The Y2K Bug Goes to Court

The millennium came early to Warren, Mich.--in 1995, to be exact. When customers at the Produce Palace, a gourmet grocery store, started using credit cards with expiration dates ending in "00," the computer system went to Y2K hell. Technicians spent hours trying to fix the 11 cash registers, while disgusted shoppers walked out. The owners wanted the system replaced, but even after at least 200 service calls, the firm that sold it balked. The Produce Palace ended up filing what may be the nation's first Y2K lawsuit, which it eventually settled for $260,000.

From that small beginning, Y2K litigation is swelling to a flood. It was inevitable that Y2K glitches--caused by the inability of some computer hardware and software to read years after 1999--would keep lawyers busy well into the next century. What's surprising is just how fast the suits are coming: at least 78 so far, as many as 800 legal disputes proceeding to formal negotiations, and a few large settlements, including one for $7.5 million. If lawyers are this active now, how bad will it get when the year 2000 actually arrives? Lloyds of London insurance has predicted claims worldwide could exceed $1 trillion.

Now, high-tech companies have started to fight back. Industry lobbyists have been working with Utah Senator Orrin Hatch, chairman of the Judiciary Committee, and other lawmakers to make it much harder to win lawsuits for injuries caused by Y2K glitches. Bills currently working their way through Congress would raise the burden of proof above the standard that plaintiffs must meet in other lawsuits--that their version of events is more likely true than not. And they would impose caps on punitive damages and attorneys' fees.

The computer industry argues that the Y2K bug is not entirely the fault of individual companies but is rather a once-in-a-thousand-year foul-up that has caught the world off guard. Says Robert Holleyman, president of the Business Software Alliance: "These lawsuits are taking time and energy away from fixing the problem."

But trial lawyers, backed by consumer groups and the U.S. Justice Department, retort that the proposed limits on Y2K lawsuits would stack the deck against people who have legitimate claims. According to the proposed rules, a company that makes "reasonable efforts" to fix a defect could get out of paying for the harm it causes--no matter how serious the mistake or the injuries that result. And it would cap punitive damages at as little as $250,000, no matter how culpable the company.

While the early doomsday predictions about Y2K appear to be wildly exaggerated, serious work remains to be done. "It was only one chemical valve being left open that caused the Bhopal disaster," says Joan Mulhern, legislative counsel for Public Citizen. "To the extent that these bills are telling industry not to be prepared, they're sending the wrong message."

--By Adam Cohen