by Ira T. Kasdan and David K. Monroe
"So it all comes down to this !#@*$! file," you say to yourself, as you sit alone in the "war room" surrounded by hundreds of boxes containing thousands of documents. "Where were those [censored] lawyers when I really needed them?"
It's been more than two years since the five lawsuits were filed within the first couple of months of January 2000 -- three by your [erstwhile] best customers and the other two by shareholders, including one as a class action. They name you, as the company CEO, and the company as defendants, and collectively seek a total of $550 million in damages. The bottom line claims? Your company purportedly didn't meet a deadline -- it failed to be "Year 2000" compliant and compatible with your most important customers by January 1, 2000.
The file that you asked to review in preparation for the depositions that you can no longer evade contains all those "smoking gun" memos -- the paper trail of gripes, complaints and biting criticisms of your personal leadership and management's allegedly dismal efforts in the "Year 2000" "remediation" arena. These are found in e-mail messages, weekly meeting reports and (even!) executive summaries -- authored by your own employees!
You know that the accusations in the lawsuits are baseless; that the firm that you hired to solve the "Year 2000" problem screwed up. It was their incompetence and failure to cooperate with your customers' parallel efforts to meet the Year 2000 deadline that caused the losses now attributed to your company. "But those damning documents," which you know are exaggerated and inaccurate if not defamatory, "How could the lawyers have allowed this to go on? Who was minding the store?"
It didn't have to be this way . . .
"Paper trails" and "smoking guns" are the stuff of which law suits are won and lost. Prepare the right trail, and you have a chance at winning. Carelessly create "smoking guns" and you end up killing your chances of prevailing. In this regard, litigation arising from the so-called "Year 2000 problem" will be no different than other kinds of law suits. What is different, however, is that you can see these lawsuits coming and can start preparing now to win. When the flood of Year 2000 litigation arrives, the survivors will be the companies that took steps now to manage and control the creation of documents that will make or break their cases.
Unless you're just returning from a long hiatus on Mars, you've already heard about the "Year 2000" problem. You know that your company's technology systems likely contain a ticking time bomb. Due to a programming shortcut taken many years ago, on Saturday, January 1, 2000, your company's computers may "think" that it's Monday, January 1, 1900 (if they don't crash and can "think" at all). As a result, your company may lose the ability to perform the accounting, payroll, inventory and other data processing functions that are vital to your own and your customers' ongoing businesses.
Computer experts have been aware of the Year 2000 problem for many years. However, the millions of companies and individuals who use the vast interconnected data processing apparatus upon which all commerce now depends have only recently begun to recognize the magnitude of the problem. With less than 2-1/2 years to go until January 2000, many -- perhaps most -- companies have only just begun to address the issue.
The technology glitches which give rise to the Year 2000 problem are not easily fixed. It's a time-consuming and labor intensive job requiring the review, reprogramming and testing of millions of lines of computer code written in arcane, and sometimes almost obsolete, computer languages. The cost of "remediating" existing systems, or replacing them with new "Year 2000 compliant" systems, is estimated to be, at a minimum, in the hundreds of billions of dollars. Some estimates exceed the one trillion dollar mark.
Putting the cost of remediation or replacement aside, at this point there simply may not be enough time left for all companies to become Year 2000 compliant before the turn of the century. To compound matters, given the now routine exchange of data between computer systems, it probably will not be enough to simply remediate your own computer system -- you may also have to ensure that computer systems with which you exchange data are also Year 2000 compatible with yours. The net result of all of these considerations is that the Year 2000 problem is a huge problem to which there appears to be no easy solution.
Given the catastrophic effect of the Year 2000 problem on computer-dependent businesses, the costs of remediating or replacing non-compliant systems, the likely scarcity of human resources to solve the problem on time and the uncertainties regarding who is responsible for the problem and who is liable to pay for the solution, it should not be surprising that the Year 2000 problem is expected to generate a tidal wave of litigation. Hopes spring eternal, however, and many in the business community (but few in the computer industry) expect the emergence of a technological "silver bullet" that will solve the problem. The unfortunate truth is no such "silver bullet" currently exists, nor is it likely that one will be developed before the new millennium, if ever.
