Floor Statement- Y2K Litigation Liability
Testimony of Sen. Orrin G. Hatch before the Special Committee on the Year 2000 Technology Problem on Y2K Litigation Liability
Chairman Bennett and Senator Dodd, let me express my gratitude for your decision to invite me to testify before the Y2K Special Committee on the problems posed by Y2K-related litigation. Both of you recognize how important Y2K remediation is to consumers, business, and the economy. This problem is of particular interest in my state of Utah which has quickly become one of the nation's leading high tech states.
Building on the bipartisan efforts in the Judiciary Committee last year in passing the Y2K disclosure law, our Committee has been studying the litigation problem in the hopes that we can pass a bill that can avoid a potential catastrophic logjam of Y2K-related cases. Working together, Sen. Dianne Feinstein and I have produced a bill - S.461, "The year 2000 Fairness and Responsibility Act" - that encourages Y2K problem-solving, rather than encouraging a rush to the courthouse. It is not our goal to prevent any and all Y2K litigation. It is to simply make Y2K problem-solving a more attractive alternative to litigation. This benefits consumers, businesses, and the economy.
The main problem that confronts us as legislators and policy makers in Washington is one of uniquely national scope. More specifically, what we face is the threat that an avalanche of Y2K-related lawsuits will be simultaneously filed on or about January 3, 2000 and that this unprecedented wave of litigation will overwhelm the computer industry's ability to correct the problem. Make no mistake about it, this super-litigation threat is real, and if it substantially interferes with the computer industry's ongoing Y2K repair efforts, the consequences for America could be disastrous.
Most computer users were not looking into the future while, those who did, assumed that existing computer programs would be entirely replaced, not continuously modified, as actually happened. What this demonstrates is that the two-digit date was the industry standard for years and reflected sound business judgment. The two-digit date was not even considered a problem until we got to within a decade of the end of the century.
As the Legal Times recently pointed out, "the conventional wisdom [in the computer business was] that most in the industry did not become fully aware of the Y2K problem until 1995 or later." The Legal Times cited a LEXIS search for year 2000 articles in Computerworld magazine that turned up only four pieces written between 1982 and 1994 but 786 pieces between 1995 and January 1999. Contrary to what the programmers of the 1950s assumed, their programs were not replaced; rather, new programmers built upon the old routines, tweaking and changing them but leaving the original two-digit date functions intact.
As the experts have told us, the logic bomb inherent in a computer interpreting the year "00" in a programming environment where the first two digits are assumed to be "19" will cause two kinds of problems. Many computers will either produce erroneous calculationsãwhat is known as a soft crashãor to shut down completelyãwhat is known as a hard crash.
What does all this mean for litigation? As the British magazine The Economist so aptly remarked, "many lawyers have already spotted that they may lunch off the millennium bug for the rest of their days." Others have described this impending wave of litigation as a feeding frenzy. Some lawyers themselves see in Y2K the next great opportunity for class action litigation after asbestos, tobacco, and breast implants. There is no doubt that the issue of who should pay for all the damage that Y2K is likely to create will ultimately have to be sorted out, often in court.
But we face the more immediate problem of frivolous litigation that seeks recovery even where there is little or no actual harm done. In that regard, I am aware of at least 20 Y2K-related class actions that are currently pending in courts across the country, with the threat of hundreds more to come.
It is precisely these types of Y2K-related lawsuits that pose the greatest danger to industry's efforts to fix the problem. All of us are aware that the computer industry is feverishly working to correctãor remediate, in industry languageãY2K so as to minimize any disruptions that occur early next year.
What we also know is that every dollar that industry has to spend to defend against especially frivolous lawsuits is a dollar that will not get spent on fixing the problem and delivering solutions to technology consumers. Also, how industry spends its precious time and money between now and the end of the yearãeither litigating or mitigatingãwill largely determine how severe Y2K-related damage, disruption, and hardship will be.
To better understand the potential financial magnitude of the Y2K litigation problem, we should consider the estimate of Capers Jones, Chairman of Software Productivity Research, a provider of software measurement, assessment and estimation products and services. Mr. Jones suggests that "for every dollar not spent on repairing the Year 2000 problem, the anticipated costs of litigation and potential damages will probably amount to in excess of ten dollars." The Gartner Group estimates that worldwide remediation costs will range between $300 billion to $600 billion. Assuming Mr. Jones is only partially accurate in his prediction - the litigation costs to society will prove staggering. Even if we accept The Giga Information Group's more conservative estimate that litigation will cost just two dollars to three dollars for every dollar spent fixing Y2K problems, overall litigation costs may total $1 trillion.
