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Deal Reached on Bill to Limit Y2K Liability

By Stephen Barr
Washington Post Staff Writer
Wednesday, June 30, 1999; Page A1

After a day of chaotic negotiations, the White House and Congress struck a deal yesterday on legislation that would limit lawsuits against businesses in the event of Year 2000 computer breakdowns.

The legislation would give companies as long as 90 days to fix any problems before a lawsuit could be brought, place limits on punitive damages, create a formula for assessing blame and require that large class action suits be tried in federal rather than state courts.

Bill supporters argued that computer companies and other high-tech firms could face financial catastrophe without legal protections. For Congress, the liability limits emerged as the leading political response to the Year 2000 computer problem, known as Y2K. Lawmakers of both parties wanted to do something, even though the problem's scope remains unknown and the bill does not force companies to fix computers.

Opponents, including the trial lawyers lobby and consumer advocacy groups, contended that the bill's restrictions would make it difficult for consumers to recover economic losses and could provide a significant precedent for legislation to thwart consumers in general product liability cases.

Some opponents expressed disappointment in President Clinton, who has signaled in recent days that he wants to work with Congress on a number of budget and health issues. "This is a closed-door deal that will hurt consumers. Maybe we can dare hope that this will be the last case of triangulation of the 20th century," said Sen. Patrick J. Leahy (D-Vt.), a critic of the Y2K liability curbs.

But the bill's chief sponsor, Sen. John McCain (R-Ariz.), said "There was a realization on both sides of the issue that this legislation is critical to the future of American business, and if it wasn't passed and signed into law in a timely fashion, . . . lawsuits could cripple the economy."

Supporters predicted the compromise measure will move quickly through the House and Senate. A letter signed by White House Chief of Staff John Podesta said Clinton would sign the bill if it reflected the agreement reached in the negotiations.

For weeks, bills limiting Y2K liability seemed unlikely to survive. The House had passed a strong protection measure, whereas the Senate produced a narrower version. The White House objected to both bills and issued at least five veto threats.

But a powerful industry coalition, which included the major software and hardware manufacturers, kept up the pressure for a deal. Presidential campaign politics came into play, with some industry lobbyists and congressional Republicans arguing that Vice President Gore needed to choose between the interests of the trial lawyers lobby, a traditional Democratic Party supporter, and Silicon Valley.

The pivotal moment in the deal-making apparently came at about 2 a.m. yesterday, when Sen. Christopher J. Dodd (D-Conn.), in a telephone call from his home, lobbied Clinton to support a compromise. The call followed up a talk between Dodd and Clinton during the president's visit to Westport, Conn., on Monday for a Democratic National Committee luncheon.

Dodd and Sen. Ron Wyden (D-Ore.), working with McCain, worked out the details for a compromise, with Wyden giving a midnight briefing to a top Gore aide.

Dodd said Clinton wanted to ensure that only large class action suits would be moved to federal courts, which critics argue give defendants more favorable forums and where consumers would face more delays. Wyden said Gore "wanted the narrowest of features."

Yesterday afternoon, the White House sent Dodd a letter endorsing the compromise proposal and McCain, Dodd and Wyden announced the deal at a hurried press conference at the Capitol. They were joined by Reps. Thomas M. Davis III (R-Va.) and Robert W. Goodlatte (R-Va.), two of the leading House negotiators, and others.

The Y2K problem stems from the use in many computers of two-digit date fields, which could lead the computers to interpret "00" as 1900, not 2000. That confusion could lead to malfunctions in computers and embedded chips, according to experts.

The compromise bill, according to congressional aides, would:

Create a "proportionate liability" formula for assessing blame, so companies would be penalized only for their share of any Y2K damage. In some cases, however, the amount of liability could be doubled or tripled, depending on such factors as fraud and whether all the defendants could be found or were solvent. The formula would "make whole" individual consumers even if one of the defendants went bankrupt.

Send class action cases to federal courts if they involved $10 million in claims or 100 or more plaintiffs.

Cap punitive damages at $250,000 or three times the amount of compensatory damages, whichever is less, for individuals with a net worth of up to $500,000 and for companies with fewer than 50 employees.

The trial lawyers lobby, which has fought the liability limits, took some comfort in the modifications and in a sunset requirement for the law. "It is positive that this unique response to a unique situation will be law for only three years," said Mark S. Mandell, president of the Association of Trial Lawyers of America.

Consumers Union offered a harsher assessment: "The White House failed to stand up to fully protect consumers who, through no fault of their own, could be injured by Y2K failures."

© 1999 The Washington Post Company

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