WASHINGTON—No one in the small business sector is really sure what the legal repercussions of Year 2000 computer glitches will be. All, however, expect them to be considerable.
``The trial lawyers think this will be the biggest boon they've ever had,'' said Jack Faris, president of the National Federation of Independent Business.
Few people disagree that Y2K—with the countless, disastrous opportunities it presents for deliveries that are never sent, shipments that go awry, bills that are never paid—has the potential to sink every business in the U.S. in a quagmire of litigation.
The office of Rep. Donald Manzullo, R-Ill., said it had consulted experts who estimate the potential cost of Y2K-related litigation at more than $1 trillion.
At the same time, groups such as the NFIB, the Tire Association of North America and the International Tire and Rubber Association are remaining fairly quiet about the legal aspects of Y2K—because no one yet can predict where problems will turn up, or the extent.
Already in the U.S., the first Y2K-related lawsuit has been filed: a grocery store is suing its computer provider because the grocery's computer system refused to accept credit cards with expiration dates past 2000.
For tire dealers who want to avoid this fate, the following avenues of action may hold promise:
REMEDIATION. All sources agreed that even if the nature of the problem is unclear, what should be done to avoid litigation is not. That is, make sure as much as possible your computers are Y2K compliant, and document everything you do to make them that way.
``The best deterrent to litigation is remediation,'' said Marc Pearl, vice president and general counsel for the Information Technology Association of America. ``A lot of companies spend too much time in developing a litigation plan or a cost-recovery plan for Y2K. Those are important, but you can end up wasting four or five weeks on a litigation plan that could have been better spent on a remediation plan to avoid litigation.''
The general advice is for businesses to contact their computer and software vendors for advice and action. But the problem, noted ITRA Executive Director Marvin Bozarth, is whether you always can trust your vendor to know everything that needs to be done.
``Everything is Y2K compliant in our office,'' Mr. Bozarth said, but when it comes to addressing the problem on a wider basis, ``I have trouble finding someone who knows what the solution is.''
At ITRA's 1998 convention, the association hired two computer consultants to talk to members and exhibitors to find out what they were doing or planned to do to comply with Y2K.
``Their conclusion was that we had a problem,'' Mr. Bozarth said. ``I could have told them that!''
COMMUNICATION. Keeping open lines of communication with all customers, suppliers and other parties with an interest in your business is crucial to the success of any Y2K remediation plan, according to Mr. Pearl.
``This is not a time to shred evidence or close the door,'' he said. ``You can't assume your banker or the truckers who haul your goods aren't part of the equation, because they are.''
For those companies with which you have contractual obligations, he suggested a good idea is to revisit the contracts with them—long before Jan. 1, 2000—and go over precisely what those documents require of each party.
``There's no question that contracts and the relationships that exist between the parties will be the primary sources of litigation,'' he said. ``It's a good idea to enter into intelligent negotiations with your contractors, or—failing that—non-binding arbitration, so they can determine whether the contract requires Y2K readiness.
``In any partnership, inevitably disputes arise, but that doesn't mean you terminate the partnership,'' he said. ``You should not be pushed into vicious, vituperative litigation, but look to the contracts to keep you out of trouble.''
MEDIATION AND ARBITRATION. Even if remediation and communication fail, there's a step to take before litigation, experts said.
As of Jan. 20, the CPR Institute for Dispute Resolution, a New York-based group, had received signed commitments from 29 major corporations—including such giants as McDonald's Corp., Eastman Kodak Corp. and auto parts supplier TRW Inc.—to use mediation and non-binding arbitration as first alternatives to lawsuits to solve any Y2K-related disputes.
Companies that sign the CPR commitment, while not relinquishing any rights to litigation, agree to try to resolve Y2K controversies ``privately through confidential negotiation or mediation.''
``We tell the signatories they're free to modify the commitment, if they want to limit it to certain customers or only to those who have signed the commitment themselves,'' said Peter Phillips of the CPR Institute.
