State seeks new judge after surprise ruling in IBM case

Lawyers representing the state in its ongoing lawsuit against IBM over a canceled $1.3 billion welfare privatization contract have asked for a new judge in the case and moved to void his latest ruling that said the state wasn’t entitled to damages for breach of contract.

Marion Superior Judge David J. Dreyer on Friday issued an order on remand from the Indiana Supreme Court, which on that same day certified its decision from March 22. “The Court largely finds the State fails to prove damages by a reasonable certainty,” Dreyer wrote. “The evidence is insufficient because of its hearsay and speculative nature.”
 
In a statement Monday, Barnes & Thornburg LLP said Dreyer’s ruling was premature. The firm representing the state in the 6-year-old case responded to the ruling with motions filed in court to remove Dreyer from the case and to set aside his ruling.

“This order was issued without any hearing, briefing, argument or notice to the State, and before the State’s counsel had even been notified by the Supreme Court that its decision had now been certified,” the firm said in a statement. The firm contends the state should have had 10 days after certification of the Supreme Court ruling to move for a mandatory change from the current trial court judge.

“Respectfully, we believe the trial court’s surprise order Friday morning was mistaken and also exceeded its jurisdiction,” said B&T partner Peter Rusthoven, who argued the state’s case against IBM before the Indiana Supreme Court. “We are confident that this latest ruling, like the earlier rulings ordering that (former) Gov. (Mitch) Daniels be deposed and then holding that IBM had not materially breached its contract, will not be allowed to stand.”

Justices in March reversed Dreyer in a 4-0 opinion that found IBM had materially breached its contract as a whole. “(W)e remand to the trial court for calculation of the parties’ damages consistent with this opinion, including any appropriate offsets” in favor of the state, the court ordered. Justice Mark Massa, a former Daniels adviser, did not participate.

The Supreme Court affirmed damages of about $50 million in favor of IBM but also said the trial court must determine any amounts the computer giant owes Indiana. The state claims damages of about $175 million.

The Supreme Court found Dreyer’s prior determination that IBM didn’t breach the contract “ignored uncontroverted evidence and made several legal errors. These errors include: a) failing to consider the State’s dissatisfaction with IBM’s performance as required by the (master services agreement); b) determining that IBM’s payment of liquidated damages excused IBM’s performance in contravention of the MSA; c) adopting IBM’s excuses for non-performance; d) considering the State’s motives for terminating the contract; and e) determining that because the State benefited from the MSA, IBM’s breach could not be material.”

Although the Supreme Court ruled benefits the state received do not ameliorate a material breach of the agreement by IBM, Dreyer wrote in his Friday order that the state had derived benefits from its contract with IBM that included streamlining welfare-to-work efforts, reducing fraud and administrative cost savings, and improved technology, among other things.

Dreyer’s order also says IBM’s performance was harmed by the economic downturn and natural disasters – factors the Supreme Court also expressly wrote had no impact on its material breach analysis.

A message seeking comment from Dreyer was not immediately returned Tuesday morning.