Mediation Resolves Y2K Lawsuit

No one is really sure what the effects of the millennium bug might be. But lots of people are pretty sure they’re going to be sued. The feeling is that Y2K is a full-employment act – for programmers before the turn of the century and for lawyers afterward. Given that scenario, it’s downright comforting to hear of two companies that have settled their Y2K dispute out of court through mediation.

The case was straightforward. In 1989, J. Baker Inc., a Canton, Mass.-based apparel and footwear retailer, hired Andersen Consulting LLP for advice on the acquisition of a merchandising and inventory system. It went live in 1991, and J. Baker was so happy with it, the company served as a customer reference for Andersen. However, as the millennium approached, the retailer went back to Andersen to get the system upgraded to Y2K compliance. The problem was that Andersen, like several other consulting firms, wasn’t doing what it called “Y2K fix-it” work. When J. Baker realized it was going to cost nearly US$3 million to upgrade the system, it tried to recoup those costs, insisting that Andersen’s software should have been compliant. Andersen responded that it had fulfilled every aspect of the contract the two had signed in 1989.

Eventually, the two companies agreed to put their arguments before Eric D. Green, a law professor at Boston University who runs a mediation service in Boston called Resolutions LLC. Green’s determination on the case will resonate for CIOs and their legal counsel. This wasn’t a case about technology; it was a case about contract law. And there was simply no “black-letter language” in the contract, as J. Baker’s General Counsel Mark Beaudouin puts it, that required Andersen to make the inventory system Y2K compliant. J. Baker dropped its claim.

“The issue here was and remains whether contracts matter,” says Andersen spokesman Eric S. Jackson. “A lot of people are saying Y2K is different, but it does not change fundamental legal principles [about contracts].”

Both parties recommend the mediation route. “Mediation is very valuable, whether it be Y2K or any intellectual property dispute,” said Beaudouin. “In formal litigation proceedings, in front of a jury, you never know what they’re thinking until you get the verdict.” The beauty of mediation is that someone nowledgeable hears both sides and tells you straight-out which arguments are strong and which are weak. “Mediation,” says Beaudouin, “is a way to avoid the tremendous expense of litigation, not to mention the distraction of management and the other resources that have to be thrown at it.”