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2/14/2012
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Indiana Gov. Won't Testify In IBM Case

State Supreme Court rejects Big Blue's claim that Mitch Daniels' testimony is essential because he was personally involved in failed outsourcing deal.

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Indiana's Supreme Court Monday overturned a lower court's ruling that Gov. Mitch Daniels must testify in the state's lawsuit against IBM over a failed, $1.4 billion outsourcing deal with the tech services giant, which Daniels terminated in 2009.

The court did not immediately release a written opinion on its decision. IBM, in a statement, said it was "disappointed" that the governor "would choose to hide behind the statute, especially after the State initiated this lawsuit."

Earlier, IBM attorney Jay Lefkowitz told the court that Daniels' testimony was important to IBM's defense because the governor had deep, personal involvement with the deal, under which IBM was to overhaul the systems that support Indiana's public assistance programs.

"The state has made very clear throughout all the testimony that we've had in this case that the governor was fully responsible, the ultimate decision maker about the contract terms," said Lefkowitz, during oral arguments.

[ IBM looks in its crystal ball to predict 5 Innovations That Will Change Your Life. ]

"And the [lower] court made a finding that that governor was the ultimate decision maker about the contract terms, was personally involved in decision making, where the call centers should be. He went into meetings regularly and called IBM officials to talk about the implementation," Lefkowitz said.

Lefkowitz added that IBM also needed to question Daniels about what it said are contradictory remarks about the contract. "The governor has made public statements that are directly at odds with the contention in the litigation," said Lefkowitz.

"In the litigation, the state says that IBM owes hundreds of millions of dollars. And yet the governor in his public statements said, first, that IBM didn't do anything wrong, that it wasn't a problem with the vendor, it was a flawed concept, and indeed the state had saved tens of millions of dollars every year" that the deal was in effect, he said.

Indiana Family and Social Services Administration (FSSA) attorney Peter Rusthoven countered that Daniels' appearance in the case would be superfluous because the state's right to terminate the contract was absolute, irrespective of the reasons. "If I have a contract right to terminate you, it doesn't matter if I do it because I don't like how you comb your hair," said Rusthoven.

Much of the session was devoted to a legal technicality. State attorneys argued that a law that protects governors from facing court subpoenas should also apply to mere notices to appear, which IBM is looking to impose on Daniels. IBM attorney Lefkowitz said the law should not apply to notices because, unlike subpoenas, notices do not carry personal penalties if ignored.

IBM and the state have filed a number of claims and counterclaims against each other over the deal, under which IBM was to have modernized the state's aging welfare administration system. Indiana fired IBM as the primary contractor in October 2009 and now wants Big Blue to pay back hundreds of millions of dollars to make up for its "failed performance," according to the state's original complaint.

For its part, IBM has said the work it did on the initiative improved service to residents and saved Indiana millions of dollars through operating cost reductions and curtailment of fraud. IBM said it also brought 1,000 new jobs to Indiana. It wants the state to surrender $53 million it says it's still owed on the contract.

FSSA first tapped IBM in 2006 for what was to have been a 10-year, $1.4 billion revamp of the creaky systems it was using to process applications for Medicaid, welfare, food stamps, and more than 160 other public assistance programs. IBM was also to handle a number of back office functions related to the services.

The arrangement called for about 1,500 state employees to be transferred to IBM.

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