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106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-212

======================================================================



 
                                Y2K ACT

                                _______
                                

                 June 29, 1999.--Ordered to be printed

                                _______


  Mr. Hyde, from the committee of conference, submitted the following

                           CONFERENCE REPORT

                        [To accompany H.R. 775]

      The committee of conference on the disagreeing votes of 
the two Houses on the amendment of the Senate to the bill (H.R. 
775), to establish certain procedures for civil actions brought 
for damages relating to the failure of any device or system to 
process or otherwise deal with the transition from the year 
1999 to the year 2000, and for other purposes, having met, 
after full and free conference, have agreed to recommend and do 
recommend to their respective Houses as follows:
      That the House recede from its disagreement to the 
amendment of the Senate and agree to the same with an amendment 
as follows:
      In lieu of the matter proposed to be inserted by the 
Senate amendment, insert the following:

SECTION 1. SHORT TITLE; TABLE OF SECTIONS.

      (a) Short Title.--This Act may be cited as the ``Y2K 
Act''.
      (b) Table of Sections.--The table of sections for this 
Act is as follows:
Sec. 1. Short title; table of sections.
Sec. 2. Findings and purposes.
Sec. 3. Definitions.
Sec. 4. Application of Act.
Sec. 5. Punitive damages limitations.
Sec. 6. Proportionate liability.
Sec. 7. Prelitigation notice.
Sec. 8. Pleading requirements.
Sec. 9. Duty to mitigate.
Sec. 10. Application of existing impossibility or commercial 
          impracticability doctrines.
Sec. 11. Damages limitation by contract.
Sec. 12. Damages in tort claims.
Sec. 13. State of mind; bystander liability; control.
Sec. 14. Appointment of special masters or magistrate judges for Y2K 
          actions.
Sec. 15. Y2K actions as class actions.
Sec. 16. Applicability of State law.
Sec. 17. Admissible evidence ultimate issue in State courts.
Sec. 18. Suspension of penalties for certain year 2000 failures by small 
          business concerns.

SEC. 2. FINDINGS AND PURPOSES.

      (a) Findings.--The Congress finds the following:
            (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) If not 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 systems, 
        in the United States and throughout the world.
            (2) It is in the national interest that producers 
        and users of technology products concentrate their 
        attention and resources in the time remaining before 
        January 1, 2000, on assessing, fixing, testing, and 
        developing contingency plans to address any and all 
        outstanding year 2000 computer date-change problems, so 
        as to minimize possible disruptions associated with 
        computer failures.
            (3)(A) Because year 2000 computer date-change 
        problems may affect virtually all businesses and other 
        users of technology products to some degree, there is a 
        substantial likelihood that actual or potential year 
        2000 failures will prompt a significant volume of 
        litigation, much of it insubstantial.
            (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 computer date-change 
                problems and ensuring that systems remain or 
                become operational.
                    (ii) It could threaten the network of 
                valued and trusted business and customer 
                relationships that are important to the 
                effective functioning of the national economy.
                    (iii) It would strain the Nation's legal 
                system, causing particular problems for the 
                small businesses and individuals who already 
                find that system inaccessible because of its 
                complexity and expense.
                    (iv) The delays, expense, uncertainties, 
                loss of control, adverse publicity, and 
                animosities that frequently accompany 
                litigation of business disputes could 
                exacerbate the difficulties associated with the 
                date change and work against the successful 
                resolution of those difficulties.
            (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 initiatives to help 
        businesses prepare and be in a position to withstand 
        the potentially devastating economic impact of such 
        problems.
            (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 complexity and expense.
            (6) Concern about the potential for liability--in 
        particular, concern about the substantial litigation 
        expense associated with defending against even the most 
        insubstantial lawsuits--is prompting many persons and 
        businesses with technical expertise to avoid projects 
        aimed at curing year 2000 computer date-change 
        problems.
            (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 legitimate 
        rights to relief.
            (8) Congress encourages businesses to approach 
        their disputes 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, if 
        necessary, urges the parties to enter into voluntary, 
        non-binding mediation rather than litigation.
      (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 of this Act are--
            (1) to establish uniform legal standards that give 
        all businesses and users of technology products 
        reasonable incentives to solve year 2000 computer date-
        change problems before they develop;
            (2) to encourage continued remediation and testing 
        efforts to solve such problems by providers, suppliers, 
        customers, and other contracting partners;
            (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 and correction 
        of such problems; and
            (4) to lessen the burdens on interstate commerce by 
        discouraging insubstantial lawsuits while preserving 
        the ability of individuals and businesses that have 
        suffered real injury to obtain complete relief.

SEC. 3. DEFINITIONS.

      In this Act:
            (1) Y2K action.--The term ``Y2K action''--
                    (A) means a civil action commenced in any 
                Federal or State court, or an agency board of 
                contract appeal proceeding, 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 or potential Y2K 
                failure;
                    (B) includes a civil action commenced in 
                any Federal or State court by a government 
                entity when acting in a commercial or 
                contracting capacity; but
                    (C) does not include an action brought by 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-related data, including 
        failures--
                    (A) to deal with or account for transitions 
                or comparisons from, into, and between the 
                years 1999 and 2000 accurately;
                    (B) to recognize or accurately to process 
                any specific date in 1999, 2000, or 2001; or
                    (C) accurately to account for the year 
                2000's status as a leap year, including 
                recognition and processing of the correct date 
                on February 29, 2000.
            (3) Government entity.--The term ``government 
        entity'' means an agency, instrumentality, or other 
        entity of Federal, State, or local government 
        (including multijurisdictional agencies, 
        instrumentalities, and entities).
            (4) Material defect.--The term ``material deject'' 
        means a defect in any item, whether tangible or 
        intangible, or in the provision of a service, that 
        substantially prevents the item or service from 
        operating or functioning as designed or according to 
        its specifications. The term ``material defect'' does 
        not include a defect that--
                    (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 efficacy of the service provided.
            (5) Personal injury.--The term ``personal injury'' 
        means physical injury to a natural person, including--
                    (A) death as a result of a physical injury; 
                and
                    (B) mental suffering, emotional distress, 
                or similar injuries suffered by that person in 
                connection with a physical injury.
            (6) State.--The term ``State'' means any State of 
        the United States, the District of Columbia, the 
        Commonwealth of Puerto Rico, the Northern Mariana 
        Islands, the United States Virgin Islands, Guam, 
        American Samoa, and any other territory or possession 
        of the United States, and any political subdivision 
        thereof.
            (7) Contract.--The term ``contract'' means a 
        contract, tariff, license, or warranty.
            (8) Alternative dispute resolution.--The term 
        ``alternative dispute resolution'' means any process or 
        proceeding, other than adjudication by a court or in an 
        administrative proceeding, to assist in the resolution 
        of issues in controversy, through processes such as 
        early neutral evaluation, mediation, minitrial, and 
        arbitration.

SEC. 4. APPLICATION OF ACT.

