Year 2000 Information and Readiness Disclosure Act


On October 19, 1998, the Year 2000 Information and Readiness Disclosure Act became law in the United States. Designed to encourage dissemination of Year 2000 readiness information, the law contains certain protections for companies that issue Year 2000 statements.

Most companies have hesitated to make disclosures about their Year 2000 readiness, remediation, and testing efforts for fear that these disclosures will be used against them or be construed as a “warranty”. In an effort to promote the disclosure and exchange of information related to Year 2000 readiness, Congress enacted the Year 2000 Information and Readiness Disclosure Act (Public Law 105-271), which provides limited liability protections for Year 2000 statements.

The following reviews some of the key provisions of the Act.

The Act makes a distinction between “Year 2000 statements” and “Year 2000 readiness disclosures.” A statement is the oral or written communication regarding the Year 2000 processing capabilities, plans, and testing. The Act specifically states that statements made in any documents filed for the Securities and Exchange Commission or with Federal banking regulators and any statements made in connection with the sale of securities are not to be considered as “Year 2000 statements” under the Act.

The Year 2000 readiness disclosure, on the other hand, is a specific Year 2000 statement “clearly identified on its face as a Year 2000 readiness disclosure, inscribed in a tangible medium or stored in an electronic or other medium retrievable in a perceivable form,” and provided by an entity regarding its Year 2000 processing or its products or services.

In both cases, the term “Year 2000 processing” is defined very broadly to include a wide variety of date-related data processing functions, not simply problems related to January 1, 2000.

The reason for the distinction between “Year 2000 statements” and “Year 2000 readiness disclosures” largely relates to the protections afforded by the Act.


PROTECTIONS FOR YEAR 2000 STATEMENTS

The Act provides a limitation from liability for Year 2000 statements that allegedly are false, inaccurate or misleading, unless it can be established that a statement was material and made with:

  1. Actual knowledge that the statement was false, inaccurate, or misleading;
  2. An intent to deceive or mislead; or
  3. Reckless disregard to the accuracy of the statement.
The Act states that liability must be established by “clear and convincing evidence” - a tougher standard then the “preponderance of the evidence” - standard usually applicable in civil cases.

In some cases, liability can be established if a company issues a statement that is a publication of another company’s Year 2000 statements. When republishing such statements, companies must include a notice that they have verified the contents of the republished statements, or provide a notice that the republished statements are based on information supplied by another entity identified in the statement.

The Act also provides that a Year 2000 statement will not be interpreted as an amendment or alteration of a contract or warranty. In viewing these liability protections, it is also important to note that the new law does not oblige entities to make Year 2000 statements.

YEAR 2000 READINESS DISCLOSURES

The Act provides additional protections for the “subset” of Year 2000 statements term “Year 2000 readiness disclosures”. These Year 2000 readiness disclosures may not be “admissible against the maker of that disclosure to prove the accuracy or the truth of any Year 2000 statements set forth in that disclosure.” In other words, subject to certain exemptions set forth in the Act, the Year 2000 readiness disclosure may not be introduced into evidence in a trial.

In certain cases, however, even a Year 2000 readiness disclosure may become evidence. Year 2000 readiness disclosures may be admissible to prove a claim for “anticipatory breach” or “repudiation of a contract,” to the extent permitted by applicable law. Therefore, the Year 2000 readiness disclosures can be introduced to prove that a company will breach a contract in the future, or to provide that a company is refusing to perform as required by a contract.

The evidence exclusion for a Year 2000 readiness disclosure also may be limited if a court determines that the disclosure was made in bad faith or fraudulently. Similarly, courts can decide that it is unreasonable to exclude a Year 2000 readiness disclosure from evidence in light of the purpose of the Act.


YEAR 2000 WEB SITES


The new law specifically recognized that many companies are posting their Year 2000 statements and Year 2000 readiness disclosures on the Internet. The Act defines a “Year 2000 Internet Website” as “an Internet Web site or other similar electronically accessible service, clearly designated on the Website ... as an area where Year 2000 statements concerning that person or entity are posted ....” Posting notices on a Year 2000 Internet Website is reasonable commercially unless prior representations have been made in a manner contrary to posting on a Website, or if a company’s regular course of dealing is inconsistent with Website notices. The Act does indicate that Website notice is not sufficient if actual notice clearly is the most commercially reasonable form of notice.

EFFECTIVE DATES

All Year 2000 statements made between July 14, 1998, and July 14, 2001, and all Year 2000 readiness disclosures made between October 19, 1998 and July 14, 2001, are covered by the law. Additionally, the Act provided a mechanism to “grandfather” disclosures made between January 1, 1996 and October 19, 1998, but those actions had to be made within 45 days of the Act.

OTHER EXCLUSIONS

Specific provisions of the Act address statements made in connection with Year 2000 remediation products and services. The law requires that entities issuing statements about such products and services include additional notices indicating that the Act may limit a person’s right to use the statements. The Act also excludes statements made with respect to solicitations, advertisements or offers to sell products or services to consumers. The Act does not affect a party’s intellectual property rights or contractual rights and obligations, nor does it preclude injunctive relief.

CONCLUSION

The Year 2000 Information and Readiness Disclosure Act is an attempt to promote honest and useful disclosures regarding the Year 2000. The Act is not a cure-all and does not provide blanket immunity for all disclosures and statements. The Act can provide important protections, while at the same time promoting a meaningful sharing of information. Whether or not the Act accomplishes these goals remains to be seen.


Provided as an educational service by John Raymond Dunham, III, Esq..

This publication is intended to serve you. If you would like certain topics covered, or have any questions or comments, you are invited to contact Mr. Dunham at: 941.951.1800, Ext. 250, Facsimile: 941.366.1603, E-Mail: jrd@jrdlaw.com, Web site: www.jrdlaw.com or write him at LUTZ, BOBO, TELFAIR, DUNHAM & GABEL, Two North Tamiami Trail, SARASOTA, FLORIDA 34236.

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered and report on issues and developments in the law. It is not intended as legal advice, and should not be relied upon without consulting an attorney.