State of Indiana v. International Business Machines Corporation

FILED Dec 09 2020, 8:33 am

CLERK Indiana Supreme Court Court of Appeals and Tax Court

ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE Peter J. Rusthoven Daniel R. Lombard John R. Maley Chicago, Illinois J. Curtis Greene Indianapolis, Indiana Andrew W. Hull Jason L. Fulk Indianapolis, Indiana

Paul D. Clement Washington, DC

IN THE COURT OF APPEALS OF INDIANA

State of Indiana, December 9, 2020 Appellant-Plaintiff/Defendant, Court of Appeals Case No. 20A-PL-925 v. Appeal from the Marion Superior Court International Business Machines The Honorable Heather A. Welch, Corporation, Judge Appellee-Defendant/Plaintiff. Trial Court Cause No. 49D01-1005-PL-21451

Altice, Judge. Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 1 of 12

Case Summary [1] Despite the complex history of this case, which has entered its second decade

and culminated in this fourth appeal, the question before us is rather simple.

Did the Supreme Court mean what it said when it expressly affirmed the trial

court’s 2017 final judgment on all issues? Or, as suggested by the State, did the

Supreme Court carelessly use – three times in the Court’s relatively short

opinion – the “generic ‘we affirm’ statement”, Appellant’s Reply Brief at 11, and

really intend to reverse the trial court’s judgment regarding post-judgment

interest and remand? The answer is clear. The Supreme Court affirmed the

trial court’s judgment in all respects, and the State’s attempt to seek an

additional award of over $4.3 million in post-judgment interest from

International Business Machines Corporation (IBM) based on application of a

novel calculation “on remand” is baseless. [2] We affirm.

Facts & Procedural History [3] Once again, an appeal from the “seemingly never-ending saga between the

State and IBM” has come before us. IBM v. State, 112 N.E.3d 1088, 1092 (Ind.

Ct. App. 2018), summarily aff’d in part and vacated in part, 124 N.E.3d 1187 (Ind.

2019), modified on reh’g, 131 N.E.3d 609 (Ind. 2019). A Cliffs Notes version of

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 2 of 12

the history of this case follows, drawn from the plethora of previous appellate

opinions in this matter. [4] In December 2006, the State of Indiana, acting on behalf of the Indiana Family

and Social Services Administration, entered into a ten-year, $1.3 billion

contract with IBM to modernize and improve the State’s welfare system. Less

than three years later, the State terminated the contract citing IBM performance

issues. The parties, in 2010, separately sued each other for breach of contract in

Marion County Superior Court, and the actions were consolidated. [5] The trial court, Judge David Dreyer presiding, granted partial summary

judgment in favor of IBM for $40 million in assignment fees. 1 Then, after a six-

week bench trial in early 2012, the trial court entered final judgment on July 18,

2012, finding no material breach on IBM’s part and awarding IBM additional

damages from the State including, among other things, about $9.5 million in

equipment fees. Both parties appealed and the appeal eventually made its way

to our Supreme Court. In State v. IBM, 51 N.E.3d 150, 153 (Ind. 2016) (IBM I),

the Supreme Court affirmed the award to IBM for assignment and equipment

fees, totaling slightly over $49.5 million, but reversed other awards to IBM.

The Court also reversed the trial court’s finding that IBM did not materially

breach the contract and remanded to the trial court to “determine the amount of

1 While the first trial was pending, the State pursued an interlocutory appeal directly to the Supreme Court through emergency transfer concerning whether the Governor could be compelled to submit to a deposition. See State v. IBM, 964 N.E.2d 206 (Ind. 2012).

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 3 of 12

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 [contract].” Id. at

168-69. [6] After remand, the State sought and eventually obtained, by order of the

Supreme Court, a change of judge.2 Judge Heather Welch then presided and

held a full-day hearing on damages and considered both pre- and post-hearing

submissions. In sum, the State argued that it was entitled to over $173 million

in damages and that the previously awarded $49.5 million in damages to IBM,

which was upheld on appeal, along with a stipulated amount for change order

fees, should be offset against the State’s damages. Because IBM had no amount

due after setoff, the State argued that IBM was entitled to no post-judgment

interest. IBM, by contrast, claimed that it was entitled to post-judgment interest

on the damages it was awarded in 2012 that were not disturbed on appeal. [7] On August 4, 2017, the trial court issued its judgment on remand in an 83-page

order. The court awarded the State $128 million in total damages and offset

that amount by the damages due IBM, which totaled $49,821,891 for

assignment fees, equipment fees, and change order fees. Relevant for our

purposes, the trial court rejected IBM’s request for post-judgment interest on the

2 IBM opposed the change of judge and the trial court refused to grant it. Thus, the State filed an original action with the Supreme Court for a writ compelling the trial court to vacate all orders issued since certification of IBM I and to grant the motion for change of judge, which the Court granted. State v. Marion Superior Court, 54 N.E.3d 995 (Ind. 2016).

