Y2K may lead to why not sue

Already nearly 90 Y2K lawsuits have been filed, many of those by companies and individuals accusing software companies of breach of contract. There are another potential 791 cases.

By EVE TAHMINCIOGLU

© St. Petersburg Times, published May 2, 1999

A bug that costs billions Coaxing computers to comply with 2000 For economy, Y2K bug is contagious As Y2K work wanes, companies search for new niches Buy a bug Preparedness progress report Their Y2K motto: Be prepared Calm, not calamity, in local forecast for Y2K Firms say they're prepared for Y2K

Software programers saving some bytes of code may have created the year 2000 computer problem, but lawyers are trying to spin it into gold.

Lawsuits are expected to flood the courts as companies and consumers attempt to pin the blame for computer software that won't work right when the calendar flips to 2000.

"The bug finally provides lawyers the opportunity to rule the world," Evelyn Ashley, a lawyer in Atlanta, told the American Bar Association's annual convention in Toronto last summer.

Although Ashley now says her widely quoted remark was intended as a joke, it rang true for those predicting an array of Y2K-based lawsuits:

Investors suing company officers if profits fall because company officials were ill-prepared for the bug. Patients and their families taking hospitals to court because medical equipment malfunctions cause injuries or death. Consumers and companies going after software firms because costly packages were never upgraded.

Y2K may lead to more than a trillion dollars in litigation claims in the years ahead, according to the GartnerGroup, a computer consulting firm in Stamford, Conn.

"There are those in our society who are planning to exploit it," Thomas J. Donohue, president of the U.S. Chamber of Commerce, said at a House Science Subcommittee hearing in March. "Unless steps are taken soon, we could experience an explosion in litigation."

The steps urged by Donohue include action by Congress to curb liability claims over Y2K problems, and several bills are pending in Washington.

But the litigants aren't waiting. Already nearly 90 Y2K lawsuits have been filed, many of those by companies and individuals accusing software companies of breach of contract, the GartnerGroup found. There are also 791 potential cases being negotiated by attorneys that could end up in the courts, said Heather Raymond, a research analyst for the firm.

One of the best-known examples so far was a series of class-action lawsuits brought early last year against Intuit for its Quicken personal finance software. The plaintiffs claimed Intuit sold them a defective product because it was not Y2K-compliant. Intuit said it planned free upgrades.

The suits ultimately were dismissed. "Basically the judge said come back and refile in 2000 if you have a version of Quicken that doesn't work," said Bruce Webster, author of The Y2K Survival Guide.

Y2K litigation has already hit home in the Tampa Bay area.

Medical Manager Corp., a medical software company in Tampa, faces a shareholder lawsuit contending it failed to disclose its Y2K problems.

The suit, filed in U.S. District Court in Tampa in October, stemmed from a drop in the company's stock after seven class-action suits were filed against Medical Manager in five states, including Florida. Those lawsuits were brought in June 1998 by doctors who bought the company's billing software and claimed the product could not recognize dates in 2000. Those suits were settled in December after Medical Manager was forced to spring for an estimated $30-million in software upgrades, $800,000 in attorneys fees and $610,000 to be shared by the doctors that were part of the class action.

However, Medical Manager still has to deal with the shareholder suit, which is in the pleading stages.

Medical Manager attorney Larry Silverman said, "The suit has no basis."

Companies that face hefty Y2K claims may not be able to rely on their insurance for a bailout. Insurance companies that otherwise would have picked up some of the liability are looking for protection, said Tom Baker, director of the Insurance Law Center at the University of Connecticut. Many insurers are putting exclusions in policies that absolve them of responsibility for Y2K disasters.

But it is not that easy, Baker said, and policyholders in some cases may still be able to lodge claims for insurance protection.

"Let's say it's fire insurance and the building burns down. Is the insurance company going to pay?" Baker asked, if some sort of Y2K glitch contributed to the fire. These insurance liability questions may end up being answered -- where else? -- in court.

"My sense is it will not be resolved until quite a few years after year 2000," he said.

Florida's courts, like those across the nation, could be choked by a glut of lawsuits, said Steve Burton, a Tampa lawyer who supports legislation to limit Y2K litigation.

On the federal level, the bills under consideration include one sponsored by Sen. John McCain, R-Ariz., that would cap punitive damages and establish a grace period to allow companies to fix Y2K problems.

A critic of such legislation is Mark Grossman, a Miami lawyer and chairman of the Internet law department at the firm of Becker and Poliakoff.

"Why should we be thinking of protecting software companies?" he asked. "Do they deserve to be protected?"

Each lawsuit, Grossman said, has to be judged on its own merits. Companies should be held liable if a product does not work properly, and shareholders should be allowed to sue if the officers of a company did little to fix the Y2K bug, he said.

Some business owners say they are willing to take their chances.

J. Michael Pinson, owner of Pinson Communications Inc., an online financial book retailer in Clearwater, has spent the past 18 months making sure the company's systems are up to date. He has been working with Dell Computer Corp. and Microsoft Corp., both of which have assured him the hardware and software will be ready for 2000.

"If American businesses and technology vendors work together to prevent the problems and act in good faith," Pinson said, "there should be no litigation."

-- Times researcher John Martin contributed to this report.