Case Title: International Business Machines Corp. v. State ex rel. Indiana Family & Social Services Administration

Citation: 

Docket Number: 

State: indiana

Court: Indiana Supreme Court

Date: 2019-06-26T00:00:00Z

Document:
I N  T H E
Indiana Supreme Court 
Supreme Court Case No. 19S-PL-19 
International Business Machines Corporation, 
Appellant/Cross-Appellee 
(Defendant/Plaintiff below), 
-v-
State of Indiana, acting on behalf of the Indiana 
Family & Social Services Administration 
Appellee/Cross-Appellant 
(Plaintiff/Defendant below). 
Argued: February 21, 2019 | Decided: June 26, 2019 
Appeal from the Marion Superior Court 
No. 49D01-1005-PL-21451 
The Honorable Heather A. Welch, Judge 
On Petition to Transfer from the Indiana Court of Appeals 
No. 49A02-1709-PL-2006  
Opinion by Justice David 
Chief Justice Rush and Justice Goff concur.   
Justice Slaughter concurs in part and dissents in part with separate opinion. 
Justice Massa not participating. 
FILED
C L E R K
Indiana Supreme Court
Court of Appeals
and Tax Court
Jun 26 2019, 1:25 pm
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David, Justice.  
 
This case comes before our Court for the second time and arises out of a 
contract entered into between the State of Indiana, acting on behalf of the 
Family and Social Services Administration, and International Business 
Machines, Corp. to modernize and improve Indiana’s welfare eligibility 
system.  We previously determined that IBM materially breached the 
contract and remanded the matter to the trial court to determine damages 
and appropriate offsets.  After the submission of evidence and a full-day 
hearing, the trial court issued detailed findings and conclusions.  It 
determined that damages to the State resulting from the breach totaled 
$128 million and that IBM was entitled to offsets in the amount of 
$49,510,795, resulting in a final judgment of $78,178,109 to the State.  
Both parties appealed, raising various issues. Today we address one of 
the issues raised: whether IBM is entitled to post-judgment interest on its 
$49.5 million damages award running from the date of the original 
judgment in 2012 or running from the judgment on remand.  Finding that 
the original 2012 judgment was not “final,” we hold that the post-
judgment interest due to IBM runs from the judgment on remand.  We 
summarily affirm the Court of Appeals on all other issues and affirm the 
trial court on all issues.  
Facts and Procedural History  
As this Court explained in State v. International Business Machines Corp., 
51 N.E.3d 150, 152 (Ind. 2016) (“IBM I”):  
This case involves a $1.3 billion Master Services Agreement 
(“MSA”) entered into between the State of Indiana, acting on 
behalf of the Family and Social Services Administration 
(“State”) and International Business Machines, Corp. (“IBM”) 
to modernize and improve Indiana’s welfare eligibility system. 
Although the MSA was supposed to last ten years, the State 
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terminated it less than three years in, citing performance issues 
on the part of IBM.  Both parties sued each other for breach of 
contract.  
After a six-week bench trial, the Marion Superior Court found that the 
State failed to prove that IBM’s breach of the MSA was material and 
awarded IBM damages for assignment and equipment fees.  It also 
awarded termination payments and pre-judgment interest.  Both parties 
appealed.   Ultimately, this Court reversed, in part, holding that IBM 
materially breached the MSA.  We reversed IBM’s termination payment 
and pre-judgment interest awards, but affirmed its assignment and 
equipment fees in the amount of $49,510,795.  We remanded to the trial 
court with the following instructions:  
[W]e hold that IBM did materially breach the MSA through its 
collective breaches in light of the MSA as [a] whole. We 
therefore reverse the trial court's finding that IBM did not 
materially breach the MSA. We summarily affirm the Court of 
Appeals on all other issues including: affirming the trial court's 
award of $40 million in assignment fees and $9,510,795 in 
equipment fees to IBM, affirming the trial court's denial of 
deferred fees to IBM, and reversing the trial court's award of 
$2,570,621 in early termination close out payments and 
$10,632,333 in prejudgment interest to IBM. We also remand 
the case to the trial court to determine the amount of fees IBM 
is entitled to for Change Orders 119 and 133, and for 
calculation of the parties' damages consistent with this opinion, 
including any appropriate offsets to the State as a result of 
IBM's material breach of the MSA. 
Id. at 168-169.  
 
