June 02, 1999

Lawyers preparing for Y2K By GARY McELROY Register Staff Reporter (Mobile, AL) 06/01/99

While American businesses and computer companies who serve them hustle to preempt Y2K-related headaches, the legal profession is gearing up for what many believe will be a ferocious hangover.

It all relates to a somewhat standard legal maxim: when something goes wrong, someone must pay. And lawsuits often are the way to make them.

Most people should be aware by now of the end-of-the-world scenarios and other dire predictions related to the inability of computers to recognize the looming date of 01/01/00.

The joke going around, told only half-heartedly and getting few laughs, is where NOT to be at 12:01, January 2000: an airplane, operating room, intensive care unit or elevator.

Regardless of whether the problem is exaggerated - fueled as it has been by survivalist mentalities and doomsday forecasts - the problem is real. And few are ignoring it. The Internet is filled with dozens of Web sites devoted to Y2K problems and warnings.

And a growing number of law firms across the nation and in Mobile are beginning to take notice of what could be described as Y2K mutations. Call them Y2KLS, as in Year 2000 Lawsuits. Although there are only a handful of cases now in Alabama, lawyers say they're bracing for a potential increase in litigation.

The Gartner Group Inc., an information technology firm, predicts the price of correcting Y2K-related problems could go as high as $300 billion to $600 billion worldwide.

In the March 10, 1997, issue of "Business Week," writer Alison Rea predicts Y2K litigation may cost $1 trillion.

According to the Giga Information Group, an information technology advisory firm, Y2K litigation could exceed the estimated cost of all annual civil litigation in the United States, about $300 billion.

Congress recently began considering legislation intended to limit such astronomical figures.

On May 13, the House passed a bill requiring a 90-day waiting period before Y2K lawsuits could be filed, as well as encouraging mediation, capping punitive damages and limiting class-action lawsuits.

The White House says it considers such legislation slanted against consumers. President Clinton has vowed to veto it. The bill bogged down in the Senate two weeks ago when Democrats blocked a vote on it.

And how did this all start?

The millennium bug - widely referred to among experts and laymen alike simply as "Y2K" - will bite on Jan. 1, 2000, when some computer systems and devices with embedded computer microchips will lose track of the date. It stems from decades-old programming practices whereby some computer programs represent dates by the final two digits of the year.

The practice that saved memory and data storage space when both were scarce and costly commodities will cause headaches as some systems mistake 2000 for 1900 because both years are represented by "00." Some systems erroneously will store false date values and may use them in critical calculations.

Only in recent years have computer programming and designing companies begun the scramble to make systems Y2K-compliant - able to know what year it is.

According to Mobile attorney Craig Morris of the law firm of Johnstone, Adams, Bailey, Gordon and Harris, the potential litigation borne of Y2K could be limited only by the number of things that may go wrong: A computerized respirator fails in a hospital ward; a malfunctioning traffic light causes an accident; a museum's computerized electrical and sprinkler systems fail, damaging or destroying priceless paintings; a home security system goes down and a family is put at risk by burglars, or worse.

There already has been a string of Y2K-related lawsuits, with apparently more to come. According to Morris:

In Michigan: Produce Palace International vs. Tech-America. Nearly two years ago, some of the company's customers began finding out their credit cards no longer could be processed when making purchases.

The expiration date on the cards fell after Jan. 1, 2000. The computer system Produce Palace was using, supplied by Tech-America, simply could not process the cards with Y2K dates.

The company began losing sales because of it and sued Tech-America in 1998, claiming breach of warranty, breach of duty , breach of good faith, breach of contract and other claims.

In September 1998, Tech-America settled out of court with Produce Palace, paying them $260,000 plus new, Y2K-compatible hardware and a new service contract.

