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[House Report 106-131]
[From the U.S. Government Publishing Office]

106th Congress                                            Rept. 106-131
  1st Session           HOUSE OF REPRESENTATIVES              Part 1

=======================================================================

 
               YEAR 2000 READINESS AND RESPONSIBILITY ACT

                                _______

                  May 7, 1999.--Ordered to be printed

                                _______
                                

 Mr. Hyde, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 775]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 775) to establish certain procedures for civil 
actions brought for damages relating to the failure of any 
device or system to process or otherwise deal with the 
transition from the year 1999 to the year 2000, and for other 
purposes, having considered the same, report favorably thereon 
with an amendment and recommend that the bill as amended do 
pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     2
Purpose and Summary..............................................    11
Background and Need for the Legislation..........................    12
Hearings.........................................................    14
Committee Consideration..........................................    15
Votes of the Committee...........................................    15
Committee Oversight Findings.....................................    18
Committee Jurisdiction Letter....................................    19
Committee on Government Reform Findings..........................    19
New Budget Authority and Tax Expenditures........................    19
Congressional Budget Office Cost Estimate........................    20
Constitutional Authority Statement...............................    24
Section-by-Section Analysis......................................    24
Agency Views.....................................................    31
Dissenting Views.................................................    36

  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Year 2000 Readiness and Responsibility 
Act''.

SEC. 2. FINDINGS.

  The Congress finds the following:
          (1) The Congress seeks to encourage businesses to concentrate 
        their attention and resources in the short time remaining 
        before January 1, 2000, on addressing, assessing, remediating, 
        and testing their year 2000 problems, and to minimize any 
        possible business disruptions associated with year 2000 issues.
          (2) It is appropriate for the Congress to enact legislation 
        to assure that year 2000 problems do not unnecessarily disrupt 
        interstate commerce or create unnecessary case loads in Federal 
        and State courts and to provide initiatives to help businesses 
        prepare and be in a position to withstand the potentially 
        devastating economic impact of the year 2000 problem.
          (3) Year 2000 issues will affect practically all business 
        enterprises to some degree, giving rise to a large number of 
        disputes.
          (4) Resorting to the legal system for resolution of year 2000 
        problems is not feasible for many businesses, particularly 
        small businesses, because of its complexity and expense.
          (5) The delays, expense, uncertainties, loss of control, 
        adverse publicity and animosities that frequently accompany 
        litigation of business disputes can only exacerbate the 
        difficulties associated with the year 2000 date change, and 
        work against the successful resolution of those difficulties.
          (6) The Congress recognizes that every business in the United 
        States should be concerned that widespread and protracted year 
        2000 litigation may threaten the network of valued and trusted 
        business relationships that are so important to the effective 
        functioning of the world economy, and which may put unbearable 
        strains on an overburdened judicial system.
          (7) A proliferation of frivolous year 2000 actions by 
        opportunistic parties may further limit access to courts by 
        straining the resources of the legal system and depriving 
        deserving parties of their legitimate rights to relief.
          (8) The Congress encourages businesses to approach their year 
        2000 disputes responsibly, and to avoid unnecessary, time-
        consuming and costly litigation based on year 2000 failures. 
        Congress supports good faith negotiations between parties when 
        there is a dispute over a year 2000 problem, and, if necessary, 
        urges the parties to enter into voluntary, non-binding 
        mediation rather than litigation.

SEC. 3. DEFINITIONS.

  In this Act:
          (1) Contract.--The term ``contract'' means a contract, 
        tariff, license, or warranty.
          (2) Defendant.--The term ``defendant'' means any person 
        against whom a year 2000 claim has been asserted.
          (3) Economic loss.--The term ``economic loss''--
                  (A) means any damages other than damages arising out 
                of personal injury or damage to tangible property; and
                  (B) includes, but is not limited to, damages for lost 
                profits or sales, for business interruption, for losses 
                indirectly suffered as a result of the defendant's 
                wrongful act or omission, for losses that arise because 
                of the claims of third parties, for losses that must be 
                pleaded as special damages, and consequential damages 
                (as defined in the Uniform Commercial Code or analogous 
                State commercial law).
          (4) Governmental entity.--The term ``governmental entity'' 
        means an agency, instrumentality, other entity, or official of 
        Federal, State, or local government (including 
        multijurisdictional agencies, instrumentalities, and entities).
          (5) Material defect.--The term ``material defect'' means a 
        defect in any item, whether tangible or intangible, or in the 
        provision of a service, that substantially prevents the item or 
        service from operating or functioning as designed or intended. 
        The term ``material defect'' does not include a defect that has 
        an insignificant or de minimis effect on the operation or 
        functioning of an item, that affects only a component of an 
        item that, as a whole, substantially operates or functions as 
        designed, or that has an insignificant or de minimis effect on 
        the efficacy of the service provided.
          (6) Person.--The term ``person'' means any natural person and 
        any entity, organization, or enterprise, including but not 
        limited to corporations, companies, joint stock companies, 
        associations, partnerships, trusts, and governmental entities.
          (7) Personal injury.--The term ``personal injury'' means any 
        physical injury to a natural person, including death of the 
        person, and mental suffering, emotional distress, or like 
        elements of injury suffered by a natural person in connection 
        with a physical injury.
          (8) Plaintiff.--The term ``plaintiff'' means any person who 
        asserts a year 2000 claim.
          (9) Punitive damages.--The term ``punitive damages'' means 
        damages that are awarded against any person to punish such 
        person or to deter such person, or others, from engaging in 
        similar behavior in the future.
          (10) State.--The term ``State'' means any State of the United 
        States, the District of Columbia, the Commonwealth of Puerto 
        Rico, the Northern Mariana Islands, the United States Virgin 
        Islands, Guam, American Samoa, and any other territory or 
        possession of the United States, and any political subdivision 
        thereof.
          (11) Year 2000 action.--The term ``year 2000 action'' means 
        any civil action of any kind brought in any court under Federal 
        or State law, or an agency board of contract appeal proceeding, 
        in which a year 2000 claim is asserted.
          (12) Year 2000 claim.--The term ``year 2000 claim''--
                  (A) means any claim or cause of action of any kind, 
                other than a claim based on personal injury, whether 
                asserted by way of claim, counterclaim, cross-claim, 
                third-party claim, defense, or otherwise, in which the 
                plaintiff's alleged loss or harm resulted, directly or 
                indirectly, from a year 2000 failure;
                  (B) includes a claim brought in any Federal or State 
                court by a governmental entity when acting in a 
                commercial or contracting capacity; and
                  (C) does not include a claim brought by such a 
                governmental entity acting in a regulatory, 
                supervisory, or enforcement capacity.
          (13) Year 2000 failure.--The term ``year 2000 failure'' means 
        any failure by any device or system (including, without 
        limitation, any computer system and any microchip or integrated 
        circuit embedded in another device or product), or any 
        software, firmware, or other set or collection of processing 
        instructions, however constructed, in processing, calculating, 
        comparing, sequencing, displaying, storing, transmitting, or 
        receiving year 2000 date-related data.

SEC. 4. APPLICATION OF ACT.

  (a) General Rule.--This Act applies to any year 2000 claim brought 
after February 22, 1999, including any appeal, remand, stay, or other 
judicial, administrative, or alternative dispute resolution proceeding 
with respect to such claim.
  (b) No New Cause of Action Created.--Nothing in this Act creates a 
new cause of action, and, except as otherwise explicitly provided in 
this Act, nothing in this Act expands any liability otherwise imposed 
or limits any defense otherwise available under Federal or State law.
  (c) Exclusion of Personal Injury Claims.--None of the provisions of 
this Act shall apply to any claim based on personal injury.
  (d) Preemption of State Law.--Except as otherwise provided in this 
Act, this Act supersedes State law to the extent that it establishes a 
rule of law applicable to a year 2000 claim that is inconsistent with 
State law.

    TITLE I--UNIFORM PRELITIGATION PROCEDURES FOR YEAR 2000 ACTIONS

SEC. 101. NOTICE PROCEDURES TO AVOID UNNECESSARY YEAR 2000 ACTIONS.

  (a) Notification Period.--Before filing a year 2000 action, except an 
action that seeks only injunctive relief, a prospective plaintiff shall 
send by certified mail to each prospective defendant a written notice 
that identifies, with particularity as to any year 2000 claim--
          (1) any symptoms of any material defect alleged to have 
        caused harm or loss;
          (2) the harm or loss allegedly suffered by the prospective 
        plaintiff;
          (3) the facts that lead the prospective plaintiff to hold 
        such person responsible for both the defect and the injury;
          (4) the relief or action sought by the prospective plaintiff; 
        and
          (5) the name, title, address, and telephone numbers of any 
        individual who has authority to negotiate a resolution of the 
        dispute on behalf of the prospective plaintiff.
Except as provided in subsection (c), the prospective plaintiff shall 
not commence an action in Federal or State court until the expiration 
of 90 days after the date on which such notice is received. Such 90-day 
period shall be excluded in the computation of any applicable statute 
of limitations.
  (b) Response to Notice.--
          (1) In general.--Not later than 30 days after receipt of the 
        notice specified in subsection (a), each prospective defendant 
        shall send by certified mail with return receipt requested to 
        each prospective plaintiff a written statement acknowledging 
        receipt of the notice and describing any actions it has taken 
        or will take by not later than 60 days after the end of that 
        30-day period, to remedy the problem identified by the 
        prospective plaintiff.
          (2) Inadmissibility.--A written statement required by this 
        subsection is not admissible in evidence, under Rule 408 of the 
        Federal Rules of Evidence or any analogous rule of evidence in 
        any State, in any proceeding to prove liability for, or the 
        invalidity of, a claim or its amount, or otherwise as evidence 
        of conduct or statements made in compromise negotiations.
          (3) Presumptive time of receipt.--For purposes of paragraph 
        (1), a notice under subsection (a) is presumed to be received 7 
        days after it was sent.
  (c) Failure To Respond.--If a prospective defendant fails to respond 
to a notice provided pursuant to subsection (a) within the 30-day 
period specified in subsection (b) or does not describe the action, if 
any, that the prospective defendant has taken or will take to remedy 
the problem identified by the prospective plaintiff within the 
subsequent 60 days, the 90-day period specified in subsection (a) shall 
terminate at the end of that 30-day period as to that prospective 
defendant and the prospective plaintiff may thereafter commence its 
action against that prospective defendant.
  (d) Failure To Provide Notice.--If a defendant determines that a 
plaintiff has filed a year 2000 action without providing the notice 
specified in subsection (a) and without awaiting the expiration of the 
90-day period specified in subsection (a), the defendant may treat the 
plaintiff's complaint as such a notice by so informing the court and 
the plaintiff in its initial response to the complaint. If any 
defendant elects to treat the complaint as such a notice--
          (1) the court shall stay all discovery in the action 
        involving that defendant for the applicable time period 
        provided in subsection (a) or (c), as the case may be, after 
        filing of the complaint; and
          (2) the time for filing answers and all other pleadings shall 
        be tolled during such applicable period.
  (e) Effect of Contractual Waiting Periods.--In cases in which a 
contract or a statute enacted before January 1, 1999, requires notice 
of nonperformance and provides for a period of delay prior to the 
initiation of suit for breach or repudiation of contract, the period of 
delay provided in the contract or the statute is controlling over the 
waiting period specified in subsections (a) and (d).
  (f) Sanction for Frivolous Invocation of the Stay Provision.--In any 
action in which a defendant acts pursuant to subsection (d) to stay the 
action, and the court subsequently finds that the defendant's assertion 
that the suit is a year 2000 action was frivolous and made for the 
purpose of causing unnecessary delay, the court may award sanctions to 
opposing parties in accordance with the provisions of Rule 11 of the 
Federal Rules of Civil Procedure or the equivalent applicable State 
rule.
  (g) Computation of Time.--For purposes of this section, the rules 
regarding computation of time shall be governed by the applicable 
Federal or State rules of civil procedure.
  (h) Special Rule for Class Actions.--For the purpose of applying this 
section to a year 2000 action that is maintained as a class action in 
Federal or State court, the requirements of the preceding subsections 
of this section apply only to named plaintiffs in the class action.

SEC. 102. ALTERNATIVE DISPUTE RESOLUTION TO AVOID UNNECESSARY YEAR 2000 
                    ACTIONS.

  (a) In General.--(1) At any time during the 90-day period specified 
in section 101(a), either party may request the other to use 
alternative dispute resolution. If, based upon that request, the 
parties enter into an agreement to use alternative dispute resolution, 
they may also agree to an extension of the 90-day period.
  (2) At any time after expiration of the 90-day period specified in 
section 101(a), whether before or after the filing of a complaint, 
either party may request the other to use alternative dispute 
resolution.
  (b) Payment of Moneys Due.--If the parties resolve their dispute 
through alternative dispute resolution as provided in subsection (a), 
the defendant shall pay all moneys due within 30 days, unless another 
period of time is agreed to by the parties or established by contract 
between the parties.
  (c) Foreclosure of Further Proceedings on Resolved Issues.--
Resolution of the issues by the parties prior to litigation through 
negotiation or alternative dispute resolution shall foreclose any 
further proceedings with respect to those issues.

SEC. 103. PLEADING REQUIREMENTS.

  (a) Application With Rules of Civil Procedure.--This section applies 
exclusively to year 2000 claims and, except to the extent that this 
section requires additional information to be contained in or attached 
to pleadings, nothing in this section is intended to amend or otherwise 
supersede applicable rules of Federal or State civil procedure.
  (b) Nature and Amount of Damages.--With respect to any year 2000 
claim that seeks the award of money damages, the complaint shall state 
with particularity the nature and amount of each element of damages, 
and the factual basis for the damages calculation.
  (c) Material Defects.--With respect to any year 2000 claim in which 
the plaintiff alleges that a product or service was defective, the 
complaint shall identify with particularity the symptoms of the 
material defects and shall state with particularity the facts 
supporting the conclusion that the defects are material.
  (d) Required State of Mind.--With respect to any year 2000 claim as 
to which the plaintiff may prevail only on proof that the defendant 
acted with a particular state of mind, the complaint shall, with 
respect to each element of the year 2000 claim, state with 
particularity the facts giving rise to a strong inference that the 
defendant acted with the required state of mind.
  (e) Motion To Dismiss; Stay of Discovery.--
          (1) Dismissal for failure to meet pleading requirements.--In 
        any year 2000 action, the court shall, on the motion of any 
        defendant, dismiss the complaint without prejudice if the 
        requirements of subsection (a), (b), or (c) are not met with 
        respect to any year 2000 claim asserted therein.
          (2) Stay of discovery.--In any year 2000 action, all 
        discovery shall be stayed during the pendency of any motion to 
        dismiss, unless the court finds upon the motion of any party 
        that particularized discovery is necessary to preserve evidence 
        or prevent undue prejudice to that party.
          (3) Preservation of evidence.--
                  (A) In general.--During the pendency of any stay of 
                discovery entered pursuant to this subsection, unless 
                otherwise ordered by the court, any party to the action 
                with actual notice of the allegations contained in the 
                complaint shall treat all documents, data compilations 
                (including electronically stored or recorded data), and 
                tangible objects that are in the custody or control of 
                such person and that are relevant to the allegations, 
                as if they were a subject of a continuing request for 
                production of documents from an opposing party under 
                applicable Federal or State rules of civil procedure.
                  (B) Sanction for willful violation.--A party 
                aggrieved by the willful failure of an opposing party 
                to comply with subparagraph (A) may apply to the court 
                for an order awarding appropriate sanctions.

SEC. 104. DUTY OF ALL PERSONS TO MITIGATE YEAR 2000 COMPUTER FAILURES 
                    AND RESULTING DAMAGES.

  Damages awarded for any year 2000 claim shall exclude compensation 
for damages the plaintiff could reasonably have avoided in light of any 
disclosure or other information of which the plaintiff was, or 
reasonably should have been, aware, including information made 
available by the defendant to purchasers or users of the defendant's 
product or services concerning means of remedying or avoiding the year 
2000 failure.

            TITLE II--YEAR 2000 ACTIONS INVOLVING CONTRACTS

SEC. 201. CERTAINTY OF CONTRACT TERMS FOR PREVENTION OF YEAR 2000 
                    DAMAGES.

  (a) In General.--Subject to subsection (b), in resolving any year 
2000 claim, any written contractual term, including a limitation or an 
exclusion of liability, or a disclaimer of warranty, shall be fully 
enforced unless the enforcement of that term would manifestly and 
directly contravene applicable State law embodied in any statute in 
effect on January 1, 1999, specifically addressing that term.
  (b) Interpretation of Contract.--In resolving any year 2000 claim as 
to which a contract to which subsection (a) applies is silent with 
respect to a particular issue, the interpretation of the contract with 
respect to that issue shall be determined by applicable law in effect 
at the time the contract was executed.

