WARNING: long post
FYI, Senate Majority Leader Trent Lott filed a motion to
invoke cloture (i.e., allow the Senate to proceed to consider)
on S.96, McCain's Y2K Act. The vote is scheduled for
Tuesday around 9:45 a.m. EDT.
The most recent iteration of the Administration's position
follows:
May 11, 1999
The Honorable Thomas A. Daschle
Democratic Leader [note: his actual title is Minority Leader - ggg]
United States Senate
Washington, DC 20510
Dear Mr. Leader:
The Year 2000 (“Y2K”) computer problem poses great challenges to America's public and private sector. We all must continue to work together to ensure that as many systems as possible are Y2K compliant and that there are contingency plans in place to minimize disruptions if systems are ultimately not ready for the transition to the next century.
Last year, the Clinton Administration worked with Congress to enact the bipartisan “Year 2000 Information and Readiness Disclosure Act,” because there was strong evidence that concerns about liability for inaccuracies in voluntary statements about Y2K readiness were interfering with information sharing and preparedness. This year, many have concerns about the potential for litigation involving liability for actual Year 2000 failures or the cost of remediation efforts overwhelming our judicial system. To address these concerns, President Clinton supports meaningful, targeted reform consistent with three principles.
* First, we should provide incentives to make systems Y2K compliant before a problem occurs, and we should not create disincentives for Y2K readiness.
* Second, we should encourage resolution of Y2K problems without resort to litigation.
* Third, we should discourage frivolous litigation, but ensure that the courts remain open for legitimate claims.
This year, both chambers of Congress have been working on legislation to establish substantive and procedural rules for state and federal litigation involving disputes arising from Y2K failures. We should not allow too much effort to be diverted from promoting Y2K readiness by disagreement over liability-limiting legislation. To the extent that good legislation will further promote readiness, it should be enacted soon if it is to have the desired effect. To help move forward the process of developing a bipartisan consensus on Y2K liability legislation, the President has asked us to set forth the elements of legislation that he would support.
* Prelitigation Procedures. The Clinton Administration supports mechanisms that encourage parties to settle their disputes without litigation. Specifically, we would support requiring plaintiffs to notify defendants of their intention to file suit, requiring defendants to respond with the action they plan to take to cure the defect, and encouraging parties to use alternative dispute resolution mechanisms. Note that federal legislation imposing purely procedural requirements on state courts, unrelated to substantive federal reforms, could be challenged on constitutional grounds. To reduce the risk of such a challenge, these provisions should be carefully drafted to make clear the connection between any federal procedural requirements and associated substantive reforms.
* Pleading Requirements. In order to screen out frivolous claims and ensure that claims allege material defects, we would support asking plaintiffs in Y2K actions to plead with particularity facts concerning the materiality of the defect and the ensuing damages. This is information that is in the province of plaintiffs and, thus, the requirement is not unduly burdensome.
* Class Actions – Material Defect Requirement. Class actions are a critical avenue of relief for consumers and small businesses that frequently cannot afford to file their own lawsuits. However, there is legitimate concern that frivolous Y2K class actions could impose unjustified burdens on innocent defendants. We would support limiting permissible class actions to claims in which the plaintiffs' damage is “material.” If the complaint does not show that the damage is material, the action should be dismissed immediately. However, subject to this requirement, state class action remedies should be retained and state courts should continue to hear state class actions. Permitting defendants to transfer virtually every state law class action to federal court would overburden the federal judiciary, as the Judicial Conference has explained in opposing this provision, and lead to increased delay in resolving Y2K claims. Notwithstanding the general rule discussed below limiting this legislation to commercial claims, we would support subjecting class actions on behalf of consumers to this material damage requirement in order to deter frivolous litigation.
* Duty to Mitigate Damages. In an effort to encourage everyone to take steps to avoid Y2K failures, we would support excluding from recoverable damages any amount that the plaintiff reasonably should have avoided in light of information that was provided to the plaintiff by the defendant.
* Contract Interpretation. In the Y2K context, parties should have the benefit of the bargain that they made. We would support making contract terms enforceable, and common law defenses available, consistent with applicable law, so that state legislatures or courts do not shift liability rules in anticipation of, or in response to, Y2K failures. Such provisions, however, must be carefully drafted to survive legal challenge.
* Joint and Several. The common law principle of joint and several liability holds that each responsible defendant is liable for the entire amount of a judgment, but generally can seek contribution from others for their share of damages. This rule places the burden of financial loss on the culpable co-defendant rather than the innocent victim of the tort. But it also can impose disproportionate responsibility on those with “deep pockets,” if those primarily responsible cannot be located or are judgment proof. In the Y2K context, it is expected that certain technology firms, for example, with little responsibility for harm will be held liable for damages caused primarily by the acts of suppliers and contractors. Plaintiffs will have no incentive to find those primarily responsible, shifting large costs and burdens to these easily identified firms. Given the unique – once in a millennium -- nature of the Y2K problem, we would support rewarding those who have taken specific appropriate steps to prevent or minimize harm to the plaintiff from Y2K failures, by limiting their responsibility for paying the entire amount of the judgment. However, to ameliorate the problem of “orphan liability,” if some portion of the judgment in favor of the plaintiff cannot be collected, the remaining defendants should be liable for the percentage of that portion that corresponds to their percentage of responsibility. A broader rule that simply limits damages to the defendant's proportionate liability regardless of their remediation efforts could undercut current incentives to prevent or minimize harm from Y2K failures.
* Economic Loss. Many States have legal rules limiting the recovery of “economic loss” damages in certain tort lawsuits. These rules are designed to bar parties to contracts from avoiding contract limitations on liability by suing in tort. We would support statutory recognition of this rule as a way to limit frivolous Y2K claims, provided that the rule is limited appropriately so that it would not effectively prevent recovery in cases of fraud.
* Scope of Coverage – Commercial Claims. The primary goal of Y2K legislation should be to address commercial disputes. Individual consumers who are the victims of breach of contract, fraud, or illegal conduct already often face difficulty in vindicating their rights. Y2K legislation that we would support, therefore, must be limited to the commercial context, with the exception of class action provisions described above, to avoid placing insuperable burdens on individual consumers with legitimate claims.
* Exclusion for Securities Claims: In 1995 and 1998, Congress passed comprehensive legislation to deter frivolous securities lawsuits. Considerable effort was spent designing legislation that would bar meritless securities claims while still permitting legitimate securities claims to go forward. These reforms apply equally to Y2K securities litigation. There is no reason to create confusion by overlaying a potentially conflicting set of legal standards on Y2K securities claims. Private securities actions should be expressly excluded from the scope of any Y2K legislation that we would support.
While the Clinton Administration supports legislation that includes the elements described above, it has expressed grave misgivings about a number of the bills that are currently being considered by Congress. The President's senior advisors would recommend that he veto legislation that is inconsistent with these principals.
We look forward to working on a bipartisan basis with members of Congress from both chambers to develop legislation along these lines and see it quickly signed into law. If we can limit this discussion to the unique problems we face in readying our technology to make the transition to the next century and avoid the broader ideological debates that have paralyzed other legal reform efforts in the past, we can reach consensus quickly on this legislation. It is most important that we do so and that we, together, return our attention to ensuring readiness for the Year 2000.
Sincerely,
Bruce Lindsey
Assistant to the President and Deputy Counsel
Gene Sperling
Assistant to the President and
Director of the National Economic Council
<Identical letters sent to the Honorable Trent Lott, the Honorable Dennis Hastert, and the Honorable Richard Gephardt.>
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