Software firm avoids Y2K liability charges

A federal district court-designated arbitrator rejected a $3.9 million claim by INCO Alloys International for alleged Year 2000 remediation damages against enterprise software developer ASE Limited.

The arbitrator rejected INCO's argument that, among other things, ASE should be responsible for $3.9 million in Year 2000 remediation costs under the companies' five-year business re-engineering contract, since some of the new customized software developed by ASE would not be installed until after December 31, 1999. The case involved an attempt to place Year 2000 obligation on ASE, which was not expressed in ASE's contract with INCO, signed in 1995.

The dispute arose when Huntington, West Virginia-based INCO tried to terminate the contract and halt making substantial payments to ASE as specified by the contract. ASE then sued INCO for injunction relief and filed for arbitration according to the contract. The decision was handed down November 17 after 12 days of testimony.

In his decision, according to ASE, the arbitrator wrote that there was no evidence presented that would indicate that the issue of Year 2000 mitigation or remediation was ever added to the contract by a writing signed and agreed to by both parties.

"The decision is a warning to any company purchasing, using, selling, or developing software that contracts involving software development should identify all specific Year 2000 tasks to be performed and clearly describe any Year 2000 tasks to be performed and clearly describe any Year 2000 obligations," said Arthur J. Schwab, a senior attorney at Buchanan Ingersoll, who represented ASE in the case.

This is one of the few Y2K-related cases in the United States so far that have been decided or settled. As reported earlier, in September, a Y2K lawsuit filed against Intuit was dismissed. The suit had alleged that some of Intuit's products did not recognize the Year 2000.

The Intuit case marks what observers believe is the first dismissal of such a case in a group of class-action suits regarding the Y2K technology problem.

The lawsuit, Alan Issokson vs. Intuit, was filed in regard to the Year 2000 readiness of the online banking functionality of Intuit's Quicken versions 5 and 6 for Windows and versions 6 and 7 for Macintosh. It was dismissed by the court on August 27 because no damages could be proved, according to the company.

Also in September, the first Y2K lawsuit ever filed was settled out of court. A Detroit-area retailer and the maker of its computerized cash register system settled their dispute over alleged flaws in the system--including Year 2000 recognition problems on credit cards--for $260,000.

Sources familiar with that case said TEC America, which made the system purchased by Produce Palace International three years ago, had offered to settle its part of the case for $250,000 after mediation, but the plaintiff rejected the offer. TEC will pay that amount to settle, with codefendant All American Cash Register, the system installer, adding another $10,000.