SEC. 202. APPLICATION OF EXISTING IMPOSSIBILITY OR COMMERCIAL 
                    IMPRACTICABILITY DOCTRINES.

  (a) Doctrine of Impossibility and Commercial Impracticability.--With 
respect to any year 2000 claim for breach or repudiation of contract, 
the applicability of the doctrines of impossibility and commercial 
impracticability shall be determined by the law in existence on January 
1, 1999. Nothing in this Act shall be construed as limiting or 
impairing a party's right to assert defenses based upon such doctrines.
  (b) Reasonable Efforts.--To the extent that impossibility or 
commercial impracticability is raised as a defense against a claim for 
breach or repudiation of contract, the party asserting the defense 
shall be allowed to offer evidence that its implementation of the 
contract, or its efforts to implement the contract, were reasonable in 
light of the circumstances.

SEC. 203. PROTECTION OF PERSONS FROM LIABILITY NOT ANTICIPATED IN YEAR 
                    2000 CONTRACTS.

  With respect to any year 2000 claim involving a breach of contract or 
a claim related to the contract, no party may claim or be awarded any 
category of damages unless such damages are allowed by the express 
terms of the contract or, if the contract is silent on such damages, by 
operation of the applicable Federal or State law that governed 
interpretation of the contract at the time the contract was entered 
into.

 TITLE III--YEAR 2000 ACTIONS INVOLVING TORT AND OTHER NONCONTRACTUAL 
                                 CLAIMS

SEC. 301. PROPORTIONATE LIABILITY.

  (a) In General.--A person against whom a final judgment is entered 
with respect to a year 2000 claim, other than a claim for breach or 
repudiation of contract, shall be liable solely for the portion of the 
judgment that corresponds to the percentage of responsibility of that 
person, as determined under subsection (b).
  (b) Determination of Responsibility.--
          (1) In general.--With respect to any year 2000 claim, the 
        court shall instruct the jury to answer special 
        interrogatories, or if there is no jury, shall make findings, 
        with respect to each defendant and plaintiff, and each of the 
        other persons claimed by any of the parties to have caused or 
        contributed to the loss incurred by the plaintiff, including 
        (but not limited to) persons who have entered into settlements 
        with the plaintiff or plaintiffs, concerning the percentage of 
        responsibility of the defendant, the plaintiff, and each such 
        person, measured as a percentage of the total fault of all 
        persons who caused or contributed to the total loss incurred by 
        the plaintiff.
          (2) Contents of special interrogatories or findings.--The 
        responses to interrogatories, or findings, as appropriate, 
        under paragraph (1) shall specify the total amount of damages 
        that the plaintiff is entitled to recover and the percentage of 
        responsibility of each person found to have caused or 
        contributed to the loss incurred by the plaintiff or 
        plaintiffs.
          (3) Factors for consideration.--In determining the percentage 
        of responsibility under this subsection, the trier of fact 
        shall consider--
                  (A) the nature of the conduct of each person alleged 
                to have caused or contributed to the loss incurred by 
                the plaintiff; and
                  (B) the nature and extent of the causal relationship 
                between the conduct of each such person and the damages 
                incurred by the plaintiff or plaintiffs.
          (4) Nondisclosure to jury.--The standard for allocation of 
        damages under paragraph (1) shall not be disclosed to members 
        of the jury.

SEC. 302. LIMITATION ON BYSTANDER LIABILITY FOR YEAR 2000 FAILURES.

  (a) In General.--With respect to any year 2000 claim for money 
damages in which--
          (1) the defendant is not the manufacturer, seller, or 
        distributor of a product, or the provider of a service, that 
        suffers or causes the year 2000 failure at issue,
          (2) the plaintiff is not in substantial privity with the 
        defendant, and
          (3) the defendant's actual or constructive awareness of an 
        actual or potential year 2000 failure is an element of the 
        claim under applicable law,
the defendant shall not be liable unless the plaintiff, in addition to 
establishing all other requisite elements of the claim, proves by clear 
and convincing evidence that the defendant actually knew, or recklessly 
disregarded a known and substantial risk, that such failure would 
occur.
  (b) Substantial Privity.--For purposes of subsection (a)(2), a 
plaintiff and a defendant are in substantial privity when, in a year 
2000 claim arising out of the performance of professional services, the 
plaintiff and the defendant either have contractual relations with one 
another or the plaintiff is a person who, prior to the defendant's 
performance of such services, was specifically identified to and 
acknowledged by the defendant as a person for whose special benefit the 
services were being performed.
  (c) Certain Claims Excluded.--For purposes of subsection (a)(3), 
claims in which the defendant's actual or constructive awareness of an 
actual or potential year 2000 failure is an element of the claim under 
applicable law do not include claims for negligence but do include 
claims such as fraud, constructive fraud, breach of fiduciary duty, 
negligent misrepresentation, and interference with contract or economic 
advantage.

SEC. 303. REASONABLE EFFORTS DEFENSE.

  With respect to any year 2000 claim seeking money damages, except 
with respect to claims asserting breach or repudiation of contract--
          (1) the fact that a year 2000 failure occurred in an entity, 
        facility, system, product, or component that was within the 
        control of the party against whom the claim is asserted shall 
        not constitute the sole basis for recovery; and
          (2) the party against whom the claim is asserted shall be 
        entitled to establish, as a complete defense to the claim, that 
        it took measures that were reasonable under the circumstances 
        to prevent the year 2000 failure from occurring or from causing 
        the damages upon which the claim is based.

SEC. 304. DAMAGES LIMITATION.

  (a) Year 2000 Recovery Fund.--There is established in the Treasury a 
Year 2000 Recovery Fund. In any year 2000 action in which punitive 
damages are awarded under applicable law, including this Act, the 
entire amount of such damages shall be paid into the Year 2000 Recovery 
Fund. Amounts in the Fund shall be used for the assistance of small 
businesses, State and local governments, and nonprofit organizations, 
that are affected by year 2000 failures.
  (b) Standard for Awards.--With respect to any year 2000 claim for 
which punitive damages may be awarded under applicable law, the 
defendant shall not be liable for punitive damages unless the plaintiff 
proves by clear and convincing evidence that conduct carried out by the 
defendant showed a conscious, flagrant indifference to the rights or 
safety of others and was the proximate cause of the harm or loss that 
is the subject of the year 2000 claim. This requirement is in addition 
to any other requirement in applicable law for the award of such 
damages.
  (c) Caps on Punitive Damages.--
          (1) In general.--With respect to any year 2000 claim, if a 
        defendant is found liable for punitive damages, the amount of 
        punitive damages that may be awarded to a plaintiff shall not 
        exceed the greater of--
                  (A) 3 times the amount awarded to the plaintiff for 
                compensatory damages; or
                  (B) $250,000.
          (2) Special rule.--
                  (A) In general.--Notwithstanding paragraph (1), with 
                respect to any year 2000 claim, if the defendant is 
                found liable for punitive damages and the defendant--
                          (i) is an individual whose net worth does not 
                        exceed $500,000,
                          (ii) is an owner of an unincorporated 
                        business that has fewer than 25 full-time 
                        employees, or
                          (iii) is--
                                  (I) a partnership,
                                  (II) corporation,
                                  (III) association,
                                  (IV) unit of local government, or
                                  (V) organization,
                        that has fewer than 25 full-time employees,
                the amount of punitive damages shall not exceed the 
                lesser of 3 times the amount awarded to the plaintiff 
                for compensatory damages, or $250,000.
                  (B) Applicability.--For purposes of determining the 
                applicability of this paragraph to a corporation, the 
                number of employees of a subsidiary of a wholly owned 
                corporation shall include all employees of a parent 
                corporation or any subsidiary of that parent 
                corporation.
          (3) Application of limitations by the court.--The limitations 
        contained in paragraphs (1) and (2) shall be applied by the 
        court and shall not be disclosed to the jury.

SEC. 305. RECOVERY OF ECONOMIC DAMAGES FOR YEAR 2000 CLAIMS.

  (a) Limitation on Recovery of Economic Losses.--Subject to subsection 
(b), a plaintiff making a year 2000 claim alleging a nonintentional 
tort may recover economic losses only upon establishing, in addition to 
all other elements of the claim under applicable law, that any one of 
the following circumstances exists:
          (1) The recovery of such losses is provided for in a contract 
        to which the plaintiff is a party.
          (2) Such losses are incidental to a year 2000 claim based on 
        damage to tangible personal or real property caused by a year 
        2000 failure (other than damage to property that is the subject 
        of a contract between the parties involved in the year 2000 
        claim).
  (b) Recovery Must Be Permitted Under Applicable Law.--Economic losses 
shall be recoverable under this section only if applicable Federal law, 
or applicable State law embodied in statute or controlling judicial 
precedent as of January 1, 1999, permits the recovery of such losses.

SEC. 306. LIABILITY OF OFFICERS AND DIRECTORS.

  (a) In General.--A director, officer, or trustee of a business or 
other organization (including a corporation, unincorporated 
association, partnership, or nonprofit organization) shall not be 
personally liable with respect to any year 2000 claim in his or her 
capacity as a director or officer of the business or organization for 
an aggregate amount that exceeds the greater of--
          (1) $100,000; or
          (2) the amount of cash compensation received by the director 
        or officer from the business or organization during the 12-
        month period immediately preceding the act or omission for 
        which liability was imposed.
  (b) Rule of Construction.--Nothing in this section shall be deemed to 
impose, or to permit the imposition of, personal liability on any 
director, officer, or trustee in excess of the aggregate amount of 
liability to which such director, officer, or trustee would be subject 
under applicable State law in existence on January 1, 1999 (including 
any charter or bylaw authorized by such State law).

                   TITLE IV--YEAR 2000 CLASS ACTIONS

SEC. 401. MINIMUM INJURY REQUIREMENT.

  (a) In General.--In any year 2000 action involving a year 2000 claim 
that a product or service is defective, the action may be maintained as 
a class action in Federal or State court as to that claim only if it 
satisfies all other prerequisites established by applicable Federal or 
State law and the court also finds that the alleged defect in the 
product or service was a material defect as to a majority of the 
members of the class.
  (b) Determination by Court.--As soon as practicable after the 
commencement of a year 2000 action involving a year 2000 claim that a 
product or service is defective and that is brought as a class action, 
the court shall determine by order whether the requirement set forth in 
subsection (a) is satisfied. An order under this subsection may be 
conditional, and may be altered or amended before the decision on the 
merits.

SEC. 402. NOTIFICATION.

  (a) Notice by Mail.--In any year 2000 action that is maintained as a 
class action, the court, in addition to any other notice required by 
applicable Federal or State law, shall direct notice of the action to 
each member of the class by United States mail, return receipt 
requested. Persons whose actual receipt of the notice is not verified 
by the court or by counsel for one of the parties shall be excluded 
from the class unless those persons inform the court in writing, on a 
date no later than the commencement of trial or entry of judgment, that 
they wish to join the class.
  (b) Contents of Notice.--In addition to any information required by 
applicable Federal or State law, the notice described in this 
subsection shall--
          (1) concisely and clearly describe the nature of the action;
          (2) identify the jurisdiction whose law will govern the 
        action and where the action is pending;
          (3) identify any potential claims that class counsel chose 
        not to pursue so that the action would satisfy class 
        certification requirements;
          (4) describe the fee arrangements with class counsel, 
        including the hourly fee being charged, or, if it is a 
        contingency fee, the percentage of the final award which will 
        be paid, including an estimate of the total amount that would 
        be paid if the requested damages were to be granted; and
          (5) describe the procedure for opting out of the class.
  (c) Settlement.--The parties to a year 2000 action that is brought as 
a class action may not enter into, nor request court approval of, any 
settlement or compromise before the class has been certified.

SEC. 403. DISMISSAL PRIOR TO CERTIFICATION.

  Before determining whether to certify a class in a year 2000 action, 
the court may decide a motion to dismiss or for summary judgment made 
by any party if the court concludes that decision will promote the fair 
and efficient adjudication of the controversy and will not cause undue 
delay.

SEC. 404. FEDERAL JURISDICTION IN YEAR 2000 CLASS ACTIONS.

  (a) Jurisdiction.--Except as provided in subsection (b), a year 2000 
action may be brought as a class action in the United States district 
court or removed to the appropriate United States district court if the 
amount in controversy is greater than the sum or value of $1,000,000 
(exclusive of interest and costs), computed on the basis of all claims 
to be determined in the action.
  (b) Exception.--A year 2000 action shall not be brought or removed as 
a class action under this section if--
          (1)(A) the substantial majority of the members of the 
        proposed plaintiff class are citizens of a single State of 
        which the primary defendants are also citizens; and
          (B) the claims asserted will be governed primarily by the 
        laws of that State; or
          (2) the primary defendants are States, State officials, or 
        other governmental entities against whom the United States 
        district court may be foreclosed from ordering relief.

    TITLE V--CLIENT PROTECTION IN CONNECTION WITH YEAR 2000 ACTIONS

SEC. 501. SCOPE.

  This title applies to any year 2000 action asserted or brought in 
Federal or State court.

SEC. 502. DEFINITIONS.

  In this title:
          (1) Attorney.--the term ``attorney'' means any natural 
        person, professional law association, corporation, or 
        partnership authorized under applicable State law to practice 
        law.
          (2) Attorney's services.--The term ``attorney's services'' 
        means the professional advice or counseling of or 
        representation by an attorney, but such term shall not include 
        other assistance incurred, directly or indirectly, in 
        connection with an attorney's services, such as administrative 
        or secretarial assistance, overhead, travel expenses, witness 
        fees, or preparation by a person other than the attorney of any 
        study, analysis, report, or test.
          (3) Contingent fee.--The term ``contingent fee'' means the 
        cost or price of an attorney's services determined by applying 
        a specified percentage, which may be a firm fixed percentage, a 
        graduated or sliding percentage, or any combination thereof, to 
        the amount of the settlement or judgment obtained.
          (4) Hourly fee.--The term ``hourly fee'' means the cost or 
        price per hour of an attorney's services.
          (5) Retain.--The term ``retain'' means the act of a client in 
        engaging an attorney's services, whether by express or implied 
        agreement, by seeking and obtaining the attorney's services.

SEC. 503. CONSUMER'S RIGHT TO UP-FRONT DISCLOSURE OF INFORMATION 
                    REGARDING FEES AND SETTLEMENT PROPOSALS.

  Before being retained by a client with respect to a year 2000 claim 
or a year 2000 action, an attorney shall disclose to the client the 
client's rights under this title and the client's right to receive a 
written statement of the information described under sections 504 and 
505.

SEC. 504. INFORMATION AFTER INITIAL MEETING.

  (a) Written Disclosure of Fees.--Within 30 days after the disclosure 
described under section 503, an attorney retained by a client with 
respect to a year 2000 claim or a year 2000 action shall provide a 
written statement to the client setting forth--
          (1) in the case of an attorney retained on an hourly basis, 
        the attorney's hourly fee for services in pursuing the year 
        2000 claim or year 2000 action and any conditions, limitations, 
        restrictions, or other qualifications on the fee, including 
        likely expenses and the client's obligation for those expenses; 
        and
          (2) in the case of an attorney retained on a contingent fee 
        basis, the attorney's contingent fee for services in pursuing 
        the year 2000 claim or year 2000 action and any conditions, 
        limitations, restrictions, or other qualifications on the fee, 
        including likely expenses and the client's obligation for those 
        expenses.
  (b) Consumer's Right to Timely Updated Information About Fees.--In 
addition to the requirements contained in subsection (a), in the case 
of an attorney retained on an hourly basis, the attorney shall also 
render regular statements (at least once each 90 days) to the client 
containing a description of hourly charges and expenses incurred in the 
pursuit of the client's year 2000 claim or year 2000 action by each 
attorney assigned to the client's matter.

SEC. 505. CONSUMER'S RIGHT TO TIMELY UPDATED INFORMATION ABOUT 
                    SETTLEMENT PROPOSALS AND DETAILED STATEMENT OF 
                    HOURS AND FEES.

  An attorney retained by a client with respect to a year 2000 claim or 
a year 2000 action shall advise the client of all written settlement 
offers to the client and of the attorney's estimate of the likelihood 
of achieving a more or less favorable resolution to the year 2000 claim 
or year 2000 action, the likely timing of such resolution, and the 
likely attorney's fees and expenses required to obtain such a 
resolution. An attorney retained by a client with respect to a year 
2000 claim or a year 2000 action shall, within a reasonable time not 
later than 60 days after the date on which the year 2000 claim or year 
2000 action is finally settled or adjudicated, provide a written 
statement to the client containing--
          (1) in the case of an attorney retained on an hourly basis, 
        the actual number of hours expended by each attorney on behalf 
        of the client in connection with the year 2000 claim or year 
        2000 action, the attorney's hourly rate, and the total amount 
        of hourly fees; and
          (2) in the case of an attorney retained on a contingent fee 
        basis, the total contingent fee for the attorney's services in 
        connection with the year 2000 claim or year 2000 action.

