IBM Ordered to Pay $78 Million to the State Ending Decade Long Lawsuit

Good afternoon friends! Well it appears that the decade long shit show IBM-FSSA lawsuit has come to an end. IBM has been ordered by the Indiana Supreme Court to pay $78 Million to the state over the bungled welfare privatization performed during Mitch Daniels “reign of error” as Governor. Olivia Covington over at The Indiana Lawyer gives the lowdown on this case:

In its second opinion issued in the years-long dispute between Indiana and IBM Corp. over the failed contract to create a new Hoosier welfare system, the Indiana Supreme Court has allowed IBM to collect post-judgment interest on its $49.5 million damages award. However, that interest will date back only to a 2017 judgment on remand, not the original judgment entered in the company’s favor in 2012, and only serves as an offset to the greater sum IBM owes the state.

Justice Steven David wrote for the court in the Wednesday opinion in International Business Machines Corporation v. State of Indiana, acting on behalf of the Indiana Family & Social Services Administration, 19S-PL-19. The justices, excluding Justice Mark Massa, heard their second round of arguments in the case in February.

At issue in the litigation is a contract between IBM and the state requiring IBM to develop a new welfare system that utilized a centralized call center to handle customer requests. The new system, colloquially known as “modernization,” was meant to be a shift away from the prior welfare system that emphasized face-to-face contact with customers.

But the state terminated the IBM contract in 2009 after modernization began experiencing problems. Instead, the state created its own welfare system, known as “hybrid,” that combined the call center with the former face-to-face model.

Both parties filed breach complaints, and the Marion Superior Court initially determined modernization’s failure was not a breach of IBM’s contract. Instead, the state was ordered in 2012 to pay IBM $49.5 million for the costs of equipment and assignment fees.

Barnes & Thornburg attorneys John Maley and Peter Rusthoven, counsel for the state in the IBM litigation, released a statement Wednesday afternoon saying they are pleased with the court’s ruling.

“Hoosiers will finally benefit from IBM’s multi-million-dollar payment of this judgment,” the statement said, referring to the $78 million owed to the state.

The article does mention the ruiling was 3-1 in favor of the state. Justice Mark Massa did not participate in the ruling since he worked as General Counsel for Governor Mitch Daniels who had ordered the IBM contract canceled. We have blogged previously on this issue once or twice before. Personally we feel that IBM was royally shafted by the state and should have not been forced to pay the state anything. On the other hand though IBM should have realized that doing business with the state was a bad idea. Especially since after IBM was given the heave ho, Affiliated Computer Systems (ACS) was put in to do the work. This was a big problem because then FSSA Secretary Mitch Roob had previously worked for ACS. Why this matter was never investigated by the US Attorneys Office in Indianapolis is a mystery to this day. Barnes and Thornburg’s role in representing the state is particularly troubling because as Paul Ogden pointed out back in 2012 that Barnes and Thornburg had lobbied the state to get ACS put in charge of the states welfare privatization project. Paul Ogden said at the time:

According to Judge Dreyer, the services provided by ACS were the major source of the complaints, Nonetheless, IBM ended up being discharged from the while ACS remained on as part of a "hybrid system."  Conveniently for ACS, a former executive theirs, Mitch Roob, headed FSSA, when IBM-ACS won the original privatization contract and yet another ACS executive, Mike Gargano, headed FSSA during the litigation over IBM's discharge.

The State, i.e. FSSA, ended up suing IBM to recover under the contract.  IBM countersued, claiming that the State breached the contact through its termination.  But who does the Daniels' administration insist the State hire to represent the State?  None other than Barnes & Thornburg the very law firm that represented ACS in lobbying to get the contract and still represents ACS to this day.  

Let me summarize what appears to have happened. ACS lobbies state officials to oust IBM so ACS can have the lucrative Medicaid privatization contract to itself.  ACS eventually succeeds.  The State sues IBM, perhaps to counter the inevitable breach of suit IBM was about to file.  After, IBM sues, the State hires Barnes & Thornburg, ACS's attorney to represent the state.

The State appears to be nothing more than a proxy for ACS. This case is essentially ACS v. IBM, yet we taxpayers are on the hook to pay Barnes & Thornburg, ACS' attorneys, $9.6 million.  That is uttterly outrageous.

Given that federal money here is involved, I too wonder why there has not been a federal investigation opened up by the FBI into this matter.  There certainly should be now that the facts here expose troubling, if not illegal, conduct by government officials and private lobbyists.

Between attorneys fees and the cost of the original contract with IBM. We estimate that the state has easily put us taxpayers on the hook for well over $500 Million. This whole mess could have been avoided if the Daniels administration had just listened to what some of his own people told him and given FSSA caseworkers new computers. Instead “Little Man” Mitch was determined to privatize food stamp delivery no matter what. Daniels and his bagman Governor “High Tax” Holcomb seem content knowing they slit the wrists of us taxpayers to feed the vampire looters and moochers who have helped through their demonic means to advance their political careers. 

Some of INDY REPUBLICANS allies in the cultural war against President Trump. Have tried to assuage our concerns about Holcomb by saying he is not on the side of Trumpian tribalism and authoritarianism. Don’t be fooled. Former Governor Mitch Daniels his boss whose legacy Holcomb carries out. Mitch Daniels created the tribalism, authoritarianism, and waste and theft of taxpayers money that would have been an embarrassment even in Tsarist Russia. We the men and women of truth, the guardians of freedom and justice for all will continue to fight until the Daniels-Holcomb Syndicate is a distant memory.