|
|
|
|
|
10 Litigation Battlegroundsby Dan Steinberg and Andrew M. Pegalis, Esq.There is a great deal of interest in the potential for Year 2000 litigation. One of the reasons for the interest is uncertainty. No one knows how much Y2K litigation is going to cost. There have been numerous figures in the trillions of dollars quoted, but in truth nobody really knows: Y2K litigation costs are even harder to estimate than 'fixing' costs. You cannot count your lines of code or number of workstations and multiply by some factor to get an estimated cost. The cost of Year 2000 litigation, both in fees and settlements, is not necessarily related to the cost of repair or the cost of the 'broken' component. But sooner or later, firms have to be able to estimate the litigation costs if they want to make informed decisions on where to spend their limited resources and how much to put in their contingency funds for litigation. To promote discussion and understanding, the authors have prepared a brief list outlining the possible avenues of litigation. No classification system is perfect, and it is possible that some situations may not fit nicely into any of the categories outlined in this paper. The list is divided by platform and by likely parties in the suit. This is just a working taxonomy until the flood of litigation allows us to do a real classification system. Find your platform situation and check out the possibilities. Some allowances have been made for differences in jurisdiction, but this is not an exhaustive examination of the possibilities on a country-by-country basis. Corrections are welcome. Although the issues have been somewhat internationalized where possible, the authors make no claim to be experts on all aspects of international law. Debate on any or all of the ten categories is welcome, particularly at the SIM Year 2000 Working Group website or in any of the other public fora where versions of this list have been published. Non-lawyers are welcome to contribute. 1. Mainframe Customers vs. Manufacturers: Theories: BREACH OF CONTRACT - Express Warranty of Merchantability Implied Warranty of Merchantability Warranty of Fitness (for a particular purpose) Defences - No Warranty beyond contract specifications - (precedent may be found in high-ticket custom goods, for example defence contracts) TORT OF FRAUD - must prove intent. Maybe the hardest sell of the lot. No need to exclude this line right away but there may not be much need for discussion on this one. TORT OF MISREPRESENTATION - very similar to Fraud, some jurisdictions vary by degree of intent. TORT OF NEGLIGENT MISREPRESENTATION - Need only show manufacturer should have known the product (mainframe in this case, others further down) could reasonably have been used after the year 2000. Some U.S. jurisdictions don't recognize this as a valid cause of action. No problem in Canadian common law jurisdictions. There are no torts in civil law, so no need to worry about a valid cause of action. In the civil law equivalent, the result is essentially the same. PROFESSIONAL MALPRACTICE - This is particularly relevant to custom made mainframe systems. It may also apply to other custom systems but the dollar values may be too low to litigate. These will be costly proceedings for both sides. PRODUCT LIABILITY - while strictly a personal injury tort, the possibilities exist. For example, a RR crossing fails to warn motorists because of an embedded controller that cannot handle dates after 31-12-1999. All that needs to be proven is a defect in the design of the software or firmware. 2. Network & PC Customers v. Manufacturers: Theories: LATENT DEFECT - There is an inherent "defect" in most PCs causing them to give invalid dates and in some cases to not boot anymore. The same basic theories apply, but the individual customer probably won't sustain enough losses to make it worthwhile in a standard trial court. This raises the real possibility of class action litigation (and BIG ONES)--plaintiffs with common claims against a defendant with deep pockets and a lot of goodwill invested in the industry, etc. On the network side, damages could be considerably greater. PC users can shut down the system and reboot when the dust settles on January 1, 2000. Network servers often don't have that luxury and some servers are running mission-critical applications. This brings up related customer issues. Defences: The classic defence in such cases is: "It's not a defect. The product just 'wore out'." It is too early to say if this will work or not. 3. Customers vs. Software Manufacturers: This one can be split up between "off-the-shelf" software and "custom" software. "Off-the-Shelf" Software Manufacturers Theories: BREACH