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Y2K ...Year 2000 legal issues may result in wave of lawsuits

Posted online

by Dennis Kennedy

for the Business Journal

I believe that if you put six lawyers in a room and had them brainstorm for an afternoon, they would come up with at least 2,000 legal issues that might arise out of the year 2000 problem. The good news, however, may be that the year 2000 problems in lawyers' own offices may keep them from pursuing all those issues.

There is genuine concern that the number of year 2000-problem claims that might be filed in 2000 will overwhelm our court system for years to come. There are also proposals to increase the number of courts in anticipation of this problem.

For the average person, a discussion of all the nuances of year 2000 legal issues can be arcane and bewildering, especially since very few of the legal issues have been settled. Fortunately, though, the key legal issues can be boiled down to 10 major concerns that you will want to be aware of and put yourself into a position to address.

1. Compliance cost recovery. You purchased hardware and software you thought was state-of-the-art. You now find that it has year 2000 problems. Must you pay for the cost of bringing the hardware or software into compliance?

What if the manufacturer offers a free upgrade that fixes the problem, but requires you to buy all new hardware, network software and incur substantial training costs? Who is responsible manufacturers, vendors, installers?

2. Silent or inadequate standard clause in contracts, leases and agreements. Starting Jan. 1, 2000, year 2000 problems might cause your security system to lock you out of your building, disable your elevators and turn on your sprinkler system. If your lease and building-maintenance agreements are silent on responsibility for year 2000 damages, what are the implications of the silence or of inadequate contract provisions?

Who bears the responsibility for any damages? Worse yet, what if you thought you dealt with year 2000 in a contract, but your definition doesn't cover the actual event that occurred?

3. Insurance. In simplest terms, does your existing business liability or other policy cover year 2000 losses, or must you have specific year 2000 coverage? What do you expect your insurance company to claim? You will want to check your coverages.

4. Warranties. You purchase a product that fails because of year 2000 problems. Does the warranty cover the problem? Must a warranty specifically cover the year 2000 problem or does an implied warranty of fitness for intended purpose cover year 2000 problems?

The very limited number of cases suggests at this point that general language will not cover year 2000 problems.

5. Readiness disclosure. Many companies have received letters from business partners asking them to disclose their state of year 2000 readiness or even to certify year 2000 compliance.

You will need to know how to respond to those letters and what to say in similar letters you might send to your business partners. The year 2000 Information and Readiness Disclosure Act passed by Congress in 1998 will play an important role.

In simplest terms, it eliminates disincentives to share information and disclose year 2000 efforts. Most important, if you follow the act's guidelines and put the required label on your year 2000 disclosure, then, as a general rule, your statements cannot be used as substantive evidence in a later trial on year 2000 claims.

6. Alternative Dispute Resolution. There is a serious concern that year 2000 cases will clog the court system for several years after 2000. You will want to consider whether your contracts should require arbitration or mediation of year 2000 claims, or even other issues, in order to provide a quicker and cheaper resolution of these issues by keeping them out of the court system.

7. Limitation of damages. Expect to see a variety of bills introduced at the state and federal level this year to limit the types and amounts of damages that can be recovered in year 2000 claims. A common concern is finding a way to limit punitive damages.

The tricky balancing point is making sure that people have more incentive to work on year 2000 problems than to do nothing. Monitor legislative developments, and be prepared to move quickly to avail yourself of the protections of new laws.

8. Keeping your supply chain intact. Some experts suggest that, unless serious efforts are made, one out of seven small businesses will experience "catastrophic" year 2000 problems.

So far, about 50 percent of large companies have already experienced year 2000 problems. More than 50 percent of larger companies plan to stop doing business with suppliers who are not ready for the year 2000 problem.

If you adopt a similar approach, terminating existing contracts and entering into arrangements with new suppliers will raise a variety of legal issues.

9. Contingency planning. What if the lawyer or law firm you use has its own year 2000 problems that impact on your legal projects or even take the law firm down for a significant period of time? What assurances do you want from your legal team?

The big concern in 1999 is contingency planning. While we all hope that year 2000 efforts make the actual impact of the problem more an annoyance than anything else, it makes good sense to prepare for some worst-case scenarios. What is ultimately at stake is the continuing viability of your business.

10. Monitoring developments and becoming familiar with year 2000 legal issues. You will be surprised by the number of potential legal implications the year 2000 problem may have for you. Keep yourself up-to-date on developments. Be especially aware of legal issues that will affect your industry.

While it makes good sense to prepare and plan for year 2000 legal issues, the fact is that legal preparation can only take you so far. Remember, if, in 2003, you are out of business and have won a lawsuit against another bankrupt company that can't pay the damage award, the greatest contract language did little to protect what you really cared about.

Your year 2000 efforts should be a broad-based, practical effort, focused on what will keep your business and personal affairs going strong. Planning realistically for legal issues and finding a law firm that can help you do so is one key component of that effort.

(Dennis Kennedy is a legal technology and Internet consultant based in St. Louis. He can be reached on the Web at

www.denniskennedy.com.

or by e-mail at dmk@dennisken nedy.com.)

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