Supreme Court Has Given Its Cue To IBM To Pick Up Its Marbles And Go Home

The Indiana Supreme Court issued an order on Thursday in the welfare privatization contract cancellation case by the Daniels administration against the lead contractor, IBM. The Court's order signed by Chief Justice Loretta Rush requested the parties use the next 30 days to attempt to resolve the matter through mediation; otherwise, the Court will decide the case. I went back and watched the oral argument. Justice Rush's order was shorthand for telling IBM that we're going to shove it up your butt real hard if you don't pick up your marbles and go home if I'm reading the tea leaves correctly.

I've followed this case very closely from the outset. You may recall that I had the firsthand account of the late Carl Moldthan about the real driving force behind welfare privatization. Essentially, the Family & Social Services Administration had never given welfare workers the modern technological tools they needed to perform welfare services efficiently and effectively. Former FSSA Secretary Mitch Roob wasn't interested in what could be done to improve their work because he had already decided he was going to privatize their jobs and his former employer, ACS, was going to play a key role in that billion dollar plus undertaking. Anyone who read this blog at the time wasn't surprised at the outcome of that supposed competitive bidding process to privatize welfare services. There was a reason other players walked away and refused to participate in the Daniels' administration charade.

There were lots of hiccups along the way, some of them IBM's fault, some of them the fault of subcontractors like ACS, some of them the fault of FSSA and some due to circumstances beyond both parties' control attributed to the explosion in claims caused by the Great Recession. The undisputed facts show the state devised metrics for measuring IBM's performance and an overwhelming number of those metrics were on target. What few were under-performing were moving in the right direction when Gov. Daniels abruptly terminated IBM's contract and handed its work over to ACS entirely to fulfill, which I believe was the objective all along. Roob just needed IBM as a placeholder not to make it so obvious he had steered one of the most lucrative contracts in the state's history to his previous employer, although everyone knew that was his objective all along beyond a shadow of a doubt.

Judge David Dreyer presided over a lengthy trial that went on for many weeks and issued a very lengthy, thoughtful and well-reasoned decision in which he concluded IBM had not materially breached the contract and ordered the state to pay IBM $52 million. In a convoluted opinion I couldn't grasp, perhaps because I'm too familiar with the key characters and their motivations, the Court of Appeals reversed Judge Dreyer's opinion, seeming to ignore the overwhelming evidence of the state's bad faith in its dealings with IBM, and found in FSSA's favor, which would send the case back to the trial court to determine how much of the state's claimed $170 million in damages it should recover for IBM's supposed breach. The only saving for IBM was the Court of Appeals' agreement IBM was entitled to payment of the more than $9.5 million in computer equipment FSSA stole from IBM without compensation, along with $40 million in assignment fees the contract clearly provided it was entitled to receive in the event of termination.

Justice Mark Massa, who served as counsel to Gov. Mitch Daniels during the relevant period in question, recused himself from the case. After watching the oral argument, my takeaway leads me to conclude that at least three of the remaining justices (David, Rush and Rucker) have no sympathies for IBM's arguments. The State has been represented by Barnes & Thornburg throughout this entire ordeal, a fact which turned the rules of professional conduct that are supposed to govern the attorney-client relationship on its head. Their attorneys were the driving force behind ACS getting its seat at that table under IBM and later at the head of the table when IBM got bounced. Nonetheless, the State in some convoluted, lengthy Chinese wall arrangement waived the firm's clear conflict of interest in representing the State's interests.

Sometimes justice works, and sometimes justice works in mysterious ways. This is one of the most corrupt and sad chapters in recent Indiana government history. There should have been criminal prosecutions for what took place involving this contract in the Daniels administration and what continues to take place to this day. Unfortunately, I don't see much upside for IBM finding justice in this state, and its attorneys would probably be well-advised to pick up its marbles and go home without being stripped too bare of its clothing before leaving the state by the wheels of justice in Indiana, which can work in very mysterious ways. IBM should have realized it was lying down with dogs when it got involved in this taxpayer feeding frenzy years ago and the inevitable result of waking up with fleas.