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Litigating
Year 2000 Cases*
YEAR 2000 FAILURES AND LITIGATION FORMS
* The following are excerpts from West Group's new treatise Litigating Year 2000 Cases. To learn more about Litigating Year 2000 Cases call 1-800-344-5008 or visit West Group's online store at http://www.westgroup.com/products/store/. Copyright © 2000 West Group. All rights reserved.
Actual Y2K Failures The world is facing the aftermath of a programming method that was formerly regarded as a shortcut, but which is now regarded as an oversight. The Year 2000 Problem has already begun to cause computer system and embedded chip failures around the world. Following is a list of actual, unexpected Y2K failures that resulted from an improper date rollover into the next millennium. The following failures were not the result of Y2K testing, which has caused a number of other failures that were not unexpected. – Australia: Defibrillators and patient monitors experienced date-related problems on January 1, 1999. No serious injuries were reported, but such failures may affect automated patient dosages. – Australia: A major grocery store food supplier first experienced a Y2K failure in September of 1997, when products with shelf lives that ended after 1999 were entered into its computer system. The system periodically crashed thereafter. It was estimated that grocery stores would run out of food in two to three days, if such systems failed irreparably. – California: On April 1, 1999, a small business accounting package crashed, forcing a small business owner to manually reenter all data into a new Y2K compliant package, causing a significant delay in billings. – California: On August 22, 1999, a boater became disoriented when his global positioning system failed due to the week 1,024 GPS rollover problem, which is similar to, but not a result of, the Y2K problem. – California: On January 1, 1999, e-mails were improperly date-stamped 80 years earlier. – Canada: On April, 1999, a Y2K computer error in Ottawa City Hall’s systems caused the taxes of 2,700 residents to be automatically taken out of their bank accounts, without advance notice. – District of Columbia: A noncompliant computer system in one of the District's busiest hospitals caused data in patient files to be purged or distorted, and prevented new doctors from being issued passwords that were set to expire in the year 2000. – District of Columbia: The Washington Post was unable to accept one-year subscription renewals on May 31, 1999, because their accounting system was noncompliant. – England: An insurance company inadvertently sent out notices to its policyholders that their new policies would be valid from the years 1999 to 1900. – England: Supermarket scanners have begun to reject "use by" bar code dates that indicate the year 2000. – Japan: On August 22, 1999, 2,000 cars' navigation systems went blank or displayed bizarre characters when they experienced the GPS rollover problem. Fortunately, no major problems were reported. – Maine: In 1995 a Portland insurance company's list of brokers with whom it does business was destroyed as a result of the Y2K problem. – Michigan: A computerized point-of-sale cash register system crashed in 1997 whenever credits cards containing expiration dates after 1999 were processed, repeatedly preventing a produce store from completing sales. – Michigan: Amway Corporation's computers that track the expiration dates of chemicals that the company mixes rejected a series of chemical batches, because their expiration dates were erroneously interpreted to be in the year 1900. – Missouri: The Missouri Secretary of State's U.C.C. lien computer system inadvertently deleted liens that were set to expire after 1999. – Missouri: On February 29, 1996, the employees at a college were locked out by a magnetic card security system that was unable to recognize that day as a leap year. Although this is not a true Y2K problem, it forebodes of similar problems that will be encountered if systems do fully not recognize the year 2000 as a leap year. – New York: A commodities broker was unable to schedule payments in the year 2000. – New York: A new card access security system crashed on January 1, 1999, locking employees of an insurance company out of their offices. – New Zealand: On December 31, 1996, the production facility at a smelting plant shut down, because the system was unable to recognize that 1996 was a leap year. The molten metal congealed, causing $1 million in damages. – New Zealand: On January 1, 1997, a law enforcement computer system that controls criminal records, driver’s licenses, vehicle registrations and more, would not let the police set court dates two years in advance. – Oregon: On October 1, 1998, the state's office of risk management ran a report regarding self-insurance reserves. The program generated gibberish as a result of the Y2K problem. – Oregon: In April of 1999 a printing company's computer system erased all of its billing data for the past year allegedly due to the Year 2000 problem. It took one month to re-enter the data, because the company had no backup system. – Oregon: In