PUBLIC LAW 106-37-JULY 20, 1999 113 STAT. 185 Public Law 106-37 106th Congress An Act To establish certain procedures for civil actions brought for damages relating to July20, 1999 thefailureofanydeviceorsystemtoprocessorotherwisedealwiththetransition [H.R. 775] fromtheyear1999totheyear2000,andforotherpurposes. Be it enacted by the Senate and House of Representatives of the UnitedStatesofAmerica in Congress assembled, Y2KAct. SECTION1.SHORTTITLE;TABLEOFSECTIONS. (a) Short Title.—This Act may be cited as the "Y2K Act". 15USC6601 (b) Table of Sections.—The table of sections for this Act note- is asfollows: Sec. 1. Shorttitle; tableofsections. Sec. 2. Findingsandpurposes. Sec. 3. Definitions. Sec. 4. ApplicationofAct. Sec. 5. Punitivedamageslimitations. Sec. 6. Proportionateliability. Sec. 7. Prelitigationnotice. Sec. 8. Pleadingrequirements. Sec. 9. Dutytomitigate. Sec. 10. Application of existing impossibility or commercial impracticability doctrines. Sec. 11. Damageslimitationbycontract. Sec. 12. Damagesintortclaims. Sec. 13. Stateofmind; bystanderliability; control. Sec. 14. AppointmentofspecialmastersormagistratejudgesforY2Kactions. Sec. 15. Y2Kactions asclass actions. Sec. 16. ApplicabilityofStatelaw. Sec. 17. AdmissibleevidenceultimateissueinState courts. Sec. 18. Suspension of penalties for certain year 2000 failures by small business concerns. SEC.2.FINDINGSANDPURPOSES. 15USC6601. — (a) Findings. The Congressfindsthefollowing: (1)(A) Many information technology systems, devices, and programs are not capable of recognizing certain dates in 1999 and after December 31, 1999, and will read dates in the year 2000 and thereafter as if those dates represent the year 1900 or thereafter or will fail to process dates after December 31, 1999. (B) Ifnot corrected, the problem described in subparagraph (A) and resulting failures could incapacitate systems that are essential to the functioning of markets, commerce, consumer products, utilities, Government, and safety and defense sys- tems, inthe United States andthroughouttheworld. (2) It is in the national interest that producers and users oftechnology products concentrate their attention and resources in the time remaining before January 1, 2000, on assessing, fixing, testing, and developing contingency plans to address 69-139 0 -99(37) 113 STAT. 186 PUBLIC LAW 106-37-^JULY 20, 1999 any and all outstanding year 2000 computer date-change prob- lems, so as to minimize possible disruptions associated with computerfailures. (3)(A) Because year 2000 computer date-change problems may affectvirtually allbusinesses and other users oftechnology products to some degree, there is a substantial likelihood that actual or potential year 2000 failures will prompt a significant volume oflitigation, muchofitinsubstantial. (B) The litigation described in subparagraph (A) would have a range of undesirable effects, including the following: (i) It would threaten to waste technical and financial resources that are better devoted to curing year 2000 com- puter date-change problems and ensuring that systems remainorbecome operational. (ii) It could threaten the network ofvalued and trusted business and customer relationships that are important tothe effectivefunctioningofthe nationaleconomy. (hi) It would strain the Nation's legal system, causing particular problems for the small businesses and individ- uals who already find that system inaccessible because ofits complexityandexpense. (iv) The delays, expense, uncertainties, loss ofcontrol, adverse publicity, and animosities that frequently accom- pany litigation of business disputes could exacerbate the difficulties associated with the date change and work againstthe successfulresolutionofthosedifficulties. (4) It is appropriate for the Congress to enact legislation to assure that the year 2000 problems described in this section do not unnecessarily disrupt interstate commerce or create unnecessary caseloads in Federal courts and to provide initia- tives to help businesses prepare and be in a position to with- stand the potentially devastating economic impact ofsuch prob- lems. (5) Resorting to the legal system for resolution of year 2000 problems described in this section is not feasible for many businesses and individuals who already find the legal system inaccessible, particularly small businesses and individuals who already find the legal system inaccessible, because of its com- plexityandexpense. — (6) Concern about the potential for liability in particular, concern about the substantial litigation