112 N.E.3d 1088
Ind. Ct. App.2018Background
- Indiana (State) contracted with IBM under a ten-year, $1.3B Master Services Agreement (MSA) to modernize welfare eligibility (centralized/remote model) and set Policy Objectives tying contract interpretation to those objectives.
- Rollout encountered performance problems, the Great Recession, and disasters; the State moved to a Hybrid ("Plan B") approach shifting some functions back to local offices; no executed change order for price.
- The State terminated the MSA for cause (Oct. 2009). The State sued IBM for >$170M; IBM sued for >$52M; claims were consolidated and tried in a six-week bench trial.
- Trial judge (Dreyer) found IBM had not materially breached and awarded IBM $49.5M (assignment and equipment fees). Appellate courts reversed on material breach but repeatedly affirmed IBM’s $49.5M award, remanding to compute damages and offsets.
- On remand a subsequent trial judge (Welch) awarded the State ~$125M direct damages (mainly costs of implementing Hybrid) plus $3M consequential damages, offsetting IBM’s award; IBM challenges several aspects on appeal and seeks post-judgment interest on its $49.5M award.
Issues
| Issue | State (Plaintiff) Argument | IBM (Defendant) Argument | Held |
|---|---|---|---|
| Whether prior trial-court factual findings (Judge Dreyer) are law of the case on remand | The supreme court accepted Dreyer's factual findings and only corrected the legal test, so Dreyer's findings remain binding | Dreyer's findings were disturbed by appellate rulings; remand left open factual gaps (e.g., damages causation) for new findings | Not law of the case as to damages; the supreme court decided material breach but left factual questions (e.g., Hybrid vs. Modernization damages) to be determined on remand |
| Whether costs from implementing Hybrid are recoverable as direct (reprocurement) damages under the MSA | Hybrid is a different, more expensive system outside the MSA scope, so State cannot recover costs for a different system | Hybrid fits within the MSA’s Policy Objectives and Schedule 3 (face-to-face/local access was contemplated); Hybrid remediation costs flowed naturally from IBM’s breach | Costs to implement Hybrid are recoverable as Reprocurement Costs; the trial court’s award for those costs was affirmed |
| Whether IBM is entitled to post-judgment interest on the $49.5M award from the original 2012 judgment date | The supreme court’s remand reversed liability and thus post-judgment interest should run only from the new judgment after offsets | The assignment and equipment fees were affirmed on appeal; those portions of the original judgment survived and IBM is entitled to post-judgment interest from the original verdict date | IBM is entitled to post-judgment interest on the affirmed $49.5M; remanded to calculate interest from the original verdict date |
| Whether the MSA’s direct-damages cap or new employee salaries limit State’s recovery (cross-appeal) | The direct-damages cap should be the greater of $125M or the fees paid in the 12 months before the Claim; State asserts 12-month fees exceed $125M and seeks salaries for new staff as recoverable reprocurement costs | The 12-month comparator uses the date of Claim (here May 13, 2010), so fees in that period were less than $125M; new-management and some new hires put State in a better position than pre-MSA and are not reasonable reprocurement costs | Trial court properly capped direct damages at $125M; salaries for newly created post-termination management positions are not recoverable as Reprocurement Costs (would be a windfall) |
Key Cases Cited
- Greater Clark Cty. Sch. Corp. v. Myers, 493 N.E.2d 1267 (Ind. Ct. App. 1986) (discusses scope of remand and what issues remain for trial court on damages)
- St. Margaret Mercy Healthcare Ctr., Inc. v. Ho, 663 N.E.2d 1220 (Ind. Ct. App. 1996) (law-of-the-case doctrine bars relitigation of issues decided on prior stages)
- Am. Family Mut. Ins. Co. v. Federated Mut. Ins. Co., 800 N.E.2d 1015 (Ind. Ct. App. 2003) (explains limits of law-of-the-case when additional evidence on remand fills factual gaps)
- Beam v. Wausau Ins. Co., 765 N.E.2d 524 (Ind. 2002) (post-judgment interest runs from original verdict unless judgment is reversed and remanded for new judgment)
- Dana Companies, LLC v. Chaffee Rentals, 1 N.E.3d 738 (Ind. Ct. App. 2013) (measure of contract damages: losses that flow directly and naturally from breach)