November of 1998 a county's budgeting system rejected data that contained the year 2000, causing the system to malfunction for three days. – Oregon: Some debit cards with expiration dates after 1999 have become unusable at some gas stations. – Outer Space: Although not a result of the Y2K problem, the Mars Climate Orbiter unmanned spacecraft, which was designed to orbit the red planet and to enable NASA communications with future Mars landers, disintegrated upon entry to the Mars atmosphere due to human programming errors that parallel Y2K programming errors. The orbiter entered the planet's atmosphere much lower than expected, because one group of scientists used the metric system in programming the craft's trajectory, and another group of scientists used the English system, known as "avoirdupois". – Pennsylvania: In the mid-1980s the Philadelphia police department's computer system, which automatically deletes parolee's records after their parole has ended, erroneously deleted the records of parolees who were give 20-year parole terms, because it appeared to the computer that the parole terms had ended decades earlier. – Pennsylvania: In the 1970s a Philadelphia mortgage company's computers incorrectly calculated negative balances on newly-issued 30-year mortgages. – Pennsylvania: Although this list contains primarily unplanned Y2K failures that occurred during normal operation, and it does not cover Y2K tests that ran afoul, there is one Y2K test that is worthy of mention. On February 8, 1999, while performing testing for a Y2K remediation modification to a nuclear generation unit at the Peach Bottom facility, operators experienced a lock-up of both the primary and backup plant monitoring system computers for seven hours. Those computers controlled a safety parameter display, emergency response data, and a 3D Monicore thermal limit monitoring system, which collectively monitor the position of control rods that regulate the nuclear reaction inside of the core. Loss of such monitoring capability is like driving a car without looking where you are going. – Swaziland: During March of 1999, those who attempted to renew their driver’s license for the period beginning April 1, 1999, and ending March 31, 2000, were told that the Motor Vehicles Office’s computers would be unable to handle the date change from 1999 to 2000. – Sweden: Immigration authorities were unable to issue visas on December 31, 1998, because the system could not recognize expiration dates in 1999. – United States, nationwide: A computer system that manages drug benefits for 3.7 million federal employees crashed on January 1, 1999, causing almost 100,000 prescriptions to be rejected until it was fixed 20 hours later. – United States, nationwide: During January of 1999, state government computers were unable to sign people up for unemployment benefits using standard forms, which set the date one year ahead for the expiration of benefits. – United States, nationwide: A recent survey of 110 major U.S. corporations and 12 government agencies indicates that five percent have already suffered a Year 2000-related failure. – Washington: In 1993 Boeing experienced error messages when using parts ordering software that plans seven years in advance. – Worldwide: On January 1, 1999, nearly 40,000 Hewlett-Packard external defibrillators and more than 2,000 Invivo Research Millennia 3500 multi-parameter patient monitors displayed the wrong time and date at the beginning of the New Year of 1999.
Reported Y2K-related failures will soon be innumerable, and there are many more failures that simply go unreported. There are millions of computers and billions of embedded systems in the United States alone. Many will fail due to the Y2K problem, but the exact number is unknown. Thus, the Y2K problem will continue to cause individuals to suffer bodily harm and corporate entities to incur property damage. Litigation will also continue to erupt, and claims will be litigated for the better part of a decade until they are fully resolved. Plaintiffs will continue to file contract and tort claims against developers, manufacturers, vendors and others in the supply chain, in order to recoup their damages. In addition, investors will sue corporations for failing to disclose noncompliance and failing to use due care in remediating noncompliance. Finally, vendors of noncompliant systems and companies that have expended significant remediation costs will continue to be forced to pursue litigation, in order to obtain coverage from their insurance carriers. Following are sample pleading, discovery and trial forms that will be used in the course such Y2K litigation. Motion to Dismiss For Failure To Comply With Y2K Act Pleading Requirements This form is a defendant’s motion to dismiss a plaintiff’s complaint for failing to comply with the heightened pleading requirements imposed by the Y2K Act. In addition to the applicable rules of civil procedure, the plaintiff in a Y2K action must also comply with the pleading requirements of the Y2K Act with respect to damages, materiality, and scienter. See Y2K Act, §§ 8(a)-(d). Failure to comply subjects the complaint to dismissal.