expense associatedw—ith defending against even the most insubstantial lawsuits is prompting many persons and businesses with technical exper- tise to avoid projects aimed at curing year 2000 computer date-changeproblems. (7) A proliferation of frivolous lawsuits relating to year 2000 computer date-change problems by opportunistic parties may further limit access to courts by straining the resources of the legal system and depriving deserving parties of their legitimaterightstorelief. (8) Congress encourages businesses to approach their dis- putes relating to year 2000 computer date-change problems responsibly, and to avoid unnecessary, time-consuming, and costly litigation about Y2K failures, particularly those that are not material. Congress supports good faith negotiations between parties when there is such a dispute, and, ifnecessary, — — PUBLIC LAW 106-37-JULY 20, 1999 113 STAT. 187 urges the parties to enter into voluntary, nonbinding mediation ratherthanlit—igation. (b) Purposes. Based upon the power of the Congress under Article I, Section 8, Clause 3 of the Constitution of the United States, the purposes ofthisAct are (1) to establish uniform legal standards that give all businesses and users of technology products reasonable incen- tives to solve year 2000 computer date-change problems before theydevelop; (2) to encourage continued remediation and testing efforts to solve such problems by providers, suppliers, customers, and othercontractingpartners; (3) to encourage private and public parties alike to resolve disputes relating to year 2000 computer date-change problems by alternative dispute mechanisms in order to avoid costly and time-consuming litigation, to initiate those mechanisms as early as possible, and to encourage the prompt identification andcorrectionofsuchproblems; and (4)tolessentheburdens oninterstate commercebydiscour- aging insubstantial lawsuits while preserving the ability of individuals and businesses that have suffered real injury to obtaincomplete relief. SEC.3.DEFINITIONS. 15USC6602. InthisAct: (1)Y2KACTION.—Theterm"Y2Kaction"— (A) means a civil action commenced in any Federal or State court, or an agency board of contract appeal pro- ceeding, in which the plaintiff's alleged harm or injury arises from or is related to an actual or potential Y2K failure, or a claim or defense arises from or is related to an actual orpotentialY2Kfailure; (B) includes a civil action commenced in any Federal or State court by a government entity when acting in acommercial orcontractingcapacity; but (C) does not include an actionbroughtby a government entity acting in a regulatory, supervisory, or enforcement capacity. (2) Y2K failure.—The term 'Y2K failure" means failure by any device or system (including any computer system and any microchip or integrated circuit embedded in another device or product), or any software, firmware, or other set or collection of processing instructions to process, to calculate, to compare, to sequence, to display, to store, to transmit, or to receive year-2000 date-relateddata, includingfailures (A) to deal with or account for transitions or compari- sons from, into, and between the years 1999 and 2000 accurately; (B) to recognize or accurately to process any specific datein 1999, 2000, or2001; or (C) accurately to account for the year 2000's status as a leap year, including recognition and processing of the correct date on Februa—ry 29, 2000. (3) Government entity. The term "government entity" means an agency, instrumentality, or other entity of Federal, State, or local government (including multijurisdictional agen- cies, instrumentalities, andentities). — — 113 STAT. 188 PUBLIC LAW 106-37-JULY 20, 1999 — (4) Material defect. The term "material defect" means a defect in any item, whether tangible or intangible, or in the provision ofa service, that substantially prevents the item or service from operating or functioning as designed or according to its specifications. The term "material defect" does notinclude adefectthat (A) has an insignificant or de minimis effect on the operation or functioning of an item or computer program; (B) affects only a component of an item or program that, as a whole, substantially operates or functions as designed; or (C) has an insignificant or de minimis effect on the efficacyofthe service p—rovided. (5) Personal injury. The term "personal injury" means physicalinjuryto anaturalperson, including (A)death as aresultofaphysicalinjury; and (B) mental suffering, emotional distress, or similar injuries suffered by that person in connection with a phys- ical injury.