      (a) General Rule.--This Act applies to any Y2K action 
brought 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 other 
judicial, administrative, or alternative dispute resolution 
proceeding in such an 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 or State law.
      (c) Claims for Personal Injury or Wrongful Death 
Excluded.--This Act does not apply to a claim for personal 
injury or for wrongful death.
      (d) Warranty and Contract 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 of that term would manifestly 
        and directly contravene applicable State law embodied in any 
        statute in effect on January 1, 1999, specifically addressing 
        that term.
            (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 at the time the contract was 
        executed.
            (3) Unconscionability.--Nothing in paragraph (1) 
        shall prevent enforcement of State law doctrines of 
        unconscionability, including adhesion, recognized as of 
        January 1, 1999, in controlling judicial precedent by 
        the courts of the State whose law applies to the Y2K 
        action.
      (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 immunity.
      (f) Application With Year 2000 Information and Readiness 
Disclosure Act.--Nothing in this Act supersedes any provision 
of the Year 2000 Information and Readiness Disclosure Act.
      (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 described in section 3(1)(C).
            (2) Definitions.--In this subsection:
                    (A) Defendant.--
                            (i) In general.--The term 
                        ``defendant'' includes a State or local 
                        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 Commonwealth of 
                        the Northern Mariana Islands.
                            (iii) Local government.--The term 
                        ``local government'' means--
                                    (I) any county, city, town, 
                                township, parish, village, or 
                                other general purpose political 
                                subdivision of a State; and
                                    (II) any combination of 
                                political subdivisions 
                                described in subclause (I) 
                                recognized by the Secretary of 
                                Housing and Urban Development.
                    (B) Y2K upset.--The term ``Y2K upset''--
                            (i) means an exceptional temporary 
                        noncompliance with applicable Federally 
                        enforceable measurement, monitoring, or 
                        reporting requirements directly related 
                        to a Y2K failure that are beyond the 
                        reasonable control of the defendant 
                        charged with compliance; and
                            (ii) does not include--
                                    (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 provided for 
                                the safety and soundness of the 
                                banking or monetary system, or 
                                for the integrity of the 
                                national securities markets, 
                                including the protection of 
                                depositors and investors;
                                    (III) noncompliance with 
                                applicable Federally 
                                enforceable measurement, 
                                monitoring, or reporting 
                                requirements to the extent 
                                caused by operational error or 
                                negligence;
                                    (IV) lack of reasonable 
                                preventative maintenance;
                                    (V) lack of preparedness 
                                for a Y2K failure; or
                                    (VI) noncompliance with the 
                                underlying Federally 
                                enforceable requirements to 
                                which the applicable Federally 
                                enforceable measurement, 
                                monitoring, or reporting 
                                requirement relates.
            (3) Conditions necessary for a demonstration of a 
        y2k upset.--A defendant who wishes to establish the 
        affirmative defense of Y2K upset shall demonstrate, 
        through properly signed, contemporaneous operating 
        logs, or other relevant evidence that--
                    (A) the defendant previously made a 
                reasonable good faith effort to anticipate, 
                prevent, and effectively remediate a potential 
                Y2K failure;
                    (B) a Y2K upset occurred as a result of a 
                Y2K failure or other emergency directly related 
                to a Y2K failure;
                    (C) noncompliance with the applicable 
                Federally enforceable measurement, monitoring, 
                or reporting requirement was unavoidable in the 
                face of an emergency directly related to a Y2K 
                failure and was necessary to prevent the 
                disruption of critical functions or services 
                that could result in harm to life or property;
                    (D) upon identification of noncompliance 
                the defendant invoking the defense began 
                immediate actions to correct any violation of 
                Federally enforceable measurement, monitoring, 
                or reporting requirements; 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 of the upset.
            (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 
        of a penalty in any action brought as a result of 
        noncompliance with Federally enforceable measurement, 
        monitoring, or reporting requirements for any defendant 
        who establishes by a preponderance of the evidence that 
        the conditions set forth in paragraph (3) are met.
            (5) Length of y2k upset.--The maximum allowable 
        length of the Y2K upset shall be not more than 15 days 
        beginning on the date of the upset unless specific 
        relief by the appropriate regulatory authority is 
        granted.
            (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 of title 18, United States 
        Code.
            (7) Expiration of defense.--The Y2K upset defense 
        may not be asserted for a Y2K upset occurring after 
        June 30, 2000.
            (8) Preservation of authority.--Nothing in this 
        subsection shall affect the authority of a government 
        entity to seek injunctive relief or require a defendant 
        to correct a violation of a Federal enforceable 
        measurement, monitoring, or reporting requirement.
      (h) Consumer Protection From Y2K Failures.--
            (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 
        accurately or timely to process any mortgage payment 
        transaction.
            (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 
        accurately or timely to fulfill his or her obligation 
        to pay, of such failure and inability and shall provide 
        to the servicer any available documentation with 
        respect to the failure.
            (3) Actions may resume after grace period.--
        Notwithstanding 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 of time during which 
        to pay the consumer's mortgage obligation, but only 
        after the later of--
                    (A) 4 weeks after January 1, 2000; or
                    (B) 4 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 purposes of this 
                subsection.
            (4) Applicability.--This subsection does not apply 
        to transactions upon which a default has occurred 
        before December 15, 1999, or with respect to which an 
        imminent default was foreseeable before December 15, 
        1999.
            (5) Enforcement of obligations merely tolled.--This 
        subsection delays but does not prevent the enforcement 
        of financial obligations, and does not otherwise affect 
        or extinguish the obligation to pay.
            (6) Definition.--In this subsection--
                    (A) The term ``consumer'' means a natural 
                person.
                    (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 of 1974 (12 
                U.S.C. 2602).
                    (C) The term ``servicer'' means the person, 
                including any successor, responsible for 
                receiving any scheduled periodic payments from 
                a consumer pursuant to the terms of a 
                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 of the mortgage. Such term includes the 
                person, including any successor, who makes or 
                holds a loan if such person also services the 
                loan.
      (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) of this Act, shall not apply.

SEC. 5. PUNITIVE DAMAGES LIMITATIONS.

      (a) In General.--In any Y2K action in which punitive 
damages are permitted by applicable law, the defendant shall 
not be liable for punitive damages unless the plaintiff proves 
by clear and convincing evidence that the applicable standard 
for awarding damages has been met.
      (b) Caps on Punitive Damages.--
            (1) In general.--Subject to the evidentiary 
        standard established by subsection (a), punitive 
        damages permitted under applicable law against a 
        defendant described in paragraph (2) in a Y2K action 
        may not exceed the lesser of--
                    (A) 3 times the amount awarded for 
                compensatory damages; or
                    (B) $250,000.
            (2) Defendant described.--A defendant described in 
        this paragraph is a defendant--
                    (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 50 full-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 intent to injure the 
        plaintiff.
      (c) Government Entities.--Punitive damages in a Y2K 
action may not be awarded against a government entity.

SEC. 6. PROPORTIONATE LIABILITY.