FORM Motion to Dismiss For Failure To Comply With Y2K Act Pleading Requirements
UNITED STATES DISTRICT COURT ______ DISTRICT OF ______
[Title of Action] Case No. ______ [Defendant Company’s] MOTION TO DISMISS THE COMPLAINT FOR FAILURE TO COMPLY WITH THE PLEADING REQUIREMENTS OF THE Y2K ACT
[Defendant Company], by its attorneys, [Attorneys], respectfully requests that this Court issue an Order dismissing [Plaintiff Company’s] Complaint on the grounds that Plaintiff has failed to comply with the Pleading Requirements of Section 8 of the Year 2000 Readiness and Responsibility Act, 15 U.S.C. §§ 6601, et seq. (1999) (the "Y2K Act" or the "Act"). By failing to plead specific information as to the nature and amount of each element of damages and the factual basis for the damages calculation, and failing to properly allege the materiality of any alleged defects in [product], Plaintiff’s Complaint fails as a matter of law and must be dismissed. See Y2K, §§ 8(b) and (e). Moreover, Plaintiff has failed to allege facts giving rise to a "strong inference" that [Defendant Company] acted with the requisite state of mind to support its fraud claim. See Y2K Act, § 8(d). For this reason as well, the Complaint must be dismissed. BACKGROUND [Defendant Company] is a [location]-based software developer that manufactures and markets [product]. On or about [date], Plaintiff purchased a license to use [product]. Plaintiff now claims that [product] is not Year 2000 compliant, i.e., that [product] is unable to recognize and process certain dates in 1999 and after December 31, 1999, and will read dates in the year 2000 and thereafter as if those dates represent the year 1900 or thereafter, or will fail to process those dates, thereby affecting the operation of [product]. Plaintiff filed its Complaint in this action on [date] alleging various contractual and tort-based causes of action, and seeking to recover damages from [Defendant Company] based on the alleged Year 2000 defect in [product]. Plaintiff’s Complaint, however, fails to satisfy the pleading requirements of Section 8 of the Y2K Act, and thus must be dismissed. ARGUMENT I.
Plaintiff has failed to plead its allegations of damage with the
requisite specificity. Similarly, Plaintiff’s allegations of "lost business" in ¶ [ ] of its Complaint also fails to satisfy the pleading requirements of Section 8 of the Y2K Act. Plaintiff has summarily asserted that "Plaintiff . . . has been forced to turn away business that it would have kept had [product] been Y2K compliant" and that "competitors of Plaintiff . . . are using [Defendant Company’s] failure to be Year 2000 compliant as a marketing device to take business away from Plaintiff." Compl. ¶ [ ]. Such conclusory allegations, without more, do not satisfy the Y2K Act’s requirement of "specific information as to the nature and amount of each element of damages and the factual basis for the damages calculation." Accordingly, Plaintiff’s conclusory allegations that it has been damaged, without more, fail to meet the Y2K Act’s specific pleading requirements, and thus the Complaint must be dismissed. II.
Plaintiff has failed to properly allege the materiality of any
purported defects in [product]. In its Complaint, Plaintiff asserts that [product] has a "material defect" because it is not Year 2000 compliant. Indeed, Plaintiff simply alleges that "this defect is material because, as a result thereof, the [product] will not function in the Year 2000 and beyond." Compl. ¶ [ ]. This allegation alone is not sufficient to meet the pleading requirements of the Act. Rather, a plaintiff is required to allege specific facts "supporting a conclusion that the defects are material." See Y2K Act, § 8(c). Because Plaintiff has failed to plead facts supporting its allegation that the defects are material, Plaintiff’s Complaint must be dismissed. III.
Plaintiff’s fraud claim must be dismissed, because Plaintiff
has failed to allege facts giving rise to a "strong inference"
that [Defendant Company] acted with the requisite state of mind.
