Appeals court affirms ruling that IBM owes Indiana $78 million

Indiana's Court of Appeals on Friday upheld a judge's ruling that IBM owes Indiana $78 million in damages stemming from the company's failed effort to automate much of the state's welfare services.

The decision affirmed Marion Superior Court Judge Heather Welch's August 2017 award to the state in the long-running case, but the three-judge court also found that IBM is entitled to interest on nearly $50 million in state fees that Welch ruled Indiana owes the company.

Welch had rejected IBM's request for interest on those fees, but the appellate court reversed the decision and sent the matter back to Welch to determine the amount of interest IBM is owed. The court specified that the interest be calculated for the more than six years that have elapsed since another Marion County judge found in 2012 that Indiana owed IBM $49.5 million in state fees.

John Maley, one of the private attorneys representing Indiana in the case, called Friday's ruling "a significant victory for Hoosier taxpayers." He said the state's attorneys believe Welch ruled correctly on the interest issue and that they will be conferring with state officials "regarding that narrow legal issue and possible further review."

IBM spokesman Doug Shelton said the New York-based company is disappointed by the ruling and plans to appeal.

"IBM invested significant resources in its partnership with the state to help turn around a welfare system described at the time by Indiana's governor as one of the worst in the nation," he said in a statement.

Indiana and IBM sued each other in 2010 after then-Gov. Mitch Daniels, a Republican, cancelled the $1.3 billion contract that his administration reached with the company to privatize and automate the processing of Indiana's welfare applications.

Under that deal, an IBM-led team of vendors worked to process applications for food stamps, Medicaid and other benefits. Residents could apply for the benefits through call centers, the internet and fax machines. But the contract was pulled in late 2009, less than three years into the 10-year deal, following complaints about long wait times, lost documents and improper rejections.

The Indiana Supreme Court found in March 2016 that IBM had breached its state contract, and directed the trial court to calculate the damages IBM owed the state. Four months later, the high court ordered the appointment of a new judge to oversee the case after the original judge ruled Indiana could not recover damages because it had not adequately proven the costs it was seeking. Welch was then appointed to handle the case.