In California: Atlaz International Inc. vs. Software Business Technologies. In this 1997 class-action suit, 60,000 software users sued SBT, seeking upgrades of Y2K-compliant programs, alleging their present equipment will not get them through the millennium window without causing problems. Atlaz claims breach of warranty, fraud, deceit and unfair trade practices. According to Morris, SBT has denied the charges and the case is pending.

"Many of these suits are being used by plaintiffs as the only weapon to encourage computer and software vendors to come forward to fix the problems," Morris said. "As in many areas of the law, sometimes a lawsuit is what it takes to get some attention."

Mobile attorney William M. Cunningham, of Burns, Cunningham and Mackey, is scheduled along with Morris to teach a seminar here in August on Y2K litigation. He said these types of lawsuits inevitably will increase.

"You're going to see some traditional litigation in terms of negligence and product liability, fraud and breach of contract," Cunningham said. "And you may see some corporate mismanagement claims, where officers are not fulfilling their duty to make sure their company is ready for this."

Cunningham said that despite the original lack of foresight decades ago, in recent years companies have had ample time to regroup and prepare.

With so many well-disseminated warnings, Cunningham said, "a person ought not be able to escape liability if he neglects to do what he is supposed to do.

According to Morris, directors and officers of corporations also will be subject to this type of litigation.

"They may be sued by shareholders for their failure to disclose that the company has Y2K problems," he said, "or for their failure to properly address it in sufficient time."

Morris said that as such cases multiply and get more publicity, software vendors are "voluntarily coming forward" to fix the problem, before lawsuits are filed.

Another area to watch, Morris said, is insurance companies. In an Iowa case, Source Data Systems was sued by Pineville Community Hospital for Y2K problems in its software. SDS's insurer, Cincinnati Insurance Co., claimed in court it had no duty to cover the hospital's alleged losses. The case is pending, Morris said.

This and other potentially complicated cases involving insurance, Morris said, will make it worth one's while to pore over the next insurance contract in great detail. Insurance companies, he said, are beginning to send out "exclusionary" clauses in their contracts, specifically addressing Y2K.

"There are really going to be some big battles in court over insurance coverage," Morris said.

Neither Morris nor Cunningham are aware of any local litigation stemming from the Y2K problem so far, they said.

Nor is Mobile County Presiding Circuit Court Judge Robert G. Kendall.

"Personally, I know of no (Y2K-related) litigation pending or threatened," Kendall said. "And I am hopeful there will be many fewer problems that some people anticipate."

According to Montgomery attorney Dorsey Morrow - who has a background in computer engineering and who now specializes in computer and Internet law - there are two Y2K-related lawsuits pending in Alabama. One of them involves the state itself, Morrow said.

The state of Alabama is the target of a class-action suit, he said, brought by a woman who is a welfare recipient. The concern, Morrow said, is whether such recipients will get their checks on time if state computers are not Y2K-compliant.

Morrow said the state case is expected to go before Montgomery County Presiding Circuit Court Judge Charles Price in June.

The other was filed by a Dothan law firm that bought a case-management system from a software provider. The system apparently is not compliant. That case, too, is pending, Morrow said.

Morris said some companies may fail in their corrective efforts simply because they start too late to fix the problem or are not devoting enough personnel and funds to the effort.

) 1999 Mobile Register. ==================================================================

-- Lee (lplapin@hotmail.com), June 02, 1999

Answers

* * * 19990602 Wednesday

The drooling lawyers will be frothing at the mouth when they find their own firm's systems and those of the courts ( up and down jurisdictions ) melting under the throes of Y2K! Talk about poetic justice.

Hmmm... BTW: Have you noticed there hasn't been much in the news about Y2K and the courts/police preparations? Could it be that this area of society is verboten as the "holy grail" for preventing/estopping panic and/or anarchy? Only concerns I recall posted/reported deal with E-911 and communications. What about all those court records and prison facilities? Hmmm... just thinkin' out loud ...

Regards, Bob Mangus

* * *

-- Robert Mangus (rmangus@hotmail.com), June 02, 1999.