Vol. 11, No. 4, Pg. 32. Y2K Liability Legislation: Safe Harbor or Murky Waters?.

• Author: By James K. Lehman, J. Mark Jones and Patrick K. McCarthy

South Carolina Lawyer

2000.

Vol. 11, No. 4, Pg. 32.

Y2K Liability Legislation: Safe Harbor or Murky Waters?

32Y2K LIABILITY LEGISLATION: Safe Harbor or Murky Waters?By James K. Lehman, J. Mark Jones and Patrick K. McCarthyDespite all the doomsday scenarios, the world survived the Y2K bug. And while the Y2K or millennium bug did not cause the massive disruption predicted by some Y2K computer consultants, a number of businesses, as well as consumers, have experienced some disruption which will inevitably lead to litigation.

Last year, in anticipation of the litigal that was expected to follow such disruptions, state legislatures across the country attempted to address these Y2K liability issues in one form or another. South Carolina passed its own Y2K liability bill called the "Year 2000 Commerce Protection Act." (South Carolina Y2K Act) 1999 S.C. Act No. 120 (codified at S.C. Code Ann. §§ 15-3-210 to 260).

At the time the states were struggling with the issue of Y2K liability bills, a number of Y2K bills also were introduced in the U.S. Congress. After almost a year of negotiation, Congress passed the Y2K Readiness and Responsibility Act (federal Y2K Act), Pub. L. No. 106-37, 113 Stat. 185 (codified at 15 U.S.C. §§ 6601 to 6617).

This article summarizes the key provisions of the South Carolina and federal Y2K Acts and offers guidance on how the acts may be interpreted. In addition, because the federal Y2K Act explicitly preempts state law in many respects, this article also addresses how the South Carolina Y2K Act interrelates with the federal Y2K Act.

SOUTH CAROLINA YEAR 2000 COMMERCE PROTECTION ACT

The South Carolina Y2K Act is premised on the recognition that the Y2K bug "could incapacitate systems that are essential to public safety, economic health, and the delivery of goods and services in the State of South Carolina . . ."; that "businesses engage in commerce, and allocate responsibility and risk through their contractual relationships . . ." and that "'the Year 2000 problem' could result in claims of a magnitude and nature not contemplated by businesses in their contracts . . . ." 1999 S.C. Act No. 120 (recitals).

Purpose of Act. In an attempt to balance these concerns, the General Assembly drafted the Act with an intent to: "provide persons engaged in commerce in South Carolina, who suffer economic loss, as a result of a Year 2000 problem, the opportunity to recover and be made whole for that economic loss while providing persons responsible for the Year 2000 problem a safe harbor from unlimited liability." S.C. Code Ann. § 15-3-220.

Operative Provisions. Section 15-3-240(A) is one of the key operative provisions of the Act. It provides:

A person in privity of contract with another person may recover only economic loss as well as reasonable attorney's fees and costs on any claims against the other as a result of a Year 2000 problem, except that recovery based upon any of the following claims is not subject to this limitation: (1) the claim is for personal injury to an individual; or (2) the person defending the claim has acted with fraudulent intent or reckless disregard for the truth in the formation of the contract; or (3) a fiduciary duty recognized by law is owed by the person defending the claim to the person bringing the claim.

The Act defines "Year 2000 problem" broadly to include any failure that "occurred or may occur as a result of computer hardware systems, software programs, semiconductors or other digitally operated systems inability to process properly the change of the year from 1999 to 2000 or the leap year change." § 15-3-230(5). The statute also defines "Claim" broadly to include "any cause of action in state courts, federal court, or arbitration related to a Year 2000 problem." § 15-3-230(1). "Economic Loss" is defined as "any damage for breach of contract or breach of warranty recognized under South Carolina law." § 153-230(3). Additionally, § 15-3240(B) specifically precludes any claims under the South Carolina Unfair Trade Practices Act.

Attorneys' Fees. By specifically providing for the recovery of...