Similarly, while there are murmurings for a legislative solution to the anticipated litigation onslaught -- in the form of caps on liability or compulsory arbitration -- no concrete proposals have been, and likely ever will be, enacted. Consequently, disputes and "the sky's the limit" damage claims resulting from the Year 2000 problem inevitably will be brought to court.
Lawsuits arising from the Year 2000 problem will not be limited to the obvious disputes between software vendors and computer users over liability for defective software. The Year 2000 problem will also lead to (1) lawsuits between users of software and companies hired to correct the Year 2000 problem; (2) lawsuits involving insurance coverage for both the costs of remediation and losses suffered as a result of failure to become Year 2000 compliant in time; (3) employment related litigation involving scarce programming resources capable of correcting the Year 2000 problem; (4) shareholder litigation against directors and officers of companies that do not become Year 2000 compliant in time; (5) investor lawsuits asserting that companies failed to make adequate financial disclosures regarding the scope and the likely impact of the Year 2000 problem; and (6) third party actions between companies whose computer systems are compliant and those who are not, over such issues as the provision of corrupt data.
With all these possible lawsuits on the horizon, you must act now to ensure that your in-house counsel and outside litigators are preparing and properly positioning your company to win.
The first step that your lawyers should take to protect you and your corporation is to identify, in the context of a comprehensive audit, the legal and factual issues the company will have to face as a result of the Year 2000 problem. Such an internal audit must be conducted under the auspices of counsel in order to gain whatever protection may be available under the attorney-client privilege and work product immunity.
The legal audit must start with an analysis of the company's technology -- e.g., what software does the company use; where did it come from; has it been modified; is it Year 2000 compliant, etc. In addition, a legal audit should examine the company's Year 2000-related contractual and other legal relationships with insurance companies, computer or software vendors, technology service firms and business partners with whom computer data is exchanged. And, of course, a legal audit must take into account the company's plans to remediate or replace its defective software. [For a detailed list of actions that should be taken in a Year 2000 legal audit, see "Memorandum To In-house Counsel re: Year 2000" by Ira Kasdan, The DataLaw Report, vol. 4, no. 5 (March 1997), located on the Worldwide Web at www.gkglaw.com/Publications/y2kmemo.html.]
Most computer, information systems or data processing departments generally are far removed from the mainstream of the company's core business. The technical employees who work in or with these departments generally have little contact with company counsel or senior management. As a consequence, they are often unsophisticated -- even naive -- in legal matters. When required to testify in a lawsuit, these employees are often shocked to learn of the importance attached to documents they create. The same may be true of outsiders hired by the company to help solve Year 2000 problems.
Thus, in terms of preparing for potential litigation, your legal counsel must also identify all key company personnel, including outside consultants and independent contractors, who will be affected by the Year 2000 or will be part of the effort to become Year 2000 compliant. These are the people who must be most closely managed and monitored regarding the creation of evidence which may be relevant to future litigation.
Concurrent with the commencement of a comprehensive legal audit, your company should appoint a Year 2000 "law czar" to supervise and coordinate all efforts relating to Year 2000 legal issues, and in particular to assist personnel in the front lines. As the Year 2000 approaches, a crisis mentality will prevail, particularly among the company's in-house and outside technical personnel who will be under great pressure from your management to keep the company's data processing functions going while at the same time ensuring that the system becomes Year 2000 compliant on time. The law czar must recognize and deal with the fact that, from a litigation perspective, it is both ironic, and extremely dangerous that the company's Information Systems and Information Technology personnel will feel the most heat as the Year 2000 approaches.