— (6) State. The term "State" means any State of the United States, the District of Columbia, the Commonwealth ofPuerto Rico, the NorthernMarianaIslands, the United States Virgin Islands, Guam, American Samoa, and anyotherterritory or possession ofthe United States, and any political subdivision thereof. — (7) Contract. The term "contract" means a contract, tariff, license, orwarranty. — (8) Alternative dispute resolution. The term "alter- native dispute resolution" means any process or proceeding, other than adjudication by a court or in an administrative proceeding, to assist in the resolution ofissues in controversy, through processes such as early neutral evaluation, mediation, minitrial, andarbitration. 15USC6603. SEC.4.APPLICATIONOFACT. — (a) GeneralRule. ThisAct appliesto anyY2Kactionbrought after January 1, 1999, for a Y2K failure occurring before January 1, 2003, or for a potential Y2K failure that could occur or has allegedly caused harm or injury before January 1, 2003, including any appeal, remand, stay, or otherjudicial, administrative, or alter- nativedisputeresolutionproceedingin suchan—action. (b) No New Cause of Action Created. Nothing in this Act creates a new cause of action, and, except as otherwise explicitly provided in this Act, nothing in this Act expands any liability otherwise imposed or limits any defense otherwise available under Federal orStatelaw. (c) Cla—ims for Personal Injury or Wrongful Death Excluded. This Act does not apply to a claim for personal injury orforwrongful death. — j (d)Warrantyand Co—ntract Preservation. (1) In general. Subject to paragraph (2), in any Y2K action any written contractual term, including a limitation or an exclusion of liability, or a disclaimer of warranty, shall be strictly enforced unless the enforcement ofthat term would manifestly and directly contravene applicable State law embodied in any statute in effect on January 1, 1999, specifi- i cally addressingthatterm. II — — PUBLIC LAW 106-37^JULY 20, 1999 113 STAT. 189 (2) Interpretation of contract.—In any Y2K action in which a contract to which paragraph (1) applies is silent as to a particular issue, the interpretation of the contract as to that issue shall be determined by applicable law in effect atthetimethe contractwas e—xecuted. (3) UNCONSCIONABILITY. Nothing in paragraph (1) shall prevent enforcement ofState law doctrines ofunconscionability, including adhesion, recognized as ofJanuary 1, 1999, in control- ling judicial precedent by the courts of the State whose law appliestotheY2Kaction. — (e) Preemption of State Law. This Act supersedes State law to the extent that it establishes a rule of law applicable to a Y2K action that is inconsistent with State law, but nothing in this Act implicates, alters, or diminishes the ability of a State to defend itself against any claim on the basis of sovereign immu- nity. (f) Applicati—on with Year 2000 Information and Readiness Disclosure Act. Nothing in this Act supersedes any provision oftheYear2000 Information andReadiness DisclosureAct. (g) —Application to Actions Brought by a Government Entity. — (1) In general. To the extent provided in this subsection, this Act shall apply to an action brought by a government entity describedin se—ction 3(1)(C). (2) Definitions. Inthis subsection: (A) Defendant.— — (i) In general. The term "defendant" includes aState orlocal—government. (ii) State. The term "State" means each of the several States of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, and the Commonwealthofthe Norther—nMarianaIslands. (iii) Local government. The term "local govern- ment"means (I) any county, city, town, township, parish, village, or other general purpose political subdivi- sionofa State; and (II) any combination of political subdivisions described in subclause (I) recognized by the Sec- retaryofHousingandUrban Development. (B)Y2Kupset.