SEC. 506. CLASS ACTIONS.

  An attorney representing a class or a defendant in a year 2000 action 
maintained as a class action shall make the disclosures required under 
this title to the presiding judge, in addition to making such 
disclosures to each named representative of the class. The presiding 
judge shall, at the outset of the year 2000 action, determine a 
reasonable attorney's fee by determining the appropriate hourly rate 
and the maximum percentage of the recovery to be paid in attorney's 
fees. Notwithstanding any other provision of law or agreement to the 
contrary, the presiding judge shall award attorney's fees only pursuant 
to this title.

SEC. 507. AWARD OF REASONABLE COSTS AND ATTORNEY'S FEES AFTER AN OFFER 
                    OF SETTLEMENT.

  (a) Offer of Settlement.--With respect to any year 2000 claim, any 
party may, at any time not less than 10 days before trial, serve upon 
any adverse party a written offer to settle the year 2000 claim for 
money or property, including a motion to dismiss the claim, and to 
enter into a stipulation dismissing the claim orallowing judgment to be 
entered according to the terms of the offer. Any such offer, together 
with proof of service thereof, shall be filed with the clerk of the 
court.
  (b) Acceptance of Offer.--If the party receiving an offer under 
subsection (a) serves written notice on the offeror that the offer is 
accepted, either party may then file with the clerk of the court the 
notice of acceptance, together with proof of service thereof.
  (c) Further Offers Not Precluded.--The fact that an offer under 
subsection (a) is made but not accepted does not preclude a subsequent 
offer under subsection (a). Evidence of an offer is not admissible for 
any purpose except in proceedings to enforce a settlement, or to 
determine costs and expenses under this section.
  (d) Exemption of Claims.--At any time before judgment is entered, the 
court, upon its own motion or upon the motion of any party, may exempt 
from this section any year 2000 claim that the court finds presents a 
question of law or fact that is novel and important and that 
substantially affects nonparties. If a claim is exempted from this 
section, all offers made by any party under subsection (a) with respect 
to that claim shall be void and have no effect.
  (e) Petition for Payment of Costs, Etc.--If all offers made by a 
party under subsection (a) with respect to a year 2000 claim, including 
any motion to dismiss the claim, are not accepted and the dollar amount 
of the judgment, verdict, or order that is finally issued (exclusive of 
costs, expenses, and attorneys' fees incurred after judgment or trial) 
with respect to the year 2000 claim is not more favorable to the 
offeree with respect to the year 2000 claim than the last such offer, 
the offeror may file with the court, within 10 days after the final 
judgment, verdict, or order is issued, a petition for payment of costs 
and expenses, including attorneys' fees, incurred with respect to the 
year 2000 claim from the date the last such offer was made or, if the 
offeree made an offer under this section, from the date the last such 
offer by the offeree was made.
  (f) Order To Pay Costs, Etc.--If the court finds, pursuant to a 
petition filed under subsection (e) with respect to a year 2000 claim, 
that the dollar amount of the judgment, verdict, or order that is 
finally issued is not more favorable to the offeree with respect to the 
year 2000 claim than the last such offer, the court shall order the 
offeree to pay the offeror's costs and expenses, including attorneys' 
fees, incurred with respect to the year 2000 claim from the date the 
last offer was made or, if the offeree made an offer under this 
section, from the date the last such offer by the offeree was made, 
unless the court finds that requiring the payment of such costs and 
expenses would be manifestly unjust.
  (g) Amount of Attorney's Fees.--Attorney's fees under subsection (f) 
shall be a reasonable attorney's fee attributable to the year 2000 
claim involved, calculated on the basis of an hourly rate which may not 
exceed that which the court considers acceptable in the community in 
which the attorney practices law, taking into account the attorney's 
qualifications and experience and the complexity of the case, except 
that the attorney's fees under subsection (f) may not exceed--
          (A) the actual cost incurred by the offeree for an attorney's 
        fee payable to an attorney for services in connection with the 
        year 2000 claim; or
          (B) if no such cost was incurred by the offeree due to a 
        contingency fee agreement, a reasonable cost that would have 
        been incurred by the offeree for an attorney's noncontingent 
        fee payable to an attorney for services in connection with the 
        year 2000 claim.
  (h) Inapplicability to Equitable Remedies.--This section does not 
apply to any claim seeking an equitable remedy.
  (i) Inapplicability to Class Actions.--This section does not apply 
with respect to a year 2000 action brought as a class action.

SEC. 508. ENFORCEMENT OF CONSUMER PROTECTION RULES IN YEAR 2000 CLAIMS 
                    AND ACTIONS.

  A client whose attorney fails to comply with this title may file a 
civil action for damages in the court in which the year 2000 claim or 
year 2000 action was filed or could have been filed or other court of 
competent jurisdiction. The remedy provided by this section is in 
addition to any other available remedy or penalty.

                          Purpose and Summary

    H.R. 775, the ``Year 2000 Readiness and Responsibility 
Act,'' was introduced on February 23, 1999 by Congressmen Tom 
Davis, David Dreier, Chris Cox, Jim Moran, Bud Cramer and 
Calvin Dooley. Its purpose is twofold: to encourage remediation 
activities and thus prevent Year 2000 computer failures; and to 
create a dispute resolution regime which will limit transaction 
costs in resolving disputes when Year 2000 computer failures 
occur, without prejudicing the rights of injured parties to 
seek damages from the responsible party.
    As amended by the Goodlatte amendment in the nature of a 
substitute, H.R. 775 creates a legal framework by which Y2K-
related disputes will be resolved. It is specifically designed 
to help con-

sumers by creating incentives for businesses to address the Y2K 
computing crisis, thereby avoiding Y2K problems and eliminating 
the need for litigation. It also establishes clear, uniform 
rules for determining the rights and responsibilities of 
contracting parties in Y2K disputes. Another important feature 
is that it provides for a waiting period before Y2K-related 
litigation may commence. This is designed to allow parties to 
discuss the problem and hopefully resolve their dispute without 
resorting to litigation.
    As distinguished from legislation considered by the 
Committee in recent Congresses which dealt with specific types 
of claims, such as products liability, this bill applies 
equally to any type of claim raised in state or federal court, 
as long as a Y2K failure is legally relevant. It is a 
significant departure from products liability reform in that it 
does not govern claims for personal injury caused by a 
malfunctioning product, which are clearly exempted from the 
bill. In fact, it is triggered not by the movement of a 
defective product in commerce, but by the malfunction of 
stationary computer software. In essence, H.R. 775 is about 
defining rights and remedies in court to address problems 
presented by a particular technological problem, regardless of 
the type of claim that results.

                Background and Need for the Legislation

    As the millennium nears, the Year 2000 (Y2K) computer 
problem poses a critical challenge to our economy. Tremendous 
investments are being made to fix Y2K problems, with United 
States companies expected to spend more than $50 billion. 
However, these efforts could be hampered by a barrage of 
potential litigation, and fear of liability may keep some 
businesses from effectively engaging in Y2K remediation 
efforts. Also, many businesses are likely to have Y2K-related 
failures, despite diligent efforts to remediate. Since our 
economic sectors are inextricably intertwined, one company's 
inability to fulfill its business contracts opens it and all 
the companies that depend on it to liability. The result is a 
litigation domino effect, which allows the Y2K failure of one 
company to topple all its business partners. A broad range of 
businesses and individuals will suffer some kind of economic 
injury, and many will undoubtedly seek recourse by filing suit.

The Year 2000 Computer Technology Problem \1\
---------------------------------------------------------------------------

    \1\ The information in this section draws heavily on the February 
24, 1999 report by the United States Senate Special Committee on the 
Year 2000 Technology Problem, ``Investigating the Impact of the Year 
2000 Problem.'' (S. Prt. 106-10)
---------------------------------------------------------------------------
    The Y2K technology problem started as an innocuous short 
term solution to the oppressively high cost of computer memory 
in the 1950's and 1960's. Programmers represented four-digit 
years with only two digits. For instance, 1968 would be 
represented as 68, with the number 19 (indicating years in the 
1900s) being implicitly understood. This worked smoothly until 
users started to input dates occurring after December 31, 1999. 
Computers started running into problems when required to 
calculate a number based on the difference in two dates, such 
as the interest due on a mortgage loan. Computers continued to 
assume that the prefix 19 was implied in any date, so they 
would incorrectly read 00 (input for 2000) or 01 (input for 
2001) as 1900 or 1901. Consequently, computers could not 
correctly calculate the difference between years in the 20th 
and 21st centuries.
    Another Y2K problem occurs in the storage of data. Many 
kinds of data are organized and processed by date, such as 
driver's license records and credit card accounts. Computers 
have had problems processing credit cards that have expiration 
dates after December 31, 1999, because computers read the cards 
as having expired almost a century ago.
    Although programmers and managers knew in the 1950's and 
1960's that they had built software with latent defects in it, 
no one thought that software written then would survive to the 
year 2000. Compounding that problem, newer software had to 
interface and share data with older software. Although the new 
software could have handled dates internally in four-digit 
formats and swapped data in two-digit formats with the older 
software, to do so added complexity and hence added cost to new 
software. The net result was that the two-digit standard for 
representing years continued much longer than anyone would have 
guessed.
    Technical experts tell us that there is no easy fix for Y2K 
problems. Software programs and computer hardware vary too 
greatly to be fixed by one solution. Currently, there are over 
500 programming languages in use. A universal or broadly 
applicable Y2K solution would have to be compatible with many 
or most of these languages. Additionally, finding all the dates 
and date processing in an estimated 36,000,000 programs is an 
enormous task difficult to automate. Embedded processors pose 
another problem. Although the percentage of embedded chips with 
a Y2K problem is estimated to be relatively small, potentially 
millions of chips exist that may have to be replaced. 
Unfortunately, most of them are not readily accessible or 
easily modified.

The Effect on the Economy

    The massiveness of the problem, and the corrections 
required to prevent or remedy the potential computer errors, 
have resulted in concern as to whether our society will be 
faced with a crisis situation on January 1, 2000. The cost of 
fixing the problem in all affected systems, both public and 
private, is astronomical. Chase Manhattan Bank alone was quoted 
as spending $250 million to fix the problem within its 2000 
million lines of computer code.
    The actual impact of the problem remains unclear. 
Unfortunately, the ways that a Y2K failure can cause a problem 
are almost unimaginable, because date sensitive data is used in 
so many different types of products. Two general classes of 
equipment are at risk. The first are business systems or 
mainframe systems. These computers perform a variety of data-
intensive calculations such as balancing accounts, making 
payments, tracking inventory, and ordering goods. The second 
class includes products which run on instructions contained on 
embedded chips, embedded processors, and embedded control 
systems. The problems that need to be fixed involving embedded 
devices have already been detected in medical treatment 
devices, water and electricity distribution and control 
systems, airport runway lighting and building security systems. 
Other suspect areas are pipeline control systems and chemical 
and pharmaceutical manufacturing processes.
    Some technical analysts predict that widespread failures in 
systems across the country, including power outages, stalled 
assembly lines, and halted international transactions could 
result in a major nationwide or even worldwide, recession. 
Others contend that theefforts already underway or completed 
will ensure a nearly disruption-free transition into 2000. But this is 
difficult to predict, because even a company who has made its own 
business Y2K compliant is still susceptible to Y2K problems if it 
depends on other businesses which might not be.

Litigation Related Y2K Issues

    Although it is eight months before the year 2000 begins, 
over 50 Y2K lawsuits have already been filed. The threat of 
litigation has resulted in a climate of fear and reluctance by 
many companies to acknowledge the potential problems which may 
be caused by their products. This atmosphere is 
counterproductive to the cooperative efforts necessary to 
ensure a seamless transition from 1999 to 2000, and is 
disruptive to the stability of the nation's interstate 
commerce. The potential for litigation to overwhelm the 
nation's judicial system, and to cause severe damage to the 
nation's economy require incentives for proactive solutions to 
the problems before they occur, and prompt resolution of those 
failures which do occur. Assuming that current law remains 
unchanged, the projected cost of Y2K litigation is as high as 
$1 trillion. The transaction costs associated with these 
potential lawsuits are also projected to be unprecedented: last 
August, at the American Bar Association annual convention, a 
panel of experts predicted that the legal costs associated with 
Y2K will exceed that of asbestos, breast implants, tobacco, and 
Superfund litigation combined. That is more that three times 
the total annual estimated cost of all civil litigation in the 
United States.
    The magnitude of this problem demands solutions which will 
reduce litigation whenever possible without limiting the rights 
of aggrieved parties. One way is to provide clear legal rules 
and then encourage parties to find solutions to fix the problem 
without resorting to the courts. If potential litigants know 
how the courts will allocate responsibility for Y2K compliance, 
many disputes will settle rather than being litigated to an 
inevitable conclusion. Clear rules also reduce the potential 
for frivolous lawsuits which might be filed when non-avoidable 
Y2K problems occur, thereby clearing the courts for the 
legitimate cases which deserve adjudication. Clear rules will 
also increase the likelihood that the entity who bears 
responsibility for Y2K compliance will work quickly to fix the 
problem and reduce damages.

                                Hearings

    The Full Committee held a hearing on H.R. 775 on April 13, 
1999. Testimony was received from three panels of witnesses. 
Panel I consisted of Congressman Tom Davis (R-Va.), Congressman 
David Dreier (R-Ca.), Congressman Jim Moran (D-Va.), 
Congressman Bud Cramer (D-Al.), Congressman Calvin Dooley (D-
Ca.), and Congressman Max Sandlin (D-Tx.). Panel II included 
four small business persons: Lisa Bender (on behalf of the 
National Association of Manufacturers), Bill Lewis, Janet 
Wylie, and Mark Yarsike; Mayor William Greenup of 
Fredericksburg, Virginia (on behalf of the National League of 
Cities); Joan Mulhern of Public Citizen Congress Watch; Sally 
Greenberg of the Consumer's Union; and Charles Rothfeld, Esq. 
On Panel III the Committee heard fromMichael Harden, President 
and CEO of Century Technology Services, Inc., Walter Andrews, Esq., 
Leon Kappelman, Co-chair of the Society for Information Management Year 
2000 Working Group, Howard Nations, Esq., Marc Pearl, Esq., Judge 
Walter Stapleton of the Third Circuit Court of Appeals (on behalf of 
the Judicial Conference), and Dean Mark Grady of the George Mason 
University School of Law.

                        Committee Consideration

    On April 29 and May 4, 1999, the Committee met in open 
session and on May 4, 1999 ordered favorably reported the bill 
H.R. 775 with amendment by a recorded vote of 15 ayes to 14 
nays, a quorum being present.

                         Votes of the Committee

    There were seven amendments resolved by voice vote. Mr. 
Goodlatte offered an amendment in the nature of a substitute 
which by unanimous consent was treated as the base text for 
purposes of the markup. Mr. Hutchinson offered an amendment to 
the Goodlatte amendment in the nature of a substitute which 
revised Title V to eliminate caps on attorneys' fees. Mr. Watt 
offered a substitute amendment to the Hutchinson amendment 
which made further modifications to Title V. Mr. Watt's 
substitute amendment was adopted by voice vote, and Mr. 
Hutchinson's amendment, as amended, was then also adopted by 
voice vote.
    Mr. Nadler offered an amendment to the Goodlatte amendment 
in the nature of a substitute to strike sections 401, 402, 403, 
and 404 (dealing with class actions). The amendment was 
defeated by voice vote. Mr. Scott offered an amendment to the 
Goodlatte amendment in the nature of a substitute to clarify 
that only discovery involving a defendant who is entitled to 
the benefits of the Act's waiting period would be stayed during 
the waiting period. The amendment was agreed to by voice vote. 
Mr. Scott offered an amendment to the Goodlatte amendment in 
the nature of a substitute to eliminate a court's ability to 
dismiss a complaint with prejudice for failure to comply with 
the Act's pleading standards. The amendment was agreed to by 
voice vote. Mr. Scott offered an amendment to the Goodlatte 
amendment in the nature of a substitute to strike section 306 
(dealing with directors' and officers' liability). The 
amendment was defeated by voice vote. Mr. Scott offered an 
amendment to the Goodlatte amendment in the nature of a 
substitute to make it discretionary, rather than mandatory, 
that a court determine by order that the Act's materiality 
standard is met in a class action. The amendment was defeated 
by voice vote.
    In addition, there were eight recorded votes during the 
Committee's consideration of H.R. 775, as follows:
    1. A substitute amendment offered by Mr. Watt to the 
Hutchinson amendment to the Goodlatte amendment in the nature 
of a substitute, to strike Title V of the Goodlatte amendment 
in the nature of a substitute. Defeated 14 to 17.