      (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 corresponds 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 of the total fault of 
all persons, including the plaintiff, who caused or contributed 
to the total loss incurred by the plaintiff.
      (b) Proportionate Liability.--
            (1) Determination of responsibility.--In any Y2K 
        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 the plaintiff or 
        plaintiffs, concerning--
                    (A) the percentage of responsibility, if 
                any, of each defendant, measured as a 
                percentage of the total fault of all persons 
                who caused or contributed to the loss incurred 
                by the plaintiff; and
                    (B) if alleged by the plaintiff, whether 
                the defendant (other than a defendant who has 
                entered into a settlement agreement with the 
                plaintiff)--
                            (i) acted with specific intent to 
                        injure the plaintiff; or
                            (ii) knowingly committed fraud.
            (2) Contents of special interrogatories or 
        findings.--The responses to interrogatories or findings 
        under paragraph (1) shall specify the total amount of 
        damages that the plaintiff is entitled to recover and 
        the percentage of responsibility of each defendant 
        found to have caused or contributed to the loss 
        incurred by the plaintiff.
                    (3) Factors for consideration.--In 
                determining the percentage of responsibility 
                under this subsection, the trier of fact 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 of each such 
                person and the damages incurred by the 
                plaintiff.
      (c) Joint Liability for Specific Intent or Fraud.--
            (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 if the trier 
        of fact specifically determines that the defendant--
                    (A) acted with specific intent to injure 
                the plaintiff; or
                    (B) knowingly committed fraud.
            (2) Fraud; recklessness.--
                    (A) Knowing commission of fraud 
                described.--For purposes of subsection 
                (b)(1)(B)(ii) and paragraph (1)(B) of this 
                subsection, a defendant knowingly committed 
                fraud if the defendant--
                    (i) made an untrue statement of a material 
                fact, with actual knowledge that the statement 
                was false;
                    (ii) omitted a fact 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 to rely on the false 
                statement.
                    (B) Recklessness.--For purposes of 
                subsection (b)(1)(B) and paragraph (1) of this 
                subsection, reckless conduct by the defendant 
                does not constitute either a specific intent to 
                injure, or the knowing commission of fraud, by 
                the defendant.
            (3) Right to contribution not affected.--Nothing in 
        this section affects the right, under any other law, of 
        a defendant 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 
        plaintiff or to have knowingly committed fraud.
      (d) Special rules.--
            (1) Uncollectible share.--
                    (A) In general.--Notwithstanding subsection 
                (a), if, upon motion made not later than 6 
                months after a final judgment is entered in any 
                Y2K action that is not a contract action, the 
                court determines that all or part of the share 
                of the judgment against a defendant for 
                compensatory damages is not collectible against 
                that defendant, then each other defendant in 
                the action is liable for the uncollectible 
                share as follows:
                            (i) Percentage of net worth.--The 
                        other defendants are jointly and 
                        severally liable for the uncollectible 
                        share if the plaintiff establishes 
                        that--
                                    (I) the plaintiff is an 
                                individual whose recoverable 
                                damages under the final 
                                judgment are equal to more than 
                                10 percent of the net worth of 
                                the plaintiff; and
                                    (II) the net worth of the 
                                plaintiff is 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 of 
                        responsibility of that defendant.
                            (iii) For a plaintiff not described 
                        in clause (i), in addition to the share 
                        indentified in clause (ii), the 
                        defendant is liable for an additional 
                        portion of the uncollecitble share in 
                        an amount equal to 50 percent of the 
                        amount determined under clause (ii) if 
                        the plaintiff 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 suffered by 
                        the plaintiff.
                    (B) Overall limit.--The total payments 
                required under subparagraph (A) from all 
                defendants may not exceed the amount of the 
                uncollectible share.
                    (C) Subject to contribution.--A defendant 
                against whom judgment is not collectible is 
                subject to contribution and to any continuing 
                liability to the plaintiff on the judgment.
                    (D) Suits by consumers.--
                            (i) Notwithstanding subparagraph 
                        (A), the other defendants are jointly 
                        and severally liable for the 
                        uncollectible share if--
                                    (I) the plaintiff is a 
                                consumer whose suit alleges or 
                                arises out of a defect in a 
                                consumer product; and
                                    (II) the plaintiff is suing 
                                as an individual and not as 
                                part of a class action.
                            (ii) In this subparagraph:
                                    (I) The term ``class 
                                action'' means--
                                            (aa) a single 
                                        lawsuit in which (1) 
                                        damages are sought on 
                                        behalf of more than 10 
                                        persons or prospective 
                                        class members; or (2) 1 
                                        or more named parties 
                                        seek to recover damages 
                                        on a representative 
                                        basis on behalf of 
                                        themselves and other 
                                        unnamed parties 
                                        similarly situated; or
                                            (bb) any group of 
                                        lawsuits filed in or 
                                        pending in the same 
                                        court in which (1) 
                                        damages are sought on 
                                        behalf of more than 10 
                                        persons; and (2) the 
                                        lawsuits are joined, 
                                        consolidated, or 
                                        otherwise proceed as a 
                                        single action for any 
                                        purpose.
                                    (II) The term ``consumer'' 
                                means an individual who 
                                acquires a consumer product for 
                                purposes other than resale.
                                    (III) The term ``consumer 
                                product'' means any personal 
                                property or service which is 
                                normally used for personal, 
                                family, or household purposes.
            (2) Special right of contribution.--To the extent 
        that a defendant is required to make an additional 
        payment under paragraph (1), that defendant may recover 
        contribution--
                    (A) from the defendant originally liable to 
                make the payment;
                    (B) from any other defendant that is 
                jointly and severally liable;
                    (C) from any other defendant held 
                proportionately liable who is liable to make 
                the same payment and has paid less than that 
                other defendant's proportionate share of that 
                payment; or
                    (D) from any other person responsible for 
                the conduct giving rise to the payment that 
                would have been liable to make the same 
                payment.
            (3) Nondisclosure to jury.--The standard for 
        allocation of damages under subsection (a) and 
        subsection (b)(1), and the procedure for reallocation 
        of uncollectible shares under paragraph (1) of this 
        subsection, shall not be disclosed to members of the 
        jury.
      (e) Settlement Discharge.--
            (1) In general.--A defendant who settles a Y2K 
        action that is not a contract action at any time before 
        final verdict or judgment shall be discharged from all 
        claims for contribution brought by other persons. Upon 
        entry of the settlement by the court, the court shall 
        enter an order constituting the final discharge of all 
        obligations to the plaintiff of the settling defendant 
        arising out of the action. The order shall bar all 
        future claims for contribution arising out of the 
        action--
                    (A) by any person against the settling 
                defendant; and
                    (B) by the settling defendant against any 
                person other than a person whose liability has 
                been extinguished by the settlement of the 
                settling defendant.
            (2) Reduction.--If a defendant enters into a 
        settlement with the plaintiff before the final verdict 
        or judgment, the verdict or judgment shall be reduced 
        by the greater of--
                    (A) an amount that corresponds to the 
                percentage of responsibility of that defendant; 
                or
                    (B) the amount paid to the plaintiff by 
                that defendant.
      (f) General Right of Contribution.--
                    (1) In general.--A defendant who is jointly 
                and severally liable for damages in any Y2K 
                action that is not a contract action may 
                recover contribution from any other person who, 
                if joined in the original action, would have 
                been liable for the same damages. A claim for 
                contribution shall be determined based on the 
                percentage of responsibility of the claimant 
                and of each person against whom a claim for 
                contribution is made.
            (2) Statute of limitations for contribution.--An 
        action for contribution in connection with a Y2K action 
        that is not a contract action shall be brought not 
        later than 6 months after the entry of a final, 
        nonappealable judgment in the Y2K action, except that 
        an action for contribution brought by a defendant who 
        was required to make an additional payment under 
        subsection (d)(1) may be brought not later than 6 
        months after the date on which such payment was made.
      (g) More Protective State Law Not Preempted.--Nothing in 
this section preempts or supersedes any provision of State law 
that--
            (1) limits the liability of a defendant in a Y2K 
        action to a lesser amount than the amount determined 
        under this section; or
            (2) otherwise affords a greater degree of 
        protection from joint or several liability than is 
        afforded by this section.