On remand, the trial court held a full-day hearing and considered both 
pre-hearing briefs and post-hearing submissions. It issued an 83-page 
order awarding the State $128 million in damages and credited IBM 
$49,510,795 for assignment and equipment fees this Court upheld plus the 
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amount of fees for the change orders (an amount agreed to via stipulation 
of the parties).  The trial court denied IBM’s request for post-judgment 
interest on the $49.5 million-dollar award for assignment and equipment 
fees.  Thus, IBM was ordered to pay the State $78.2 million, after offsets.   
Both parties again appealed.  IBM argued: 1) it is entitled to post-
judgment interest on the fees upheld by this Court in IBM I; 2) the trial 
court erred by setting aside the factual findings of the original trial court; 
and 3) the trial court erred by holding IBM responsible for the costs of 
implementing a different and more expensive welfare system than the one 
contemplated by the MSA. For its part, the State argued it was entitled to 
additional damages resulting from the breach.   
The Court of Appeals affirmed in part, reversed in part, and remanded 
with instructions. Int’l Bus. Machines Corp. v. State on behalf of Indiana 
Family & Soc. Servs. Admin., 112 N.E.3d 1088 (Ind. Ct. App. 2018) (“IBM 
II”). It rejected both of the State’s requests for additional damages and 
concluded that IBM was entitled to post-judgment interest on the $49.5 
million damages award that survived IBM I.    
Both parties sought transfer. The Indianapolis Bar Association’s 
Appellate Practice Section and the Defense Trial Counsel of Indiana 
(DTCI) have filed amici briefs in support of transfer on the post-judgment 
interest issue. We granted transfer thereby vacating the Court of Appeals 
opinion.  Ind. Appellate Rule 58(A).  We write only to address the post-
judgment interest issue. We summarily affirm the other portions of the 
Court of Appeals opinion and affirm the trial court on all issues.  
Standard of Review 
Here, the trial court has made special findings pursuant to Indiana Trial 
Rule 52(A).  As such, a reviewing court may affirm the judgment on any 
legal theory supported by the findings.  G & N Aircraft, Inc. v. Boehm, 743 
N.E.2d 227, 234 (Ind. 2001) (citations omitted).  Further, [w]hen the 
specific issue on review relates to the award of damages, a damage award 
should not be reversed if it is within the scope of the evidence before the 
trial court.”  Id. (quoting Dunn v. Cadiente, 516 N.E.2d 52, 54 (Ind. 1987)).   
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However, the right to post-judgment interest arises as a matter of 
statutory law.  Tincher v. Davidson, 784 N.E.2d 551, 553 (Ind. Ct. App. 
2003). The meaning of a statute is a question of law which we review de 
novo.  ESPN, Inc. v. Univ. of Notre Dame Police Dep't, 62 N.E.3d 1192, 1195 
(Ind. 2016). 
Discussion and Decision  
IBM argues that it is entitled to post-judgment interest on its $49.5 
million award as entered by the trial court and affirmed by this Court in 
IBM I.   Our Court of Appeals agreed.  It applied Beam v. Wausau Ins. Co., 
765 N.E.2d 524 (Ind. 2002) and found that the “one constant” in the case 
was the award of assignment and equipment fees to IBM.  Int'l Bus. 
Machines Corp., 112 N.E.3d at 1103.   While it is true that this award has 
remained unchanged from the original judgment until present, we do not 
find Beam to be applicable to these facts and circumstances.   
In Beam this Court looked at Indiana Code section 24-4.6-1-101 and 
addressed whether post-judgment interest on a modified award runs on 
the amount after modification by the reviewing court or the original 
amount.  Beam, 765 N.E.2d at 534. Indiana Code section 24-4.6-1-101 
provides that post-judgment interest accrues back to the "date of the 
return of the verdict or finding of the court until satisfaction. . . ."   The 
operative language in Beam is that when: 
 a judgment is reversed on appeal and remanded to the trial 
court for the entry of a new judgment, post-judgment interest 
accrues from the date the trial court enters the new judgment.  
* * *  
[But] where a money judgment has been modified on appeal 
and the only action necessary in the trial court is compliance 
with the mandate of the appellate court, interest on the 
judgment as modified runs from the date of the original 
judgment. 
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Beam, 765 N.E.2d at 534-535. (citation omitted).   
We found that because we modified the amount of damages but did 
not reverse judgment for plaintiff, post-judgment interest ran from the 
date of the original verdict on the modified amount.  Id. at 534.  
But here, it is not Indiana Code section 24-4.6-1-1011 that governs, but 
Indiana Code section 34-13-1-6 because we are dealing with a sum of 
money due from the State.  It provides: 
Whenever, by final decree or judgment, a sum of money is 
adjudged to be due any person from the state, an execution 
shall not issue but the judgment shall draw interest at an 
annual rate of six percent (6%) from the date of the 
adjournment of the next ensuing session of the general 
assembly until an appropriation is made by law for the 
payment and the judgment is paid. 
The relevant inquiry in Beam was whether the judgment was only 
modified or reversed entirely, and pursuant to the statute, post-judgment 
interest was due from the “date of the return of the verdict or finding of 
the court.”  Ind. Code § 24-4.6-1-101.   Here, the relevant inquiry pursuant 
to Indiana Code section 34-13-1-6 is whether there was a final decree or 
judgment. A final judgment "disposes of all issues as to all parties thereby 
ending the particular case."  Georgos v. Jackson, 790 N.E.2d 448, 451 (Ind. 
2003).   
At the time of remand, all the issues were not disposed of as this 
Court's opinion in IBM I did two things: 1) it reversed the trial court on 
the issue of whether the State’s breach of the MSA was material; and 2) 
remanded to the trial court to calculate appropriate damages as well as 
offsets.  While IBM wants us to consider its suit against the State separate 
and apart from State's suit, the two arise out of the same facts and 
                                                 
