Indiana agency paying law firm $5.25M to sue IBM

Indiana's human services agency is paying $5.25 million to a private law firm, including the brother of a key aide to Gov. Mitch Daniels, to represent the state in its fight over a canceled IBM Corp. welfare outsourcing contract.

Barnes & Thornburg of Indianapolis was hired despite several conflicts of interest arising from the fact that it also represents former IBM partners involved in the welfare deal. Bryan Corbin, a spokesman for the state attorney general's office, said in an e-mail to The Associated Press that "hiring this firm was a specific request of the Governor's Office."

Daniels' press secretary, Jane Jankowski, said the hire "made the most sense given the scope and complexity of the case."

The law firm's contract with the Family and Social Services Administration outlines its conflicts, and Barnes & Thornburg even suggests in the document that the agency consider hiring a co-counsel to handle conflict-of-interest issues as needed. The contract was obtained by the AP.

"They're very good litigators and that's why they were chosen," family and social services spokesman Marcus Barlow said of Barnes & Thornburg. Barlow said the $5.25 million is "a small fraction" — less than 1 percent — of the $1.3 billion in damages the agency is seeking from IBM.

Indiana House Speaker Patrick Bauer, however, called it foolish for the agency to hire outside counsel when the Indiana attorney general's office could represent it for no cost in attorneys' fees.

"To spend another $5 million is bad money after bad money, and the taxpayers are the losers," said Bauer, a Democrat from South Bend.

Daniels, a Republican, fired Armonk, N.Y.-based IBM last October from a 10-year, $1.37 billion contract to introduce call centers, document imaging and other automation to the process of applying for food stamps, Medicaid and other benefits. IBM and Indiana sued each other in state court last May.

The $5.25 million contract with Barnes & Thornburg also calls for the human services agency to pay attorneys' expenses. Barlow said the money would come out of the agency's administrative budget, which includes legal costs.

The Barnes & Thornburg team includes longtime Republican activist Peter Rusthoven at a rate of $475 per hour, John Maley at $465 and Brian Burdick at $405. Burdick is the brother of Betsy Burdick, Daniels' deputy chief of staff.

Signed by Brian Burdick and members of the Daniels administration in August, the contract covers Dec. 18, 2009 — a few days after IBM's state contract ended — through June 30, 2012. The case is scheduled to go to trial next September.

"This just smells to the highest heaven," said Rep. Charlie Brown, a Democrat from Gary and chairman of the General Assembly's Health Finance Commission.

Brown questioned the legality of a contract not signed until eight months after work began, but Barlow said it's normal for the state to sign contracts after a vendor has started a project.

Three pages of the 9½-page contract detail Barnes & Thornburg's conflicts of interest from having represented ACS Human Services, a division of Dallas-based Affiliated Computer Services Inc.; Arbor Education and Training; and other subcontractors involved in the IBM deal. Arbor and ACS have new eight-year contracts with the state totaling $853.2 million.

The contract says Barnes & Thornburg attorneys, in representing the human services agency, expect to make claims against its other clients but will not share with the state any "potentially relevant" information gained from representing them. It said the state's case will be screened from other clients.

The state agency also should expect IBM's attorneys "will look for creative ways to exploit the fact that (the firm) represented and continues to represent" the other clients, the contract says.

Julia Vaughn, policy director for the government watchdog group Common Cause/Indiana, said the conflicts of interest were "handing IBM a potential hornet's nest to bat around."

"For a lot of different reasons it screams that Barnes & Thornburg isn't an appropriate firm to put in charge of this case. It looks like their political connections overrode common sense," Vaughn said.

Barlow, the human services agency spokesman, said "any law firm that could handle a lawsuit of this size would have conflicts."

Barnes & Thornburg spokesman Ty Gerig said the firm would not comment on the contract.

IBM spokesman Clint Roswell had no immediate comment. The company is suing the state agency for $52.8 million it claims it is owed under the contract.