SEC. 7. PRELITIGATION NOTICE.

      (a) In General.--Before commencing a Y2K action, except 
an action that seeks only injunctive relief, a prospective 
plaintiff in a Y2K action shall send a written notice by 
certified mail (with either return receipt requested or other 
means of verification that the notice was sent) to each 
prospective defendant in that action. The notice shall provide 
specific and detailed information about--
            (1) the manifestations of any material defect 
        alleged to have caused harm or loss;
            (2) the harm or loss allegedly suffered by the 
        prospective plaintiff;
            (3) how the prospective plaintiff would like the 
        prospective defendant to remedy the problem;
            (4) the basis upon which the prospective plaintiff 
        seeks that remedy; and
            (5) the name, title, address, and telephone number 
        of any individual who has authority to negotiate a 
        resolution of the dispute on behalf of the prospective 
        plaintiff.
      (b) Person to Whom Notice To Be Sent.--The notice 
required by subsection (a) shall be sent--
            (1) to the registered agent of the prospective 
        defendant for service of legal process;
            (2) if the prospective defendant does not have a 
        registered agent, then to the chief executive officer 
        if the prospective defendant is a corporation, to the 
        managing partner if the prospective defendant is a 
        partnership, to the proprietor if the prospective 
        defendant is a sole proprietorship, or to a similarly-
        situated person if the prospective defendant is any 
        other enterprise; or
            (3) if the prospective defendant has designated a 
        person to receive prelitigation notices on a Year 2000 
        Internet Website (as defined in section 3(7) of the 
        Year 2000 Information and Readiness Disclosure Act), to 
        the designated person, if the prospective plaintiff has 
        reasonable access to the Internet.
      (c) Response to Notice.--
            (1) In general.--Within 30 days after receipt of 
        the notice specified in subsection (a), each 
        prospective defendant shall send by certified mail with 
        return receipt requested to each prospective plaintiff 
        a written statement acknowledging receipt of the 
        notice, and describing the actions it has taken or will 
        take to address the problem identified by the 
        prospective plaintiff.
            (2) Willingness to engage in adr.--The written 
        statement shall state whether the prospective defendant 
        is willing to engage in alternative dispute resolution.
            (3) Inadmissibility.--A written statement required 
        by this subsection is not admissible in evidence, under 
        Rule 408 of the Federal Rules of Evidence or any 
        analogous rule of evidence in any State, in any 
        proceeding to prove liability for, or the invalidity 
        of, a claim or its amount, or otherwise as evidence of 
        conduct or statements made in compromise negotiations.
            (4) Presumptive time of receipt.--For purposes of 
        paragraph (1), a notice under subsection (a) is 
        presumed to be received 7 days after it was sent.
            (5) Priority.--A prospective defendant receiving 
        more than 1 notice under this section may give priority 
        to notices with respect to a product or service that 
        involves a health or safety related Y2K failure.
      (d) Failure to Respond.--If a prospective defendant--
            (1) fails to respond to a notice provided pursuant 
        to subsection (a) within the 30 days specified in 
        subsection (c)(1), or
            (2) does not describe the action, if any, the 
        prospective defendant has taken, or will take, to 
        address the problem identified by the prospective 
        plaintiff,
the prospective plaintiff may immediately commence a legal 
action against that prospective defendant.
      (e) Remediation Period.--
            (1) In general.--If the prospective defendant 
        responds and proposes remedial action it will take, 
        or offers to engage in alternative dispute resolution, then the 
        prospective plaintiff shall allow the prospective defendant an 
        additional 60 days from the end of the 30-day notice period to 
        complete the proposed remedial action or alternative dispute 
        resolution before commencing a legal action against that 
        prospective defendant.
            (2) Extension by agreement.--The prospective 
        plaintiff and prospective defendant may change the 
        length of the 60-day remediation period by written 
        agreement.
            (3) Multiple extensions not allowed.--Except as 
        provided in paragraph (2), a defendant in a Y2K action 
        is entitled to no more than one 30-day period and one 
        60-day remediation period under paragraph (1).
            (4) Statutes of limitation, etc., tolled.--Any 
        applicable statute of limitations or doctrine of laches 
        in a Y2K action of which paragraph (1) applies shall be 
        tolled during the notice and remediation period under 
        that paragraph.
      (f) Failure to Provide Notice.--If a defendant determines 
that a plaintiff has filed a Y2K action without providing the 
notice specified in subsection (a) or without awaiting the 
expiration of the appropriate waiting period specified in 
subsection (c), the defendant may treat the plaintiff's 
complaint as such a notice by so informing the court and the 
plaintiff in its initial response to the plaintiff. If any 
defendant elects to treat the complaint as such a notice--
            (1) the court shall stay all discovery and all 
        other proceedings in the action for the appropriate 
        period after filing of the complaint; and
            (2) the time for filing answers and all other 
        pleadings shall be tolled during the appropriate 
        period.
      (g) Effect of Contractual or Statutory Waiting Periods.--
In cases in which a contract, or a statute enacted before 
January 1, 1999, requires notice of non-performance and 
provides for a period of delay prior to the initiation of suit 
for breach or repudiation of contract, the period of delay 
provided by contract or the statute is controlling over the 
waiting period specified in subsections (c) and (d).
      (h) State Law Controls Alternative Methods.--Nothing in 
this section supersedes or otherwise preempts any State law or 
rule of civil procedure with respect to the use of alternative 
dispute resolution for Y2K actions.
      (i) Provisional Remedies Unaffected.--Nothing in this 
section interferes with the right of a litigant to provisional 
remedies otherwise available under Rule 65 of the Federal Rules 
of Civil Procedure or any State rule of civil procedure 
providing extraordinary or provisional remedies in any civil 
action in which the underlying complaint seeks both injunctive 
and monetary relief.
      (j) Special Rule for Class Actions.--For the purpose of 
applying this section to a Y2K action that is maintained as a 
class action in Federal or State court, the requirements of the 
preceding subsections of this section apply only to named 
plaintiffs in the class action.

SEC 8. PLEADING REQUIREMENTS

      (a) Application With Rules of Civil Procedure.--This 
section applies exclusively to Y2K actions and, except to the 
extent that this section requires additional information to be 
contained in or attached to pleadings, nothing in this section 
is intended to amend or otherwise supersede applicable rules of 
Federal or State civil procedures.
      (B) Nature and Amount of Damages.--In all Y2K actions in 
which damages are requested, there shall be filed with the 
complaint a statement of specific information as to the nature 
and amount of each element of damages and the factual basis for 
the damages calculation.
      (C) Material Defects.--In any Y2K action in which the 
plaintiff alleges that there is a material defectin a product 
or service, there shall be filed with the complaint a statement of 
specific information regarding the manifestations of the material 
defects and the facts supporting a conclusion that the defects are 
material.
      (d) Required State of Mind.--In any Y2K action in which a 
claim is asserted on which the plaintiff may prevail only on 
proof that the defendant acted with a particular state of mind, 
there shall be filed with the complaint, with respect to each 
element of that claim, a statement of the facts giving rise to 
a strong inference that the defendant acted with the required 
state of mind.

SEC. 9. DUTY TO MITIGATE.