1 Ind. Code § 24-4.6-1-101 begins with qualifying language that it applies “[e]xcept as 
otherwise provided by statute. . . .” 
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circumstances and are inextricably tied.  Case law is clear that a final 
judgment disposes of “all issues as to all parties.” Id. (quoting Indiana 
Appellate Rule 2(H) (emphasis added).   Not all the issues as to all parties 
were resolved at the time of remand and further, what was due and owed 
to IBM was necessarily contingent upon what damages were due the State 
for the breach.  IBM could have recovered money from the State if the 
State’s damage award was less than what was awarded to IBM or IBM 
award could have simply been applied to offset what was owed to the 
State.  In Beam, we stated the rationale for awarding post-judgment 
interest as if the date of the original judgment when it has not been 
reversed: it "compensates plaintiffs for the loss of money that has been 
determined to be have rightfully belonged to them throughout the time of 
the pending appeal."  Beam, 765 N.E.2d at 534.  Here, there is no money 
that rightfully belonged to IBM as the amount awarded to it may have 
been and ultimately was, only an offset to what IBM owes the State. 
Accordingly, looking at the statute, our case law and the facts of this case, 
post-judgment interest going back to the original judgment is 
inappropriate.    
Conclusion 
We hold that the post-judgment interest due to IBM runs from the 
judgment on remand.  We summarily affirm the Court of Appeals on all 
other issues and affirm the trial court on all issues.   
Rush, C.J., and Goff, J., concur.  Slaughter, J., concurs in part and 
dissents in part with separate opinion.  Massa, J., not participating. 
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A TT O R N E YS F O R  AP P EL LA N T 
Jay P. Lefkowitz 
Kirkland & Ellis LLP 
New York, New York 
Paul D. Clement 
Kirkland & Ellis LLP 
Washington, D.C.  
Andrew W. Hull 
Laurie E. Martin 
Hoover Hull Turner LLP  
Indianapolis, Indiana  
A TT O R N E YS F O R  AP P EL LE E 
Peter J. Rusthoven 
John R. Maley 
J. Curtis Greene 
Meredith Thornburgh White  
Barnes & Thornburg LLP 
Indianapolis, Indiana  
 
