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Five months into 2000, the accepted wisdom says the “millennium bug” was like a prehistoric sci-fi cinema creature. When it was exposed as papier-m�ch�, everyone wondered, “what was that all about?” The analogy appears to be half right when it comes to Y2K litigation in New Jersey. It’s hard to find any litigation seeking damages for computer bomb-outs after the new year. Yet there have been lawsuits for the costs of pre-2000 remediation, and a monster of a Y2K insurance coverage case is attracting national attention as it unfolds in U.S. District Court in Newark. That litigation is providing work for four New Jersey firms, one serving as local counsel to plaintiff GTE Corp. of Irving, Texas, and three called in by the defendant insurance companies. In GTE Corp. v. Allendale Mutual Insurance Co., Civ. 99-2877, GTE is seeking up to $400 million in coverage for computer upgrades that allegedly were necessary because of Y2K glitches. The carriers say the costs were either unnecessary or uncovered. Both sides agree, though, that the GTE case is potentially one of the largest of the mere dozen or so Y2K dispute cases involving what passes for real money in modern corporate America. Elsewhere in New Jersey, Y2K lawyering has turned into a niche that dreams — but not much else — are made of. “You don’t hear about it any more,” says William Heller, a partner involved in computer law issues at Newark’s McCarter & English. He notes that there is an unresolved debate over whether Y2K became a nonevent because the dangers were never there or because computer owners took the scare seriously and prevented certain disaster. For whatever reason, the lack of widespread disaster has meant a lack of widespread litigation, say Heller and his partner Charles Merrill. The best evidence for that comes from the state Administrative Office of the Courts. Last Dec. 8, in the throes of Y2K uncertainty, the AOC ordered plaintiffs to mark their suits with a new case management designation, “Y2K Complaint,” so that the expected flood of filings could be steered to special Y2K judges in each vicinage. Last week, the AOC ran a computer search for all cases with the Y2K designation and found that not a single one had been filed. Given the general deflation of the Y2K scare, Michelle Perone, chief of civil court programs for the AOC’s Civil Practice Committee, says, “I’m not surprised no cases came up.” The AOC search, of course, is not definitive. Some Y2K suits may have been filed this year without the designation. Lawyers often ignore notices requiring special handling for particular types of complaints, Perone says. Still, the AOCs failure to find even a single specially designated Y2K complaint is a dramatic demonstration of the “nonevent.” Remaining from June 1999, however, is GTE’s claim that its Y2K fix was covered by primary and excess policies. Though there’s no damage estimate in the complaint, the coverage limits were $400 million, and SEC filings by GTE say the remediation cost that much. The defendants are Allendale Mutual Insurance Co. and Affiliated FM Insurance Co. of Johnston, R.I., represented by Henry Catenacci and H. Richard Chattman, partners in Newark’s Podvey Sachs Meanor Catenacci Hildner & Cocoziello; Allianz Insurance Co. of Burbank, Calif.. and Industrial Risk Insurers of Hartford, Conn., represented by Robert Cossolini, a partner in Short Hills’ Budd Larner Gross Rosenbaum Greenberg & Sade; and Federal Insurance Co. of Warren, represented by Robert Mackowsky, a partner in Mount Laurel’s Cozen & O’Connor. The case, now in the document production stage, is important because a victory by GTE or a big settlement could stimulate similar claims. A lot of companies are waiting to see what happens in a small handful of cases that include the GTE suit, Y2K lawyers say. Defense lawyer Catenacci says the paucity of such cases around the country is a good indication that coverage is rarely implicated. He says “99.9 percent of insureds didn’t bring complaints.” But one of the lead lawyers for the plaintiff, Richard Milone, a partner at Washington, D.C.’s Howrey Simon Arnold & White, says there are few coverage cases because insurance companies wrote tough-to-challenge Y2K exclusions into policies sold after the world learned of the potential computer disaster. Only big companies that had the leverage to obtain coverage without such exclusions are the ones now suing, he says. Among the plaintiffs in such cases are Xerox Corp., suing in Connecticut; Unisys Corp., suing in Delaware; Nike Inc., suing in Oregon; Kmart, suing in Michigan; and ITT Industries Inc., suing in New York. Summaries of these Y2K cases can be found at the Web site of the Federation of Insurance & Corporate Counsel, www.thefederation.org. Of the 91 cases listed on the Web site, only 12 seek coverage. Milone says the GTE complaint was filed in New Jersey because the chief defendant, Allendale, issued certain policies from its northeast regional office in Parsippany. Serving as the plaintiff’s local counsel are Jeffrey Cohen and Kevin Bruno of Roseland’s Robertson, Freilich, Bruno & Cohen. In a noncoverage class-action case in Camden County, New Jersey, Superior Court, Mazie’s Liquor Store v. Applied Digital Solutions, Inc., Civ. 36-524-104, liquor stores are seeking damages for remediation of non-Y2K-compliant software for inventory, accounting and management applications. According to the complaint filed by Harris Pogust, a partner in Pennsauken’s Sherman, Silverstein, Kohl, Rose & Podolsky, the Palm Beach, Fla., defendant was obliged to provide a free upgrade to customers after it notified them in 1998 that the software wouldn’t work after the end of 1999. Defense counsel Lawrence Silverman, a partner in Miami’s Akerman Senterfitt, says no warranties in the suppliers’ contract with its customers promised a length of time in which the software would be applicable; nor did the contract call for free upgrades. Silverman says the lack of such language in most software provision contracts is the reason there have been few remediation complaints, and most of the ones that were filed have been resolved because the problems were fixed before this year. The dueling firms in Mazie’s are among the few partnerships that may actually have found a niche in Y2K litigation. They also were on opposite sides in a case brought by Pogust last December in Camden federal court. In a settlement of the case, Courtney v. Medical Manager Corp., 98-CV-3347, a Florida software company agreed to provide $30.5 million in free upgrades to doctors in five states. Pogust says his firm is putting the final touches on a similar settlement on behalf of another medical group in California and is in the early stages of a case on behalf of plaintiffs in Nevada. The local defense counsel in both of Pogust’s software cases in New Jersey, Lora Fong, of counsel to Greenbaum, Rowe, Smith, Ravin, Davis & Himmel, says it’s too early to write the end of Y2K litigation. She notes that federal liability legislation calls for alternative dispute resolution in contract disputes and that more cases might surface if ADR fails. Gone from the list of New Jersey Y2K cases, however, is a potential big one, Modern Drummer Publications Inc. v. Lucent Technologies Inc., a class action in Newark federal court on behalf of purchasers of Lucent voice-mail and telecommunications switching systems. Lucent defense counsel Joseph Hopkins, an associate in the Newark office of Los Angeles’ Latham & Watkins, says the case has been voluntarily dismissed and folded into companion litigation in federal court in Manhattan. Michael Schaff, a partner at Woodbridge’s Wilentz, Goldman & Spitzer, suggests there has been little Y2K litigation because the cost of fixing problems for small companies wasn’t enough to warrant the legal fees required to sue. And larger companies with leverage were able to arrange refunds without bringing legal action, he says. Lawyers twiddling their thumbs because there is no Y2K work to do may find solace in a new potential doomsday. Schaff, chairman of the State Bar Association’s Health and Hospital Law Section, notes that the federal government is about to issue regulations implementing the Health Information Portability and Accountability Act of 1996. The law, which requires health organizations to safeguard the privacy of patients’ health records, is likely to create a need for vast computer upgrades and legal advice on compliance, health lawyers say. “If Y2K was an $8 billion fix, this one will take $40 billion,” Schaff says.

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