The irony arises because the company's technicians probably understood the Year 2000 problem long before management. In many cases, it is likely that lower level technical experts within the company tried to warn your management of the approaching problem, but were ignored. These employees will not be happy to be scapegoats for the Year 2000 problem, particularly where they feel management has ignored their advice or waited too long to address the problem.
At the same time these employees and consultants present a litigation danger because they are likely to express their unhappiness by blaming management in internal memoranda or e-mail messages -- documents which will later be key evidence against the company in Year 2000 litigation. Indeed, "tech" employees may potentially communicate their dissatisfaction outside of the company through Internet/Usenet discussion groups involving hot computer issues like the Year 2000 problem. They often feel passionately about such issues and sometimes they say intemperate things. Indeed, they often do so from their computers at work identifying themselves as employees of the company.
The documents which are drafted by the company's IS and IT staffs probably will mean success or failure in Year 2000 litigation. Almost assuredly these documents are already being created. The internal and external memoranda, e-mail and other communications between and among such technical personnel can, and will, be powerful evidence either supporting or destroying the company's position in litigation. These communications very well may end up in the "smoking gun" files which kill the company in litigation.It should also be noted that public statements made by the company employees may create other litigation problems for the company. For example, an employee who posts from his company computer onto the Internet disparaging comments about a vendor's software products or the efforts of a Year 2000 remediation provider may embroil the company in a defamation action.
Thus, one of the key roles of the Year 2000 czar will be to educate and manage the company's employees and consultants throughout the process that the company undertakes to become Year 2000 compliant. For example, s/he should be accessible to answer questions, address law-related concerns and affirmatively advise company personnel. S/he should be present at key meetings and should oversee the drafting of meeting minutes, recommendations and future work plans. S/he should inventory existing memoranda now and take appropriate steps to repair whatever damage that has already been done.
But the Year 2000 czar's role in managing the paper trail of the company's Year 2000 project is not limited to discouraging employees from committing potentially harmful statements to paper. A company anticipating Year 2000 litigation should also seek to create the best possible paper trail to support its position in litigation. This does not, of course, mean that the company should fabricate documents. Rather, communications with the outside world, for example, with software vendors or other potential adversaries, should be drafted to appear reasoned, reasonable and noninflammatory. Similarly, internal status or progress memoranda should be created to document, in a coherent and cogent fashion, the company's efforts to deal with all aspects of the Year 2000 problem. For example, a company may undertake to modify licensed software itself because it can no longer wait for the original software developer to correct the Year 2000 bug. A well-written memorandum explaining the basis for that decision, as well as the efforts by the company to obtain the cooperation of the original software developer, will be of enormous value in buttressing the company's position in a later lawsuit by the software vendor for breach of contract or copyright infringement.
Addressing the Year 2000 problem and becoming compliant before the turn of the century will be a daunting and expensive proposition for many, if not most, companies. But failure to recognize the likelihood of litigation and take proactive steps now to prepare for that eventuality will dramatically, and unnecessarily, increase your company's costs and exposure. Appointing a litigation savvy and technically-knowledgeable Year 2000 law czar to conduct an appropriate audit, identify and manage key personnel and ensure that they create appropriate paper trails, not smoking guns, will mean all the difference should your company become involved in Year 2000 litigation.
About the authors: Ira T. Kasdan (ikasdan@gkmg.com) ((202) 342-5274) is a litigation partner in the Washington, D.C. law firm of Galland, Kharasch & Garfinkle, P.C. He represents companies in various industries in connection with technology matters and litigation. Other articles relating to Year 2000 issues that Mr. Kasdan has authored or co-authored may be found on the Web at www.gkglaw.com/Publications.
David K. Monroe (dmonroe@gkmg.com) ((202) 342-5235) is a litigation partner in the Washington, D.C. law firm of Galland, Kharasch & Garfinkle, P.C. He represents companies in the technology, transportation and other industries in commercial and intellectual property litigation.
Copyright 1997 Ira T. Kasdan and David K. Monroe. All rights reserved.
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