ATTORNEYS FOR AMICUS CURIAE, INDIANAPOLIS BAR 
ASSOCIATION  
 
Tyler D. Helmond 
Voyles Vaiana Lukemeyer Baldwin & Webb  
Indianapolis, Indiana  
 
Josh S. Tatum 
Plews Shadley Racher & Braun LLP 
Indianapolis, Indiana  
 
Joel M. Schumm 
Indianapolis, Indiana  
 
Bryan H. Babb 
Bose McKinney & Evans LLP  
Indianapolis, Indiana  
 
Indiana Supreme Court | Case No. 19S-PL-19 | June 26, 2019 
Page 9 of 9 
Libby Y. Goodknight 
Krieg DeVault LLP  
Indianapolis, IN  
 
A TT O R N E YS F O R  AM IC US CU R IA E, D EF E NS E T RI AL C OU NS EL 
O F  I N DIA N A 
 
James D. Johnson  
Blair M. Gardner 
Jackson Kelly PLLC  
Evansville, Indiana  
 
Slaughter, J., concurring in part, dissenting in part. 
The Court summarily affirms an award of $125 million to the State as 
direct damages resulting from IBM’s breach of contract to update 
Indiana’s welfare system. A central premise of the appellate ruling we 
affirm is that the “Modernization” approach required by the parties’ 
Master Services Agreement is “essentially the same” as the more 
expensive “Hybrid” approach the State eventually implemented. IBM v. 
State, 112 N.E.3d 1088, 1101 (Ind. Ct. App. 2018), trans. granted. I am 
unable to join the Court’s summary affirmance because the record 
establishes that the Agreement required IBM to implement only 
Modernization and not Hybrid. Thus, I would treat 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. On the 
separate issue of post-judgment interest, I join the Court. 
I. 
The State’s original plan for updating what then-Governor Mitch 
Daniels called “America’s worst welfare system” was to adopt a 
“modernized” system based on remote eligibility. State v. IBM, 51 N.E.3d 
150, 153 (Ind. 2016). Needy Hoosiers would apply for welfare benefits 
using the internet or accessing a call center without the need for face-to-
face meetings with a case worker. Id. An applicant’s eligibility would then 
be decided through a centralized process statewide rather than in local 
county welfare offices. Id.  
After months of negotiations, in December 2006 the State contracted 
with IBM to establish Modernization—a centralized system with call 
centers to process welfare applications. Id. This arrangement also would 
allow remote electronic access to the system, provide a paperless 
document system, implement tools to lower fraud and improve Indiana’s 
poor welfare-to-work record, and reduce administrative costs. Id. The 
parties’ ten-year, billion-dollar-plus Agreement was more than 160 pages 
long with extensive attachments, including exhibits, schedules, and 
appendices, addressing all aspects of the parties’ business relationship. Id. 
The Agreement also included a change-order procedure by which the 
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parties could agree for IBM to take on additional work—not required 
under the original Agreement—for additional pay. Id. at 165. 
Problems with Modernization arose as soon as the system was first 
rolled out to a limited pilot area. Id. at 155. Some of the problems were 
attributed to the economic downturn in 2008 as welfare applications 
increased dramatically. Id. And that same year, the State faced a series of 
natural disasters that also strained the system. Id. Throughout the project, 
the State used the change-order process eleven times to expand the scope 
of IBM’s work under the Agreement. Id. at 156. But problems persisted, 
and in October 2009 the State notified IBM it would be terminating the 
Agreement for cause effective in December 2009. Id. at 157. Just before 
announcing the termination, the State adopted a “Plan B” approach to 
welfare modernization—a decentralized model requiring additional 
personnel and physical space. Id.  
[In September 2009], the State decided to change approaches 
and adopt a hybrid approach to welfare modernization, 
referred to by the parties as “Plan B.” Plan B moved away from 
the centralized call center and moved eligibility determinations 
back to the local office, increasing face-to-face contact between 
clients and staff. 
