Recently, TLIE asked me to attend a Year 2000 Seminar presented by the Practicing Law Institute, in order to get the straight scoop on the "millennium bug." Here is a synopsis of highlights from this event.
The Year 2000 issue will affect businesses worldwide, and some interruptions and delays of business inevitably will result. International business and domestic business will be affected. Manufacturing, medical technology, water and electrical power plants, shipping, and other industries will have "mission critical" components that rely on the internal clock of computerized systems. Larger companies and domestic businesses probably will have the best access to testing and fixing the Y2K problem. Foreign businesses and smaller domestic businesses may lag behind.
Transactional lawyers should be on the alert now for any preventive legal advice they might offer clients regarding contracting issues. Business clients are no doubt requesting legal services now which directly or indirectly concern a client’s purchase or supply contracts, potential mergers & acquisitions, or reliance on service industries. Banks and other creditors will want to take steps now to avoid debt collection problems later with a customer entering into a business deal that could falter due to Y2K failures, delays, and interruptions. Although the popular transactional approach may be to request certification of "Y2K compliance," there is no consensus as to how "compliance" will be defined when a dispute results. Giving or demanding assurances now of "Y2K compliance" is more likely to generate litigation rather than prevent it, because it would be virtually impossible to guarantee that there will be no business delays or interruptions. Instead, the emphasis should be on specifying appropriate remedies and definitions or limits of damages which address these problem situations prospectively.
Eventually, litigation attorneys will be called upon to resolve business disputes among parties who are unable to resolve their differences concerning Y2K problems. Contract and / or tort disputes will occur once the delays or interruptions begin. Some litigation is inevitable in the nature of contract and warranty actions, deceptive trade complaints, fraud, and product liability matters, in turn giving rise to some property and general casualty insurance coverage issues.
Words to the wise:
Document the scope of engagement with your new and existing clients, to avoid being blamed later for failing to alert the client of a potential business problem stemming from Y2K problems. If you are not the general counsel for a business client, clarify that understanding in writing, and indicate that unless you receive a specific request for legal assistance, you will not be volunteering Y2K legal advice or information (and billing the client). You may want to indicate your availability, upon request, to provide legal advice but not business advice.
If you are not well versed in the technical terms, refrain from advising a client on intellectual property issues connected with Y2K matters. In reviewing or drafting business documents that include representations, conditions, breaches, disclaimers, or remedies relating somehow to Y2K, exercise caution regarding use of intellectual property terminology. When appropriate, consult with an IP specialist or refer the matter if it is beyond your expertise. Further, be sure the client has provided all contract and license agreements that may need to be reviewed, as some agreements have restrictions regarding modification or alteration.
Refrain from providing "business investment" advice to clients considering transactions in which computer equipment or operations will be essential. For clients seeking written assurances in upcoming deals, certifications of compliance may only give rise to future litigation to determine the meaning and effect of such a representation. The more realistic approach, for clients seeking written assurances, is to recommend that satisfactory remedies (free upgrade, on-line / on-site repairs, replacement, liquidated damages, etc.) be made available in the event of Y2K system problems or failures, just as you would recommend when defining an appropriate remedy for any foreseeable event potentially constituting a breach of contract. Include mediation or arbitration clauses as appropriate.
Refrain from providing comfort letters or opinion letters on behalf of clients giving assurances of compliance in the course of negotiating or closing a deal, the outcome of which could later turn on the success of the Year 2000 transition. Clients who ask for legal advice on how to respond to requests for assurances or certifications of Y2K compliance should be cautioned as to the potential evidentiary effect of providing such documentation.
In other words, treat the Y2K problem as you would in advising clients about any contractual matter, as the documents signed and representations made are the source of potential claims (and discovery documents) between your client and others. Using practical contractual analysis, specify the remedies agreed to be provided in the event of Y2K failures. Expressly define, limit or exclude actual and consequential damages, and address the express and implied warranty issues. Then, before the deal is done, document your recommendations and send them to your client. If the client then chooses not to follow your legal advice, you might avoid a costly and time-consuming swearing match later in the form of a malpractice suit.
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