        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mr. Frank                           Mr. McCollum
Mr. Berman                          Mr. Coble
Mr. Boucher                         Mr. Smith (TX)
Mr. Nadler                          Mr. Gallegly
Mr. Scott                           Mr. Canady
Mr. Watt                            Mr. Goodlatte
Ms. Lofgren                         Mr. Bryant
Ms. Jackson Lee                     Mr. Chabot
Ms. Waters                          Mr. Barr
Mr. Delahunt                        Mr. Jenkins
Mr. Wexler                          Mr. Hutchinson
Ms. Baldwin                         Mr. Pease
Mr. Weiner                          Mr. Cannon
                                    Mr. Rogan
                                    Ms. Bono
                                    Mr. Bachus

    2. An amendment offered by Mr. Nadler to the Goodlatte 
amendment in the nature of a substitute to strike section 402. 
Defeated 4 to 13.

        AYES                          NAYS
Mr. Nadler                          Mr. Hyde
Mr. Scott                           Mr. Smith (TX)
Mr. Watt                            Mr. Gallegly
Ms. Lofgren                         Mr. Canady
                                    Mr. Goodlatte
                                    Mr. Bryant
                                    Mr. Chabot
                                    Mr. Jenkins
                                    Mr. Hutchinson
                                    Mr. Pease
                                    Mr. Cannon
                                    Mr. Rogan
                                    Ms. Bono

    3. An amendment offered by Mr. Scott to the Goodlatte 
amendment in the nature of a substitute to strike section 203 
and insert in lieu thereof a provision establishing rules of 
recovery in breach of contract actions. Defeated 5 to 11.

        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mr. Nadler                          Mr. Smith (TX)
Mr. Scott                           Mr. Gallegly
Mr. Watt                            Mr. Canady
Mr. Weiner                          Mr. Goodlatte
                                    Mr. Bryant
                                    Mr. Chabot
                                    Mr. Jenkins
                                    Mr. Hutchinson
                                    Mr. Pease
                                    Mr. Rogan

    4. An amendment offered by Mr. Scott to the Goodlatte 
amendment in the nature of a substitute to require that a 
defendant bear theburden of proof as to its relative share of 
responsibility for the plaintiff's injury. Defeated 5 to 10.

        AYES                          NAYS
Mr. Frank                           Mr. Hyde
Mr. Scott                           Mr. Smith (TX)
Mr. Watt                            Mr. Gallegly
Mr. Meehan                          Mr. Canady
Mr. Weiner                          Mr. Goodlatte
                                    Mr. Chabot
                                    Mr. Barr
                                    Mr. Jenkins
                                    Mr. Hutchinson
                                    Mr. Pease

    5. An amendment offered by Mr. Watt to the Goodlatte 
amendment in the nature of a substitute to amend the definition 
of ``material defect.'' Defeated 5 to 13.

        AYES                          NAYS
Mr. Frank                           Mr. Hyde
Mr. Scott                           Mr. Gekas
Mr. Watt                            Mr. Coble
Mr. Meehan                          Mr. Smith (TX)
Mr. Weiner                          Mr. Gallegly
                                    Mr. Canady
                                    Mr. Goodlatte
                                    Mr. Chabot
                                    Mr. Barr
                                    Mr. Jenkins
                                    Mr. Hutchinson
                                    Mr. Pease
                                    Ms. Bono

    6. A substitute offered by Ms. Lofgren, Mr. Conyers and Mr. 
Boucher to the Goodlatte amendment in the nature of a 
substitute. Defeated 9 to 15.

        AYES                          NAYS
Mr. Conyers                         Mr. Hyde
Mr. Frank                           Mr. Sensenbrenner
Mr. Boucher                         Mr. McCollum
Mr. Scott                           Mr. Gekas
Mr. Watt                            Mr. Coble
Ms. Lofgren                         Mr. Gallegly
Mr. Meehan                          Mr. Canady
Mr. Delahunt                        Mr. Goodlatte
Mr. Rothman                         Mr. Bryant
                                    Mr. Chabot
                                    Mr. Jenkins
                                    Mr. Hutchinson
                                    Mr. Pease
                                    Mr. Graham
                                    Ms. Bono

    7. An amendment in the nature of a substitute offered by 
Mr. Goodlatte, as amended. Agreed to by vote of 15 to 13, with 
one Member voting present.

    AYES                    NAYS                             PRESENT

   Mr. Hyde  Mr. Graham                         Mr. Frank
        Mr.  Mr. Conyers
 Sensenbren
         ner
        Mr.  Mr. Boucher
    McCollum
  Mr. Gekas  Mr. Scott
  Mr. Coble  Mr. Watt
  Mr. Smith  Ms. Lofgren
        (TX)
        Mr.  Ms. Jackson Lee
    Gallegly
 Mr. Canady  Ms. Waters
        Mr.  Mr. Meehan
   Goodlatte
 Mr. Bryant  Mr. Delahunt
 Mr. Chabot  Mr. Wexler
Mr. Jenkins  Ms. Rothman
        Mr.  Mr. Weiner
  Hutchinson
  Mr. Pease
   Ms. Bono

    8. Motion to report favorably H.R. 775, as amended. Passed 
15 to 14.

        AYES                          NAYS
Mr. Hyde                            Mr. Graham
Mr. Sensenbrenner                   Mr. Conyers
Mr. McCollum                        Mr. Frank
Mr. Gekas                           Mr. Boucher
Mr. Coble                           Mr. Scott
Mr. Smith (TX)                      Mr. Watt
Mr. Gallegly                        Ms. Lofgren
Mr. Canady                          Ms. Jackson Lee
Mr. Goodlatte                       Ms. Waters
Mr. Bryant                          Mr. Meehan
Mr. Chabot                          Mr. Delahunt
Mr. Jenkins                         Mr. Wexler
Mr. Hutchinson                      Mr. Rothman
Mr. Pease                           Mr. Weiner
Ms. Bono

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

                     Committee Jurisdiction Letter

                     Congress of the United States,
                               Committee on Small Business,
                                       Washington, DC, May 6, 1999.
Hon. Henry J. Hyde,
Chairman Committee on the Judiciary,
U.S. House of Representatives,
Washington, DC.
    Dear Chairman Hyde, As you know, H.R. 775, the ``Year 2000 
Readiness and Responsibility Act,'' was referred to the 
Committee on Small Business for consideration of Title VI of 
the legislation. It is my understanding that an amendment in 
the nature of a substitute was offered by Representative Bob 
Goodlatte at the mark-up of this legislation. I understand that 
substitute eliminates Title VI, ``Assistance to Small 
Businesses for Preventing Year 2000 Computer Failures,'' of 
H.R. 775. After careful consideration of the portions of H.R. 
775 referred to the Committee on Small Business, our Committee 
has no opposition to the absence of Title VI in the measure 
that the Committee on the Judiciary actually reports.
    Title VI of H.R. 775 contains many provisions that have 
already been considered by the Committee on Small Business and 
that have been passed into law. As you know, S. 314, the 
``Small Business Year 2000 Readiness Act,'' which was recently 
signed by the President (Public Law 106-8), establishes a loan 
program that is similar to the pilot program contained in 
Sections 603 and 604 of H.R. 775. Additionally, Section 605, 
``Suspension of Penalties for Certain Year 2000 Failures by 
Small Business Concerns,'' contains provisions that are very 
similar to those codified in Sections 222 and 223 of Public Law 
104-121, the Small Business Regulatory Enforcement Fairness 
Act.
    In light of this, the Committee on Small Business waives 
further consideration of the provisions of H.R. 775 within its 
jurisdiction. Our waiver of jurisdiction in this matter is 
limited to the circumstances surrounding this specific 
legislation.
    The Committee on Small Business thanks you for your 
consideration regarding this matter. Please contact me if I can 
be of further assistance to you or the Committee on the 
Judiciary regarding this very important legislation.
            Sincerely,
                                 James M. Talent, Chairman.

                Committee on Government Reform Findings

    No findings or recommendations of the Committee on 
Government Reform were received as referred to in clause 
2(l)(3)(D) of rule XI of the Rules of the House of 
Representatives.

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of House Rule XI is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 2(l)(3)(C) of rule XI of the 
Rules of the House of Representatives, the Committee sets 
forth, with respect to the bill H.R. 775, the following 
estimate and comparison prepared by the Director of the 
Congressional Budget Office under section 403 of the 
Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 7, 1999.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 775, the Year 2000 
Readiness and Responsibility Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Susanne S. 
Mehlman (for federal costs), Lisa Cash Driskill (for the state 
and local impact), and John Harris (for the private-sector 
impact).
            Sincerely,
                                          Dan L. Crippen, Director.
    Enclosure.

H.R. 775--Year 2000 Readiness and Responsibility Act

            Summary
    Enacting H.R. 775 would provide some liability protection 
for businesses that fail to repair their year 2000 (Y2K) 
computer problems. CBO estimates that the net effect of H.R. 
775 would most likely be a savings to the federal court system 
but we cannot estimate the extent of any such savings because 
we cannot predict the number of lawsuits that would arise--
under either H.R. 775 or current law--from computer failures 
associated with the year 2000.
    The cost of addressing the Y2K problem in the United States 
is estimated by some to total hundreds of billions of dollars. 
The extent to which such problems will be resolved prior to 
next January (or shortly thereafter) remains highly uncertain. 
Even more uncertain is the extent to which companies and 
individuals might file lawsuits against businesses because of 
problems encountered next year. CBO expects that enacting H.R. 
775 could deter some potential plaintiffs from filing such 
lawsuits.
    Some class action lawsuits may be shifted from state courts 
to federal courts under this bill, so the federal courts could 
incur an increase in costs because class action lawsuits tend 
to be very timely and costly. However, CBO expects that any 
such increase would be more than offset by savings attributable 
to having fewer Y2K cases, overall, under the bill than under 
current law. Any net change in costs to the federal court 
system would affect appropriated spending.
    H.R. 775 also would require that any punitive damages 
awarded to plaintiffs be paid into a Year 2000 Recovery Fund in 
the U.S. Treasury instead of to the plaintiffs. Amounts in the 
fund would be used for assistance to small businesses, state 
and local governments, and nonprofit organizations. CBO 
estimates that the money collected by and spent from the fund 
would net to zero over the long run. But the government's 
collection of the payments for damages would not extinguish the 
plaintiffs' right to such awards. As a result, we expect that 
the federal government would ultimately be responsible for the 
payment of punitive damages awarded to individuals. Any such 
additional payments would be considered direct spending, as would the 
spending of the new fund. Thus, H.R. 775 would be subject to pay-as-
you-go procedures. While CBO cannot estimate the amounts of net direct 
spending under the bill, the amounts paid to plaintiffs could be 
significant.
    H.R. 775 contains intergovernmental mandates as defined in 
the Unfunded Mandates Reform Act (UMRA) but, overall, CBO 
expects that enacting this bill would lead to a savings for 
state and local governments. The threshold established in UMRA 
($50 million in 1996, adjusted annually for inflation) would 
thus not be exceeded. The bill also would impose new private-
sector mandates but CBO cannot estimate the cost of the 
mandates.
            Description of the bill's major provisions
    H.R. 775 would provide various liability protections for 
businesses and state and local governments facing possible 
litigation arising from Y2K computer problems. In particular, 
the bill would:
          Limit punitive damages to $250,000 or three times the 
        actual damages that a plaintiff suffered, whichever is 
        larger, and cap punitive damages at $250,000 for 
        companies with fewer than 25 employees;
          Require potential plaintiffs to give a prospective 
        defendant 90 days to propose a plan to resolve the Y2K 
        problem before any legal action could be taken under a 
        lawsuit;
          Assess any liability on a proportional basis, whereby 
        a person against whom a judgment is made would be 
        liable for only the portion of damages corresponding to 
        that person's percentage of responsibility as 
        determined by the judge;
          Ease restrictions for filing class action lawsuits in 
        federal court;
          Require a plaintiff to pay the defendant's attorneys 
        fees if the defendant made an offer of settlement prior 
        to trial that was rejected and later proved to be 
        larger than the damages actually awarded in the 
        subsequent trial; and
          Establish, within the U.S. Treasury, a Year 2000 
        Recovery Fund, and direct that the punitive damages 
        awarded in any year 2000 action be paid into that fund. 
        Amounts would be used to provide assistance to small 
        business, state and local governments, and nonprofit 
        organizations that are affected by Y2K problems.
            Estimated cost to the Federal Government
            Spending subject to appropriation
    CBO estimates that enacting H.R. 775 would probably result 
in a net reduction in the workload of the federal court system 
as compared to what would occur under current law. Thus far, 
about 60 complaints associated with Y2K problems have been 
filed; the majority of cases based on those complaints are 
class action lawsuits that have been filed in state courts. 
Several of the larger cases have been settled, but there is 
little basis for predicting the number or outcome of Y2K 
lawsuits that would be filed under H.R. 775 or under current 
law. Therefore, CBO cannot estimate the magnitude of any net 
savings to the federal government under the bill.
    To the extent that a significant number of lawsuits related 
to Y2K problems are filed under current law, the Judiciary will 
either need to seek legislation authorizing additional 
judgeships and support personnel to address the increased 
workload or experience a severe backlog in cases. Because H.R. 
775 would limit punitive damages associated with Y2K cases, 
give businesses 90 days to respond to Y2K problems before any 
legal action could be taken against such businesses, and make 
other changes affecting liability laws, CBO expects that 
parties to lawsuits would be encouraged to reach a settlement. 
Thus, we anticipate that many lawsuits would not result in a 
trial, which can be timely and expensive. However, some class 
action lawsuits could be shifted from state to federal 
jurisdiction under H.R. 775 because the bill would ease 
restrictions for filing such actions in federal court. On 
balance, CBO estimates that the savings from eliminating trials 
for many lawsuits would more than offset any increased costs 
that might be incurred from trying additional class action 
lawsuits in federal court.
            Direct spending and receipts
    By creating the Year 2000 Recovery Fund to collect and 
disburse punitive damages that are awarded by courts in year 
2000 lawsuits, H.R. 775 would affect direct spending and 
receipts. Although cash flows of the fund would have no net 
budgetary impact, the collection by the federal government of 
damages awarded to plaintiffs would likely necessitate 
additional payments by the government to compensate the 
affected plaintiffs. While we cannot estimate the amount of 
punitive damages that could be awarded to plaintiffs and the 
resulting amounts of federal payments, we expect that the 
amounts could be significant. These additional payments would 
be considered direct spending.
            Pay-as-you-go considerations
    The Balanced Budget and Emergency Deficit Control Act sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts. Establishing the Year 2000 Recovery Fund 
would affect direct spending and receipts, and would probably 
lead to significant net costs to the federal government. 
However, CBO cannot estimate the extent of such costs.
            Estimated impact on State, local, and tribal governments
            Mandates
    H.R. 775 contains intergovernmental mandates as defined in 
UMRA but, overall, CBO expects that enacting this bill would 
result in savings for state, local, and tribal governments. The 
bill would preempt state law by applying certain federal 
requirements to Y2K civil and class action lawsuits filed in 
state courts and by subjecting state and local governments to 
those requirements as potential plaintiffs. As potential 
plaintiffs, they would see a small increase in costs due to 
notice and filing requirements. Overall, CBO expects that these 
same requirements would deter some potential plaintiffs from 
filing and pursuing lawsuits, thus reducing the resources state 
courts would expend on this type of litigation.
    The bill would set forth specific limits on punitive 
damages in Y2K civil lawsuits that would supersede inconsistent 
state laws. While, to date, only one state has established Y2K 
liability protection for the private sector, several states 
currently are considering that issue in their legislative 
bodies. Any future state laws covering situations subject to 
H.R. 775 would be preempted by this bill.
            Other Impacts
    In cases where state and local governments have no 
sovereign immunity law in place, H.R. 775 would provide them 
the same protection from liability as provided to the private 
sector. Only a handful of states and the District of Columbia 
have already enacted legislation specifically protecting 
themselves and their localities from Y2K liability. To the 
extent that state and local governments could become defendants 
in Y2K litigation and have not protected themselves from 
liability, this bill would provide some protection and could 
result in a savings.
    The bill also would establish a Year 2000 Recovery Fund, 
derived from punitive damages awarded in Y2K cases. Amounts 
paid into the fund would be distributed to state and local 
governments, small businesses, and nonprofit organizations 
affected by Y2K failures. State and local governments could 
benefit from these funds, but CBO has no basis for predicting 
how much state and local governments might receive.
    Finally, by making it easier to file Y2K class action 
lawsuits in federal court, the bill could diminish some of the 
burden on state courts, where most of the current lawsuits have 
been filed. On the other hand, more individual cases might be 
filed in state courts to complement class action suits in 
federal courts. Overall, CBO anticipates that the net effect of 
this bill would be a savings to state courts. This bill would 
not affect a suit filed by a public entity acting in a 
regulatory, supervisory, or enforcement capacity.
            Estimated impact on the private sector
    H.R. 775 would create new private-sector mandates on 
prospective plaintiffs in disputes related to year 2000 
computer problems and on attorneys who represent clients 
involved in such disputes. Title I would require prospective 
plaintiffs to notify prospective defendants of their intent to 
file suit and wait up to ninety days after such notification 
before filing. The notice must identify the source and size of 
the prospective plaintiff's injury, the remedy sought, and any 
person with the authority to negotiate a settlement on the 
plaintiff's behalf. Title V would require attorneys to provide 
clients with summaries of fees and expenses, notify clients of 
any written settlement offers, and provide clients with a 
notice describing these requirements. In class action suits, 
attorneys representing the injured class would make these 
disclosures to the presiding judge as well as to members of the 
class, and the presiding judge would set attorneys' fees. Title 
V would also limit contingent fees in all year 2000 computer 
problem suits to one-third of any damages recovered. Because 
CBO has no basis for predicting the number of lawsuits related 
to year 2000 computer problems, we cannot estimate the costs of 
these mandates.
    H.R. 775 would also create additional burdens for private-
sector plaintiffs awarded punitive damages by the courts. 
Section 304 would require punitive damages awarded in judgments 
related to year 2000 computer problems to be paid into the Year 
2000 Recovery Fund in the Treasury. This provision would 
redirect funds from some private-sector plaintiffs, including 
members of an injured class in class action suits, medium-sized 
businesses, and large businesses, to the federal government. To 
recover these damages, plaintiffs might have to take legal 
action against the government. CBO cannot estimate the losses 
that would be incurred by such plaintiffs.
            Previous CBO estimates
    On April 15, 1999, CBO transmitted a cost estimate for S. 
461, the Year 2000 Fairness and Responsibility Act, as reported 
by the Senate Committee on the Judiciary on March 26, 1999. On 
March 19, 1999, CBO transmitted a cost estimate for S. 96, the 
Y2K Act, as reported by the Senate Committee on Commerce, 
Science, and Transportation on March 10, 1999. Both S. 96 and 
S. 461 are similar to H.R. 775 and the effects on state and 
local governments and the private-sector would be similar for 
all three bills. However, unlike the other bills, H.R. 775 
would affect direct spending and receipts because of the 
collections and spending associated with the Year 2000 Recovery 
Fund.
            Estimate prepared by
    Federal Costs: Susanne Mehlman; Impact on State, local, and 
tribal governments: Lisa Cash Driskill; Impact on the private 
sector: John Harris.
            Estimate approved by
    Robert A. Sunshine, Deputy Assistant Director for Budget 
Analysis.