OF WARRANTY OF MERCHANTABILITY - This is probably easier to prove for more recent purchases. It would be hard for any vendor to claim that the software wasn't intended for use after a specific date like January 1, 2000. Some defects are showing up already. Very few shrink-wrap licenses are annual ones. Defences: No one is talking right now. "Custom" Software Manufacturers Theories: PROFESSIONAL LIABILITY - Professionals are held to a higher standard than ordinary vendors (For example ABC software designers take more responsibility than Egg Head Software. FYI Egg Head Software is a chain store in North America.) BREACH OF WARRANTY OF FITNESS - a customer who requests a purchasing system to be designed for them has a real good chance of convincing a jury that they actually requested a purchasing system that works beyond Y2K. 4. Customers vs. Middlemen This depends on assurances made and level of involvement in the selection process. 5. End Users vs. Contract Service Agents Computer maintenance companies may be under contracts to repair "all problems" for $x.xx per month. They could find the scope of the contract suddenly becomes larger than expected. 6. Stockholders vs. Directors & Officers The SEC has informed the business community that Y2K issues are material to the financial stability of a company. Thus, Directors & Officers (D&O) have a duty to properly investigate their problem in time. If the company loses money when they can't process invoices or orders, etc., the D&O's may be subject to derivative suits. This could become more important in view of the recent Caremark decision, but the full extent of the implications of the Caremark decision is not known at this time. 7. Customer vs. Retailer Endless scenarios can be imagined where a customer's order is never placed because the computer system thinks it won't occur for 99 years (or has already occurred, etc.), and the customer suffers a financial loss. Another major possibility is litigation filed by clients whose finances or investments have been damaged in some way. The possibilities are too numerous to mention, but everyone who purchases goods/services from someone who uses a computer or embedded controller in the course of their business is a potential plaintiff. This may well be the bread and butter litigation for Y2K attorneys if the dollar amounts are large enough. If not, class-action possibilities exist. 8. Citizen vs. Government Consider the possibility and implications of government's failure to issue Social Security checks (or equivalent outside the US), delays in permit approvals, faulty traffic lights which result in an accident, air traffic control failures, harbour closures due to lack of fuel or supervision, etc. This class of litigation raises immunity issues, but the basic theories remain constant. 9. Government vs. Corporation There is a potential for failure to meet regulatory requirements as to disclosure, unfair stock manipulation, etc. In Canada and the U.S. this is currently the only big stick that governments have in this issue and it should be expected that they use it. Of course, government intervention will probably incite shareholders to sue as per point 6. 10. Customer vs. Consultant Lack of informed consent. There may be a way to use informed consent doctrine against some consultants. Consider the scenario whereby the consultant actually tells the customers that the software won't store dates after 2000 and fails to adequately describe to them the implications of this situation. This is familiar territory in the medical malpractice field, but new to the software contract. If valid, it would be separate from professional malpractice and professional liability. About the authors: Dan Steinberg is involved in issues of convergence between technology and law. Dan is counsel to a number of organizations on Year 2000 legal issues and speaks on this topic to both public and private sector audiences. He formed SYNTHESIS: Law & Technology as a loose association of multidisciplinary talent in the Ottawa area. Dan's education includes an LLB from Université de Montréal, an MBA from McGill University and a BSc from Concordia University. He can be reached at synthesis@travel-net.com. Andrew M. Pegalis, Esq. is President of Next Millennium Consulting, Inc, He has given presentations on Risk Analysis and the Year 2000. Other publications include: For Risk Managers the Year 2000 is Now, Business Insurance, Dec. 23/30, 1996; reprinted in The Bottom Line, April 1997, at 32-34, and Year 2000 Problem - Strategies and Solutions from the Fortune 100 (Leon A. Kappelman ed., 1997). He can be reached at: pegalis@consult2000.com or Next Millennium Consulting, Inc. at (301) 986-8500. |
