Carlson Ditches IBM, Sues For Fraud

Hospitality giant Carlson has terminated its multimillion dollar outsourcing deal with IBM and slapped Big Blue with fraud and breach of contract charges, InformationWeek has learned.

The owner of Radisson Hotels, T.G.I. Fridays restaurants, and Carlson Wagonlit Travel claims IBM violated terms of the deal, signed in 2005, under which Carlson handed off IT and back office operations to the tech vendor. The agreement was originally set to run through 2015.

Carlson's lawsuit was filed under seal last week in U.S. District Court in Minneapolis, where Carlson is headquartered.

"Carlson alleges several causes of action against IBM relating to the services IBM provided pursuant to the [Master Services Agreement], including fraud, breach of contract, and breach of fiduciary duties," according to documents obtained by InformationWeek.

"In addition, Carlson seeks a declaratory order that the amount it owes IBM for past services be 'setoff' against any judgment in its favor," the documents state.

With most of the court record redacted or sealed, the exact nature of Carlson's complaints could not immediately be ascertained. As supporting evidence, the company filed a section of the outsourcing contract that covers confidentiality—a possible indication Carlson believes IBM misused its proprietary information.

Carlson officials declined to discuss the case.

For its part, IBM said Carlson's charges are meritless and that its former customer is simply looking to dodge rightfully owed payments. "Carlson's claims against IBM are baseless and therefore IBM will defend itself vigorously," an IBM spokesman said.

"Carlson's complaint was filed in response to IBM's demand for payment owed by Carlson under the parties Master Services Agreement," the spokesman added.

Carlson's 2005 decision to outsource to IBM was internally contentious. CIO Steve Brown was against the move but was overruled by then CEO Marilyn Carlson Nelson. The deal saw the company cut more than 500 IT and finance workers. Many of the positions were outsourced to IBM facilities in India, Canada, and other parts of the U.S.

Brown, now CIO at pharmaceuticals distributor Omnicare, left Carlson shortly after the deal was signed. He did not return calls seeking comment.