Judge faces Supreme Court removal petition in State v. IBM case

Dave Stafford for www.theindianalawyer.com

Petitions filed Monday with the Indiana Supreme Court argue a Marion County judge defied a Supreme Court order and overstepped his authority in ruling on remand that the state could prove no damages from its cancelled $1.3 billion welfare-privatization contract with IBM.

Briefs in the case ask the Supreme Court to remove Marion Superior Judge David Dreyer from the long-running, multimillion-dollar litigation and vacate orders he issued after justices remanded the case in March. The briefs also suggest Dreyer’s actions in response to the high court’s order call into question his impartiality.

The Supreme Court ordered a determination of the state’s damages after the court ruled IBM materially breached the contract. Justices in a 4-0 decision reversed Dreyer’s original ruling but affirmed his finding of total damages of about $63 million in favor of IBM. The state argues it is entitled to about $150 million in damages resulting from IBM’s breach of its master services agreement with the state, and the Supreme Court sent the case back to Dreyer with orders to determine the state’s damages.

Dreyer issued a surprise order the day the Supreme Court order was certified, ruling the state could not prove damages.

“This order, entered without any post-remand notice, briefing or hearing, contravened the (Supreme) Court’s mandate and exceeded the trial court’s jurisdiction on remand,” argues one of two briefs the state filed Monday as a Supreme Court original action. The briefs ask the justices to vacate Dreyer’s post-remand rulings, remove him from the case and block him from any further rulings in the matter.

Barnes & Thornburg LLP attorneys Peter Rusthoven and John Maley represent the state in this litigation and filed briefs arguing Dreyer’s actions violated appellate and trial rules and disregarded the Supreme Court’s instructions on remand. Dryer did not immediately respond to messages seeking comment, but previously declined to comment on the case. Marion Superior Court administrator Emily VanOsdol had no immediate comment.

“In holding the State is not entitled to damages for IBM’s MSA breach, the trial court re-embraced the same IBM rationales on which it based its prior ruling that IBM did not materially breach the MSA — the ruling this Court reversed, holding those IBM rationales were legal error,” the brief argues. Those rationales include consideration of the benefits the state derived; delays and performance issues IBM encountered due to natural disasters; the economic downturn and other factors.

“The Damages Order’s denying damages to the State, by adopting IBM rationales that this Court explicitly rejected, is not simply legal error. It contravened this Court’s mandate, and exceeded the trial court’s sole jurisdiction on remand. Again, this Court thrice instructed that calculation of damages on remand must be ‘consistent with this opinion,’ including its ruling that IBM ‘materially breached the MSA.’ … Again, the trial court on remand ‘ha[d] no discretion, in fact, no power to do other than as indicated in the mandate,’” the briefs say.

A brief filed supporting the petitions asserts Dreyer’s order “is adopted virtually verbatim from sections of IBM’s post-trial Proposed Findings of Facts and Conclusions of Law” filed in his court.

On the morning of May 6, when the Supreme Court certified its order, lawyers for the state said they received email notice from Dreyer’s court that his order on remand had been issued more than one hour before receiving notice that the high court’s order had been certified. That afternoon, the state moved for a change of judge.

The state’s lawyers argue Dreyer violated Indiana Appellate Rule 65(E), which forbids a trial court from acting on an appellate opinion before it’s certified; Trial Rule 76(C)(3), which requires a 10-day period for parties to request a new judge when a matter is remanded for proceedings; and Trial Rule 76(B), which requires a change of judge in civil cases when such a change may be taken and a party so moves. The briefs assert Dreyer was bound by the rules even if on remand he was not required to conduct a new trial on the issues.

“The trial court’s contrary, formalistic reading of ‘further hearing’ cannot be sustained,” the state’s lawyers argue. “Under this reading of ‘further hearing,’ the very judge from whom a change is sought may eliminate a party’s right to a change of judge simply by declining to set a formal ‘hearing’ on an issue to be determined on remand. This reading would defeat, not serve, Trial Rule 76(C)(3)’s purposes.

“Furthermore, the trial court’s immediate entry of the Damages Order on the morning the Decision was certified cannot defeat the State’s right to change of judge, including on the issue of the State’s damages. … A trial court should not be allowed to cut off the right to change of judge on remand by issuing in the interim, before the mandatory ten-day period has expired, an order purporting to resolve the merits of issues to be determined on remand.”

The original action is the latest in long-running litigation that began after the state contracted with IBM to upgrade eligibility determinations for welfare benefits through the Indiana Family and Social Services Administration. The contract was enacted in 2006, cancelled in 2009, and the state sued IBM for breach in 2010.

“The State also submits the Writ is particularly necessary and appropriate given the history of this Action, a high-profile dispute with enormous impact on Hoosiers needing welfare services and Hoosier taxpayers generally,” one of the briefs says.

“This litigation history is beyond extraordinary. It has entailed enormous costs for the State and its taxpayers, with more in the offing. In light of the timing and substance of the Damages Order and other post-remand entries, the State’s counsel also respectfully submit that at this point, there is at least an appearance that the trial court may be unable to address impartially the issues on remand,” one brief said.

“As a federal appellate court just observed in comparable circumstances: ‘In light of the history of this case and related litigation, it is clear to us that the [trial] judge would have substantial difficulty in putting out of his mind his previously expressed, erroneous findings and conclusions, and that reassignment is advisable to preserve the appearance of justice,’” the state’s lawyers argued, citing Stetson v. Grissom, __ F.3d __, 2016 WL 2731587, *6 (9th Cir. May 11, 2016).

Briefs in the case are available on the appellate court docket in State of Indiana Acting on Behalf of The Indiana Family Social Services Administration v. David Joseph Dreyer, et al., 49S00-1605-OR-294.