                   Constitutional Authority Statement

    Pursuant to Rule XI, clause 2(l)(4) of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, section 8, clause 3 of the 
United States Constitution, and the fourteenth amendment to the 
United States Constitution.

                      Section-By-Section Analysis

Section 1--Short Title

    The short title of the bill is the ``Year 2000 Readiness 
and Responsibility Act.''

Section 2--Findings

    Section 2 sets forth the findings of the Congress with 
regard to the need for legislation to encourage Year 2000 
computer remediation efforts and to streamline the resolution 
of disputes over Year 2000 computer failures. First, Congress 
finds the need to encourage businesses to concentrate their 
attention on addressing potential Y2K problems so as to 
minimize any possible business disruptions associated with Y2K 
failures. Doing so will ensure that Y2K problems do not 
unnecessarily disrupt interstate commerce or create unnecessary 
case loads in the courts. Second, the Congress finds that 
resorting to the legal system for resolution of Y2K problems is 
not feasible for many businesses, and the costs associated with 
litigation only exacerbate the difficulties associated with Y2K 
problems. Congress also finds that a proliferation of frivolous 
Y2K lawsuits could strain the resources of the courts and 
deprive deserving parties of their rights to relief.

Section 3--Definitions

    The bill is limited to ``Year 2000 Actions,'' which are 
defined to exclude any claims for personal injury. Personal 
injury is defined to include both physical injury and non-
economic damages suffered in connection with the personal 
injury. Claims by or against governmental entities would be 
covered by the Act if the government was acting in a commercial 
or contracting capacity, but not if it was acting in a 
regulatory, supervisory, or enforcement capacity.
    A ``Year 2000 claim'' is a claim or cause of action, 
whether raised by a plaintiff or by a defendant, where the 
plaintiff's alleged loss or harm resulted directly or 
indirectly from a Year 2000 Failure. A ``Year 2000 Failure'' 
means any failure by any device or system, or any software, 
firmware, or other set or collection of processing 
instructions, however constructed, in processing, calculating, 
comparing, sequencing, displaying, storing, transmitting, or 
receiving year 2000 date-related data. The Goodlatte amendment 
in the nature of a substitute modified the original definition 
of ``Year 2000 Failure'' by removing reference to three 
examples of Year 2000 Failures and clarifying that the date-
related data at issue is limited to year 2000 date-related 
data. This change was made in response to critics of the 
original definition who suggested that under the previous 
formulation, Y2K date-related failures were simply one species 
within a larger universe of date-related failures covered by 
the Act. That was not the intent of the sponsors, nor is it the 
intent of the Committee.

Section 4--Application of the Act

    The Act would apply to any claim brought after February 22, 
1999. It does not create any new cause of action, and it 
supercedes state law where that law is inconsistent with the 
Act. The Act would not apply to any claim based on personal 
injury.

               TITLE I--UNIFORM PRELITIGATION PROCEDURES

Section 101--Notice

    A potential plaintiff would be required to give 30 days 
notice to a potential defendant before commencing a Y2K action 
against that defendant (except when seeking only injunctive 
relief). If the defendant does not respond to the notice within 
30 days and describe what action it will take in response to 
the problem identified by the prospective plaintiff, the 
plaintiff may commence suit at the end of that 30 days. If the 
defendant responds by describing the action that it has taken 
or will take within the subsequent 60 days to remedy the 
problem identified by the prospective plaintiff, then there is 
an addition 60 day remediation period before the plaintiff can 
file a suit. If the plaintiff files suit without giving notice, 
the defendant may treat the filing as a notice and the court 
shall stay discovery involving that defendant until the 
appropriate notice and response period has elapsed. In a class 
action, the obligations imposed on a prospective plaintiff for 
providing notice are applicable only to the named plaintiffs.
    Section 101(b)(1) requires any entity receiving a notice 
pursuant to Section 101(a) to respond to the actual sender of 
the notice, whether a prospective plaintiff or an agent of a 
prospective plaintiff, not later than 30 days after receipt of 
the notice. In the event that an agent for one or more 
prospective plaintiffs is the sender of the notice, the 
prospective defendant is required to respond only to the agent, 
and not to each of the agent's principals.
    The response of the prospective defendant contains two 
sections. First, the prospective defendant must acknowledge 
receipt of the notice. Second, the prospective defendant must 
either describe the actions it has taken, or will take, not 
later than 60 days after the end of the 30-day period, to 
commence addressing the problem described in the notice. A 
prospective defendant who accepts responsibility for the 
problem described in the notice is not required to complete 
repair or remediation of the problem within the 60-day period, 
but is expected to act in good faith to repair or to remediate 
the identified problem within a reasonable time under the 
circumstances.

Section 102--Alternative Dispute Resolution

    This provision encourages parties to engage in alternative 
dispute resolution. If the parties resolve their differences in 
this manner, a defendant must pay all moneys due within 30 
days, unless otherwise agreed to. Any issue that is resolved 
through alternative dispute resolution could not be reopened in 
a subsequent proceeding.

Section 103--Pleading Requirements

    A complaint containing a Y2K claim must plead with 
particularity the nature and amount of damages, the nature of 
any alleged ``material defect,'' and any state of mind of the 
defendant that is a necessary element of the alleged claim. The 
court shall dismiss without prejudice a complaint which fails 
to satisfy these requirements. During the pendency of any 
motion to dismiss, discovery is stayed unless the court 
determines that particularized discovery is necessary to 
preserve evidence or prevent undue prejudice.

Section 104--Duty to Mitigate

    Damages may not include compensation for damages the 
plaintiff could reasonably have avoided in light of any 
disclosure or information of which the plaintiff was, or 
reasonably could have been, aware.

            TITLE II--YEAR 2000 ACTIONS INVOLVING CONTRACTS

Section 201--Certainty of Contract Terms

    Any written term or condition of a contract between a 
plaintiff and defendant, including limitations or exclusions of 
liability and disclaimers of warranty, is fully enforceable, 
unless it is in direct conflict with state statute in effect on 
January 1, 1999 addressing that term of the contract. This 
would include, among others, the Uniform Commercial Code and 
state consumer fraud statutes. If the contract is silent on a 
matter, the interpretation of the contract with respect to that 
matter shall be determined by applicable law at the time the 
contract was executed.
    Section 201 is intended to enhance business certainty and 
discourage frivolous lawsuits that seek to circumvent 
established contractual relationships. The section is based on 
the Committee's strong belief in the importance of holding 
parties to their contractual agreements. Contracts are the 
backbone of American business relations and permit parties to 
anticipate and allocate risk. The Committee is concerned that 
courts may react to year 2000 problems by promoting new or 
expanded theories of liability that attempt to circumvent 
contractual agreements. Section 201 makes clear that 
contractual terms are to be enforced in year 2000 claims unless 
such terms directly conflict with State statutory law, such as 
State UCC provisions.

Section 202--Doctrines of Impossibility and Impracticability

    If breach of contract is alleged, the doctrines of 
impossibility and commercial impracticability in force under 
applicable law on January 1, 1999 shall apply. A party raising 
such a defense is entitled to offer evidence as to the 
reasonableness of its conduct for purposes of proving the 
defense.

Section 203--Limitation of Damages to Contract Terms

    A contract between the parties controls the nature of the 
remedies available for its breach or repudiation. If the 
contract contains no express provisions regarding remedies, 
then Federal or state law in existence at the time the contract 
was entered into controls.

            TITLE III--TORT AND OTHER NONCONTRACTUAL CLAIMS

Section 301--Proportionate Liability

    Liability in a Y2K action is several and not joint, and 
defendants are liable only for their share of responsibility as 
a percentage of the responsibility of all persons (whether 
parties or not) at fault. The trier of fact must determine the 
responsibility of all such persons.

Section 302--Bystander Liability Rules

    This provision covers potential defendants in claims other 
than negligence who have not manufactured, sold, produced, or 
provided the product or service that suffers a Y2K failure. 
Where that person is also not in privity with the defendant by 
contract or by relationship, then any requisite element which 
includes a showing of the defendant's state of mind must be 
proven by clear and convincing evidence that the defendant 
actually knew, or recklessly disregarded a substantial risk 
that the Y2K failure would occur. This rule would apply, for 
example, in claims for fraud, constructive fraud, breach of 
fiduciary duty, negligent representation, and interference with 
contract or economic advantage. It would not apply to claims 
for negligence.

Section 303--Reasonable Effort Defense

    In a noncontractual claim, the fact that a Y2K failure 
occurred in an entity, facility, system, product, or component 
that was within a person's control shall not be the sole basis 
for recovering damages against that person. A defendant to a 
noncontractual claim is entitled to establish, as a complete 
defense, that it took measures that were reasonable under the 
circumstances to prevent the Y2K failure from occurring or from 
causing the damages upon which the claim is based.

Section 304--Damages Limitation

    Punitive damage awards for Y2K claims may not be awarded 
unless the plaintiff establishes by clear and convincing 
evidence that the conduct carried out by the defendant showed a 
conscious, flagrant indifference to the rights or safety of 
others and was the proximate cause or the harm or loss that is 
the subject of the claim. The bill does not establish a right 
to punitive damages where none is provided by applicable State 
law. Punitive awards may not exceed the greater of $250,000 or 
three times compensatory damages for big businesses, or the 
lesser of these figures for small businesses. Any punitive 
damages awarded will be paid intoa Year 2000 Recovery Fund, 
which shall be used for the assistance of small businesses, State and 
local governments, and nonprofit organizations that are affected by Y2K 
failures.

Section 305--Recovery of Economic Losses

    A party making a nonintentional tort claim cannot recover 
``economic loss'' unless recovery for the economic loss is 
provided for in a contract to which the party is a party or 
such losses result directly from damage to tangible property 
other than the property that is the subject of the contract. 
``Economic loss'' is defined as losses such as damages for lost 
profits or sales, for business interruption, and consequential 
damages.
    Section 305 is intended to codify the ``Economic Loss 
Rule'' so as to provide a uniform, national standard for 
determining liability for economic losses caused by year 2000 
failures. The ``Economic Loss Rule'' has been widely recognized 
in the vast majority of states and has been endorsed by the 
U.S. Supreme Court. The purpose of the Rule is to ensure that 
tort actions are not used to circumvent, nullify, or enlarge 
contract rights or obligations and to avoid limitless liability 
for purely economic loss. Tort law should apply when a party 
has suffered personal injury or damage to property other than 
property that is in dispute. Contract law should apply when a 
party has suffered only economic damages, such as lost value, 
cost of repair or replacement, or business interruption.
    The Committee's inclusion of the Rule in this section is 
consistent with Sec. 201 and reinforces the notion that when 
two parties have agreed to their respective rights and 
responsibilities in a valid contract, that contract should be 
honored and enforced. If a party can simply circumvent a 
contract and sue in tort for any economic losses that occur, 
every existing contract that allocates risk between parties is, 
in essence, worthless.
    The Committee recognizes that state law interpretation of 
the Economic Loss Rule varies and believes that in the year 
2000 context, the Rule must be codified to set out a uniform, 
consistent standard. Thus, Sec. 305 applies the Economic Loss 
Rule even in the absence of contracts, which is consistent with 
the law in the majority of states which have considered the 
issue. Also, Sec. 305 applies the Economic Loss Rule to all 
economic losses under year 2000 claims, whether resulting from 
the provision of services or the sale of goods. Because many 
business relationships include both provision of goods and 
services, it is important to ensure consistent treatment for 
both.

Section 306--Liability of Directors and Officers

    Subject to lower monetary caps in state law, charter, or 
bylaw authorized by state law, the liability of directors, 
trustees, or officers is capped at $100,000 or the amount of 
cash compensation received by that person from the business in 
the year preceding the act or omission.

                   TITLE IV--YEAR 2000 CLASS ACTIONS

Section 401--Minimum Injury Requirement

    In any Y2K action involving a claim that a product or 
service is defective, the action can be maintained as a class 
action as to that claim only if the court finds that the 
alleged defect was material as to a majority of the class 
members.

Section 402--Notice

    In addition to any other notice required by law, the court 
shall direct notice of a Y2K action to each prospective member 
of the class. The notice must describe the nature of the 
action, identify the jurisdiction whose law will govern the 
action and where the action is pending, identify any potential 
claims that class counsel chose not to pursue so that the 
action would satisfy class certification requirements, describe 
the fee arrangement with class counsel, and describe the 
procedure for opting out of the class. A person may not be a 
member of the class if that person did not receive the 
requisite notice, unless that person informs the court in 
writing that he wishes to join the class. No settlement may be 
entered in to, or can be approved by the court, before the 
class has been certified.

Section 403--Dismissal Prior to Certification

    The court may decide a motion to dismiss or for summary 
judgment prior to determining whether to certify the class.

Section 404--Federal Jurisdiction in Year 2000 Class Actions

    Grants original and removal jurisdiction in the United 
States district court for class actions where the amount in 
controversy exceeds $1 million, unless the substantial majority 
of the members of the proposed plaintiff class are citizens of 
a single state of which the primary defendants are also 
citizens and the claims will be governed primarily by that 
state's laws, or where the primary defendants are states or 
other governmental entities against whom the United States 
district court may be foreclosed from ordering relief.

                    TITLE V--CLIENT PROTECTION RULES

Section 501--Scope

    The title applies to any Year 2000 action, whether brought 
in Federal or State court.

Section 502--Definitions

    Defines the terms attorney, attorney's services, contingent 
fee, hourly fee and retain.

Section 503--Disclosure of Fee Information

    Before being retained by a client, an attorney in a Y2K 
action must disclose to the client his rights under this title.

Section 504--Information After Initial Meeting

    An attorney retained in a Y2K action must within 30 days of 
the notice required under section 503 disclose to the client 
his hourlyfee for providing services (if being retained on an 
hourly basis), or his contingent fee for providing services (if being 
retained on a contingent fee basis). An attorney retained on an hourly 
basis must render regular statements as to hourly charges and expenses, 
not less than each 90 days.