Plaintiff’s fraud claim falls squarely within Section 8(d) because, in order to succeed on its claim, Plaintiff must prove that [Defendant Company’s] alleged misrepresentations or omissions were made with the intent to deceive. See, e.g., Turner v. Johnson & Johnson, 809 F.2d 90, 95 (1st Cir. 1986). Therefore, the Y2K Act requires a statement of facts "giving rise to a strong inference" that [Defendant Company] acted with the requisite state of mind, i.e., with intent to defraud. Plaintiff has failed to meet this burden, as nothing in the Complaint even arguably gives rise to a "strong inference" of intent to defraud. Indeed, the Plaintiff has merely alleged that "fraudulent intent . . . can be inferred . . . from the facts demonstrating that [Defendant Company] continued its [product] marketing campaign and continued to sell [product] with full knowledge that [product] would be obsolete before the Year 2000." Compl. ¶ [ ]. These conclusory allegations, however, without any factual support, do not meet the pleading requirements of Fed. R. Civ. P. 9(b), and fall far short of giving rise to a "strong inference" of fraudulent intent as required under Section 8(d) of the Y2K Act. See, e.g., Greenstone v. Cambex Corp., 975 F.2d 22, 25 (1st Cir. 1992) (Breyer, C.J.) ("The courts have uniformly held inadequate a complaint’s general averment of the defendant’s ‘knowledge’ of material falsity, unless the complaint also sets forth specific facts that make it reasonable to believe that defendant knew that a statement was materially false or misleading.") (citations omitted). Plaintiff’s Complaint is devoid of any facts giving rise to a "strong inference" that [Defendant Company] acted with the intent to deceive. Thus, Plaintiff’s fraud claim must be dismissed. CONCLUSION Plaintiff has failed to meet the pleading requirements of the Y2K Act by failing to properly plead materiality, damages, and facts supporting its fraud claim. For these and all of the foregoing reasons, [Defendant Company] respectfully requests that this Court dismiss the Complaint. [Date] Respectfully submitted, [Defendant Company], By its attorneys,
______________________________ [Attorneys]
Y2K Expert Witness Report The form of this report may be shorter, if it is intended merely to indicate the areas of testimony to be covered by the expert. Alternatively, the form of this report may be longer, if it is intended to substitute for the expert's direct testimony. FORM Y2K Expert Witness Report February 1, 1999 Steven C. Bennett Jones, Day, Reavis & Pogue 599 Lexington Avenue New York, New York 10022 Re: ABC Mortgage Co. v. XYZ Financial Software, Inc. Dear Mr. Bennett: This constitutes my expert report in connection with the above-referenced action. Area of Expertise I am an expert in computer system design. I have been involved in the computer industry for more than twenty-five years. B.A., 1969, Ivy League College; Ph.D., 1974, Really Big University. Materials Reviewed In connection with this opinion, I have reviewed, pleadings, depositions and documents exchanged between the parties. Where appropriate, I have also asked direct questions of employees of ABC Mortgage Co. ("ABC"). Background In 1989, ABC embarked on a program to upgrade its computer systems and software for the processing of mortgage applications, payment and collection records and other financial information. ABC's purchasing and information technology departments issued a request for proposals ("RFP") concerning the new system. The RFP and accompanying description of ABC's operations made clear that the new system would be a core part of ABC's mission critical financial operations. Although the RFP did not state a specific period during which it was contemplated that the system would operate, ABC's prior system had been in use for more than fifteen years. After a sealed bidding process, XYZ Financial Software, Inc. ("XYZ") was awarded a contract, worth more than $3.1 million, to install ABC's new computer system, and to train ABC employees on the use of the system. The "Mortgage Calculator" system that XYZ installed, moreover, was customized to ABC's needs. As part of the contract for installation of the system, XYZ designed specialty programs, after consultation with ABC's information technology managers. XYZ also provided "trouble-shooting" personnel, to aid in resolution of problems involved in installation of the system, which was completed in July 1991. Over the course of the next five years, XYZ sold ABC various additional items of software for use on the system. In early 1997, ABC's Chief Information Officer inquired of XYZ's principal sales representative whether XYZ could certify that the system was Year 2000 compliant. ABC indicated that it was engaged in a study of similar systems, and that it could not certify that the system was Year 2000 compliant. Shortly thereafter, ABC discovered that the system, as operated, had produced anomalous results in certain functions (such as calculations of future borrower payments post January 1, 2000). As a result, ABC conducted its own study of the system. ABC determined that the Year 2000 problem was inherent in the system, and would require a substantial effort, both to rehabilitate the system and to convert errors in data produced by the system. ABC demanded that XYZ pay for the cost of these repairs. After substantial correspondence between business and legal personnel for the companies, ABC filed this action. Opinion 1. The Defect: The XYZ system, as designed and delivered in 1989-1991, was defective. In essence, because the system used a two-digit format to represent years, the system is incapable of telling the difference between "1900" and "2000." As a result, the system can produce significantly anomalous calculations. For example, a fixed-term 30 year mortgage made today would extend until the year 2029. If "29" is entered into the system, however, the current date ("99") would be subtracted to calculate the erroneous term of -70 years. The system would erroneously convert the negative number into a positive term of 70 years for the mortgage. This Year 2000 defect could have been corrected at the time that the system was installed. As of 1991, there were a number of computing systems that could have performed the functions provided in the XYZ system, without the accompanying Year 2000 problem. The cost of these systems was not significantly different from the cost of the XYZ system. 2. Predictable Use Of The System: A system of the size, complexity and cost of the system installed by XYZ at the ABC facilities is not a disposable system. A manufacturer of such a system could reasonably anticipate that such a system would be in use for at least ten years. Indeed, XYZ had every reason to believe that ABC would use the system into the twenty-first century. ABC had used its previous system for more than fifteen years. ABC asked XYZ to customize the system to its needs. XYZ, moreover, sold ABC a series of additional programs, over the course of five years, all of which were compatible with, rather than replacements for, the initial system. Conclusion In my opinion, the system that XYZ sold to ABC was defective, and XYZ should have anticipated that if it did not correct the defect ABC would incur the cost of repairing the system so that it could continue in use into the new millennium. Very truly yours, Prof. Billy Gates, Jr.
