How to limit lawsuits over Y2K 'glitches'

B.R. McConnon's small communications company manages data - reams of data - for big corporate clients. That makes Mr. McConnon very nervous about year 2000 computer glitches.

Only one thing worries him more than the prospect of clogged data flows: lawsuits resulting from Y2K snafus.

"If this turns into a legal free-for-all, it's going to be outrageously disruptive," says McConnon from the office of his Alexandria, Va., firm.

Congress is now working on legislation aimed at tempering such a brawl. But the bills under way in the House and Senate are controversial. Supporters applaud them as common-sense measures to encourage problem-solving and cut down on litigation. Critics charge that the bills offer a "get-out-of-jail-free" card for negligent companies responsible for Y2K failures.

Few lawmakers disagree, however, on what is driving the bills: the prospect of widespread business interruptions as computer systems fail to recognize the difference between the years 1900 and 2000.

Especially at risk for computer problems are millions of small companies, like McConnon's, that have fewer than 25 employees yet together make up more than 90 percent of all firms in the US. An estimated 750,000 small firms may either shut down or be severely crippled by the Y2K problem.

Many experts predict a flurry of lawsuits from Y2K, although no one knows how high the legal costs will go. Estimates range enormously, from mere millions of dollars to $1 trillion. In addition to the monetary costs, entrepreneurs such as McConnon fear litigation will burn up another precious commodity: time.

"Our [members'] profit margins are so small that they don't have months and months to wait for a court date," says Kelly Smith of the 600,000-member National Federation of Independent Business here.

In response to such concerns, Capitol Hill Republicans, backed by some Democrats, are pushing legislation aimed at discouraging a flood of Y2K lawsuits. First, the bills mandate a "cure period" of as many as 90 days to give potential defendants an opportunity to fix the problems before lawsuits are filed. Second, they put a cap on punitive damages arising from a Y2K problem.

Supporters emphasize that none of the draft Y2K legislation would block lawsuits absolutely. Also, it covers only financial and punitive damages, not personal-injury cases.

UNDER a bill (S 96) passed by the Senate Commerce Committee this month, a person hit by a Y2K loss must first formally notify any prospective defendants of the problem. If the person does not receive a written response outlining a solution to the problem within 30 days, then he or she can go ahead with a lawsuit. If potential defendants give a satisfactory response, they have 90 days from the date of notice to fix the problem.

In addition, punitive damages for small companies are capped at three times the amount of economic damages or $250,000, whichever is less. For larger firms, the cap is the greater of the two figures.

The bills, backers say, encourage businesses to focus on fixing the computer glitches and arbitrating disputes outside of court - thus speeding solutions and limiting costs. "This legislation is entirely focused on trying to solve the problem," says Joe Theissen of the US Chamber of Commerce.

But critics, mainly Democrats and trial lawyers, contend such efforts to limit liability are seriously flawed. Big computer software-makers would win protection from the bills, while small companies such as McConnon's would be caught in the middle, they argue. Moreover, they say the bills would override existing laws and thus constitute a sweeping but poorly conceived legal reform.

"This is the height of corporate welfare," says Carlton Carl of the Association of Trial Lawyers of America (ATLA). He says the legislation rewards negligence by large software firms that have known of the Y2K problem for years. "Why should we bail out Microsoft?" he says, referring to the Seattle-based software giant.

"This bill [S 96] provides terrific coverage for big companies but leaves small and medium companies out in the cold," says Maury Lane, a spokesman for Sen. Ernest Hollings (D) of South Carolina.

But GOP members and business advocates disagree. They say the legislation would help limit the legal impact for the entire "food chain" of companies because of the possibility of cross claims.

"The bottom line is this is going to affect everybody," McConnon says.