Recent legislative developments impacting Year 2000 litigation.

• Author: Burton, Steven G.

Future year 2000 litigation in Florida will be controlled by two additional pieces of legislation(1) recently signed into law, the federal Year 2000 Act ("the act")(2) and Florida's Commerce Protection Act.(3) Both acts have provisions which significantly impact a claimant's ability to recover from sellers of goods and services. Moreover, these acts contain a number of procedural provisions to which a litigant must adhere before filing suit.

In enacting the Y2K Act, Congress found that it was in the national interest that "producers and users of technology products concentrate their attention and resources in the time remaining before January 1, 2000, on assessing, fixing, testing, and developing contingency plans to address ... outstanding year 2000 computer date-change problems, so as to minimize possible disruptions associated with computer failures."(4) Congress recognized that year 2000 computer date-change problems would result in a "substantial likelihood that actual or potential year 2000 failures will prompt a significant volume of litigation, much of it insubstantial."(5) Congress concluded that such litigation would "threaten to waste technical and financial resources that are better devoted to curing year 2000 computer date-change problems and ensuring that systems remain or become operational."(6)

The purpose of the Y2K Act, according to Congress, is to "encourage private and public parties ... to resolve disputes relating to year 2000 computer date-change problems by alternative dispute mechanisms" and to "lessen the burdens on interstate commerce by discouraging insubstantial lawsuits."(7) When signing the bill, President Clinton stated that it is his hope "that the Y2K Act succeeds in helping to screen out frivolous claims without blocking or unduly burdening legitimate suits."(8)

Florida's Commerce Protection Act is designed to reduce exploitation of the Y2K problem and reduce the potential for strain on the court system. At the same time, the Commerce Protection Act encourages businesses to become Y2K compliant through various incentives. Commenting on the compliance encouragement features of the Commerce Protection Act, Governor Bush stated, "We are a leader in this state in the Y2K area in terms of our commitment to ensure that the people of this state will not have any disruption when we move to a new millennium and this bill will help us in that regard."(9) When signing the Commerce Protection Act, the governor also stated that the act would "enhance Florida's economic competitiveness by making our state a more technologically friendly place to learn, live and work."(10)

The Federal Y2K Act

The federal Y2K Act is applicable to any "Y2K action" commenced after January 1, 1999, in federal or state court, or an agency board of contract appeal proceeding, for a "Y2K failure" that has occurred or which has the potential to cause harm or injury before January 1, 2003.(11) The act also applies to any appeals of a Y2K action as well as any judicial, administrative, or alternative dispute resolution proceedings for a Y2K action.

A Y2K action as defined under the act includes any action in which a claim or defense alleges that the harm or injury arises from or is related to an actual or potential Y2K failure.(12) The Y2K failures which can be the subject matter of a Y2K action include failures of any device or system, software, firmware, or set of processing instructions that process, calculate, compare, sequence, display, store, transmit, or receive year 2000 date-related data.(13) Because under the act such failures can occur not only in computer systems, but also in any product containing an embedded "microchip or integrated circuit,(14) the act has potential applicability to disputes for even the least sophisticated of products, such as a vehicle's dashboard clock. Moreover, it is noteworthy that the act contemplates claimants will bring Y2K actions before there is an actual Y2K failure. Through the act's use of the word "potential," Congress recognized that there had already been "many cases filed involving Y2K issues in which there has been no actual failure but only potential, prospective, or anticipated failures" and ensured that these types of cases would be included within the scope of the act.(15) Specifically, the act was intended to govern those cases involving questions such as shareholder liability or "responsibility for the costs of remediation even where there is no Y2K failure."(16)

In addition to applying to any natural person or business organization, the act also governs Y2K actions brought by any agency or subdivision of federal or state government.(17) The only requirement for a government entity to be bound by the act is that the Y2K action be "brought by" the government entity when acting in its "commercial or contracting capacity," rather than in its "regulatory, supervisory, or enforcement capacity."(18) It is unclear whether the act is similarly applicable when a Y2K action is "brought against" the government entity in its commercial or contracting capacity.

