Contract issues, continued.

eep in mind that statute of limitations problems can arise where noncompliant software and hardware are older. A breach of warranty (and running of the statute) occurs upon delivery of the defective good, unless a warranty explicitly extends to future performance. Thus, where noncompliant software and hardware are older, it would be prudent to review all documentation relating to the systems, particularly long-term maintenance and service contracts, to locate any warranties of future performance. Despite any length of time remaining in the limitations period, contractual remedies should be promptly requested once breach is noted since delay may give rise to claims that your remedies are waived. .

State law imposes fiduciary duties on officers and directors of a corporation. Failure to perform these duties can lead to derivative suits by shareholders, and/or legal action by the corporation itself, seeking to hold the officers and directors personally liable for damage to corporate assets. The aspect of these fiduciary duties which will likely be most relevant to the year 2000 problem is the duty of care, which requires that officers and directors act diligently to protect corporate assets from damage caused by foreseeable and material events. The duty of care requires officers and directors to make decisions on an informed basis, after gathering and considering all relevant available information. Thus, officers and directors should ensure that any potentially damaging year 2000 problems are located and addressed, that their risks and costs are assessed, and that contingency plans are made.

Officers and directors must address not only year 2000 problems within the corporation, but also problems in other companies in which the corporation invests, as well as "upstream" and "downstream" problems with vendors and customers that could materially affect the corporation's business. Matters relating to year 2000 compliance measures should be documented to establish a defense under the "business judgment rule": that officers and directors acted in an informed basis, in good faith, and in an honest belief that their decisions were in the best interests of the company. Any documentation should preferably be sufficiently clear that a non-technically-oriented judge or jury can readily find support for your position. It may also be advisable to prepare any such documentation with the assistance of counsel so that a claim of privilege might be established (and also to better ensure that a record of diligence is established rather than a "smoking gun").

Since many officers and directors are not knowledgeable on software and hardware technology or year 2000 issues, they may be able to more easily show that their duty of care was met if they appoint a committee to appraise year 2000 problems and make compliance recommendations. Such a committee should preferably include one or more outside experts who are knowledgeable on year 2000 technology issues. The selection of goods and/or services with "year 2000 certification" from the ITAA (the Information Technology Association of America) and/or other qualified sources may also help to establish that the duty of care was met, though the certification process must be scrutinized to determine whether it addresses the corporation's particular year 2000 issues.