—Theterm'Y2Kupset"— (i) means an exceptional temporary noncompliance with applicable federally enforceable measurement, monitoring, or reporting requirements directly related to aY2Kfailure that are beyond the reasonable control ofthe defendantchargedwith compliance; and (ii) doesnotinclude (I) noncompliance with applicable federally enforceable measurement, monitoring, or reporting requirements that constitutes or would create an imminent threat to public health, safety, or the environment; (II) noncompliance with applicable federally enforceable measurement, monitoring, or reporting requirements that provide for the safety and soundness of the banking or monetary system, or — 113 STAT. 190 PUBLIC LAW 106-37^JULY 20, 1999 for the integrity ofthe national securities markets, including the protection of depositors and inves- tors; (III) noncompliance with applicable federally enforceable measurement, monitoring, or reporting requirements to the extent caused by operational errorornegligence; (IV) lack of reasonable preventative mainte- nance; (V) lack of preparedness for a Y2K failure; or (VI) noncompliance with the underlying feder- ally enforceable requirements to which the applicable federally enforceable measurement, | monitoring, orreportingrequirementrelates. (3) Con—ditions necessary for a demonstration of a Y2K UPSET. A defendant who wishes to establish the affirma- tive defense ofY2K upset shall demonstrate, through properly | signed, contemporaneous operating logs, or other relevant evi- dencethat (A) the defendant previously made a reasonable good faith effort to anticipate, prevent, and effectively remediate apotentialY2Kfailure; (B) a Y2K upset occurred as a result of a Y2K failure orotheremergencydirectlyrelatedto aY2Kfailure; (C) noncompliance with the applicable federally enforceable measurement, monitoring, or reportingrequire- ment was unavoidable in the face ofan emergency directly related to a Y2K failure and was necessary to prevent the disruption of critical functions or services that could resultinharmtolife orproperty; (D) upon identification ofnoncompliance the defendant invoking the defense began immediate actions to correct any violation of federally enforceable measurement, moni- \ toring, orreportingrequirements; and (E) the defendant submitted notice to the appropriate Federal regulatory authority of a Y2K upset within 72 hours from the time that the defendant became aware i oftheupset. — (4) Grant of a Y2K upset defense. Subject to the other ' provisions of this subsection, the Y2K upset defense shall be a complete defense to the imposition ofa penalty in any action i brought as a result ofnoncompliance with federally enforceable measurement, monitoring, or reporting requirements for any j defendant who establishes by a preponderance of the evidence thatthe conditions setforthin—paragraph (3) aremet. (5) Length ofY2Kupset. The maximum allowable length of the Y2K upset shall be not more than 15 days beginning | on the date ofthe upset unless specific reliefby the appropriate regulatoryauthorityisgranted. — (6) Fraudulent invocation of Y2K upset defense. Fraudulent use of the Y2K upset defense provided for in this subsection shall be subject to the sanctions provided in section 1001 oftitle 18, UnitedStates Cod—e. (7) Expiration of Defense. The Y2K upset defense may not be asserted for a Y2K upset occurring after June 30, 2000. I ] PUBLIC LAW 106-37-JULY 20, 1999 113 STAT. 191 (8) Preservation of authority—Nothing in this sub- section shall affect the authority of a government entity to seek injunctive relief or require a defendant to correct a viola- tion of a federally enforceable measurement, monitoring, or reportingrequirement. _ — (h) Consumer Protec—tion FromY2KFailures. (1) In general. No person who transacts business on matters directly or indirectly affecting residential mortgages shall cause or permit a foreclosure on any such mortgage against a consumer as a result of an actual Y2K failure that results in an inability to accurately or timely process any mort- gagepaymenttr—ansaction. (2) Notice. A consumer who is affected by an inability described in paragraph (1) shall notify the servicer for the mortgage, in writing and within 7 business days from the time that the consumer becomes aware of the Y2K failure and the consumer's inability to accurately or timely fulfill his or her obligation to pay, of such failure and inability and shall provide to the servicer any available documentation with respecttothefailure. — (3) Actions may resume after grace period. Notwith- standing paragraph (1), an action prohibited under paragraph (1) may be resumed, if the consumer's mortgage obligation has not been paid and the servicer of the mortgage has not expressly and in writing granted the consumer an extension oftime duringwhichto paythe consumer's mortgage obligation, butonly afterthelaterof— (A)fourweeks afterJanuary 1, 2000; or (B) four weeks after notification is made as required under paragraph (2), except that any notification made on or after March 15, 2000, shall not be effective for pur- poses ofthis subsec—tion. (4)Applicability. This subsection does not applytotrans- actions upon which a default has occurred before December 15, 1999, or with respect to which an imminent default was foreseeablebefore December 15, 1999. — (5) Enforcement of obligations merely tolled. This subsection delaysbut does notpreventthe enforcement offinan- cial obligations, and does not otherwise affect or extinguish the obligationtopay. (6) Definition.