      (A) In General.--Damages awarded in any Y2K action shall 
exclude compensation for damages the plaintiff could reasonably 
have avoided in light of any disclosure or other information of 
which the plaintiff was, or reasonably should have been, aware, 
including information made available by the defendant to 
purchasers or users of the defendant's product or services 
concerning means of remedying or avoiding the Y2K failure 
involved in the action.
      (b) Preservation of Existing Law.--The duty imposed by 
this section is in addition to any duty to mitigate imposed by 
State law.
      (c) Exception for Intentional Fraud.--Subsection (a) does 
not apply to damages suffered by reason of the plaintiff's 
justifiable reliance upon an affirmative material 
misrepresentation by the defendant, made by the defendant with 
actual knowledge of its falsity, concerning the potential for 
Y2K failure of the device or system used or sold by the 
defendant that experienced the Y2K failure alleged to have 
caused the plaintiff's harm.

SEC. 10. APPLICATION OF EXISTING IMPOSSIBILITY OR COMMERCIAL 
                    IMPRACTICABILITY DOCTRINES.

      In any Y2K action for breach or repudiation of contract, 
the applicability of the doctrines of impossibility and 
commercial impracticability shall be determined by the law in 
existence on January 1, 1999. Nothing in this Act shall be 
construed as limiting or impairing a party's right to assert 
defenses based upon such doctrines.

SEC. 11. DAMAGES LIMITATION BY CONTRACT.

      In any Y2K action for breach or repudiation of contract, 
no party may claim, or be awarded, any category of damages 
unless such damages are allowed--
            (1) by the express terms of the contract; or
            (2) if the contract is silent on such damages, by 
        operation of State law at the time the contract was 
        effective or by operation of Federal law.

SEC. 12. DAMAGES IN TORT CLAIMS.

      (a) In General.--A party to a Y2K action making a tort 
claim, other than a claim of intentional tort arising 
independent of a contract, may not recover damages for economic 
loss unless--
            (1) the recovery of such losses is provided for in 
        a contract to which the party seeking to recover such 
        losses is a party, or
            (2) such losses result directly from damage to 
        tangible personal or real property caused by the Y2K 
        failure involved in the action (other than damage to 
        property that is the subject of the contract between 
        the parties to the Y2K action or, in the event there is 
        no contract between the parties, other than damage 
        caused only to the property that experienced the Y2K 
        failure),

and such damages are permitted under applicable Federal or 
State law.
      (b) Economic Loss.--For purposes of this section only, 
and except as otherwise specifically provided in a valid and 
enforceable written contract between the plaintiff and the 
defendant in a Y2K action, the term ``economic loss'' means 
amounts awarded to compensate an injured party for any loss, 
and includes amounts awarded for damages such as--
            (1) lost profits or sales;
            (2) business interruption;
            (3) losses indirectly suffered as a result of the 
        defendant's wrongful act or omission;
            (4) losses that arise because of the claims of 
        third parties;
            (5) losses that must be pled as special damages; 
        and
            (6) consequential damages (as defined in the 
        Uniform Commercial Code or analogous State commercial 
        law).
      (c) Certain Other Actions.--A person liable for damages, 
whether by settlement or judgment, in a civil action to which 
this Act does not apply because of section 4(c) whose 
liability, in whole or in part, is the result of a Y2K failure 
may, notwithstanding any other provision of this Act, pursue 
any remedy otherwise available under Federal or State law 
against the person responsible for that Y2K failure to the 
extent of recovering the amount of those damages.

SEC. 13. STATE OF MIND; BYSTANDER LIABILITY; CONTROL.

      (a) Defendant's State of Mind.--In a Y2K action other 
than a claim for breach or repudiation of contract, and in 
which the defendant's actual or constructive awareness of an 
actual or potential Y2K failure is an element of the claim, the 
defendant is not liable unless the plaintiff establishes that 
element of the claim by the standard of evidence under 
applicable State law in effect on the day before January 1, 
1999.
      (b) Limitation on Bystander Liability for Y2K Failures.--
            (1) In general.--With respect to any Y2K action for 
        money damages in which--
                    (A) the defendant is not the manufacturer, 
                seller, or distributor of a product, or the 
                provider of a service, that suffers or causes 
                the Y2K failure at issue,
                    (B) the plaintiff is not in substantial 
                privity with the defendant, and
                    (C) the defendant's actual or constructive 
                awareness of an actual or potential Y2K failure 
                is an element of the claim under applicable 
                law,

        the defendant shall not be liable unless the plaintiff, 
        in addition to establishing all other requisite 
        elements of the claim, proves, by the standard of 
        evidence under applicable State law in effect on the 
        day before January 1, 1999, that the defendant actually 
        knew, or recklessly disregarded a known and substantial 
        risk, that such failure would occur.
            (2) Substantial privity.--For purposes of paragraph 
        (1)(B), a plaintiff and a defendant are in substantial 
        privity when, in a Y2K action arising out of the 
        performance of professional services, the plaintiff and 
        the defendant either have contractual relations with 
        one another or the plaintiff is a person who, prior to 
        the defendant's performance of such services, was 
        specifically identified to and acknowledged by the 
        defendant as a person for whose special benefit the 
        services were being performed.
            (3) Certain claims excluded.--For purposes of 
        paragraph (1)(C), claims in which the defendant's 
        actual or constructive awareness of an actual or 
        potential Y2K failure is an element of the claim under 
        applicable law do not include claims for negligence but 
        do include claims such as fraud, constructive fraud, 
        breach of fiduciary duty, negligent misrepresentation, 
        and interference with contract or economic advantage.
      (c) Control Not Determinative of Liability.--The fact 
that a Y2K failure occurred in an entity, facility, system, 
product, or component that was sold, leased, rented, or 
otherwise within the control of the party against whom a claim 
is asserted in a Y2K action shall not constitute the sole basis 
for recovery of damages in that action. A claim in a Y2K action 
for breach or repudiation of contract for such a failure is 
governed by the terms of the contract.
      (d) Protections of the Year 2000 Information and 
Readiness Disclosure Act Apply.--The protections for the 
exchanges of information provided by section 4 of the Year 2000 
Information and Readiness Disclosure Act (Public Law 105-271) 
shall apply to any Y2K action.

SEC. 14. APPOINTMENT OF SPECIAL MASTERS OR MAGISTRATE JUDGES FOR Y2K 
                    ACTIONS.

      Any district court of the United States in which a Y2K 
action is pending may appoint a special master or a magistrate 
judge to hear the matter and to make findings of fact and 
conclusions of law in accordance with Rule 53 of the Federal 
Rules of Civil Procedure.

SEC. 15. Y2K ACTIONS AS CLASS ACTIONS.