Section 505--Information About Settlement Proposals

    An attorney must advise the client of all written 
settlement offers and the attorney's estimate of the likelihood 
of achieving a more or less favorable resolution to the case. 
Within 60 days after a Y2K claim is settled or adjudicated, the 
attorney must provide a written statement to the client of the 
total number of hours expended, the hourly rate, and the total 
hourly fees (if retained on an hourly fee basis), or the total 
contingency fee (if retained on a contingent fee basis).

Section 506--Class Actions

    In a class action, the disclosures required by this title 
shall be made to the presiding judge as well as to the client. 
For purposes of this section, the clients for a class are the 
named representatives of the class. The presiding judge in a 
class action shall at the outset of the case set a reasonable 
fee rate for the class attorney. Attorney fees for a class may 
only be awarded under this title.

Section 507--Award of Fees After an Offer of Settlement

    In the event that a party rejects an offer of settlement of 
a Year 2000 claim, and the dollar amount of the judgment or 
verdict as to that claim is ultimately not more favorable to 
the offeree than the offer, the rejecting party shall be 
ordered to pay the costs and expenses of the offeror. This 
section does not apply to claims brought in class actions.

Section 508--Enforcement

    A client may bring a civil action to enforce the terms of 
this title.

                              Agency Views

                        U.S. Department of Justice,
                             Office of Legislative Affairs,
                                    Washington, DC, April 29, 1999.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
U.S. House of Representatives,
Washington, DC.
    Dear Mr. Chairman: I am writing to convey the Department's 
strong opposition to the ``Year 2000 Readiness and 
Responsibility Act'' (H.R. 775) currently before the Committee. 
If H.R. 775 were presented to the President, the Attorney 
General would recommend a veto. The Administration, however, 
understands that Representatives Lofgren, Conyers and Boucher 
are working on an amendment in the nature of a substitute that 
will be substantially similar to an amendment offered in the 
Senate by Senators Kerry and Robb, which satisfactorily 
addresses many of our concerns and which we can support. In 
addition, we understand that another substitute may be offered 
to the base bill that makes some modest changes. We look 
forward to reviewing it.
    The Administration's overriding concern is that H.R. 775 
will not enhance readiness and may, in fact, decrease the 
incentive organizations have to be ready and assist customers 
and business partners to be ready for the transition to the 
next century. The Department agrees however, with the three 
stated goals of H.R. 775: (i) giving companies every incentive 
to become Y2K compliant; (ii) encouraging resolution of Y2K 
problems without resort to litigation; and (iii) deterring 
frivolous Y2K lawsuits without deterring legitimate Y2K 
claims.\1\ We are nevertheless very concerned that H.R. 775 
does not achieve these goals. In fact, H.R. 775 may 
significantly undermine two of them. Because Titles II and III 
of the bill modify tort and contract law so as to reduce the 
liability of potential Y2K defendants, these provisions reduce 
the incentive potential defendants have to become Y2K 
compliant. In a similar fashion, we are not sure how modifying 
the rules of liability that apply to meritorious tort and 
contract actions (as Titles II and III do) will necessarily 
deter frivolous Y2K claims, which by definition will be filed 
regardless of the rules of liability. Instead, modifying 
substantive law seems more likely to curtail legitimate Y2K 
lawsuits.
---------------------------------------------------------------------------
    \1\ See Sec. 2(b) (listing purposes of the Act).
---------------------------------------------------------------------------
    Our preliminary analysis indicates that H.R. 775 is the 
most sweeping of any of the Y2K-litigation bills yet proposed 
in either Chamber--and would be by far the most sweeping 
litigation reform measure ever enacted if it were approved in 
its current form. Although the Department's major concerns with 
the Act are explained at length in the Statement I submitted to 
this Committee for its April 13, 1999 hearing (and which I have 
attached for your convenience), I will summarize them briefly.

Modification of Pre-Existing Y2K Contracts (Title II)

    Title II of the Year 2000 Readiness and Responsibility Act 
amends federal and state contract law as it applies to ``year 
2000 actions'' and, in so doing, effectively modifies the terms 
of already-negotiated contracts and existing contractual 
relationships. Section 202 of the Act appears to create a 
``reasonable efforts'' defense in Y2K contract actions that 
would allow a defendant who had otherwise breached the terms of 
a contract to show that the efforts it took to implement the 
contract were reasonable ``for the purpose of limiting the 
award of damages.'' This effectively sets up a complete defense 
to a contract action, even though a party to a contract is 
generally obligated to fulfill all its promises completely. 
Creating a post hoc ``reasonable efforts'' defense that 
absolves parties to Y2K-related contracts seems to be unfair to 
the contracting plaintiffs who bargained--and paid--for 
contract compliance by the other party. It may also raise 
issues under the Takings Clause of the Fifth Amendment. 
Moreover, this defense appears to undercut incentives for Y2K 
contractees to discharge their obligations--instead of being 
required to fulfill their contracts, potential defendants need 
only make reasonable efforts to do so.
    In a similar fashion, Sec. 201 of the Act requires a court 
to enforce all of a contract's written terms, even if those 
terms, in violationof state law, disclaim certain kinds of 
warranties or are unconscionable. As a result, the Act would appear to 
validate contract terms that were ineffective or illegal at the time 
they were made.

Modification of Substantive Tort and Other Civil Law (Titles III, V, 
        and VI)

    Title III of the Act modifies federal and state substantive 
tort law as applied to ``year 2000 actions'' for money damages 
and not involving personal injury. This Title, and the rest of 
the Act, do not exclude enforcement actions brought by federal, 
state, and local governments. Applying the Act's substantive 
and procedural limitations to these sovereigns is likely to 
interfere with their ability to enforce their own laws. More to 
the point, Title III's modifications to substantive law in 
civil suits may affect government-initiated actions (and 
citizen suits) brought under a number of federal and state 
statutes that rely upon traditional mechanisms of tort law for 
their proper operation, including CERCLA, Securities Acts, and 
federal banking laws.
    We also have many concerns with the application of Title 
III to private actions. Sections 302 and 303 significantly 
alter the rules of tort liability for Y2K actions involving 
money damages. Section 302, for example, appears to foreclose 
some Y2K actions premised on a theory of negligence. Even if it 
does not, Sec. 302 does clearly require plaintiffs to satisfy a 
greater burden of proof in their tort actions. Y2K tort 
plaintiffs would be required to establish the critical elements 
of their tort actions--the defendant's knowledge and 
foreseeability--by ``clear and convincing evidence,'' even 
though this standard is usually reserved for use in quasi-
criminal proceedings.
    Title III both expands existing defenses and creates new 
defenses for Y2K defendants. Section 303 erects a reasonable 
efforts defense similar to, but more extreme than, the one 
contained in Title II. This provision would establish a 
complete defense to liability--no matter how much the defendant 
was initially at fault or how much damage the plaintiff 
actually suffers. Indeed, even a defendant who recklessly 
disregarded a known risk of Y2K failure could escape liability 
by taking advantage of this new defense, and making reasonable, 
albeit unsuccessful, efforts to fix the defect. Similarly, 
Sec. 104, while titled ``Duty to Mitigate,'' acts as a complete 
bar to recovery if a defendant can show that the plaintiff 
should have known of information that ``could reasonably'' have 
aided the plaintiff in avoiding the injury upon which his Y2K 
claim is based--even if that information had been provided by 
someone other than the defendant. Thus, Sec. 104 imposes an 
affirmative duty on plaintiffs to find information--but no duty 
on defendants to provide it--or else face dismissal of their 
lawsuits. Section 104's duty to mitigate sweeps far beyond the 
common law doctrine of the same name, which more reasonably 
prohibits plaintiffs only from recovering damages they could 
have reasonably avoided.
    Title III would also curtail significantly the types and 
amount of damages Y2K plaintiffs may collect should they 
prevail in establishing liability. Most dramatically, Sec. 305 
would appear to bar the recovery of ``economic losses'' in all 
tort cases unless they are incidental to personal injury or 
property damage claims. Thus, Sec. 305 would appear to grant 
defendants full immunity from civil suits involving fraud and 
misrepresentation (including securities fraud), not just in 
tort suits involving defective products or services. Section 
304 caps the punitive damages that may be awarded on Y2K 
claims, and more strongly bars the award of any punitive 
damages unless the plaintiff proves by clear and convincing 
evidence that the defendant ``specifically intended to cause 
injury to the plaintiff.'' Because this standard of proof is 
unlikely, if ever, to be met, the caps would be largely 
irrelevant because punitive damages would almost never be 
awarded. Section 306 caps the potential liability of directors 
and officers, creating a windfall to insurance companies who 
have been paid for unlimited coverage but will only have to pay 
out under the caps.
    Title III may also significantly impact whether a 
prevailing Y2K plaintiff will actually be able to recover his 
damages. Section 301 abolishes all species of ``joint and 
several liability,'' which in varying forms permits tort 
plaintiffs to hold any one defendant responsible for more than 
its share of damages. Section 301's rule of absolute 
proportionate liability applies whether or not a defendant 
makes efforts to identify and fix Y2K problems now, and will 
accordingly reduce the incentives defendants have to prepare 
for Y2K.

Modification of Other State and Federal Law

    Section 605 of the Act would preclude federal and state 
agencies from imposing civil penalties on small businesses for 
first-time violations of federal information collection 
requirements if those violations result from a Y2K failure. We 
are concerned that granting small businesses one ``free pass'' 
with respect to Y2K-related failures could seriously undercut 
the incentives those businesses have to become Y2K compliant. 
Risking these consequences might be acceptable if there was a 
genuine need for this protection--that is, if there was some 
danger that federal and state agencies would otherwise 
``penalize'' small businesses out-of-business for failing to 
comply with information reporting requirements. But this is 
clearly not the case because current law and Administration 
policy already require agencies to issue policies to provide 
for the reduction or waiver of civil penalties for small 
businesses under appropriate circumstances. We also question 
whether it is wise as a matter of federal policy to preempt the 
regulatory authority of state agencies.
    Several other provisions of the Act appear to modify state 
procedural law without modifying any state substantive law. For 
example, Sec. 402 imposes procedural requirements concerning 
the specificity of notice to class members in State court class 
actions. Although it is possible to draft similar modifications 
to State law without raising constitutional concerns, as they 
appear in H.R. 775, these procedural requirements arguably have 
no direct connection to the vindication of substantive Federal 
rights and would accordingly be vulnerable to constitutional 
challenge on federalism grounds. Although the Supreme Court has 
stated that Congress, in enacting legislation under the 
Commerce Clause, possesses broader power to require action by 
State courts than to require action by State legislatures or 
executives, see Printz v. United States, 117 S. Ct. 2365, 2371 
(1997), the Court also has endorsed the ``general rule,bottomed 
deeply in belief in the importance of state control of statue judicial 
procedure, * * * that federal law takes the state courts as it finds 
them,'' Johnson v. Frankell, 520 U.S. 911, 919 (1997) (internal 
quotation marks omitted). There is a serious risk that courts would 
view H.R. 775's procedural instructions to State courts as 
constitutionally impermissible intrusions on State governmental 
autonomy.

Federalizing Y2K Class Actions

    Title IV essentially federalizes class action standards in 
class actions involving Y2K claims, even when the Y2K claim is 
only a small part of the overall action. Title IV permits 
removal of state class actions to federal court when any class 
plaintiff is diverse from any defendant, and further provides 
that cases so removed but not certified under federal class 
action standards be remanded to state courts stripped of their 
class allegations. This mechanism effectively prevents states 
from setting their own policies concerning class actions 
involving Y2K claims, and, in cases where individual claims are 
too small to justify litigation, may leave large numbers of 
plaintiffs without redress. Title IV also imposes onerous 
notice and opt-in requirements that may have the practical 
effect of making many class actions impossible.

Coverage

    As a final matter, the Department would like to point out a 
few of its other concerns regarding the scope of the Act, aside 
from its inclusion of government-initiated lawsuits.
    As currently drafted, the Act would seem to apply to claims 
having nothing to do with Y2K failures. Titles II III, and V of 
the Act, which extensively modify state tort, contract, and 
attorney-ethics law, apply to any ``year 2000 action,'' which 
includes non-Y2K claims if they are joined with a single Y2K 
claim (or countered by a single Y2K defense). The definition of 
``year 2000 claim'' would also seem to cover date failures 
having nothing to do with the change-over to the year 2000.
    Even if these defects were corrected, it seems very likely 
that there will be considerable dispute over whether or not 
certain lawsuits are subject to the Act. Plaintiffs' lawyers 
are likely to avoid styling their claims as ``year 2000 
claims,'' and defense lawyers will probably assert Y2K-related 
defenses in order to bring the claims under the terms of the 
Act. State and federal courts will then be forced to determine 
whether the Act, or normal state tort and contract law, 
controls. In light of the fact that the Act works great changes 
in state law, which may have a great impact on the outcome of 
any given Y2K lawsuit, substantial disputes about the Act's 
coverage are likely to be common and will occupy much judicial 
time, complicating what would otherwise be rather straight-
forward contract or tort actions.

New Alternatives

    We understand that some Members, led by Representative 
Lofgren, are on the verge of introducing an amendment to HR 775 
that is more modest in scope, and better tailored to achieving 
the goals that Y2K litigation legislation should serve--
encouraging parties to fix Y2K problems now, and weeding out 
frivolous Y2K claims while allowing the meritorious ones to go 
forward.
    While the Department has not yet had the opportunity to 
review the precise language of this new amendment, we 
understand that its modifications of State and Federal law 
affecting Y2K claims addresses the majority of our concerns. We 
are told this amendment will be substantially similar to the 
amendment offered in the Senate by Senators Kerry and Robb, 
which we support (although we are working to resolve certain 
drafting issues raised by the Department of Justice).
    Please do not hesitate to call upon us if we may be of 
additional assistance. The Office of Management and Budget had 
advised us that from the perspective of the Administration's 
program, there is no objection to submission of this letter. 
Thank you for the opportunity to express the Department's 
views.
            Sincerely,
                                           Jon P. Jennings,
                                 Acting Assistant Attorney General.

                            DISSENTING VIEWS

    We strongly oppose H.R. 775, the ``Year 2000 Readiness and 
Responsibility Act.'' H.R. 775 dangerously discourages 
corporate responsibility, robs consumers of their ability to 
obtain relief, and disadvantages small businesses seeking 
proper remediation. Although the legislation is described by 
its proponents as a specifically designed fix to the so-called 
Y2K litigation crisis, it will actually be the broadest and 
most overreaching tort reform package to ever reach the floor 
of the House of Representatives. It is significant to note that 
the bill was reported out of the Judiciary Committee by only a 
narrow margin of 15 to 14 (13 Democratic Members, joined by 1 
Republican Member).
    H.R. 775 would supersede most state law claims founded on 
tort, contract, or other legal theories. With regard to Y2K 
actions, in addition to providing for a litigation ``cooling 
off period'' and clarifying the application of pleadings 
requirements and state contract law, the legislation (1) 
completely eliminates joint and several liability; (2) alters 
state tort liability rules by limiting damage recovery where 
the defendant's actions were ``reasonable;'' (3) places various 
limits on the categories or amount of punitive money damages 
that could be awarded in Y2K cases; (4) caps the liability of 
officers and directors; (5) federalizes most class actions; and 
(6) mandates a ``loser pays'' mechanism.
    H.R. 775 is strongly opposed by the Administration and the 
Justice Department, and it will surely be vetoed in its current 
form. 1 The legislation is also opposed by consumer 
and public interest groups, including Public Citizen 
2 and Consumer's Union, 3 as well as 
small business concerns. Finally, the class action and pleading 
requirements in the bill are opposed by the Judicial Conference 
of the United States. 4
---------------------------------------------------------------------------
    \1\ See White House Statement of Administrative Policy: S.96--Y2K 
Act (April 27, 1999). The Year 2000 Readiness and Responsibility Act: 
Hearing on H.R. 775 Before the House Comm. on the Judiciary, 106th 
Cong. (1999) (Statement of John A. Koskinen, Chairman, President's 
Council on Year 2000 Conversion and Statement of Eleanor D. Acheson, 
Assistant Attorney General, Office of Policy Development) [hereinafter 
House Judiciary Hearing on H.R. 775].
    \2\ See House Judiciary Hearing on H.R. 775, 106th Cong. (1999) 
(Statement of Joan Mulhern).
    \3\ See House Judiciary Hearing on H.R. 775, 106th Cong. (1999) 
(Statement of Sally Greenberg).
    \4\ See House Judiciary Hearing on H.R. 775, 106th Cong. (1999) 
(Statement of The Honorable Walter K. Stapleton, U.S. Court of Appeals 
for the Third Circuit).
---------------------------------------------------------------------------
    This is not to say, however, that the information 
technology community does not have legitimate concerns due to 
the unique nature of the Y2K problem that should be addressed 
through legislation. They have advocated consistently for more 
narrow legislative goals, rather than for the broad tort reform 
provisions in the bill. Representative Zoe Lofgren, joined by 
Representatives John Conyers, Jr. and Rick Boucher offered a 
reasonable substitute to H.R. 775 during the House Judiciary 
Committee markup that would have, in large part, addressed the 
specific concerns of the information technology community: (1) 
to encourage remediation; (2) to encourage mitigation; and (3) 
to deter frivolous lawsuits. The substitute, however, was 
defeated on a party line vote. H.R. 775 does a disservice to 
the information technology community by neglecting their narrow 
concerns, as addressed by the Democratic Substitute, and 
instead, pushing for broad-ranging tort reform.
    In this regard, we have concerns that H.R. 775 is being 
used more as a ``political football'' to obtain partisan 
advantage, than as a serious means of legislating public 
policy. The press has raised a number of these issues. For 
example, the February 11, 1999 issue of Roll Call notes that 
``the bill was written for GOP leadership by two prominent 
leadership groups [the Chamber of Commerce and the National 
Association of Manufacturers]'' and that the bill ``could 
provide a windfall of contributions to the NRCC [National 
Republican Campaign Committee].'' Republicans were quoted as 
saying ``[t]here are millions of dollars at stake here over the 
long run'' and ``[t]he fundraising potential is enormous.'' 
5
---------------------------------------------------------------------------
    \5\ Jim VandeHei, GOP Readies Campaign on Y2K Davis, Cox, Dreier to 
Push Plan That Caps Legal Fees, Roll Call, February 11, 1999.
---------------------------------------------------------------------------
    A subsequent article of Salon Magazine described how the 
bill actually represented an effort by the Chamber of Commerce 
as establishing a precedent for broad ranging tort reform:

          [F]rom the beginning, the U.S. Chamber had a much 
        more audacious goal for the Y2K litigation reform bill 
        than the narrow legislative issues that matter to the 
        high tech companies. The Chamber's number one priority 
        is far-reaching tort reform. The group has always 
        wanted to legally limit the amount plaintiffs can be 
        awarded, and it saw Y2K litigation reform as a first 
        step * * *.6
---------------------------------------------------------------------------
    \6\ Jake Tapper, The Millennium Bug Bill Battle, Salon, April 30, 
1999.