—Inthis subsection— (A)Theterm"consumer"means anaturalperson. (B) The term "residential mortgage" has the meaning given the term "federally related mortgage loan" under section 3 of the Real Estate Settlement Procedures Act of1974(12 U.S.C. 2602). (C) The term "servicer" means the person, including any successor, responsible for receiving any scheduled peri- odic payments from a consumer pursuant to the terms ofa residential mortgage, including amounts for any escrow account, and for making the payments of principal and interest and such other payments with respect to the amounts received from the borrower as may be required pursuant to the terms ofthe mortgage. Such term includes the person, including any successor, who makes or holds aloanifsuch person also servicesthe loan. — — — 113 STAT. 192 PUBLIC LAW 106-37-JULY 20, 1999 — (i) Applicability to Securities Litigation. In any Y2K action in which the underlying claim arises under the securities laws (as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)), the provisions of this Act, other than section 13(b) ofthisAct, shall not apply. 15USC6604. SEC.5.PUNITIVEDAMAGESLIMITATIONS. — (a) In General. In anyY2Kaction inwhich punitive damages are permitted by applicable law, the defendant shall not be liable for punitive damages unless the plaintiff proves by clear and con- vincing evidence thatthe applicable standard for awardingdamages hasbeenmet. — (b) Caps onPunitiv—e Damages. (1) InGENERAL. Subjecttothe evidentiary standard estab- lished by subsection (a), punitive damages permitted under applicable law against a defendant described in paragraph (2) in aY2Kactionmaynotexceedthelesserof— (A) three times the amount awarded for compensatory damages; or (2) D(eBf)e$n25d0a,n0t00d.escribed.—A defendant described in this paragraphis adefendant (A)who (i) is sued in his or her capacity as an individual; and (ii) whose net worth does not exceed $500,000; or (B) that is an unincorporated business, a partnership, corporation, association, or organization, with fewer than 50full-time employees. — (3) NO CAP IF INJURY SPECIFICALLY INTENDED. Paragraph (1) does not apply if the plaintiff establishes by clear and convincing evidence that the defendant acted with specific intenttoinjuretheplaintiff—. (c) Government Entities. Punitive damages in a Y2K action maynotbe awardedagainst agovernmententity. 15USC6605. SEC.6.PROPORTIONATELIABILITY. — (a) In General. Except in a Y2K action that is a contract action, and except as provided in subsections (b) through (g), a person against whom a final judgment is entered in a Y2K action shall be liable solely for the portion of the judgment that cor- responds to the relative and proportionate responsibility of that person. In determining the percentage of responsibility of any defendant, the trier of fact shall determine that percentage as a percentage ofthe total fault ofall persons, including the plaintiff, who caused or contributed to the t—otal loss incurred by the plaintiff. (b) Proportionate Liability. — Courts. (1) Determination of responsibility. In anyY2K action that is not a contract action, the court shall instruct the jury to answer special interrogatories, or, if there is no jury, the court shall make findings with respect to each defendant, including defendants who have entered into settlements with theplaintifforplaintiffs, concerning (A) the percentage of responsibility, if any, of each defendant, measured as a percentage of the total fault ofall personswho caused orcontributedtothe loss incurred bytheplaintiff; and j —— — — PUBLIC LAW 106-37-^JULY 20, 1999 113 STAT. 193 (B) if alleged by the plaintiff, whether the defendant (other than a defendant who has entered into a settlement agreementwiththeplaintiff) (i) acted with specific intent to injure the plaintiff; or (ii) knowinglycommittedfraud. — (2) Contents of special interrogatories or findings. The responses to interrogatories or findings under paragraph (1) shall specify the total amount ofdamages that the plaintiff is entitled to recover and the percentage of responsibility of each defendant found to have caused or contributed to the loss incurredbythe plaintiff. (3) Factors for consideration.