posted 10 September 1998 11:54 AM               

September 7, 1998

Lawsuit could set crucial Y2K precedent

Question of when vendor should warn users of Y2K problems at stake By Blaise Zerega

By asking a Massachusetts State Superior Court for a declaratory judgment against retailer J. Baker Inc., Andersen Consulting fired the first salvo in what many lawyers say will be a full-scale war between vendors and companies over the year-2000 problem. This case may either intimidate companies from suing vendors, or it may trigger a barrage of similar lawsuits.

"It has broader implications of how consulting firms are approaching [year-2000 litigation]," said Scott Nathan, a partner at Nathan & Voltz, a law firm in Franklin, Mass. "Arguably, there are hardware and software vendors watching this."

The case revolves around $3 million that retailer J. Baker spent to make a mainframe-based merchandising system, which was installed by Andersen between the years 1989 to 1991, year-2000 compliant. According to legal documents, Andersen asked the court to rule that it had fulfilled its contractual obligations and that it is not responsible for upgrading the system.

"If any other organization was placed in our shoes, it is so overwhelmingly in our favor, that not to take this action would raise eyebrows," said Eric Jackson, a representative for Andersen Consulting, in New York.

Whether Canton, Mass.-based J. Baker, which could not be reached for comment, will countersue for the monetary damages is unclear.

Attorneys and analysts questioned the wisdom of Andersen dragging a customer into court from a public relations point of view, but said that the legal precedent it sets may be worthwhile.

"This is a calculated decision by Andersen Consulting to put what they perceive to be a marginal case into the system," Nathan said. "They're sending a message to those companies who are thinking of suing them."

Andersen, however, denied that its action was undertaken to ward off other litigation.

"We're taking this action to specifically deal with the J. Baker situation," Jackson said.

Analysts said that this case may be the beginning of the onslaught of year-2000 lawsuits.

"This could be a watershed event in [year-2000] litigation. In the event that J. Baker does win, the floodgates will open," said Kazim Isfahani, an analyst at Giga Information Group, in Cambridge, Mass.

Sources close to the case who asked to remain anonymous, said Andersen's strategy was that first, by filing this declaratory judgment, other companies would take notice of the seriousness with which the consultancy intends to litigate claims. And second, an out-of-court settlement would deny the possibility of publicity and jury settlement should the case be decided in J. Baker's favor, sources said.

Some attorneys and industry watchers, however, would like to see the case go to trial in order to help define a "standard of care" regarding how much year-2000 information vendors must disclose.

"There's a real question in 1989 whether the standard of care would have contemplated year-2000 compliance," said Jim Kalyvas, a partner at Foley & Lardner, in Los Angeles.