-sensitive financial calculations may not require
the type of extensive retrofitting as would a publicly-held financial
service corporation.
Review All Relevant Contracts
As noted above, one prophylactic
measure with which counsel can assist companies is the assembly and
review of all contracts relating to computer systems, including
hardware purchase or lease agreements, software licensing agreements,
and any agreements relating to system maintenance and support.
Naturally, a predicate for undertaking this task is completion
of the process of identifying all relevant systems elements, both
hardware and software, all contracts relating to the acquisition
and/or maintenance of such systems elements, as well as all contracts
with third parties which might involve date-sensitive computer
calculations, so that the reviewing attorney can be relatively certain
of the universe of agreements he or she should be dealing with.
All relevant agreements should be
reviewed to determine what warranties, disclaimers, representations,
agreements to indemnify or limitations on liability are contained
therein that might affect the client's decision on how to achieve Y2K
compliance. Specifically,
the attorney should alert the client to any language (such as
warranties, representations or indemnification provisions) that might
require or persuade a vendor or maintenance provider to render a
system Y2K-compliant at its own expense.
If such language exists, the next step is to determine whether
the third party in question still exists as a functioning business. Assuming it does, a request should be made in writing, with
reference to the specific contractual provisions relied upon, for that
company to fulfill its contractual obligations.
Obviously, it is unlikely such letters will induce agreements
to remedy Y2K problems in full in every case, and there will
inevitably be instances where it will be necessary to file a lawsuit
alleging claims under theories including breach of contract,
declaratory relief and breach of warranty.
Include Y2K Protection In All New Contracts
As noted above, all contracts your
clients enter into should include Y2K protection on a "going
forward" basis. A
sample contractual provision making Y2K warranties might read as
follows:
"Seller hereby warrants and
represents that all products, equipment, hardware, software and
electronic components and systems (individually and collectively
referred to herein as "Equipment") being furnished to Buyer
hereunder, or relied upon by Seller in its provision of services to
Buyer hereunder, shall be "Year 2000 compliant."
As used herein, the term "Year 2000 compliant" shall
mean that the Equipment will continue to perform the same functions
and provide the same level of accurate information and calculations
during the years 1999, 2000 and thereafter as it did prior thereto.
In that regard, Seller warrants and represents that the
functionality of the Equipment and, if applicable, the provision of
services to Buyer, will not be adversely affected by the fact that
such information and/or calculations may not be provided and/or made
wholly within the twentieth century." Although any Y2K-related
contract provision must be tailored to the particular needs of the
client, the transaction
at hand and the applicable law, attorneys advising purchasers of
Y2K-sensitive products or services should insist on such provisions
containing: (1) a
definition of Y2K compliance; and (2) warranties and representations
that all goods or services provided under the contract will be Y2K
compliant. Such an
agreement may also contain express indemnity provisions and a license
to modify any software to the extent necessary to achieve Y2K
compliance (thus eliminating any potential copyright or warranty
problems with such modifications).
Review Insurance Program
A company should also review its
insurance program to determine whether there may be any coverage for
Y2K liabilities under any of its policies and to identify likely
coverage issues. An attorney conducting such a review should examine
the client's entire stock of policies, including any commercial
general liability policies, directors' and officers'
("D&O") liability policies; errors and omissions
("E&O") policies, and business interruption policies.
Defenses which may preclude or limit coverage include:
the absence of covered property damage or bodily injury; the
lack of fortuity of any loss, the expected or intended nature of any
loss and "trigger" of coverage.
In addition, carriers may soon begin seeking to limit their
potential Y2K-related liability by expressly excluding coverage for
Y2K claims as the millenium approaches.
Recognize Your Own Technical Limitations
Defense lawyers should be wary of
rendering advice beyond their expertise.
While counsel may appropriately outline the risks a client may
face if a Y2K glitch leads to particular results, it is the rarest of
attorneys who understands computer systems well enough to determine
what technical steps are necessary to avoid Y2K problems and what
specific consequences are likely to flow from a failure to do so in a
timely and thorough fashion. Clients
therefore should be advised to seek the advice of competent systems
professionals on such matters. The
input of an experienced accountant, preferably one who is intimately
familiar with the company's business, can also be invaluable, as many
of the contingent liabilities associated with Y2K problems may need to
be disclosed pursuant to GAAP or other accounting standards. Similarly, while defense lawyers may be able to identify
general areas of concern outside their specialty, some Y2K-associated
issues relating to pension plans, mergers, acquisitions, joint
ventures, licensing and other agreements, and the tax consequences
thereof, may well be more appropriately evaluated by other attorneys
in the firm who specialize in those areas.
Don't Panic
Businesses which have not yet
implemented Y2K compliance efforts may react to the problem in an
exaggerated fashion, especially if their first awareness of the issue
comes from accounts in the popular press.
Remember, therefore, not to overstate the problem and to focus
your clients' attention on designing and implementing a program for
effectively dealing with the problem. Be aware of the unfortunate fact that most people derive
substantial pleasure from being the first to announce bad news:
the last thing any client personnel should do after hearing
from you on the issue is to write a "Chicken Little"
memorandum bemoaning the tardy attention to Year 2000 issues and
stressing the dire consequences which will ensue from further
inaction. While such
memoranda are generally written to garner the author attention and
approval for having pointed out a pressing problem, the kind of
attention they will receive from opposing counsel at the author's
deposition in any Y2K litigation is unlikely to be very pleasant.
You should therefore stress that any non-privileged memoranda
respecting Year 2000 may well be discoverable in any future litigation
on the issue, and should be drafted with this in mind.
CONCLUSION
It is too early to say with any
assurance whether this millenium's Cassandras will be proven correct.
Although there is clearly some puffery and smoke-blowing going
on, it is not unreasonable to assume that if Y2K retrofitting turns
out to be anything like the $300 to $600 billion dollar industry it
has been estimated to be, some litigation likely will ensue. Indeed,
as the U.S. Securities and Exchange Commission stated in its June 1997
Report to Congress on the Year 2000 problem:
"[I]t is important that one
essential principle be understood:
It is not, and will not, be possible for any single entity or
collective enterprise to represent that it has achieved complete Year
2000 compliance and thus to guarantee its remediation efforts.
The problem is simply too complex for such a claim to have
legitimacy. Efforts to
solve Year 2000 problems are best desribed as 'risk mitigation.'
Success in the effort will have been achieved if the number and
seriousness of any technical failures is minimized, and they are
quickly identified and repaired if they do occur."
Thus, there seems little doubt that
even the most assiduous efforts at achieving full compliance cannot
avoid all potential problems. However,
whether the new millenium arrives with a bang or a whimper for your
clients can to some degree be influenced, if not determined, by the
advice you give them.
Our
Litigation Department specializes in civil litigation at all levels of
the judiciary, and has wide-ranging experience in litigating business,
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extensive experience in accounting and partnership, antitrust, and
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include copyright and intellectual property, real estate and products
liability litigation as well as in the appellate practice.
Rosenfeld, Meyer & Susman was founded in 1957.
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Employee Benefits.
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