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IBM seeks greater judgment; state claims $62 million award erroneous

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A $62 million judgment against the state for canceling a contract with IBM to overhaul Indiana’s social services administration is clearly erroneous, an attorney for the state argued Monday, while an IBM lawyer argued the company was entitled to even greater damages.

A panel of the Indiana Court of Appeals heard arguments in State of Indiana v. IBM, 49D10-1005-PL-021451. Marion Superior Judge David Dreyer in July 2012 awarded IBM more than $52 million in damages plus about $10 million in prejudgment interest.

Indiana’s Family and Social Services Agency in 2006 signed a 10-year, $1.3 billion contract with IBM under which the company was to upgrade the state’s systems for handling claims and processing for welfare, food stamps and Medicaid. Former Gov. Mitch Daniels signed the contract and terminated it in 2009 after the state paid $437 million.

Barnes & Thornburg LLP partner Peter Rusthoven argued that the contract was canceled for cause because the upgrade was “plagued with problems from the start,” and that the record showed IBM was in material breach.

Rusthoven also told the appeals panel it would have to determine whether the trial court ruling that awarded damages to IBM at the summary judgment stage was “infected from top to bottom with legal errors.”

IBM attorney Jay Lefkowitz of the New York firm Kirkland & Ellis LLP said his client was entitled to sums in addition to those awarded by the trial court, and pushed for damages of about $106.6 million.

The increased amount would include an additional $43 million in deferred fees – a “true-up” or “make-whole payment” reflecting the greater amount of upfront work IBM performed at the outset of the contract.

“During the early part of the contract, IBM was being underpaid,” Lefkowitz said.

Judge John Baker presided over the panel that included Judges Ezra Friedlander and Nancy Vaidik, which heard 90 minutes of oral arguments Monday. The arguments may be viewed online. The court will rule at a later date.

Read more about the oral arguments in State v. IBM in the Dec. 4 Indiana Lawyer

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  1. He did not have an "unlicensed handgun" in his pocket. Firearms are not licensed in Indiana. He apparently possessed a handgun without a license to carry, but it's not the handgun that is licensed (or registered).

  2. Once again, Indiana's legislature proves how friendly it is to monopolies. This latest bill by Hershman demonstrates the lengths Indiana's representatives are willing to go to put big business's (especially utilities') interests above those of everyday working people. Maassal argues that if the technology (solar) is so good, it will be able to compete on its own. Too bad he doesn't feel the same way about the industries he represents. Instead, he wants to cut the small credit consumers get for using solar in order to "add a 'level of certainty'" to his industry. I haven't heard of or seen such a blatant money-grab by an industry since the days when our federal, state, and local governments were run by the railroad. Senator Hershman's constituents should remember this bill the next time he runs for office, and they should penalize him accordingly.

  3. From his recent appearance on WRTV to this story here, Frank is everywhere. Couldn't happen to a nicer guy, although he should stop using Eric Schnauffer for his 7th Circuit briefs. They're not THAT hard.

  4. They learn our language prior to coming here. My grandparents who came over on the boat, had to learn English and become familiarize with Americas customs and culture. They are in our land now, speak ENGLISH!!

  5. @ Rebecca D Fell, I am very sorry for your loss. I think it gives the family solace and a bit of closure to go to a road side memorial. Those that oppose them probably did not experience the loss of a child or a loved one.

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