Supreme Court reduces interest for IBM in dispute with state

Editors note: This article has been updated with comment from attorneys representing the state.

The Indiana Supreme has once again revisited the years-long dispute between the state and IBM Corp., issuing an opinion on rehearing that provides more detail on the post-judgment interest due to IBM.

In the opinion on rehearing – which was sought by IBM – the justices determined that pursuant to Indiana Code §34-13-1-6, the company can draw interest on a 2012 judgment in its favor dating back to March 14, 2018.

“We hold that the post-judgment interest due to IBM stems from the judgment on remand,” Justice Steven David wrote Thursday. “Under Indiana Code section 34-13-1-6, the judgment ‘draw[s] interest at an annual rate of six percent (6%) from the date of the adjournment of the next ensuing session of the general assembly ….’

“Following the judgment in this case on August 4, 2017, the next ensuing session of the General Assembly adjourned on March 14, 2018,” he continued. “Therefore, the post-judgment interest due to IBM runs from March 14, 2018.”

The court’s prior opinion, handed in June, held only that the post-judgment interest due to IBM would date back to the 2017 judgment on remand. The interest has been accruing on a $49.5 million judgment entered in 2012 for the technology company.

The question of post-judgment interest was just one issue raised in the decade-long litigation stemming from a failed contract between the state and IBM. The state contracted with IBM in 2006 to redesign Indiana’s welfare system, but a series of issues led to the contract’s termination in 2009 and the ensuing breach litigation.

In awarding post-judgment interest to IBM in June, the Supreme Court likewise upheld a $78 million award to the state.

Barnes & Thornburg attorneys John Maley and Peter Rusthoven represented the state and said in a statement Oct. 16, “The Indiana Supreme court has now resolved this breach of contract action in the State’s favor, meaning that IBM owes $96 million to the State in damages and post-judgment interest.”

Justice Geoffrey Slaughter dissented from the court’s summary affirmance of the Indiana Court of Appeals’ September 2018 decision, which likewise upheld the state’s award and granted interest to IBM.

One of the central premises of the COA’s ruling was that the welfare system IBM created was “essentially the same” as the system the state created after the contract was terminated. But Slaughter said the state initially asked IBM to implement the state’s revised system, known as “hybrid,” through a change-order process before the state terminated the contact and developed hybrid on its own.

Thus, he said the COA wrongly classified the costs the state incurred through its new system as “procurement costs” when they should have been classified as consequential damages subject to a $3 million cap.

“I respectfully dissent from the Court’s limited grant of rehearing,” Slaughter wrote in a Friday order. “For the reasons expressed in my separate opinion … I would modify the Court’s opinion further by treating the State’s additional costs to implement ‘Hybrid’ not as direct damages subject to a $125-million cap but as consequential damages subject to a $3-million cap.”

Justice Mark Massa did not participate in the case because he was part of the administration of former Gov. Mitch Daniels, who initiated and terminated the IBM contract.

The case is International Business Machines Corporation v. State of Indiana, 19S-PL-19.