    A high tech lobbyist was quoted as acknowledging ``they 
[the Chamber of Commerce] want reform and they're using us.'' 
The article went on to describe the displeasure that the 
business community had expressed when it became apparent that 
the high tech community was willing to consider supporting more 
narrow and responsibly drawn legislation. For example, a 
business lobbyist was quoted as complaining that the high tech 
community ``tried to cut their own deals. When this is over 
you'll see Republicans are going to try to scalp ``em.'' 
7
---------------------------------------------------------------------------
    \7\ Id.
---------------------------------------------------------------------------

 I. Extreme Y2K Legislation is Premature and Based on Unsubstantiated 
                              Assumptions

    The Majority offers numerous rationales for the pending 
legislation. They claim that it is necessary for Congress to 
assist in (1) providing the necessary incentives to encourage 
the development of Y2K solutions before failures occur; (2) 
encouraging fair and efficient resolution of Y2K problems when 
they do occur; (3) avoiding massive quantities of frivolous 
litigation which could overwhelm our court systems; (4) making 
the law governing Y2K liability more uniform and clear than it 
is under the patchwork of state laws; and (5) imposing 
reasonable limits on liability. They assert that legislation is 
necessary to prevent an explosion of litigation, the cost of 
which they expect to exceed $1 trillion--approximately the same 
amount that would be available to fix the problem if companies 
were not keeping Y2K litigation reserves. 8
---------------------------------------------------------------------------
    \8\ See U.S. Chamber of Commerce National Business Agenda for the 
106th Congress (1999).
---------------------------------------------------------------------------
    Although many of us believe there is a possibility of 
confusion and uncertainty regarding Y2K litigation which 
warrants a federal legislative response, we believe there is no 
compelling need for legislation as broad-ranging and 
counterproductive as H.R. 775. For example, there is no factual 
proof offered that there will actually be a litigation 
explosion or that it will include significant amounts of 
frivolous lawsuits. In fact, the $1 trillion figure for Y2K 
litigation costs cited by the U.S. Chamber of Commerce was 
specifically rebutted during the House Judiciary Committee 
hearing on H.R. 775 by Howard Nations, a trial lawyer from 
Houston with an expertise in Y2K liability:

          One of the myths surrounding the Y2K litigation is 
        the often cited Lloyds of London estimate of one-
        trillion-dollars in litigation costs. The one-trillion-
        dollar figure emanated from the testimony of Ann 
        Coffou, Managing Director of Giga Information Group 
        before the U.S. House of Representatives Science 
        Committee on March 20, 1997, during which Ms. Coffou 
        estimated that the Year 2000 litigation costs could 
        perhaps top one-trillion-dollars. Ms. Coffou's estimate 
        was later cited at a Year 2000 conference hosted by 
        Lloyds of London and immediately became attributable to 
        the Lloyds organization rather than the Giga Group * * 
        * There has been no scientific study and there is no 
        basis other than guesswork as to the cost of 
        litigation. 9
---------------------------------------------------------------------------
    \9\ House Judiciary Hearing on H.R. 775, 106th Cong. (1999) 
(Statement of Howard Nations at 9).

    A recent New York Times article has also cast further 
skepticism regarding the predictions of a year 2000 litigation 
explosion, noting ``so far the cases offer little support for 
the dire predictions that courts will be choked by litigation 
over Y2K.'' 10 Many lawyers involved in these issues 
have also questioned the magnitude of the litigation threat. 
For example, Wynne Carvill, a partner at Thelen, Reid & Preist, 
a prominent San Francisco firm with high tech clients noted 
that ``[t]here was more reason to be alarmed a year ago * * * 
[p]eople are finding things to fix but not many that would shut 
them down.'' 11
---------------------------------------------------------------------------
    \10\ Barnaby J. Feder, A Trickle of Year 2000 Lawsuits, New York 
Times, April 12, 1999, at C4.
    \11\ Id.
---------------------------------------------------------------------------
    The bill's provisions are drastic overkill--according to 
the Justice Department, if adopted, the legislation would 
represent, ``by far the most sweeping litigation reform measure 
ever enacted. The bill makes extraordinarily dramatic changes 
in both federal procedural and substantive law and in state 
procedural and substantive law * * *'' 12 This means 
that in addition to cutting off possible frivolous litigation, 
it would also adversely impact many compelling and merit-based 
claims. Instead of encouraging remediation, these provisions 
will limit incentives to cure defects and result in greater Y2K 
losses than would otherwise be the case. Further, since the 
class action provisions will prevent most class actions, the 
legislation could result in more individual actions--a result 
which could lead to more, not less, litigation. The bill is so 
broad that it would protect defendants who continued to produce 
software with Y2K defects well after the problem was known and 
well after the technology was available to eliminate the 
problem.
---------------------------------------------------------------------------
    \12\ House Judiciary Hearing on H.R. 775, 106th Cong. (1999) 
(Statement of Attorney General Eleanor D. Acheson, U.S. Department of 
Justice, Office of Policy Development at 2).
---------------------------------------------------------------------------
    These concerns were highlighted in recent editorials by the 
New York Times and the Washington Post. The New York Times has 
written, ``the legislation is misguided and potentially unfair. 
It could even lessen the incentive for corrective action.'' 
13 The Washington Post has written that the 
legislation ``removes a key incentive for companies to fix 
problems before the turn of the year, and it also responds to a 
problem whose scope is at this stage unknown.'' 14
---------------------------------------------------------------------------
    \13\ Liability for the Millennium Bug, New York Times, April 26, 
1999.
    \14\ Y2K Liability, Washington Post, April 29, 1999.
---------------------------------------------------------------------------
    Rather than being neutrally designed to promote 
``uniformity,'' the bill is principally designed to benefit 
defendants. Thus, for example, rather than superseding state 
laws which are both more and less favorable than the bill, it 
only supersedes laws which are less beneficial to defendants. 
Many of the provisions of the bill raise serious constitutional 
problems. Some of these are highlighted in the Justice 
Department's testimony. For example, the provisions 
federalizing state class actions may be an unconstitutional 
attack on federalism since it limits state procedural 
prerogatives (discussed in Section II, infra).
    The legislation also carries many grave risks for large and 
small businesses who are users of information technology, and 
may be left harmed and without any credible recourse by virtue 
of this legislation. This is why a comparable Senate bill (S. 
96) has been strongly opposed by Kaiser Permanente, one of the 
nation's largest health care providers. Kaiser has written that 
the legislation ``[s]everely limits the rights of small 
businesses, consumers, and non-profit organizations like ours 
to recover the often excessive costs of Y2K fixes, purchases, 
and upgrades, [and] * * * unfairly prejudices (or completely 
bars) the ability of the health care community to recover costs 
associated with any potential personal injury or wrongful death 
award from the entity primarily at fault for the defect that 
caused the injury.'' 15 Similar concerns have been 
expressed by Donald J. Palmisano, a Board Member of the 
American Medical Association, who has stated, ``we strongly 
caution against providing liability caps to manufacturers in 
exchange for the Y2K information they may provide.'' Those 
businesses who have also had the foresight to cure their own 
Y2K problems will also be negatively impacted. They have spent 
the money and time necessary to avoid liability, yet this bill 
will allow their competitors to obtain the same benefits 
without the costs.
---------------------------------------------------------------------------
    \15\ See Letter from Mary Ann Thode, Senior Vice President, Chief 
Operating Officer, Kaiser Permanente, to the Honorable Barbara Boxer, 
United States Senate (April 27, 1999) (on file with the minority staff 
of the House Judiciary Committee).
---------------------------------------------------------------------------
    H.R. 775 goes well beyond reasonable reform. It fails to 
protect consumers and shields grossly negligent defendants and 
harms innocent plaintiffs. Worst of all, instead of creating 
positive incentives to fix problems, it creates new reasons to 
avoid remediation.

          I. H.R. 775 Will Discourage Corporate Responsibility

    Title III of the legislation would effectuate a wide range 
of alterations in the state law of tort and other non-
contractual law. A summary of our concerns follows:

A. ``Elimination of Joint and Several Liability'' (Section 301)

    H.R. 775 eliminates joint and several liability entirely. 
Therefore, a defendant in a Y2K action will only be liable for 
the portion of the judgment that corresponds to its percentage 
of responsibility. This provision diverges from the common law 
rule of joint and several liability, found in many states, that 
if more than one defendant is found liable for a tort, each 
defendant is liable for the total damages; and if a defendant 
pays for more than its share, it may seek contribution from the 
other liable defendants. Instead of placing the burden of 
financial loss on the identifiable defendant, consumers who 
prevail on a liability claim may not be able to recover all of 
their damages. The principle behind joint and several liability 
is that as between an innocent plaintiff and a culpable co-
defendant, it is preferable for the co-defendant to assume 
liability where other defendants are unable to assume liability 
rather than the victim of the tort.
    Although some of us are willing to support the development 
of reasonable guidelines concerning joint and several 
liability, the provisions in H.R. 775 are far too extreme. 
Under this provision it will be necessary for all plaintiffs in 
all cases to find all potential defendants in order to ensure 
full recovery, inevitably increasing the number of lawsuits 
filed. Under the bill, if one or more potential defendants has 
gone out of business or cannot be reached because of 
jurisdictional difficulties, the injured consumer or small 
business is forced to bear the brunt of this unrecoverable 
liability, even if the defendant being sued has committed the 
bulk of the negligence or has failed to take any remedial or 
corrective action. The provision also will allow defendants to 
avoid liability by pointing the blame at other parties who are 
not part of the suit (the so-called ``empty chair defense''). 
The limitation will also be problematic in cases where there 
exist foreign defendants who cannot be reached because of 
jurisdictional problems, a particular concern for computer 
products which include a wide array of foreign component parts, 
such as memory chips.

B. ``Limitation on Bystander Liability'' (Section 302)

    H.R. 775 also provides that ``with respect to a Y2K claim 
for money damages in which (A) the defendant is not the 
manufacturer, seller, or distributor of a product, or the 
provider of a service, that suffers or causes the Y2K failure, 
(B) the plaintiff is not in substantial privity with the 
defendant, and (C) the defendants' actual or constructive 
awareness of an actual or potential Y2K failure is an element 
of the claim under applicable law,'' the plaintiff must prove 
``by clear and convincing evidence that the defendant actually 
knew, or recklessly disregarded a substantial risk, that such 
failure would occur.'' The plaintiff and defendant are in 
substantial privity when, in a Y2K claim for professional 
services, they have contractual relations with one another, or 
if the plaintiff was specifically acknowledged by the defendant 
as a beneficiary of its services, prior to the defendants 
performance of such services.
    Raising the common law standard of proof in most civil 
cases from ``by preponderance of the evidence'' to ``by clear 
and convincing evidence,'' would make it more difficult to 
bring actions based on recklessness or fraud. Negligence claims 
are excluded from this provision. It is unclear who the 
drafters intend to benefit from this broad liability 
protection, although one possible beneficiary is professional 
service and accounting firms. In any event, we are not aware of 
any testimony or other evidence which justifies such a 
departure from ordinary liability principles.

C. Reasonable Efforts Defense for Defendants (Section 303)

    Perhaps the most sweeping and unjustified liability relief 
provision in the bill is set forth in section 303, providing a 
``reasonable efforts defense''. Under this defense, the fact 
that a defendant took reasonable measures to prevent the Y2K-
related failure is a complete defense to liability. Thus, 
despite the defendant's level of fault, if it made reasonable 
efforts to fix the problem--even if those efforts did not 
result in a cure--it would have no responsibility for damages 
suffered by the plaintiff. Even if a defendant takes minimal 
steps to remedy a Y2Kproblem, it will serve as a complete 
defense against a tort action, thereby undercutting incentives to 
prepare for and prevent Y2K errors. Moreover, state courts will have 
little precedent in determining what is a ``reasonable effort.''
    The breadth of this liability protection is truly 
breathtaking. The Justice Department has pointed out that the 
``section provides a complete defense to liability--no matter 
how much the defendant was at fault--for example the defendant 
could have recklessly disregarded a known risk of Y2K 
failure.'' 16 The defense is so broad it would even 
cover intentional wrongdoing or fraud, so long as the 
misconduct was eventually papered over by some sort of post-hoc 
reasonable effort. This hardly conforms with the personal 
responsibility theme the Majority repeats so often. The 
provision could also serve to completely insulate entities 
which sold Y2K defective products well after they knew of the 
problem and knew how to avoid it. We have received testimony 
establishing that the Y2K problem was identified in the 1950's 
and widely publicized in the late 1970's and early 1980's. Yet 
this bill would protect vendors who sell defective hardware and 
software up through and beyond the year 2000, as long as they 
try to remediate after the sale. It is difficult to ascertain 
any legitimate policy rationale for such broad protection.
---------------------------------------------------------------------------
    \16\ House Judiciary Hearing on H.R. 775, 106th Cong. (1999) 
(Statement of Attorney General Eleanor D. Acheson, U.S. Department of 
Justice, Office of Policy Development at 5).
---------------------------------------------------------------------------

D. Caps on Punitive Damages (Section 304)

    H.R. 775 caps punitive damages in Y2K actions at the 
greater of three times the amount of actual damages or $250,000 
and the lesser of the two amounts for small businesses. Under 
the bill, a plaintiff would have to prove by ``clear and 
convincing evidence that conduct carried out by the defendant 
showed a conscious, flagrant indifference to the rights or 
safety of others and was the proximate cause of the harm or 
loss that is the subject of the Y2K claim.'' The legislation 
also funnels any punitive damages that may be recovered into a 
special Treasury fund.
    Punitive damages impose punishment for outrageous and 
deliberate misconduct and they deter others from engaging in 
similar behavior. Collectively, these restrictions on punitive 
damages are likely to completely eliminate not only the 
incentive for seeking punitive damages, but any realistic 
possibility of obtaining them. Such restrictions are 
counterproductive in that they provide the greatest amount of 
liability protection to the worst offenders, those who have 
done the least to solve their Y2K problems. In addition, 
absolute caps send a message to wrongdoers that it doesn't 
matter how harmful or malicious their behavior, they will never 
be liable for more than a set limit. These restrictions allow 
companies to ignore Y2K problems, knowing they can never be hit 
with punitive damages for completely reckless and irresponsible 
behavior. This is not the signal that we need to send during 
this crucial time for Y2K remediation efforts.
    Mark Yarsike, a small business owner in Warren, MI, who 
testified at the Judiciary Committee hearing on H.R. 775, is an 
excellent example of how current law effectively functions in 
the Y2K context. Mr. Yarsike purchased a $100,000 computer cash 
register and inventory system for his new store. On the day of 
the grand opening, the cash register would not accept credit 
cards with a Y2K expiration date. After calling the 
manufacturer over 200 times to no avail, the owner sued the 
manufacturer and the case was settled.17 Mr. Yarsike 
commented on the unfairness of the punitive damages cap and 
other provisions in his testimony before the House Judiciary 
Committee: ``The very people who caused this problem in the 
first place get all the breaks in this bill * * * They [also] 
get limitations on damages, limitations on joint and several 
liability * * * what do I get, besides a more difficult 
standard of proof if I finally manage to jump through the 
procedural hoops and get to court?'' 18 In this 
case, the manufacturer's action was so outrageous that the 
threat of punitive damages very well could have been a factor 
in encouraging a settlement. Thus, the current civil justice 
system appears to have worked.
---------------------------------------------------------------------------
    \17\ House Judiciary Hearing on H.R. 775, 106th Cong. (1999) 
(Statement of Mark Yarsike, Co-owner, Produce Palace, Intl.).
    \18\ Id. at 4.
---------------------------------------------------------------------------