—In determining the percentage of responsibility under this subsection, the trier offact shall consider (A) the nature of the conduct of each person found to have caused or contributed to the loss incurred by the plaintiff; and (B) the nature and extent of the causal relationship between the conduct ofeach such person and the damages incurredbytheplaintiff. — (c)JointLiabilityfor—Specific Intent orFraud. (1) In general. Notwithstanding subsection (a), the liability of a defendant in a Y2K action that is not a contract action is joint and several ifthe trier offact specifically deter- minesthatthe defendant (A) acted with specific intent to injure the plaintiff; or (B)knowinglycommitt—edfraud. (2) Fraud; recklessness. — (A) Knowing commission of fraud described. For purposes of subsection (b)(l)(B)(ii) and paragraph (1)(B) ofthis subsection, a defendant knowingly committed fraud ifthe defendant (i) made an untrue statement of a material fact, with actual knowledge that the statement was false; (ii) omitted afact necessary to make the statement not be misleading, with actual knowledge that, as a result of the omission, the statement was false; and (iii) knew that the plaintiff was reasonably likely torelyonthe false st—atement. (B) Recklessness. For purposes of subsection (b)(1)(B) and paragraph (1) ofthis subsection, reckless con- duct by the defendant does not constitute either a specific intent to injure, or the knowing commission of fraud, by thedefendant. (3) Right to contribution not affected.—Nothing in this section affects the right, under any other law, ofa defend- ant to contribution with respect to another defendant found under subsection (b)(1)(B), or determined under paragraph (1)(B) of this subsection, to have acted with specific intent to injure the plaint—iff or to have knowingly committed fraud. (d) Special Rules. — (1)Uncollectible sh—are. (A) In GENERAL. Notwithstanding subsection (a), if, upon motion made not later than 6 months after a final judgmentis enteredin anyY2Kactionthatis not a contract — — 113 STAT. 194 PUBLIC LAW 106-37^JULY 20, 1999 action, the court determines that all or part of the share ofthejudgment against adefendantfor compensatory dam- ages is not collectible against that defendant, then each other defendant in the action is liable for the uncollectible share asfollows: — (i) Percentage of networth. The other defend- ants arejointly and severallyliable forthe uncollectible shareiftheplaintiffestablishesthat (I) the plaintiffis an individual whose recover- able damages under the final judgment are equal to more than 10 percent of the net worth of the plaintiff; and (II) the net worth ofthe plaintiffis less than $200,000. — (ii) Other plaintiffs. For a plaintiff not described in clause (i), each of the other defendants is liable for the uncollectible share in proportion to the percentage ofresponsibilityofthatdefendant. (iii) For a plaintiff not described in clause (i), in addition to the share identified in clause (ii), the defendant is liable for an additional portion of the uncollectible share in an amount equal to 50 percent ofthe amount determined under clause (ii) ifthe plain- tiff demonstrates by a preponderance of the evidence that the defendant acted with reckless disregard for the likelihood that its acts would cause injury of the sort sufferedbythepl—aintiff. (B) Overall limit. The total payments required undersubparagraph(A)from all defendantsmaynot exceed the amountoftheuncollectible share. (C) Subject to contribution.—A defendant against whomjudgment is not collectible is subject to contribution and to any continuing liability to the plaintiffon thejudg- ment. (D) Suitsbyconsumers.— (i) Notwithstanding subparagraph (A), the other defendants are jointly and severally liable for the uncollectible shareif— (I) the plaintiff is a consumer whose suit alleges or arises out of a defect in a consumer product; and (II) the plaintiffis suing as an individual and not aspart ofaclass action. (ii) Inthis subparagraph: (I)Theterm"class action"means (aa) a singlelawsuitinwhich: (1) damages are sought on behalf ofmore than 10 persons or prospective class members; or (2) one or more named parties seek to recover damages on a representative basis on behalf of them- selves and other unnamed parties similarly situated; or (bb) any group of lawsuits filed in or pending in the same court in which: (1) dam- ages are sought on behalf of more than 10 persons; and (2) the lawsuits are joined,