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Ruling for IBM likely first act in legal epic

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A ruling that ordered the state to pay more than $52 million to IBM due to cancellation of its contract to privatize social service claims processing certainly will have a second, and most likely a third, act.

The first act closed with unusually superlative language in a judge’s order and a harsh critique of the ruling from a key attorney representing the state.

Marion Superior Judge David Dreyer released his final order July 18, and Gov. Mitch Daniels quickly vowed the state would appeal. Dreyer awarded IBM $12 million for early termination closeout payments and equipment, an amount that was added to the judge’s earlier order awarding the company $40 million in subcontractor assignment fees. The state was granted nothing on its claim that IBM was in breach of contract.
 

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The case is “almost certainly” bound for appeal to the Indiana Supreme Court regardless of how the Indiana Court of Appeals rules when an appeal is filed, said contract law expert Antony Page, vice dean and professor of law at the Indiana University Robert H. McKinney School of Law.

“I would be surprised if either party would let the appellate court decision stand,” Page said.

“Normally with contract disputes the parties are able to reach an approximate valuation among themselves and are able to settle,” he said. But in State of Indiana v. IBM, 49D10-1005-PL-021451, “both parties are relatively entrenched.”

Dreyer-DAvid-mug Dreyer

IBM argued it was entitled to $100 million in early-termination fees; the state claimed IBM was in breach and owed $125 million. The state originally wanted more than $437 million, but Dreyer previously ruled $125 million was the max the state could recover in damages.

Dreyer wrote in his order, “Neither party deserves to win this case. This story represents a ‘perfect storm’ of misguided government policy and overzealous corporate ambition. Overall, both parties are to blame and Indiana’s taxpayers are left as apparent losers.”


rusthoven Rusthoven

Barnes & Thornburg LLP attorney Peter Rusthoven, who represents the state, seized on the tone of Dreyer’s order. “The ruling contains regrettable, unnecessary political commentary that is neither accurate nor relevant,” Rusthoven said in a statement when the order was issued.

Later, Rusthoven said, “It is beyond unusual for commentary like that to be in an opinion. This is a contract case. It has nothing to do with whether the state made a good decision.”

In a media availability in his courtroom after issuing his order, Dreyer declined to explain why he used the ‘perfect storm’ language. He later said in an email that he had no comment on Rusthoven’s criticism, and that no political commentary had been intended in the order.

Rusthoven, whose firm has collected more than $9 million in fees litigating the IBM case, said Dreyer didn’t seriously consider state claims that IBM was in breach of contract for repeated failure to meet performance indicators. “There was a staggering amount of evidence that was not even discussed.”

IBM representatives did not respond to requests for interviews and stood by a statement issued the day of Dreyer’s order.

“This case was all about whether the state would fulfill its clear and explicit contractual promises,” said Robert Weber, IBM senior vice president and general counsel. “The Court’s decision is an important one for all companies who do business with the state because it makes clear that the state is not above the law.”

IBM said the order “confirms the essential role IBM played in reducing fraud and laying the framework for the welfare eligibility system that is currently serving Indiana’s neediest citizens.”

The order awarded IBM $42.5 million in contract termination payments; about $9.5 million in compensation for equipment; and interest that IBM estimates at about $10 million, plus costs, for the period of time that the state withheld payment to IBM.

The state and IBM agreed that Family and Social Services Administration claims processing and accuracy had improved, but Daniels, in a statement, said IBM had little to do with that.

“The state’s case backlog has dropped 81 percent since the IBM contract was terminated,” according to Daniels’ statement.

“Here’s what matters: Indiana, which eight years ago had the nation’s worst welfare system, now has its most timely, most accurate, most cost effective and fraud-free system ever,” the statement said. “That was always the goal, and changing vendors was essential to achieving it.”

Page called Dreyer’s ruling a “pretty impressive piece of work” and read the order as critique of the performance of duties taxpayers entrust to the government.

“It is unusual in a case like this to see language like that,” Page said of the “perfect storm” reference. “I think this just reflects the judge’s frustration with both parties. … He wants to make it clear on the record that both parties are at fault here.

“For the typical taxpayer in Indiana, it’s useful to know this is what the impartial judge thinks of both parties,” he said.

The state failed to demonstrate that IBM was in breach, Page explained, which is the burden of proof in contractual cases. He added that Dreyer in his order clearly defined what material breach is.

“The real problem lies in the initial contract that they signed,” Page said of the state.

Rusthoven, meanwhile, said “We are quite confident of our chances of success on appeal … much, much higher than the average case.” He said the basis of appeal will include assertions that Dreyer misread the contract.

But Page predicted the ruling will be upheld in the Court of Appeals.

“It seems pretty well-reasoned,” he said. “It’s hard to see this being overturned on appeal.” With the standard for reversal on appeal being that a judge’s ruling was clearly erroneous, Page said, “he seems to have plenty of support in the record for his conclusions of fact.”•

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  1. Applause, applause, applause ..... but, is this duty to serve the constitutional order not much more incumbent upon the State, whose only aim is to be pure and unadulterated justice, than defense counsel, who is also charged with gaining a result for a client? I agree both are responsible, but it seems to me that the government attorneys bear a burden much heavier than defense counsel .... "“I note, much as we did in Mechling v. State, 16 N.E.3d 1015 (Ind. Ct. App. 2014), trans. denied, that the attorneys representing the State and the defendant are both officers of the court and have a responsibility to correct any obvious errors at the time they are committed."

  2. Do I have to hire an attorney to get co-guardianship of my brother? My father has guardianship and my older sister was his co-guardian until this Dec 2014 when she passed and my father was me to go on as the co-guardian, but funds are limit and we need to get this process taken care of quickly as our fathers health isn't the greatest. So please advise me if there is anyway to do this our self or if it requires a lawyer? Thank you

  3. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  4. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  5. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

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