Id. The State initially asked IBM to implement its Plan B—“Hybrid”—
system via the change-order process, but the parties were unable to agree 
on the price for IBM to take on these additional services. Id. After the 
termination, the State incurred substantial additional costs associated with 
implementing Hybrid.  
Our initial opinion agreed with the State that IBM had materially 
breached the Agreement by failing to deliver the Modernization system 
the State had procured, thus entitling the State to recoup damages 
resulting from the breach. Id. at 168-69. On remand, the trial court 
awarded $125 million in direct damages for the State’s increased costs 
associated with the transition to Hybrid and an additional $3 million in 
consequential damages. 112 N.E.3d at 1095. As to damages, the court of 
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appeals affirmed. Id. at 1105-06. And today our Court summarily affirms 
the court of appeals.  
II. 
The Agreement did not require IBM to incur the Hybrid-related costs of 
renting additional space, hiring additional personnel, and renegotiating 
subcontracts with subcontractors already under contract to implement 
Modernization. And the parties’ conduct reflects as much. It is telling that 
the State initially asked IBM to implement Hybrid via change order. By 
entering into the change-order process, the State all but admits that 
Hybrid is outside the scope of contracted services. Parties do not negotiate 
proposed changes to an agreement that already requires those things. 
The court of appeals thus erred in treating the State’s additional costs to 
implement Hybrid as “reprocurement costs”—a defined term under the 
Agreement. Such costs are the “reasonable costs and expenses” the State 
incurs to “procure services similar to the applicable terminated Services . . 
. to the extent such costs and expenses would not have otherwise been 
incurred by the State but for the Termination”. The State’s post-
termination costs of transitioning its welfare-reform system from 
Modernization to Hybrid were not costs to “reprocure” anything; the 
additional Hybrid services had never been “procured” from IBM in the 
first place. Only Modernization had been procured from IBM, but IBM did 
not deliver, so it was in material breach. Thus, it was not IBM’s breach but 
the State’s decision to switch to the different, more expensive Hybrid 
system that caused the State to incur these additional expenses. The State’s 
additional, Hybrid-related costs are at most consequential damages, not 
direct damages. 
One result of the court of appeals’ ruling is that the State is better off 
than if IBM had not breached. To be sure, the State is entitled to the benefit 
of its bargain with IBM. It can recover the damages caused by IBM’s 
breach—i.e., the difference between what IBM had to provide under the 
Agreement and what IBM actually delivered. But the State is not entitled 
to a windfall. It cannot recover costs for additional services beyond what 
the Agreement required. Because I disagree with the court of appeals’ 
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award of damages attributable to IBM’s breach, I respectfully dissent from 
our Court’s summary affirmance of that portion of the appellate opinion. 
III. 
Finally, though the Court’s summary affirmance benefits the State in 
the short term, the longer-term consequence of our ruling for the State’s 
future procurement efforts may not be so favorable. It will come as little 
surprise if prospective vendors respond to today’s ruling in one of two 
ways. Either they will not do business with the State at all, thus reducing 
the supply of those willing to contract with the State. Or they will include 
a risk premium in their contracts to cover the unknown costs of fulfilling 
obligations beyond what they agreed to. Either way, the State and its 
taxpayers may soon learn that the future cost of obtaining third-party 
services will be higher—perhaps appreciably so—than otherwise. The 
magnitude of the increased cost may not be knowable, but it is a cost 
nonetheless.