Motion in Limine This motion in limine is based upon the provisions of the Year 2000 Information and Readiness Disclosure Act. It is not the only possible motion in limine in Year 2000 litigation. Be aware of the law in your jurisdiction concerning the need, at the time evidence is proffered, to re-raise your objection to such evidence in order to preserve your right to an appeal if your motion is denied, if you seek to introduce the evidence later at trial, or if you have unsuccessfully opposed a motion in limine. UNITED
STATES DISTRICT COURT
I. INTRODUCTION Plaintiff seeks to introduce a document entitled "SDI's Year 2000 Product Compliance Status List" prepared by Defendant Software Development, Inc. ("SDI"). The document is not admissible. Congress specifically precluded introduction of such evidence by enacting the Year 2000 Information and Readiness Disclosure Act, 15 U.S.C. § 1 {Note} (1998). II. RELEVANT FACTS Plaintiff has named as an exhibit a document entitled "SDI's Year 2000 Product Compliance Status List." This document was posted August 12, 1998, on SDI's Year 2000 Internet website as a means of identifying which SDI software needed modifications to assure proper functioning into the 21st Century. Plaintiff seeks to introduce this document to buttress its claims that BetterBookkeeping was not designed to be capable of processing information that includes dates after December 31, 1999. The Year 2000 Information and Readiness Disclosure Act, 15 U.S.C. § 1 {Note} (1998) (the "Year 2000 Disclosure Act" or the "Act") bars from introducing the document to prove the truth of any statement in the document, or to prove that the statements were false or misleading. III. ARGUMENT A. YEAR 2000 DISCLOSURES MAY NOT BE INTRODUCED TO PROVE THE TRUTH OF THE STATEMENTS THEREIN The Court should order that this document be excluded. The Year 2000 Disclosure Act was enacted to prevent the admission of precisely this sort of evidence. Congress recognized the need for legislation to encourage free exchange of information to mitigate computer software problems related to the inability of some software to process dates after December 31, 1999 (the "Year 2000 problem"). See Preamble, Year 2000 Information and Readiness Disclosure Act, 15 U.S.C. § 1 {Note} (1998) (stating as purpose: "To encourage the disclosure and exchange of information about computer processing problems, solutions, test practices and test results, and related matters in connection with the transition to the year 2000."). The Year 2000 Disclosure Act makes inadmissible any year 2000 "readiness disclosure" to prove "the accuracy or truth of any year 2000 statement set forth in it." Id. at § 4(a). A "year 2000 statement" is defined to include a "communication . . . to the public . . . concerning an assessment, projection, or estimate concerning year 2000 processing capabilities of [a] . . . product." Id. at § 3(11). A "year 2000 readiness disclosure" is a written year 2000 statement "clearly identified on its face as a year 2000 readiness disclosure." Id. at § 3(9). The Act provides that a year 2000 statement made after January 1, 1996, and before October 19, 1998 (the date of enactment), may be designated a year 2000 readiness disclosure if "within 45 days after the date of enactment of this Act" the entity seeking such designation "prominently posts notice" stating the designation. Id. at § 7(b). SDI first published its year 2000 statement, entitled "SDI's Year 2000 Product Compliance Status List," on August 12, 1998. This statement was posted on SDI's year 2000 website. On November 8, 1998, twenty days after enactment of the Act, SDI amended the document to include the following: "This notice is a Year 2000 Readiness Disclosure, as that term is defined in the Year 2000 Readiness and Disclosure Act, Pub. L. No. 105-271, 12 Stat. 2386, which was signed into law on October 19, 1998 by President Clinton." Although the Act provides a mechanism whereby a party may object to such designation within 180 days after the date of enactment of the Act, see § 7(c)(2), plaintiff made no such objection. [INSERT REMAINDER OF ARGUMENT] IV. CONCLUSION For the foregoing reasons, SDI respectfully asks the Court to exclude the document entitled "SDI's Year 2000 Product Compliance Status List," which has been listed as Exhibit 1 in Plaintiff's Pretrial Statement.
DATED this _______ day of _______________, _____. [LAW FIRM NAME]
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