E. Limits the Liability of Corporate Officers and Directors (Sec. 305)

    H.R. 775 caps the personal liability of corporate directors 
and officers at the greater of $100,000 or their past 12-
months' compensation. This provision is not only unnecessary, 
it is affirmatively dangerous. It is unnecessary for any 
director or officer acting reasonably because under current law 
the ``business judgment rule'' already insulates officers and 
directors from liability for their business decisions as long 
as they acted reasonably in governing the affairs of the 
corporation.
    It is dangerous because it will protect irresponsible and 
reckless behavior. One widely respected commentator on year 
2000 problems has written, ``[t]he duty of care is of critical 
importance in the Year 2000 context because it establishes the 
standards that corporate officers and directors will need to 
meet in overseeing and making decisions regarding the 
corporation's Year 2000 efforts.'' 19 A Raytheon 
Corporation spokesman has written that ``[p]erhaps the most 
compelling motivation for a company ``opening its eyes'' to the 
Y2K problem is the threat of direct, personal, pecuniary 
liability of officers and directors.'' 20 The 
liability cap would also interfere with the private enforcement 
of the securities laws with regard to misconduct by corporate 
directors and officers. Finally, the provision could serve as a 
windfall for insurance companies--while they have been paid to 
provide unlimited coverage, the amount that they actually have 
to pay to claimants would be capped.
---------------------------------------------------------------------------
    \19\ Robert J. Kenney, et al., ``The Year 2000 Challenge: Legal 
Problems and Solutions'' at 34, Perspectives on Legislation, 
Regulation, and Litigation, National Legal Center for the Public 
Interest (1999).
    \20\ Raytheon Corporation, ``Y2K and Director Officer Liability: 
The Writing's on the Wall.''
---------------------------------------------------------------------------

 II. H.R. 775 Also Creates an Undue Burden on Plaintiffs and Attorneys

    In addition to the sweeping restrictions on liability in 
tort and other non-contractual actions set forth in Title III, 
the legislation also contains a number of more general sections 
which will make it more difficult for harmed parties to obtain 
compensation for their damages:

A. Y2K Class Actions (Title IV)

    Class action procedures offer a valuable mechanism for 
aggregating small claims that otherwise might not warrant 
individual litigation--they provide plaintiffs access to the 
courts in cases where a defendant may have gained a substantial 
benefit through small injuries to a large number of persons. 
H.R. 775 creates an undue burden on class action plaintiffs 
through a number of provisions. First, it requires that 
plaintiffs send direct notice to every class member with a 
return receipt requested, by first class mail. Plaintiffs would 
be automatically excluded from the class unless they 
affirmatively ``opt in'' to the class action in the event that 
receipt of the notice cannot be verified. Under current law, 
plaintiffs are considered members of the class unless they 
affirmatively ``opt out.'' This provision would impede the 
ability of private parties to bring legitimate class actions in 
certain fraud on the market actions, for example, where it is 
impossible to identify, and hence notify, the victims in 
advance. In addition, it imposes significant costs on Y2K class 
action plaintiffs.
    This procedural instruction to state courts could be a 
constitutionally impermissible intrusion on State Governmental 
autonomy. The Department of Justice addressed this 
constitutional argument in its letter of opposition to H.R. 
775:

          [T]hese procedural requirements arguably have no 
        direct connection to the vindication of substantive 
        Federal rights and would accordingly be vulnerable to 
        constitutional challenge on federalism grounds.'' 
        Although the Supreme Court has stated that Congress, in 
        enacting legislation under the Commerce Clause, possess 
        broader power to require action by State courts than to 
        require action by State legislatures or executives, see 
        Printz v. United States, 117 S.Ct. 2365, 2371 (1997), 
        the Court also has endorsed the ``general rule, 
        bottomed deeply in belief in the importance of state 
        control of statue judicial procedure, * * * that 
        federal law takes the state court as it finds them,'' 
        Johnson v. Frankell, 520 U.S. 911, 919 (1997) (internal 
        quotation marks omitted).21
---------------------------------------------------------------------------
    \21\ See Letter from Jon P. Jennings, Acting Assistant Attorney 
General, U.S. Department of Justice Office of Legislative Affairs, to 
the Honorable Henry Hyde, Chairman, House Judiciary Committee 4 (April 
29, 1999) (on file with the minority staff of the House Judiciary 
Committee).

    H.R. 775 also eliminates the complete diversity requirement 
for Y2K class action plaintiffs. Under current law, the federal 
diversity statute mandates, inter alia, that U.S. district 
courts shall have original jurisdiction of all civil actions in 
which the matter in controversy exceeds $75,000 and is between 
citizens of different states.22 This bill, however, 
provides federal court jurisdiction over any Y2K-related class 
action as long as the amount in controversy is greater than the 
sum or value of $1,000,000 (exclusive of interest and costs), 
computed on the basis of all claims to be determined in the 
action. The only exception is for classes where the substantial 
majority of the members are citizens of a single state of which 
the primary defendants are also citizens, and the claims 
asserted will be governed primarily by laws of that state, or 
the primary defendants are governmental entities against whom 
the U.S. district court may be foreclosed from ordering relief.
---------------------------------------------------------------------------
    \22\ 28 U.S.C. Sec. 1332 (a)(1).
---------------------------------------------------------------------------
    Under this provision, nearly all class actions will be 
federalized, resulting in the dismissal of meritorious claims 
that could have been resolved in state courts. In effect, this 
provision will remove class actions involving state law issues 
from state courts--the forum most convenient for victims of 
wrongdoing to litigate and most familiar with the substantive 
law involved--to the federal courts--where the class is less 
likely to be certified and the case will take longer to 
resolve. There is also the overall concern that large numbers 
of plaintiffs will not have redress for their Y2K claims if the 
class action is not certified--it may be too costly for many 
plaintiffs to bring individual actions. Many of these 
unsubstantiated concerns were used by supporters of H.R. 3789 
of the 105th Congress. This class action bill was reported out 
by the Committee during the 105th Congress over the objection 
of most Committee Democrats.

B. Fee Disclosure and Loser Pays (Title V)

    The bill includes a number of procedural restrictions that 
govern the attorney-client relationship, such as the 
requirement that attorneys disclose to their clients the fee 
arrangement up-front, and the requirement that attorneys 
provide a monthly statement to clients regarding the hours and 
fees spent on the case. These procedural requirements could 
prove to be burdensome in practice, and there is no 
demonstrated need in Y2K cases for this form of federal 
regulation. In written testimony submitted to the House 
Judiciary Committee, Assistant Attorney General Eleanor D. 
Acheson of the Department of Justice Office of Policy 
Development noted, ``We are skeptical that there is a need for 
federal micro-management of the attorney-client relationship in 
Y2K cases, particularly when there are already state laws in 
place that require attorneys to disclose fees up front and to 
keep their clients informed.'' 23
---------------------------------------------------------------------------
    \23\ House Judiciary Hearing on H.R. 775, 106th Cong. (1999) 
(Statement of Attorney General Eleanor D. Acheson, U.S. Department of 
Justice, Office of Policy Development at 10).
---------------------------------------------------------------------------
    We also strongly oppose the ``loser pays'' (or ``English 
Rule'') provisions set forth in section 507of the bill. Under 
this section, a litigant would be liable to pay the other side's 
attorneys fees if they rejected a pre-trial settlement offer and 
ultimately secured a less favorable verdict. Although styled as an 
effort to reduce litigation, the provision will operate at a tremendous 
disincentive to small businesses and poor and middle class victims of 
Y2K failures. This is because such small businesses and individuals 
have far less financial resources than large defendant corporations and 
cannot afford the risk of paying a large corporation's legal fees based 
on the outcome of a trial.
    In effect, the possibility of an adverse verdict will deter 
small businesses from pursuing even the most egregious claims 
to court. The provision is so onerous that it would even apply 
to a harmed party that prevails in a Y2K action so long as they 
obtain less than a pre-trial settlement--in this respect it 
could actually operate as a ``winner pays'' provision. This 
would have the perverse effect of rewarding a negligent or 
reckless defendant and punishing an innocent victim. In 
addition, like other proposed federal procedural mandates on 
state courts, this provision raises serious federalism and 
constitutional concerns. 24
---------------------------------------------------------------------------
    \24\ See note 22 supra.
---------------------------------------------------------------------------
    This section represents a failed vestige of the infamous 
``Contract with America'' that was summarily rejected by the 
104th Congress. 25 At that time we noted the irony 
of the fact that a Republican Majority was so eager to embrace 
the so-called ``English rule'' at the same time prominent 
voices in England were calling for the abandonment of the rule. 
For example, the conservative British magazine, The Economist, 
wrote ``only the very wealthy can afford the costs and risks of 
litigation [under the English Rule] which offends one of the 
most basic principles of a free society: equality before the 
law.'' 26 It is also notable that the States have 
not in any significant numbers sought to incorporate the 
English Rule into their own systems.
---------------------------------------------------------------------------
    \25\ See H.R. 988, 104th Cong., 1st Sess., Sec. 2.
    \26\ The Economist, February 6, 1995.
---------------------------------------------------------------------------

C. Consumers are Not Excluded

    Another concern we have with the bill is its failure to 
exclude individual consumers from its restriction. Although the 
legislation carves out ``personal injury'' actions from its 
scope (e.g., for physical injury or pain and suffering), the 
legislation fails to exclude actions by individuals for 
pecuniary losses, such as any harm to their financial affairs 
or loss of their personal computer information resulting from a 
Y2K computer glitch.
    In our view the heart of the Y2K problem is principally an 
issue of business to business litigation. Individual consumers 
do not have the same knowledge or bargaining power in the 
marketplace as businesses that have well established 
relationships with their suppliers to protect themselves by 
individualized contract. This legislation will greatly 
disadvantage consumers who are oftentimes unaware of potential 
Y2K problems and whose only recourse for fair treatment is the 
current civil justice system, particularly the tort system. In 
this regard it is useful to note that the 105th Congress passed 
S. 2392, the ``Year 2000 Information and Readiness Disclosure 
Act.'' 27 That law limits the liability of 
individuals and businesses who act responsibly to share 
information designed to fix Y2K problems. But unlike H.R. 775, 
the new law included a consumer carve-out.
---------------------------------------------------------------------------
    \27\ Pub. Law. 105-271 (October 19, 1998).
---------------------------------------------------------------------------

                    III. A Reasonable Y2K Substitute

    Representative Lofgren lead the effort, with 
Representatives Conyers and Boucher, to craft a substitute that 
incorporates the legitimate needs of the information technology 
community. This narrow substitute, which is substantially 
similar to an amendment offered in the Senate by Senators Kerry 
and Robb, ensures that the Y2K remediation effort goes forward, 
without overreaching. In a recent letter by the Department of 
Justice to Chairman Henry Hyde, the Administration wrote, 
``while the Department has not yet had the opportunity to 
review the precise language of this new amendment, we 
understand that its modifications of State and Federal law 
affecting Y2K claims addresses the majority of our concerns. We 
are told this amendment will be substantially similar to the 
amendment in the Senate by Senators Kerry and Robb, which we 
support.'' 28
---------------------------------------------------------------------------
    \28\ See Letter from Jon P. Jennings, Acting Assistant Attorney 
General, U.S. Department of Justice Office of Legislative Affairs, to 
the Honorable Henry Hyde, Chairman, House Judiciary Committee 5 (April 
29, 1999) (on file with the minority staff of the House Judiciary 
Committee).
---------------------------------------------------------------------------
    The substitute specifically addresses the concerns of the 
information technology community by retaining the provisions 
that encourage remediation and mitigation and deter frivolous 
lawsuit, and properly deals with the problems raised by H.R. 
775. The substitute includes provisions concerning a 90 day 
pre-litigation cooling off period, specifies pleading and 
mitigation requirements in Y2K cases and clarifies applicable 
state contract law. However, it excludes a number of the most 
extreme provisions of H.R. 775. First, and foremost, the 
substitute eliminates entirely the cap on punitive damages and 
the reasonable efforts defense. The substitute also eliminates 
entirely the attorneys fee disclosure requirements and the 
limitation on the liability of directors and officers. And, it 
eliminates the class action section, except for the minimal 
injury requirement that the court must find that the alleged 
defect in the product or service must be a material defect as 
to a majority of the members of the class, which should serve 
to deter frivolous lawsuits.
    In addition, instead of eliminating joint and several 
liability altogether, the substitute provides that the court 
will have equitable discretion to determine whether a 
defendant, that isminimally liable, will be held jointly and 
severally liable. And, in cases where the defendant knowingly intended 
to cause harm, the liability of the defendant is joint and several. 
Under common law, tort feasors who are responsible for an injury are 
jointly and severally liable for all of the claimant's damages. While 
acknowledging that the defendants, not the victims, should bear the 
financial burden if one or more defendants is judgment-proof, this 
provision alleviates the unfairness claimed by some defendants who are 
minimally at fault but are nonetheless included in lawsuits.
    Finally, the substitute only applies to claims for 
commercial loss. Therefore, suits by consumers are not affected 
by this bill. A consumer carve-out will protect consumers in 
these situations by preserving tort and contract remedies 
available under state law for consumers harmed by product or 
system failures.

                               Conclusion

    The high tech community has made it clear that they are 
interested in a bill that specifically addresses liability 
issues that are unique to the Y2K problem. As we understand it, 
they are not interested in a far-reaching tort reform proposal, 
but a narrowly tailored bill, that will address the problem of, 
among other things, frivolous lawsuits. H.R. 775, on the other 
hand, goes well beyond reasonable reform by failing to protect 
consumers, shielding grossly negligent defendants and harming 
innocent plaintiffs. Instead of creating positive incentives to 
fix problems, it creates new reasons to avoid remediation. H.R. 
775 will unnecessary gut the protections of tort law while 
simultaneously failing to address the true concerns of the 
information technology community. For the above reasons, we 
dissent.

                                   John Conyers, Jr.
                                   Howard L. Berman.
                                   Jerrold Nadler.
                                   Melvin L. Watt.
                                   Sheila Jackson Lee.
                                   Maxine Waters.
                                   Marty Meehan.
                                   William D. Delahunt.
                                   Steven R. Rothman.
                                   Tammy Baldwin.
                                   Anthony D. Weiner.

           DISSENTING VIEWS OF HON. ROBERT C. ``BOBBY'' SCOTT

    I concur with the dissenting views of the Minority except 
for the indication that the Substitute offered by 
Representatives Boucher, Conyers, and Lofgren is needed. 
Although the Substitute is better than the base bill, neither 
is better than the existing law. The remedies for breaches of 
contracts, fraud, and tort liability under current laws are 
adequate. Responding to the special interest of powerful groups 
through legislation to meet particular developments only 
invites the politically powerful to seek special dispensation 
through the legislature rather than fight their position out 
through the court processes provided for that purpose. 
Unfortunately, Congress has intervened as a legislative 
alternative to the court of appeals on several occasions in 
recent years. The Morgan case and the airline industry case are 
examples of such intervention where we changed the law after 
events arose.
    I specifically object to the Substitute and the bill with 
regard to the suggestion that the section of the Act pertaining 
to ``joint and several liability'' need to be amended. In the 
normal course of business, businesses have the ability to 
insure against and provide for indemnification against losses 
not properly attributable to them. Consumers are generally not 
able to track down and apportion liability among joint tort 
feasors, particularly when some may no longer be in existence. 
The current law on ``joint and several liability'' properly 
presumes that defendants are in a better position to know their 
level of responsibility and to apportion that responsibility 
among themselves.

                                                       Bobby Scott.

                                

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