State Governments Move To Limit Year 2000 Liability

Washington Technology Online
Infotech and the Law David M. Nadler

State Governments Move To Limit Year 2000 Liability

Like corporate America and the federal government, state governments are confronting the significant challenges and immutable deadline of the year 2000.

And like their corporate and federal counterparts, so too are the states highly dependent upon computer systems to conduct business operations and provide essential services to their citizens.

The implications to the states of computer malfunctions could be profound - everything from pension plans to health services to tax collection are at risk. States are thus rightly concerned about the avalanche of litigation they could face if their computer systems are compromised by year 2000 problems.

As a result, some states are looking to their legislatures to limit their potential liability for damages caused by year 2000 problems. Several states are seeking to avoid year 2000 litigation through legislative grants of immunity.

For instance, Nevada recently enacted a law immunizing it from damages caused by a state computer or other information system that converts dates incorrectly. The provision precludes any cause of action, including, without limitation, any civil action or action for declaratory or injunctive relief resulting from incorrect year 2000 date conversions, regardless of the cause of the error.

Virginia has introduced a bill that follows the Nevada model and proposes to exempt the state from claims grounded on the calculation or generation of an incorrect date by a state-operated or owned computer system. Similar bills are in various stages of the legislative process in other states, including California, Florida, Georgia, Hawaii, Indiana, South Carolina and Washington.

Legislative efforts to grant immunity from year 2000 problems also extend to the computer industry. In California, a bill has been introduced that proposes that damages against computer companies that result from the year 2000 problem be limited to those ending in bodily injury and reasonably incurred reprogramming and testing costs.

The stated intent of the bill is to foster the state's high technology industry by offering protection from large court judgments.

While measures to limit legal liability may appear self-serving, they raise important policy issues. President Clinton has called the computer industry the engine for the country's economic growth and noted it has contributed significantly to the nation's current wave of prosperity.

The recent congressional hearings about Microsoft Corp. showcased the software industry as integral to the nation's economic prominence in the global market. Thus, a compelling argument can be made that the national interest would be better served by allowing computer companies to focus their efforts on product development and innovation rather than fending off litigation.

Similarly, the states will argue that their limited resources should be devoted to providing government services and that a flood of litigation would cripple their operations and burden the taxpayers.

The problem with these initiatives, however, is that they are too broad and leave genuinely injured parties with little recourse against the state. Indeed, most of the state bills provide immunity for virtually every legal theory - contract, tort and civil rights - regardless of the cause of a computer failure.

Most important, these bills remove accountability for year 2000 failures and reduce the economic incentive to address the problem in a proactive fashion.

The concern is that these measures would provide a safe haven for states regardless of whether year 2000 damages resulted from their negligence in failing to address the problem timely or properly. It's an unfortunate reality that the threat of litigation and huge monetary awards is required to motivate states and corporations alike to spend the time and money necessary to correct the problem.

In a different attempt to shift liability for year 2000 costs, North Carolina has raised the specter of class-action lawsuits by state governments. North Carolina officials are considering suing the computer industry to recoup the roughly $132 million the state is expected to spend on correcting its computer systems.

Florida and Washington also are reviewing their contracts with computer vendors to determine potential recoveries.

States last banded together to bring a case against the tobacco industry. That action led to the massive tobacco settlement proposal now before members of Congress. What worked in the tobacco litigation, however, may not work against the computer industry.

The difficult issue here is determining whether computer companies sold products they knew would fail and, if so, when they possessed that knowledge.

David M. Nadler is a partner in the Washington, D.C., law firm of Dickstein Shapiro Morin & Oshinsky LLP. He is chairman of the firm's Year 2000 Practice Group. He may be contacted at NadlerD@dsmo.com.


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