Even then, according to Y2K legal expert Jeff Jinnett, "this cost would greatly exceed the combined estimated legal costs associated with Superfund environmental litigation . . . U.S. tort litigation . . . and asbestos litigation." Perhaps the best illustration of the sheer dimension of the litigation monster that Y2K may create is Mr Jinnett's suggestion that a $1 trillion estimate for Y2K-related litigation costs "would exceed even the estimated total annual direct and indirect costs of all civil litigation in the United States," which he says is $300 billion per year.
These figures should give all of us pause. At this level of cost, Y2K-related litigation may well overwhelm the capacity of the already crowded court system to deal with it.
Looking at a rash of lawsuits, we must ask ourselves, what kind of signals are we sending to computer companies currently engaged in or contemplating massive Y2K remediation? What I fear industry will conclude is that remediation is a losing proposition and that doing nothing is no worse an option for them than correcting the problem. This is exactly the wrong message we want to be sending to the computer industry at this critical time.
I believe Congress should give companies an incentive to fix Y2K problems right away, knowing that if they don't make a good-faith effort to do so, they will shortly face costly litigation. The natural economic incentive of industry is to satisfy their customers and, thus, prosper in the competitive environment of the free market. This acts as a strong motivation for industry to fix a Y2K problem before any dispute becomes a legal one. This will be true, however, only as long as businesses are given an opportunity to do so and are not forced, at the outset, to divert precious resources from the urgent tasks of the repair shop to the often unnecessary distractions of the court room. A business and legal environment which encourages problem-solving while preserving the eventual opportunity to litigate may best insure that consumers and other innocent users of Y2K defective products are protected.
There are now at least 117 bills pending in state legislatures. Each bill has differing theories of recovery, limitations on liability, and changes in judicial procedures, such as class actions. This creates a whole slew of new problems. They include forum shopping. States with greater pro-plaintiff laws will attract the bulk of lawsuits and class action lawsuits. A patchwork of statutory and case law will also result in uneven verdicts and a probable loss of industry productivity, as businesses are forced to defend or settle ever-increasing onerous and frivolous lawsuits. Small states most likely will set the liability standard for larger states. This tail waging the dog scenario undoubtedly will distort our civil justice system.
Some states are attempting to make it more difficult for plaintiffs to recover. Proposals exist to provide qualified immunity while others completely bars punitive damages. These proposals go far beyond the approach taken in the Judiciary and Commerce Committee's bills of setting reasonable limits on punitive damages. Other states may spur the growth of Y2K litigation by providing for recovery without any showing of fault. A variety of different and sometimes conflicting liability and damage rules create tremendous uncertainty for consumers and businesses. If we want to encourage responsible behavior and expeditious correction of a problem that is so nationally pervasive, we should impose a reasonable, uniform Federal solution that substantially restates tried and true principles of contract and tort law. If there is an example for the need for national uniformity in rules, this is it.
The most appropriate role we in Washington can play in this crisis is to craft and pass legislation that both provides an incentive for industry to continue its remediation efforts and that preserves industry's accountability for such real harm as it is legally responsible for causing. This will involve a delicate balancing of two equally legitimate public interests: the individual interest in litigating meritorious Y2K-related claims and society's collective interest in remediating Y2K as quickly and efficiently as possible. We need to provide an incentive for technology providers and technology consumers to resolve their disputes out of court so that precious resources are not diverted from the repair shop to the court room.
And this is the need that our bill, S. 461, the Hatch-Feinstein "Year 2000 Fairness and Responsibility Act" meets. The bipartisan bill, among other things does the following:
*Preserves The Right to Bring a Cause of Action;
*Requires a 90-Day "problem-solving" period which will spur technology providers to spend resources in the repair room instead of diverting needed capital;
*Provides that the liability of a defendant would be limited to the percentage of the company's fault in causing the harm;
*Specifically encourages the parties to a dispute to request alternative dispute resolution (ADR) during the 90-day problem-solving period; and
*Prevents Careless Y2K Class Action Lawsuits;
*Caps punitive Damages; and
*Insures that the Federal Courts will have jurisdiction over this national problem.
In conclusion, Y2K presents a special case. Because of the great dependence of our economy, indeed of our whole society, on computerization, Y2K will impact almost every American in some way. But the problem and its associated harms will occur only once, all at approximately the same time, and will affect virtually every aspect of the economy, society, and government. What we must avoid is creating a litigious environment so severe that the computer industry's remediation efforts will slacken and retreat at the very moment when users and consumers need them to advance with all deliberate speed.
Respectfully, I think our bill strikes the right balance. Still, I recognize that if we are to enact worthwhile Y2K problem-solving legislation this year, we must all work together - Democrats, Republicans, and the Administration - in a cooperative manner which produces a fair and narrowly tailored bill. Recently, the Judiciary Committee initiated such an effort - to which both Senators Dodd and Bennett have sent representatives - and I postponed a mark-up of the Hatch-Feinstein bill originally scheduled for today. All of this has been done in the hope that we can produce a measure which has even broader political support, can pass the Congress, and become law.