The Y2K Act promises more than it can deliver

The Y2K Act promises more than it can deliver

Joseph J. Petrillo

No doubt you have heard that Congress has passed, and President Clinton has reluctantly signed, the Y2K Act. The act will not necessarily deliver anyone from legal troubles over the so-called millennium bug.

In fact, the act stops far short of absolving information technology companies of liability for problems caused by date code errors. Instead, it merely nibbles at the fringes of liability issues and is more concerned with court procedure than substance. Every time it seems to establish some rule of law or procedure, the act promptly undercuts it with provisos, limitations and exceptions.

For instance, the act grants defendants'mainly businesses'a limited exemption from penalties for failure to comply with a federal reporting requirement, if the reason is a date code problem. If a company meets a multipart test, it can assert a defense, described as an exceptional temporary failure to comply and called 'Y2K upset.'

Open to interpretation

Madison Avenue would have a field day with this. For some individuals and small businesses, the exemption can also include some violations of a rule or regulation,
and not merely a reporting requirement.

To qualify, the company must jump through several hoops, including the following:
  • The reporting failure cannot relate to threats to health, safety, the environment, or to the banking or monetary system.
  • The defendant must have made a good-faith effort to anticipate and prevent the date code problem, and the failure cannot be due to operational error or negligence.
  • Noncompliance must be 'unavoidable in the face of an emergency'' and 'necessary to prevent the disruption of critical functions or services'' with potential harm to life or property.
  • The defendant must submit notice 72 hours after becoming aware of the upset.
  • Companies must assert their defense before July 1.

Some businesses might find it cheaper to pay the penalty than to prove all the elements of this defense. Either way, we all have to live with the upset.

The act also contains provisions concerning failures to post residential mortgage payments; limits on punitive damages against certain individuals and small businesses; special proportional liability rules for noncontract damages, basically tort; a requirement for a 30- to 90-day advance notice to defendants before commencing a suit to permit remediation; rules requiring specific allegations of certain facts in such a lawsuit; and limitations on contract and tort damages. It goes on and on.

Each of these provisions is as convoluted as the exemption from penalties for failure to comply with a federal reporting requirement. The net result? Any lawsuit related to the date code problem will be accompanied by multiple minidisputes over which parts of the act apply, and whether, and how.

The act explicitly applies to government entities, and so its provisions will be invoked in disputes with contractors over who is liable for date code problems. The federal government hasn't put itself in the best position on this issue. The federal standard on date code representation, Federal Information Processing Standard 4, did not require four-digit years until 1998.

The Y2K Act is likely to complicate matters by giving contractors more defenses. To take one example, the standard definition of year 2000 compliance in Federal Acquisition Regulation Section 39.002 requires that IT accurately process date and time data into the 21st century.

But the Y2K Act prescribes that, in certain contexts, only a material defect, as defined, is relevant. This may blunt contractor liability.

Date code blue

How would this apply? Assume that a heart defibrillator has a date readout which interprets the day after Dec. 31, 1999, as Jan. 1, 1980. Besides that, the machine works fine, and still can jump-start a stalled heart. Although the machine is, strictly speaking, not year 2000-ready, this particular defect is not material. Thus, the Y2K Act might deny the government a remedy which the FAR might otherwise provide.

These are just samples of what await date code litigants. The act reads as if it were written by first-year law students on summer internships. With any luck, they'll come back next year and clean up the mess they made.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell PLLC. E-mail him at [email protected].


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