State of Indiana v. International Business Machines Corporation - 11/25/13

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Monday  November 25, 2013 
1:30 PM  EST

1:30 p.m. 49A02-1211-PL-875. Indiana Supreme Court courtroom. In December 2006, the State of Indiana, on behalf of its agency the Indiana Family and Social Services Administration, entered into a ten-year, $1.3 billion contract with International Business Machines Corporation.  The contract sought to modernize and improve the State’s failing welfare system in part by reducing the need for face-to-face meetings with caseworkers.  However, less than three years into the ten-year contract, the State terminated the contract citing IBM performance issues and transitioned to a hybrid system.  The parties then sued each other for breach of contract in Marion Superior Court.

The trial court granted IBM summary judgment for $40,000,000 in Assignment Fees.  And after a six-week bench trial in 2012 involving 96 witnesses and 7500 exhibits, the court found that the State did not terminate the contract for cause and awarded IBM an additional $9,510,795 for equipment costs, $2,570,621 in other contract claims, and $10,632,333 in prejudgment interest, bringing the total to $62,713,749.  The State now appeals raising four issues, including whether the trial court erred in concluding that it did not terminate the contract for cause, whether the Assignment Fees are an unenforceable penalty, whether it is liable to IBM for the equipment that it kept after termination of the contract, and whether IBM is entitled to prejudgment interest against the State, a sovereign entity.  IBM cross-appeals arguing that it is entitled to an additional $43,416,738 in Deferred Fees and $931,928 in Change Order fees. 

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