Friday, January 27, 2012

IBM Wins Judgment on Cancelled FSSA Contract; Conflicted Barnes and Thornburg Attorneys Cost Taxpayers Millions More

I don't have time to review the order, so I'll just publish the IBM press release.  It appears that the Barnes & Thornburg attorneys, who have an enormous and unwaivable conflict of interest in the case by its dual representation of the State of Indiana/FSSA and its current representation of ACS, which was an IBM subcontractor on the Medicaid privatization project, lost a key ruling in front of Marion County Superior Court Judge David Dreyer:
Indianapolis, IN...January 26, 2012...Indiana  Superior Court Judge David J. Dreyer has rendered a $40 million judgment in favor of IBM in its legal dispute with the State of Indiana over a Family Social Services Administration (FSSA) modernization of the State's welfare eligibility system. Judge Dreyer ruled Wednesday, January 25, that the State is required to compensate IBM after taking over its rights in connection with subcontracts associated with the project. Later Wednesday, the FSSA issued a press release regarding Judge Dreyer's rulings that was incomplete and misleading, ignoring the $40 million judgment in favor of IBM.  

"Judge Dreyer, contrary to what  the State's press release would have the citizens of Indiana believe, made a series of rulings in support of IBM's position in this case," said IBM spokesperson Clint Roswell. "This is just the latest attempt by the State to obfuscate what really happened in the project,  and we look forward to the scheduled February 27 start of the trial so we can finally spotlight the true facts of the modernization project."

In his ruling, Judge Dreyer:
  • Held that deferred Fees are to be litigated at trial. Contrary to the State’s press release, the Court did not reject IBM’s claim for $43 million in deferred fees, but ruled that this matter must be resolved at trial.  
  • Rejected the State’s request for judgment that IBM was in breach of the contract. In Judge Dryer's words: “The Court cannot find that IBM breached the agreement -- let alone that any breach was material.” (Order Denying the State’s Motion for Summary Judgment Regarding Its Claim for Breach of Contract, page 2.)  In fact, the Court found that “ State officials praised IBM's performance under the contract.” (Page 2)
  • Dismissed the State’s claim that IBM was unjustly enriched by the payments it received from the State. 
  • Limited the State’s damages claims, eliminating tens of millions of dollars of specific claims, capping the State’s remaining claims far below what it had  been seeking, and dismissing all State claims for punitive damages.
  • Found that the evidence supporting IBM on the State's claim of breach includes, in Judge Dryer's words: "statements by State officials contending that many of the problems arising with modernization were in fact attributable to matters beyond IBM’s (or anyone’s) control, such as the economic downturn compounded by a series of natural disasters." (Order Denying the State’s Motion for Summary Judgment Regarding Its Claim for Breach of Contract, page 3, Par. “Fourth.”)      
  • Retained IBM’s claim for payment of its equipment costs. Contrary to the State’s press release, the Court ruled only that IBM cannot seek return of its equipment.  IBM’s claim for over $9 million owed for that equipment will be resolved at trial.  
IBM has maintained that fulfillment of contractual obligations is the very essence of a successful business or organization. It maintains that the State's refusal to honor its contractual commitments endangers the State's business environment and will act as a deterrent for businesses considering moving to or expanding their operations IBM remains confident that the State of Indiana and its courts will respect the freedom of contract rights of companies that do business with the State of Indiana, and affirm that the State cannot confiscate private property without proper compensation.   
Other attorneys in the state have to follow the conflict of interest rules in the Rules of Professional Conduct.  Not the politically-connected Barnes & Thornburg, however.  Now we taxpayers are out more than Barnes outrageous legal fees.

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