An Alternative to the Not-Ready-for-the-Year-2000 Court System

By Reed, John L.; Herrmann, Richard K. | Dispute Resolution Journal, November 1998 | Go to article overview

An Alternative to the Not-Ready-for-the-Year-2000 Court System


Reed, John L., Herrmann, Richard K., Dispute Resolution Journal


The potential problems for business owners because of so-called Y2K disputes are grave and very broad. The authors here describe the nature of the problems, the litigation options, and the ways in which ADR can come to the rescue.

There are a number of commercial disputes that simply do not belong in the overcrowded and very public court system. These include, for example, labor and construction claims, which are more appropriately resolved through alternative dispute resolution (ADR). ADR, such as arbitration and mediation, has many advantages, the most obvious of which are cost and time savings. ADR appears perfectly suited to resolving the wave of claims that are guaranteed to arise out of the looming year 2000 computer crisis. With few legal precedents and no guarantees of how the courts will decide the issues raised by the crisis, we must ask ourselves the following question: Do businesspeople want to invest resources litigating into the next millennium or do they want to focus their attention and money on making their businesses successful in the next millennium? There is a choice.

By now most businesses, and certainly all business attorneys, have heard about the "Year 2000 Problem" also referred to as the "Millennium Bug" or "Y2K." This is a major dilemma caused by a glitch in computer language. To save memory space, programmers made a fatal decision to use only two digits to identify calendar years so that, for example, 1998 is identified as "98." At the turn of the century, unless fixed, these programs will shorten the year 2000 to "00" and recognize it as 1900. Consequently, computers reading time-sensitive information will either shut down or process the data incorrectly. For example, on January 1, 2000, a company's computer records will show that its debt has been on the books for more than one hundred years, and credit cards will be rejected as having expired.

The potential problems are limitless and grave. Compounding the problems is the pervasiveness of the Y2K design defect: the problem may impair up to 5% of the estimated 25 billion embedded computer chips (CPUs) controlling our cars, elevators, medical devices, to name a few applications. The following are some Y2K statistics:

500,000 to 700,000 additional programmers will be needed in the U.S. to handle Y2K problems (Washington Post).

80% of large companies were not Y2K compliant by the end of 1997 (Garner Group).

60% chance of a worldwide recession caused by Y2K problem (Goverment Computer News).

Average correction costs, not including litigation and lost productivity costs (Gartner Group):

- >$50 million (Fortune 500 company)

->$4 million (small company, less than 2,000 employees)

* $400 billion to $600 billion in correction costs worldwide (Gartner Group).

Total worldwide costs including litigation and lost productivity:

-> $2 trillion (Technology Business Reports)

-> $3 trillion (Lloyd's of London)

It is now universally recognized that directors' and officers' fiduciary duties require them to fix the Year 2000 Problem. New software license contracts now contain clauses to insure millennium compliance, and 75% of all banks, insurance companies and other businesses are taking steps now so they can avoid lawsuits over damages due to foul-ups caused by the Bug as well as shareholder suits over the costs associated with fixing the problem, failures to do so, or related mis- or non-disclosures. Experts predict a bankruptcy rate of 1% to 5% directly related to these costs.

The estimated preventive costs aside, there will inevitably be a tremendous amount of litigation. Even if you have taken steps to address your Y2K problem, your business may nevertheless become a litigation target. If your system interacts with one that has not been fixed, your business may become a Y2K victim and, necessarily, a plaintiff Attorneys will undoubtedly conjure up an abundance of claims.

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