Indiana’s high court OKs new judge in IBM welfare case

INDIANAPOLIS – A new judge must oversee the state of Indiana’s long-running fight with IBM Corp. over the company’s failed effort to privatize state welfare services, Indiana’s highest court ruled Tuesday.

In its order, the state Supreme Court said Indiana is entitled to a change of judge and added that its opinion “is final and effective immediately.”

Indiana and IBM sued each other in 2010 after then-Gov. Mitch Daniels cancelled IBM’s $1.3 billion contract to automate much of Indiana’s welfare system. That contact was pulled in late 2009, less than three years into the 10-year deal, following complaints from welfare clients and others about long wait times, lost documents and improper rejections.

In March, the state Supreme Court ruled that IBM had breached its contract. That ruling upheld a February 2014 state Court of Appeals finding that reversed a Marion County judge’s ruling that Indiana had failed to prove IBM breached its contract.

Although the justices affirmed the trial court’s award of nearly $50 million to IBM in state fees, the ruling opened the door for Indiana to seek up to $175 million in damages. The high court directed Marion County Superior Court Judge David Dreyer to determine what damages IBM owes Indiana.

But Dreyer ruled on May 6 that “the costs for which the State seeks reimbursement were not adequately proven” and can’t be recovered as damages.

Indiana filed a motion the same day seeking a new judge and requesting that Dreyer’s ruling be vacated.

In Tuesday’s order granting both requests, the state Supreme Court did not detail its reasoning, but said it “has exclusive, original jurisdiction” over Indiana’s courts.

Attorney John Maley, who’s representing Indiana in the case, said the state argued that Dreyer exceeded his jurisdiction by ruling that the state couldn’t recover damages because the period after the contract with IBM was signed in 2006 was marked by a recession and 2008 floods that displaced thousands of Indiana residents.

That reasoning, Maley said, “contravened the Indiana Supreme Court’s opinion that recession and flooding were no excuse for IBM’s breach.”

He said in a statement that Dreyer made his May ruling “without any notice, briefing, or opportunity to be heard.”

Under state trial rules, the two parties can now either agree on a new judge or, if that fails, three potential judges for the case will be appointed and each side can remove one, Maley said.

He said Indiana’s attorneys are pleased with Tuesday’s decision and “look forward” to working to recover damages that, with interest, could top $200 million.

IBM spokesman Clint Roswell did not respond to requests for comment on Tuesday’s decision, and Andrew Hull, an attorney for the New York-based computer company, declined to comment.

The Indiana Supreme Court said in Tuesday’s order that IBM opposed Indiana’s request and had argued that “the State is not entitled to a change of judge.”

Four of the high court’s five justices approved Tuesday’s order. Justice Mark Massa recused himself from the case because he was Daniels’ general counsel when the IBM contract was signed.