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New Y2K laws protect states

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March 25, 1999
Web posted at: 11:39 a.m. EST (1639 GMT)

by Kathleen Ohlson

(IDG) -- Seven states have passed legislation to protect themselves from most year 2000-related lawsuits, and several other states are following with proposed laws of their own. And depending on the state in question, corporate America may feel more than a pinch.

The liability legislation is meant to protect states from becoming bogged down with nuisance lawsuits if things go wrong when the clock strikes midnight on Dec. 31, 1999. Proponents say the laws are necessary to protect the states - and in the end, taxpayers - from frivolous lawsuits.

But opponents question whether the laws will mean that businesses that rely on the states for revenue, as well as individual consumers, have little, if any, legal recourse in the year 2000 aftermath.

Each bill is different in how it protects the consumer, corporations and the state, said Kazim Isfahani, an analyst at Giga Information Group in Norwell, Mass. Most states already have laws to shield themselves from getting sued for almost any reason, he said.

Under most of the millennium bug bills, if a vendor under contract with the state fails with year 2000 compliance, then the state can hold it responsible, he said. Most states now have a warranty to ensure year 2000 compliance.

On the other hand, individual companies may have little legal backup if they try to sue the state. If a supplier of goods, for example, has a state as its main customer and that state's computers fail and the supplier doesn't get paid for some amount of time, the supplier may have little legal recourse.

If some company is put out of business as a result of a state's year 2000 problems, that company will be "very upset when they try to sue," said William McGrath, a lawyer at Davis, Mannix, McGrath and a professor at the John Marshall Law School, both in Chicago. Either the lawsuit won't be filed because the state may claim sovereign immunity or damages will be capped, McGrath added.

Nevada - the first state to pass this kind of legislation in 1997 - was justified in protecting itself and the state's taxpayers, said Deputy Attorney Randal Munn. "The problem was not created by the state, and the taxpayers shouldn't be held responsible," Munn said.

The problem was created by the computer industry, he said, and taxpayers are already forking over money to fix the states' computer systems the first time around. So there's no reason to hit the taxpayers with additional lawsuit-related expenses, he added. Nevada is making a "good faith" effort to fix the problem, Munn said.

Still, immunity-law opponents suggest these actions will have grievous results, leaving consumers with little power to protect themselves. "Why take the pressure off" the states when they're "supposed to feel under the gun," said James Love, director of Ralph Nader's Consumer Project on Technology in Washington. The states are "taking away the right to sue" and will be immune from the consequences, he said.

While industry watchers figure out the possible aftermath of these actions, the states are taking action. California, Florida, Georgia, Hawaii, South Dakota and Virginia - in addition to Nevada - have passed legislation against liability resulting from year 2000 problems if entities have made a "good faith effort" to fix them. Entities include state and local governments, subdivisions or agencies.

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Meanwhile, some 30 states and the District of Columbia have all introduced legislation for this calendar year to protect employees, and in some cases, subdivisions and contractors, from liability surrounding year 2000 errors. The states include Alaska, Arizona, Connecticut, Florida, Idaho, Indiana, Iowa, Maryland, Massachusetts, Minnesota, Mississippi, Montana, Nebraska, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Vermont, Virginia, Washington, Wisconsin and Wyoming.

In the remaining months of 1999, even more of these bills will be pushed through, observers agreed.

The issue of state immunity to year 2000 errors is generating a swell of controversy. "What incentive will [states] have to make sure systems are compliant?" McGrath said. "And how can a person be protected if someone has acted irresponsibly?"

However, he sees both sides of the issue. In defense of the states, "if you accept the concept of sovereign immunity as a valid doctrine, it's a reasonable exercise" for them to pass limited liability, McGrath said. "States aren't like a business; they don't sell software."

The states are afraid the "lawyers will get in there and start feathering their pockets," said Tom Oleson, an analyst at International Data Corp. in Framingham, Mass. The states don't want lawyers "picking their pockets over suits with minor merit at best," he added.

And on a practical level, even if someone wanted to challenge a state, it would take two to three years to get to court. By then, the problem would have been fixed, Oleson said.

One industry watcher said the effort going into passing the immunity laws is misplaced. Isfahani suggested that the states put more resources into fixing the technological problem than in trying to legislate protection. Year 2000 is "purely a technological issue, [and] immunity legislation isn't the way to go," he said. One suggestion is to offer tax relief to businesses and individuals that are trying to fix the millennium bug.

Love said the states' decision to pass immunity legislation is the "worst thing they can do." The year 2000 problem has been known for years, and if they anticipate problems and they're too lazy to fix them, then "that's wrong," he said.

The loser in the end may be the consumer, and some may be left "high and dry, depending on [how] ambiguous the immunity liability is written," Love said. If people face damages to their livelihood or health, and they didn't plan ahead, then "they're stuck with the losses," he said.

But Munn disagreed, saying if a plaintiff's suit has merit, then the law can be challenged. Regardless of the states' efforts to protect themselves, "like anything else, there will be some amount of frivolous lawsuits related to the year 2000," McGrath said. "This is America. Why expect anything different?"