Indiana seeks new judge after no damages awarded in IBM case

AP News
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Posted: May 10, 2016 5:47 PM

INDIANAPOLIS (AP) — Attorneys for the state are challenging a judge's decision not to award Indiana damages in its long-running fight with IBM Corp. over the company's failed effort to privatize state welfare services, saying a new judge should be appointed to handle the case.

The Indiana Supreme Court ruled in March that IBM had breached its $1.3 billion contract to automate much of Indiana's welfare system. The high court directed the trial court judge to determine what damages IBM owed the state, opening the door for Indiana to seek up to $175 million.

But on Friday, that judge, Marion County Superior Court Judge David Dreyer, ruled that "the costs for which the State seeks reimbursement were not adequately proven, and thus cannot be recovered as damages." The state's private attorneys in the case quickly filed a motion seeking a new judge to oversee the case.

"We think the order was a mistake and we think it will be set aside," Peter Rusthoven, one of the state's private attorneys, said Tuesday.

Rusthoven noted in a statement that Dreyer issued his order on the same day the Supreme Court's ruling was officially certified "without any hearing, briefing, argument or notice to the state."

IBM spokesman Clint Roswell released a statement saying the state was trying to "prolong this case, all at the great expense of Indiana taxpayers."

Indiana University law professor Joel Schumm said Tuesday he was "certainly surprised" by Dreyer's order, because it came after the Supreme Court reversed the judge's previous ruling in the IBM case. When rulings are reversed, judges often set a hearing or arrange a conference with the parties' attorneys, he said.

"Judges generally want to give attorneys an opportunity to be heard ... which seems especially important considering the complexity of the IBM case and amount of the judgment," Schumm said.

Indiana and IBM sued each other after then-Gov. Mitch Daniels in 2009 canceled IBM's contract. The 10-year contract called for the company to lead a team of vendors to automate Indiana's process for awarding food stamps, Medicaid and other public safety-net benefits. But the contract was canceled after less than three years, following complaints from welfare clients, lawmakers and others about long wait times, lost documents and improper rejections.

The resulting lawsuits between Indiana and IBM were assigned to Dreyer, who found in 2012 that Indiana had failed to prove IBM breached its state contract and awarded the New York-based company about $50 million in state fees.

Indiana appealed that ruling, and the state Court of Appeals found in February 2014 that IBM had committed a material breach of its contract by failing to deliver improvements to the state's welfare system. But it also found IBM was entitled to nearly $50 million in state fees.

In March's ruling, the state Supreme Court upheld the appeals court's decision, found unanimously that IBM had breached its contract and said the state could seek damages. That ruling also directed the trial court to determine the amount of certain fees it determined IBM was entitled to claim.