Despite these limitations, the CPR commitment is encouraging in that corporations often sign on behalf of all their subsidiaries. In TRW's case, Mr. Phillips said, the institute encouraged the company to have all its vendors and suppliers sign the agreement, too.
The institute has ``designed'' a group of 700 mediators across the U.S. to referee disputes of various kinds, including those involving Y2K. It hopes to get companies of all sizes to sign the commitment, and also hopes to have 5,000 signatories by March, he said.
Several trade groups—including the Information Technology Association of America, the National Association of Manufacturers and the Chemical Manufacturers Association—have placed the CPR commitment on their Web sites and are urging their members to sign.
Mr. Faris, meanwhile, said NFIB members are unlikely in any case to turn to litigation to solve Y2K disputes. ``In substance, our suppliers are our partners,'' he said. ``The last thing in the world our members want is to be known as a company that sues you.''
LEGISLATION. Various members of Congress have been actively promoting legislation limiting liability from Y2K-related business problems.
The most important Y2K bill to pass Congress to date is the Year 2000 Readiness Disclosure Act, which was signed by President Clinton last October.
That legislation guarantees that no Y2K readiness disclosure statements—which are used to demonstrate Year 2000 computer compliance—made by any company can be admitted as evidence in a lawsuit except when the court rules such a statement is fraudulent or was made in bad faith.
Passage of the Readiness Disclosure Act was hailed as major relief for U.S. businesses, which must share Y2K information to ensure their own readiness.
But allowing safe exchange of information isn't enough, said Lawrence Kraus, president of the U.S. Chamber of Commerce's Institute for Legal Reform, in a Dec. 31, 1998, statement.
``The Year 2000 Readiness Disclosure Act...was only a first step,'' he said. ``Now we need strong legislation that encourages problem-solving, and we urge the legal profession to join us in this effort.''
Two bills seeking to redress this lack have been introduced in Congress to date. H.R. 192, the first chronologically, was introduced Jan. 8 by Rep. Manzullo, with House Majority Whip Tom DeLay, R-Texas, and House Rules Committee Chairman David Dreier, R-Calif., as co-sponsors.
H.R. 192 would require all Y2K lawsuits to be submitted to arbitration before they could go to trial. Damages would be allowed only when the plaintiff could prove the defendant acted unreasonably; punitive damages would be limited to triple actual damages; and Jan. 1, 2002 would be the deadline for all Y2K lawsuits to be filed.
Introduced Jan. 19 by Sen. John McCain, R-Ariz., S. 96 requires plaintiffs to notify defendants of Y2K-related problems and give them a chance to rectify them before lawsuits could be filed. Economic damages could not exceed $250,000 or triple economic losses, and for businesses with fewer than 25 employees, the limit would be cut to $50,000.
The McCain bill allows defendants a ``good faith defense,'' meaning they can limit their liability by demonstrating the steps they took to remedy the Year 2000 problem. It forbids punitive damages, unless the plaintiff can prove ``conscious and flagrant disregard'' on the defendant's part.
SMALL BUSINESS REACTION TO Y2K. Small businesses in general have been slow to respond to Y2K, either because they can't believe the threat is real or they feel helpless in the face of such an enormous, highly technical problem. An NFIB/Wells Fargo Bank study showed that 40 percent of all small businesses had no plans to deal with Y2K at all.
The growing awareness of Y2K-related liability has shaken more and more small companies into taking action.
Small business advocates also are devoting more time to the Y2K liability question. The Institute for Legal Reform is pushing anti-liability legislation in Congress, and also is preparing an ``assessment tool'' for small businesses to use in determining their Y2K readiness.
The NFIB hasn't issued Y2K guidelines, but is discussing the possibility, a spokeswoman said.
In general, rather than taking the lead on the Y2K issue, small business is content to support the efforts of government and larger industry to address the problem. ``This is not something we want to take a front-burner stand on, but we are glad there are people who do,'' said Roy E. Littlefield III, ITRA government relations director.