      (a) Material Defect Requirement.--A Y2K action involving 
a claim that a product or service is defective may be 
maintained as a class action in Federal or State court as to 
that claim only if--
          (1) it satisfies all other prerequisites established 
        by applicable Federal or State law, including 
        applicable rules of civil procedure; and
          (2) the court finds that the defect in a product or 
        service as alleged would be a material defect for the 
        majority of the members of the class.
      (b) Notification.--In any Y2K action that is maintained 
as a class action, the court, in addition to any other notice 
required by applicable Federal or State law, shall direct 
notice of the action to each member of the class, which shall 
include--
          (1) a concise and clear description of the nature of 
        the action;
          (2) the jurisdiction where the case is pending; and
          (3) the fee arrangements with class counsel, 
        including the hourly fee being charged, or, if it is a 
        contingency fee, the percentage of the final award 
        which will be paid, including an estimate of the total 
        amount that would be paid if the requested damages were 
        to be granted.
      (c) Forum for Y2K Class Actions.--
          (1) Jurisdiction.--Except as provided in paragraph 
        (2), the district courts of the United States shall 
        have original jurisdiction of any Y2K action that is 
        brought as a class action.
          (2) Exceptions.--The district courts of the United 
        States shall not have original jurisdiction over a Y2K 
        action brought as a class action if--
                  (A)(i) a substantial majority of the members 
                of the proposed plaintiff class are citizens of 
                a single State;
                  (ii) the primary defendants are citizens of 
                that State; and
                  (iii) the claims asserted will be governed 
                primarily by the laws of that State;
                  (B) the primary defendants are States, State 
                officials, or other governmental entities 
                against whom the district courts of the United 
                States may be foreclosed from ordering relief;
                  (C) the plaintiff class does not seek an 
                award of punitive damages, and the amount in 
                controversy is less than the sum of $10,000,000 
                (exclusive of interest and costs), computed on 
                the basis of all claims to be determined in the 
                action; or
                  (D) there are less than 100 members of the 
                proposed plaintiff class.

        A party urging that any exception described in 
        subparagraph (A), (B), (C), or (D) applies to an action 
        shall bear the full burden of demonstrating the 
        applicability of the exception.
          (3) Procedure if requirements not met.--
                  (A) dismissal or remand.--A United States 
                district court shall dismiss, or, if after 
                removal, strike the class allegations and 
                remand, any Y2K action brought or removed under 
                this subsection as a class action if--
                          (i) the action is subject to the 
                        jurisdiction of the court solely under 
                        this subsection; and
                          (ii) the court determines the action 
                        may not proceed as a class action based 
                        on a failure to satisfy the conditions 
                        of Rule 23 of the Federal Rules of 
                        Civil Procedure.
                  (B) Amendment; removal.--Nothing in paragraph 
                (A) shall prohibit plaintiffs from filing an 
                amended class action in Federal or State court. 
                A defendant shall have the right to remove such 
                an amended class action to a United States 
                district court under this subsection.
                  (C) Period of limitations tolled.--Upon 
                dismissal or remand, the period of limitations 
                for any claim that was asserted in an action on 
                behalf of any named or unnamed member of any 
                proposed class shall be deemed tolled to the 
                full extent provided under Federal law.
                  (D) Dismissal without prejudice.--The 
                dismissal of a Y2K action under subparagraph 
                (A) shall be without prejudice.
      (d) Effect on Rules of Civil Procedure.--Except as 
otherwise provided in this section, nothing in this section 
supersedes any rule of Federal or State civil procedure 
applicable to class actions.

SEC. 16. APPLICABILITY OF STATE LAW.

      Nothing in this Act shall be construed to affect the 
applicability of any State law that provides stricter limits on 
damages and liabilities, affording greater protection to 
defendants in Y2K actions, than are provided in this Act.

SEC. 17. ADMISSIBLE EVIDENCE ULTIMATE ISSUE IN STATE COURTS.

      Any party to a Y2K action in a State court in a State 
that has not adopted a rule of evidence substantially similar 
to Rule 704 of the Federal Rules of Evidence may introduce in 
such action evidence that would be admissible if Rule 704 
applied in that jurisdiction.

SEC. 18. SUSPENSION OF PENALTIES FOR CERTAIN YEAR 2000 FAILURES BY 
                    SMALL BUSINESS CONCERNS.

      (a) Definitions.--In this section--
            (1) the term ``agency'' means any executive agency, 
        as defined in section 105 of title 5, United States 
        Code, that has the authority to impose civil penalties 
        on small business concerns;
            (2) the term ``first-time violation'' means a 
        violation by a small business concern of a federally 
        enforceable rule or regulation (other than a Federal 
        rule or regulation that relates to the safety and 
        soundness of the banking or monetary system or for the 
        integrity of the National Securities markets, including 
        protection of depositors and investors) caused by a Y2K 
        failure if that Federal rule or regulation has not been 
        violated by that small business concern within the 
        preceding 3 years; and
            (3) the term ``small business concern'' has the 
        same meaning as a defendant described in section 
        5(b)(2)(B).
      (b) Establishment of Liaisons.--Not later than 30 days 
after the date of enactment of this Act, each agency shall--
            (1) establish a point of contact with the agency to 
        act as a liaison between the agency and small business 
        concerns with respect to problems arising out of Y2K 
        failures and compliance with Federal rules or 
        regulations; and
            (2) publish the name and phone number of the point 
        of contact for the agency in the Federal Register.
      (c) General Rule.--Subject to subsections (d) and (e), no 
agency shall impose any civil money penalty on a small business 
concern for a first-time violation.
      (d) Standards for Waiver.--An agency shall provide a 
waiver of civil money penalties for a first-time violation, 
provided that a small business concern demonstrates, and the 
agency determines, that--
            (1) the small business concern previously made a 
        reasonable good faith effort to anticipate, prevent, 
        and effectively remediate a potential Y2K failure;
            (2) a first-time violation occurred as a result of 
        the Y2K failure of the small business concern or other 
        entity, which significantly affected the small business 
        concern's ability to comply with a Federal rule or 
        regulation;
            (3) the first-time violation was unavoidable in the 
        face of a Y2K failure or occurred as a result of 
        efforts to prevent the disruption of critical functions 
        or services that could result in harm to life or 
        property;
            (4) upon identification of a first-time violation, 
        the small business concern initiated reasonable and 
        prompt measures to correct the violation; and
            (5) the small business concern submitted notice to 
        the appropriate agency of the first-time violation 
        within a reasonable time not to exceed 5 business days 
        from the time that the small business concern became 
        aware that the first-time violation had occurred.
      (e) Exceptions.--An agency may impose civil money 
penalties authorized under Federal law on a small business 
concern for a first-time violation if--
            (1) the small business concern's failure to comply 
        with Federal rules or regulations resulted in actual 
        harm, or constitutes or creates an imminent threat to 
        public health, safety, or the environment; or
            (2) the small business concern fails to correct the 
        violation not later than 1 month after initial 
        notification to the agency.
      (f) Expiration.--This section shall not apply to first-
time violations caused by a Y2K failure occurring after 
December 31, 2000.

      And the Senate agree to the same.
      From the Committee on the Judiciary:
                                   Henry Hyde,
                                   F. James Sensenbrenner, Jr.,
                                   Bob Goodlatte,
                From the Committee on Commerce, for 
                consideration of section 18 of the Senate 
                amendment:
                                   Tom Bliley,
                                   Michael G. Oxley,
                                 Managers on the Part of the House.

                From the Committee on Commerce, Science, and 
                Transportation:
                                   John McCain,
                                   Ted Stevens,
                                   Conrad Burns,
                                   Slade Gorton,
                                   Ron Wyden,
                From the Committee on the Judiciary:
                                   Orrin Hatch,
                                   Strom Thurman,
                From the Special Committee on the Year 2000 
                Technology Problem:
                                   Robert F. Bennett,
                                   Christopher Dodd,
                                Managers on the Part of the Senate.

       JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE

      The managers on the part of the House and Senate at the 
conference on the disagreeing vote of the two Houses on the 
amendment of the Senate to the bill (H.R. 775), to establish 
certain procedures for civil actions brought for damages 
relating to the failure of any device or system to process or 
otherwise deal with the transition from the year 1999 to the 
year 2000, and for other purposes, submit the following joint 
statement to the House and Senate in explanation of the effects 
of the action agreed upon by the managers and recommended in 
the accompanying report.
      The House recedes from its disagreement to the amendment 
of the Senate with an amendment that is a substitute for the 
House bill and the Senate amendment. The differences between 
the House bill, the Senate amendment, and the substitute agreed 
to in conference are noted below, except for clerical 
corrections, conforming changes made necessary by agreements 
reached by the conferees, and minor drafting and clerical 
changes.

                        definition of y2k action

      The House and Senate versions had different definitions 
of Y2K action. The conferees agreed to a definition that makes 
the intended scope of the Act clear. The modified definition 
includes actions that involve both actual and potential 
failures that could occur or cause harm before January 1, 2003. 
The conferees want to ensure that the Act applies to those 
cases involving questions such as the determination of 
liability to shareholders or responsibility for the costs of 
remediation even when there is no actual Y2K failure. 
Additionally, the conferees note that there have already been 
many cases filed involving Y2K issues in which there has been 
no actual failure but only potential, prospective, or 
anticipated failures. The conferees intend to include these 
types of cases within the scope of the Act.

                         financial institutions

      The Senate amendment to H.R. 775 contained an amendment 
by Senator Inhofe, incorporating language proposed by Senator 
Hollings, to ensure that a homeowner cannot be foreclosed upon 
due to a Y2K failure. The conferees agree that the actual 
language adopted was broader than the intent stated by Senator 
Hollings, and after consultation with the Federal Deposit 
Insurance Corporation, and the House Committee on Banking and 
Financial Services and the Senate Committee on Banking, 
Housing, and Urban Affairs, the conferees have agreed to modify 
section 4(h) of the Senate amendment. It is the conferees' 
intent that the section, as modified, will provide the 
protections proposed by Senator Hollings withoutaffecting all 
financial transactions, including those which do not involve either a 
consumer/homeowner or an actual Y2K failure.
      The modified language limits the applicability of the 
protections to residential mortgages. It requires the consumer 
to provide notice of the Y2K failure and of the consumer's 
inability to timely fulfill his or her obligation to pay. The 
modified language also limits the applicability of this 
subsection to transactions occurring between December 16, 1999, 
and March 15, 2000.

                             other matters

      The conferees agree that while other differences exist 
between the House bill and the Senate amendment, many of these 
differences do not reflect a difference in intent. For example, 
the House bill contained a definition of ``damages'' while the 
Senate amendment does not. The conference substitute does not 
include a definition of ``damages'' because the conferees agree 
that the House definition is self-evident in actual practice 
and under State law, so that the definition is unnecessary.

                           application of act

      The conferees agreed to add language to section 4, 
relating to the scope of application of the Act, to make it 
clear that in any Y2K action that arises under the securities 
laws, the provisions of the Act (other than section 13(b)) do 
not apply.

                         y2k upset protections

      The conference substitute includes the Inhofe amendment 
with modifications. The purpose of the Inhofe amendment is to 
waive penalties for limited, exceptional and temporary 
noncompliance with federally enforceable measurement, 
monitoring, or reporting requirements, for which there was 
otherwise no violation of the underlying substantive federally 
enforceable regulation. For example, in the environmental 
arena, because of a Y2K failure, a facility's monitoring or 
reporting equipment fails to operate properly; the facility 
continues to function normally and all applicable pollution 
standards or limits are otherwise met. In that situation, the 
facility would get the benefit of the waiver provided it met 
the conditions set forth under this section. However, if, aside 
from the monitoring or reporting requirements, the facility has 
violated the underlying federally enforceable requirement to 
which the monitoring or reporting requirement related, or if 
there was actual or imminent harm to the public health, safety, 
or the environment, the facility would not get the benefit of 
the defense.
      The phrase ``measurement, monitoring, or reporting'' 
broadly covers a range of federal requirements, but not every 
term need apply to every federal program. For example, the term 
``measurement'' is not intended to apply to federal 
environmental statutes.

                        proportionate liability

      Prior to the conference, the House version of the 
Proportionate Liability section provided that a defendant would 
only be responsible for that portion of a Y2K claim that 
corresponds to the defendant's percentage of responsibility for 
the harm experienced by the plaintiff. This provision would 
supersede existing laws imposing joint and several liability on 
defendants. The Senate amendment was substantially similar in 
the scope of the general rule but added several exceptions to 
it. The conference substitute incorporates a number of 
modifications, as follows:
      Under the original Senate formulation, in most 
circumstances, a defendant would only be proportionately liable 
for the damages for which the defendant was responsible. The 
proportion of responsibility would be based as a ``percentage 
of the total fault of all persons, including the plaintiff, who 
caused or contributed to the total loss incurred by the 
plaintiff.'' If alleged by the plaintiff, the fact-finder would 
also have to make a determination of whether the defendant 
``acted with specific intent to injure the plaintiff'' or 
knowingly committed fraud. If the fact-finder answers either of 
those two questions in the affirmative, then that individual 
defendant will remain jointly and severally liable for the 
plaintiff's damages. Subsection (c)(2)(A) defines the 
circumstance under which a defendant commits knowing fraud for 
purposes of this section. Subsection (c)(2)(B) makes clear that 
simply reckless conduct by the defendant is not enough to 
trigger the knowing fraud definition of this section.
      The other two exceptions to proportional liability 
contained within the original Senate amendment deal with what 
happens when there is an uncollectible share of liability. The 
original formulation of the uncollectible share exception 
provided that a defendant would be liable for an uncollectible 
share in proportion to that defendant's total responsibility 
but the defendant's total liability for the uncollectible share 
could not exceed 50 percent of that defendant's proportionate 
share. The second exception deals with when there is an 
uncollectible share and ``the plaintiff is an individual whose 
recoverable damages under the final judgment are equal to more 
than 10 percent of the net worth of the plaintiff'' and the 
plaintiff's overall net worth is less than $200,000. In the 
second case, all other defendants remain entirely jointly and 
severally liable for the uncollectible share.
      The additional amendment proposed by the Senate and 
agreed to by the House conferees modifies the general rule for 
uncollectible shares. Under this amendment, a defendant would 
be liable for an additional 100 percent of its proportionate 
share as applied to the uncollectible share, rather than being 
liable for only up to 50 percent of the defendant's 
proportionate share. In addition, the amendment holds a 
defendant liable for an additional 50 percent of that 
defendant's proportionate share of the uncollectible amounts if 
that defendant acted with reckless disregard for the likelihood 
that the defendant's acts would cause the harm or loss suffered 
by the plaintiff. The amendment also permits certain plaintiffs 
who are individual consumers and who bring individual suits, 
rather than class actions, to hold other defendants liable for 
uncollectible shares consistent with state law.
      The original Senate amendment also contains provisions 
dealing with settlement discharge and a defendant's right to 
contribution from fellow defendants. Subsection (e) indicates 
that a defendant may settle a Y2K action at any time before a 
final verdict or judgment is reached and such a defendant will 
be discharged from all contribution claims brought by other 
persons. The amendment alsomakes clear that a defendant who, 
because of the exceptions contained in the amendment, becomes jointly 
and severally liable for a portion of the plaintiff's damages, may 
recover contribution from any other person who would have been liable 
for the plaintiff's damages. The determination of a claim for 
contribution must be based on the percentage of responsibility of the 
defendant ``against whom a claim for contribution is made.''
      The conference agreement makes clear that State laws are 
not preempted. This section does not preempt State statutes 
that limit a defendant's liability to a lesser amount than that 
determined under this section or otherwise provide greater 
protection to a defendant from joint and several liability.
      The general intent behind this section is to impose 
proportional liability upon a defendant rather than joint and 
several liability. The conferees are of the view, except for 
limited exceptions, that it is inherently unfair to hold a 
defendant that has limited culpability liable for the entire 
amount of the judgment obtained by the plaintiff. This section 
does not allow defendants to transfer the amount of their 
responsibility to other parties. Rather, this section 
recognizes and holds defendants liable for the actual amount of 
harm they actually caused, and for orphan shares of individual 
consumers.
      The original exceptions contained in the Senate amendment 
as well as the subsequent Senate amendment agreed to by the 
House conferees, provides a limited escape route for plaintiffs 
that could be grossly disadvantaged by a pure formulation of 
proportional liability. These exceptions only apply in the 
context of when the defendant engaged in especially egregious 
conduct or when the damages awarded to the plaintiff may not be 
entirely recoverable due to a defendant's insolvency or other 
problem in paying.

