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The Journal Gazette

Monday, May 09, 2016 10:11 pm

No damages in IBM welfare case, judge rules

Niki Kelly | The Journal Gazette

INDIANAPOLIS -- A Marion County judge on Friday issued a bombshell ruling, refusing to give any damages to the state even though the Indiana Supreme Court found in March that IBM breached its $1.3 billion welfare contract with Indiana.

The case was remanded to Marion County Judge David Dreyer to determine an appropriate amount of compensation. Indiana had claimed $175 million in damages.

"The court largely finds the state fails to prove damages by a reasonable certainty," Dreyer said in his decision. "The evidence is insufficient because of its hearsay and speculative nature."

He added later that many of the costs for which the state sought reimbursement are costs that were the state's responsibility and therefore may not be recovered.

For instance, Dreyer said the state sought $30 million it paid in salaries for new state staff, but the evidence shows the staff -- many of whom were hired before the termination -- were hired for reasons that had nothing to do with IBM.

Dreyer's ruling came without a hearing or briefs filed by the parties, and just hours after the Indiana Supreme Court had certified the case.

Certification essentially closes a case out and sends it back to the lower court to act on the appellate ruling.

"Respectfully, we believe the trial court’s surprise order Friday morning was mistaken and also exceeded its jurisdiction," said Peter Rusthoven, one of the state's lawyers in the case. "We are confident that this latest ruling, like the earlier rulings ordering that Governor (Mitch) Daniels be deposed and then holding that IBM had not materially breached its contract, will not be allowed to stand."

The newest ruling is the latest volley in a six-year dispute about whether IBM failed to deliver its part of a deal to privatize Indiana's welfare system.

Rusthoven said Dreyer's new decision came before a 10-day period for the state to move for a mandatory judge change.

That motion was filed Friday afternoon and Barnes & Thornburg LLP "will promptly take steps seeking to have the trial court’s ruling set aside," a statement said.

Clint Roswell, spokesman for IBM, said "it's unfortunate that the private attorneys representing the state in the case have decided to prolong this case, all at the great expense of Indiana taxpayers."

The state has paid Barnes & Thornburg more than $11.5 million in the legal battle with IBM.

In March the Indiana Supreme Court overturned Dreyer's 2012 decision finding IBM didn't breach its contract with the state.

The trial before Dreyer lasted six weeks, and included more than 130 hours of testimony and 100 witnesses.

"Neither party deserves to win this case," he ruled then. "This story represents a `perfect storm' of misguided government policy and overzealous corporate ambition. Overall, both parties are to blame and Indiana's taxpayers are left as apparent losers."

The 4-0 Indiana Supreme Court decision found IBM "failed to perform satisfactorily... consistently failed to meet certain timeliness metrics, and failed to assist the state in achieving its policy objectives."

Dreyer did issue a ruling that agreed with the Indiana Supreme Court ordering the state to pay IBM $40 million in assignment fees and $9.5 million in equipment fees. A third component of the suit regarding contract change orders was not yet decided.

Indiana had planned to modernize the welfare system by moving to a "remote eligibility" system, in which Hoosiers seeking food stamps, Medicaid and other public assistance no longer would have face-to-face meetings with case managers but would instead apply online and through call centers.

Daniels canceled the contract after three years of complaints about the automated system. Indiana had paid IBM $437 million. The state then created a hybrid system.

Indiana sued IBM in May 2010, and IBM countersued.