Conflicted Barnes & Thornburg Receives $5.25 Million Contract From State to Sue Former Client IBM Over Medicaid Privatization Effort

On August 27, 2010, the State signed off on a $5,250,000 consulting contract with Barnes & Thornburg. The work to be performed is described in an Executive Document Summary, which along with the contract is posted here.

This agreement is to retain legal counsel to provide advice and consultation on contract administration and interpretation issues relative to the Eligibility Masters Service Agreement between FSSA and IBM for the Eligibility Modernization Project.

The justification cited in the Executive Document Summary is:

Contract was based on the legal experience of Barnes & Thornburg counsel, and the resources in their legal department. The Attorney General's Office has ratified our selection of this firm and counsel is willing to provide legal services under the term and conditions negotiated.

Notice how the justification goes out of its way to say the Attorney General approved the hiring of this law firm? That's a CYA provision. The likely reason why it is inserted is spelled out at the end of this column.

The filing includes an attached letter from the Attorney General's Office which outlines the work and the legal fees legal fees we taxpayers will be paying for the Barnes & Thornburg attorneys Here is part of the letter:

Scope of the work: Perform legal services in connection with IBM Contract with FSSA. Services may include, but are not limited to, contract review, negotiations, and litigation.

Hourly rate: John Maley - $465; Bryan Burdick - $405; Peter Rusthoven - $475; Patrick Price - $255; Curtis Greene - $265

Not to Exceed: $5,250,000

Term: December 18, 2009 to June 30, 2010.

First, the legal fees the State has agreed to pay Barnes & Thornburg are ridiculous. You can't tell me that the Attorney General's Office does not have attorneys perfectly capable of handling this breach of contract litigation, with the only cost being their salaries. You can can bet B&T will have multiple attorneys working on this matter, billing the state their hourly fee at the same time. The contract also calls for separate non-B&T counsel to be provided because of the extensive conflicts of interest B&T has in all the subcontractors the firm represented in their dealings with IBM on the project.

Next, according to the Attorney General's letter, the term of the contract is from December 18, 2009. Why then was it executed in August of 2010? Are we paying B&T attorneys for work performed from December 2009 to August, before the contract was eve executed? Is that even legal? Why would the Attorney General's Office sign off on a contract so that fees could be paid retroactively?

The biggest problem though is that the contract sets out one of the the worst conflict of interest I have ever seen in my 23 years of practicing law. Barnes & Thornburg has previously represented IBM and represents ACS and scores of subcontractors on the Medical Eligibility Project, whose interests are intertwined in the lawsuit. To its credit, the legal services contract specifically mentions that conflicts in a lengthy section extending from page 4 to 7 of the contract, saying on page 5 that these conflicts "may create some challenging issues." You think?

Why in the world would the State even suggest that B&T represent the State in a lawsuit against IBM, which is a former client of B&T, to recover money because the project failed? B&T represented numerous subcontractors, including ACS, whose interests may be jeopardized by aggressively litigating the action against IBM. And why would the Attorney General's Office ever approve such representation that involves such a blatant conflict of interest at a cost to taxpayers of $5.25 million dollars?

Thanks to Gary Welsh of Advance Indiana who pointed out the Barnes & Thornburg representation of FSSA in this matter. I'd missed the story.

UPDATE: Contrary to what a lot of attorneys think, not all conflicts of interest are waivable. After reviewing the relevant disciplinary rules and comments, I think the conflict of interest by Barnes & Thornburg in its representation of the State of Indiana against IBM, which involves scores of B&T subcontractor clients on the Medicaid Project as witnesses if not possible defendants, is a nonwaivable conflict of interest in violation of Rule 1.7 of the Indiana Rules of Professional Conduct:

Rule 1.7. Conflict of Interest: Current Clients

(a) Except as provided in paragraph (b), a lawyer shall not represent a client if the representation involves a concurrent conflict of interest. A concurrent conflict of interest exists if:

(1) the representation of one client will be directly adverse to another client; or

(2) there is a significant risk that the representation of one or more clients will be materially limited by the lawyer's responsibilities to another client, a former client or a third person or by a personal interest of the lawyer.

(b) Notwithstanding the existence of a concurrent conflict of interest under paragraph (a), a lawyer may represent a client if:

(1) the lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client;

(2) the representation is not prohibited by law;

(3) the representation does not involve the assertion of a claim by one client against another client represented by the lawyer in the same litigation or other proceeding before a tribunal; and

(4) each affected client gives informed consent, confirmed in writing.

Clearly Barnes & Thornburg's representation involves a concurrent conflict of interest under Rule 1.7(a), a fact that the parties recognize in the several pages of the contract which discuss the conflict. But the contract also anticipates that the parties Barnes & Thornburg represented in the Medicaid eligibility program can simply waive the conflicts under part (b). Not so fast. All FOUR conditions in part (b), however, must be met to waive the conflict in (a). The problem is No. #3, that the representation not only involves "the assertion of a claim by one client against another client represented by the lawyer in the same litigation." It doesn't matter if IBM's past and former clients' waive the conflict, it appears to be a nonconsentable conflict under the rule.

Let's look at the comments to the rules, which illustrate why B&T's conflict can't be waived:

"Prohibited Representations

[14] Ordinarily, clients may consent to representation notwithstanding a conflict. However, as indicated in paragraph (b), some conflicts are nonconsentable, meaning that the lawyer involved cannot properly ask for such agreement or provide representation on the basis of the client's consent. When the lawyer is representing more than one client, the question of consentability must be resolved as to each client.

[17] Paragraph (b)(3) describes conflicts that are nonconsentable because of the institutional interest in vigorous development of each client's position when the clients are aligned directly against each other in the same litigation or other proceeding before a tribunal. Whether clients are aligned directly against each other within the meaning of this paragraph requires examination of the context of the proceeding....

That's the Rule 1.7(b)(3) problem. The Indiana Rules of Professional Conduct do not allow Barnes & Thornburg to provide the representation for the State against IBM even if all of B&T's former and present clients agree because there is an "institutional interest in [the] vigorous development of each client's position." In short, the Indiana Supreme Court is saying that in those situation the concurrent representations in the same matter are so bad that policy reasons prevent the conflict from being waived even if the parties involved consent to waive the conflict.