EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF MANAGEMENT AND BUDGET WASHINGTON, D.C. 20503

STATEMENT OF ADMINISTRATION POLICY
(THIS STATEMENT HAS BEEN COORDINATED BY OMB WITH THE CONCERNED AGENCIES.)

May 11, 1999 (House)

H.R. 775 - Year 2000 Readiness and Responsibility Act (Davis (R-VA) and 92 cosponsors)

The Administration strongly opposes H.R. 775 as reported by the House Judiciary Committee. If H.R. 775 were presented to the President in its current form, his senior advisors would recommend that he veto the bill. The Administration understands that Representatives Lofgren, Conyers, and Boucher will propose an amendment, which satisfactorily addresses many of its concerns and which we can support. The Administration is eager to work on a bipartisan basis to develop legislation to address the concerns about potential Y2K related litigation. The attached May 11, 1999 letter sets forth elements of such a proposal that the President would support. The Administration's overriding concern is that H.R. 775, in its current form, will not enhance readiness and may, in fact, decrease the incentives organizations have to assist customers and business partners to be ready for the transition to the next century. The Administration's main goal is to ensure that all organizations -- private, public, and governmental -- do everything they can between now and the end of this year to ensure that their systems and those of their customers and suppliers are made Year 2000 compliant. The Administration recognizes both the importance of discouraging frivolous litigation and the need to keep the courts available for legitimate claims, especially those brought by small businesses and consumers with limited resources to press their cause. However, this bill, would result in the most sweeping litigation reform of any of the Y2K liability bills under consideration, and would be perhaps the most sweeping litigation measure ever enacted if approved in its current form. This legislation goes far beyond what is reasonably necessary to address litigation concerns associated with Y2K computer problems. This measure would protect defendants in Y2K actions by capping punitive damages and by limiting the extent of their liability to their proportional share of damages, but would not link these benefits to those defendants' efforts to solve their customers' Y2K problems now. As a result, H.R. 775 would reduce the liability these defendants may face, even if they do nothing, and accordingly undermine their incentives to act now -- when the damage due to Y2K failures can still be averted or minimized. H.R. 775 has a number of provisions that will do little or nothing to encourage remediation. For example, H.R. 775 federalizes Y2K class actions by allowing removal of almost all of them to Federal court, without any evidence that such wholesale interference with state court proceedings will discourage frivolous lawsuits or encourage settlement of disputes without litigation. Similarly, the bill limits the liability of officers and directors without tying the limits to the defendants' efforts to fix their Y2K problems. The bill creates a reasonable efforts defense to tort claims, and perhaps even to contract claims, thus imposing the entire burden of damages on innocent plaintiffs instead of on the defendants who caused the harm. These provisions are likely to create disincentives to remediation. Finally, the bill's coverage is unnecessarily broad. It does not specifically exempt securities lawsuits, which are already subject to significant reforms imposed in 1995 and 1998 designed to deter frivolous claims; and it extends all of its provisions beyond the commercial context to consumer claims. The Administration could support the Lofgren, Conyers, and Boucher amendment because it satisfactorily addresses many of the previously mentioned concerns (although the Administration is working with Representatives to address drafting issues raised by the Department of Justice). Pay-As-You-Go Scoring H.R. 775 would affect receipts and direct spending; therefore, it is subject to the pay-as-you-go requirements of the Omnibus Budget Reconciliation Act of 1990. This office's pay-as-you-go scoring of H.R. 775 is under development.