Because of the damage-limiting provisions of the act and pre-suit notice burdens for plaintiffs, the determination as to whether a particular action is a "Y2K action" will be a highly contested issue. Unfortunately, the act does not provide a procedural framework within which a court is to decide this initial matter or whether discovery is allowable for purposes of establishing the act's applicability to an action.

Although the act creates no new causes of action,(19) it does create a number of defenses available to anyone facing a claim which relates to a Y2K failure. The act also expressly states that it is inapplicable to claims for personal injury or wrongful death.(20) Finally, the act exempts, in part, actions which have an "underlying claim" arising under the securities laws of the Securities Exchange Act of 1934.(21)

* Limitations on Damages--In accord with its goal of curtailing year 2000 litigation, the Y2K Act contains a number of provisions which limit the recovery that prospective Y2K claimants can expect even if they are successful in proving liability.

* Strict Enforcement of Contract Language Limiting Damages--Among the limitations placed on potential recovery, the Y2K Act requires that any written contractual term in a Y2K action, including a limitation or exclusion of liability or a disclaimer of warranty, be strictly enforced unless its enforcement would manifestly and directly contravene applicable state law embodied in any statute in effect on January 1, 1999.(22) For a state statute to prevent enforcement of contractual terms that limit liability or damages, the statute must "specifically address" the contractual term.(23) Although enforcing an agreement in accord with its terms is by no means a novel legal premise, Congress wanted to ensure that "the mere fact that a Y2K-related problem arises [did] not cause courts to disregard or diminish enforceable contract terms unless those terms are directly contrary to a specific statute."(24)

Although the act requires strict enforcement of contractual terms, the act preserves a court's ability to apply the doctrines of unconscionability and adhesion when circumstances warrant.(25) Moreover, in actions for contract breach or repudiation, the act preserves the defenses of impossibility and commercial impracticability.(26) However, when applying these doctrines to a Y2K claim, a court must look to the applicable law as it existed on January 1, 1999.(27)

* Limitations on Damages in Contract Actions--In keeping with its strict construction theme, the act prohibits any party in a Y2K action for breach or repudiation of contract from claiming, or being awarded, any category of damages unless such damages are allowed by the express terms of the contract.(28) In instances when the contract is silent, courts may look to applicable state law or federal law which existed at the time the contract was effective.(29)

In the act, Congress also took steps to codify the economic loss rule. The act bars a party's recovery under a tort theory for economic losses unless 1) the recovery of such losses are provided for in a contract to which the party seeking to recover is a party, or 2) such losses result directly from damage to "other" tangible personal or real property caused by the Y2K failure.(30) The types of damage defined as "economic loss" include damages for lost profits, business interruption, losses from "third party" claims, and consequential damages.(31) It is significant that Congress has eliminated any reference to losses from damage to intangible property. Moreover, by excluding "intentional tort[s] arising independent of a contract," from the Y2K Act's version of the economic loss rule, Congress was attempting to ensure the act's consistency with current developments to the economic loss rule. The Joint Conference when speaking to this issue stated:

[T]his codifies the rapidly emerging trend in state law to apply the economic loss rule to bar intentional tort claims, such as fraud claims, where such claims are intrinsic to, or indistinguishable from, an underlying contractual dispute between the parties. Simply put, breach of contract, intentional or otherwise, does not generally give rise to a tort claim; it is simply breach of contract.(32)

* Privity, Bystander Liability, and Control--For actions outside of the products liability arena, the act codifies the "substantial privity requirement" to ensure that there be some degree of knowledge on the part of the defendant before liability will attach. The act provides that in any Y2K action for money damages in which the defendant is not the manufacturer, seller, or distributor of a product, or the provider of a service that suffers or causes the Y2K failure at issue, the plaintiff is not in substantial privity with the defendant, and the defendant's actual or constructive awareness of an...