                            duty to mitigate

      Prior to the conference, the House version of the Duty to 
Mitigate section stated the duty of plaintiffs to avoid damages 
which ``could reasonably have been avoided in light of any 
disclosure or other information'' including information made 
available by the defendant. The Senate Amendment was 
substantially identical except for its reference to ``Y2K 
action'' rather than the House version's ``Y2K claim.'' The 
House conferees agreed to recede to the Senate formulation. The 
Senate proposed an additional amendment that was agreed to by 
the House.
      The additional amendment kept the Senate formulation 
substantially intact but added 2 new subsections. Subsection 
(b) includes the plaintiffs duty to mitigate but makes clear 
that the Federal mitigation requirement is in addition to any 
State mitigation requirement. Subsection (c) provides an 
exception to the plaintiff's affirmative duty to mitigate where 
the plaintiffs has relied on the defendant's fraudulent 
representations regarding the Y2K readiness of the product that 
is the basis of the plaintiff's suit.
      This provision is intended to further this legislation's 
fundamental goal of Y2K remediation. This section affirms State 
law that requires plaintiffs to take reasonable steps to limit 
their damages. The amendments agreed to by the conferees 
provide that in limited circumstances where the defendants are 
engaged in egregious conduct, a plaintiff will be relieved of 
this affirmative duty.
      Section 9 affirms, at the Federal level, the Uniform 
Commercial Code provisions addressing the responsibility of 
plaintiffs to limit their damages by obtaining other conforming 
goods (UCC Sec. 2-712, duty to ``cover'') and limitations on a 
buyer's consequential damages to those which could not have 
``reasonably'' been prevented. These concepts establish an 
independent affirmative responsibility on buyers. The basis for 
this responsibility to avoid ``losses that reasonably could 
have been prevented'' arises without reference to any action by 
the seller/defendant. Section 9, as amended by the conferees, 
recognizes the unprecedented risk attaching to Y2K and 
accordingly adds to these established Uniform Commercial Code 
principles in one significant way. The section extends the 
concept of mitigation to events occurring prior to the actual 
tort or contractual breach.

                             economic loss

      Both the House and Senate bills included language to 
codify the economic loss rule. That rule states that a party 
who has suffered only economic damages must generally sue to 
recover those damages under contract, not tort, law. The House 
version, however excepted all intentional torts from the scope 
of the rule while the Senate version did not expressly address 
intentional torts. The Senate and House agree to an amendment 
that clarifies this exception to the economic loss rule. Under 
the conference substitute, the economic loss rule applies to 
all torts except intentional torts arising independent of a 
contract. This codifies the rapidly emerging trend in State law 
to apply the economic loss rule to bar intentional tort claims, 
such as fraud claims, where such claims are intrinsic to, or 
indistinguishable from, an underlying contractual dispute 
between the parties. Simply put, breach of contract, 
intentional or otherwise, does not generally give rise to a 
tort claim; it is simply breach of contract. If, however, there 
is an intentional tort that is extraneous to the underlying 
contract claim, this section will not limit a party's ability 
to recover economic losses under applicable law.

                   warranty and contract preservation

      The intent of section 4(d) of the conference substitute 
is to enhance business certaintly and discourage frivolous 
lawsuits that attempt to undermine established contractual 
relationships. This section makes clear that contract terms and 
provisions shall be fully enforced so contracting entities have 
the benefit of their bargains. The mere fact that a Y2K-related 
problem arises should not cause courts to disregard or diminish 
enforceable contract terms unless those terms are directly 
contrary to a specific statute. Thus, exclusions of liability, 
disclaimers of warranty and similar limitations will be 
recognized and enforced as written. The conferees, however, 
agreed to an amendment that clarifies that this section does 
not make enforceable contract terms that are otherwise 
unenforceable under State law doctrines of unconscionability, 
including adhesion, recognized as of January 1, 1999 under 
controlling judicial precedent.

                          application of irda

      The conferees agreed to an amendment to section 13 of the 
Senate amendment to make it clear that the protection for 
exchanges of information provided by the Year 2000 Information 
and Readiness Disclosure Act apply to Y2K actions under the 
Act.

         technical change to section 16 (the allard amendment)

      The conference substitute contains a technical change to 
section 16 which will prevent any potential misinterpretation 
of this section. The intent of section 16, which is the text of 
an amendment offered to S. 96 by Senator Allard, is to clarify 
that nothing in this Act will preempt or prevent the 
applicability of any State law which imposes more restrictive 
limits on damages and liabilities than the limits provided for 
in this Act. The original wording, ``greater limits,'' left 
room for confusion and possible misinterpretation by providing 
an opportunity for argument that any State law with higher 
limits on damages and liabilities would supersede this Act. 
Because this Act supersedes any State law which allows a 
plaintiff to pursue or collect any amount in damages or 
liabilities which are above and beyond the amounts provided for 
in this Act, the conferees want to clarify the wording of this 
section. The new wording, ``stricter limits,'' coupled with the 
language ``affording greater protection to defendants in Y2K 
actions'' than would be afforded under the Act, ensures that 
this Act grants deference only to State laws which cap damages 
and liabilities at a lower amount than provided for in this 
Act.

                From the Committee on the Judiciary:
                                   Henry Hyde,
                                   F. James Sensenbrenner, Jr.,
                                   Bob Goodlatte,
                From the Committee on Commerce, for 
                consideration of section 18 of the Senate 
                amendment:
                                   Tom Bliley,
                                   Michael G. Oxley,
                                 Managers on the Part of the House.

                From the Committee on Commerce, Science, and 
                Transportation:
                                   John McCain,
                                   Ted Stevens,
                                   Conrad Burns,
                                   Slade Gorton,
                                   Ron Wyden,
                From the Committee on the Judiciary:
                                   Orrin Hatch,
                                   Strom Thurmond,
                From the Special Committee on the Year 2000 
                Technology Problem:
                                   Robert F. Bennett,
                                   Christopher Dodd,
                               Managers on the Part of the Senate .