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 4 of 12

$49.5 million award dating back to 2012 and expressly determined that IBM

was entitled to $0 in post-judgment interest. The State, on the other hand, was

awarded post-judgment interest at an 8% annual rate on the net damages award

of $78,178,109. [8] Both parties again appealed, posing a combined five issues for review. This

court affirmed the trial court’s 2017 order in all respects except for the

determination regarding post-judgment interest. IBM, 112 N.E.3d 1088. We

concluded that IBM was entitled to post-judgment interest on the $49.5 million

damages award entered in 2012, which had remained undisturbed on appeal,

and we, therefore, reversed the trial court on this issue and remanded for

calculation of the post-judgment interest due IBM based on the 2012 award. Id.

at 1103. [9] The Supreme Court granted transfer and addressed only the post-judgment

interest issue, summarily affirming the other portions of our opinion.

Specifically, in the beginning of its original opinion issued on June 26, 2019, the

Court stated as follows:

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.

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 5 of 12

IBM, 124 N.E.3d at 1188. [10] The Supreme Court expressly disagreed with our court’s analysis regarding

post-judgment interest because we relied on a case – Beam v. Wausau Ins. Co.,

765 N.E.2d 524 (Ind. 2002) – that applied Ind. Code § 24-4.6-1-101, the default

statute dealing with post-judgment interest, rather than Ind. Code § 34-13-1-6,

which governs interest on money judgments against the State. 3 Applying the

correct statute, the Court explained:

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 IBM’s breach of the [contract] 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 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

3 I.C. § 34-13-1-6 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.

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 6 of 12

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 [the] 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 [o]f 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.

Id. at 1191 (emphases added). [11] The Court then concluded its opinion as follows: “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.” Id. [12] IBM sought rehearing on both damages and post-judgment interest issues. The

State opposed the petition for rehearing in all respects. Regarding post-

judgment interest, the State indicated that “[t]here is no reason whatever to

disturb the Court’s holding on this straightforward issue.” Appellee’s Appendix

Vol. 2 at 29. The State suggested, however, that the Court “may wish to clarify

that [I.C. § 34-13-1-6]’s unambiguous terms do indeed control when IBM’s

judgment against the State will begin to ‘draw interest.’” Id. The State noted

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 7 of 12

this case’s “protracted, contentious history” and advised that clarifying that

IBM’s judgment did not start to draw interest until the adjournment of the 2018

legislative session would “forestall any effort to lift the Court’s concluding

statement from its statutory context” and “prevent yet further litigation and

delay in a case that must come to a close.” Id. [13] On October 10, 2019, the Supreme Court granted rehearing in part and issued

an order modifying the concluding paragraph of its opinion as follows:

We hold that the post-judgment interest due to IBM runs stems from the judgment on remand. Under Indiana Code section 34- 13-1-6, the judgment “draw[s] interest at an annual rate of six percent (6%) from the date of the adjournment of the next ensuing session of the general assembly....” Following the judgment in this case on August 4, 2017, the next ensuing session of the General Assembly adjourned on March 14, 2018. Therefore, the post-judgment interest due to IBM runs from March 14, 2018. We summarily affirm the Court of Appeals on all other issues and affirm the trial court on all issues.

IBM, 131 N.E.3d at 609-10 (additions indicated by underlined text and deletion

denoted by stricken text). Contemporaneous with entry of this order, the Court

filed its opinion on rehearing reflecting these limited changes. See IBM v. State,

138 N.E.3d 255, 259 (Ind. 2019). The opinion was certified on December 5,

2019. [14] In the end, the clarification did not prevent further litigation. Rather, on

December 18, 2019, the State filed a Verified Motion to Enter Final Judgment

on Remand. The State argued that the Supreme Court did not “simply affirm

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 8 of 12

the 2017 Judgment’s ruling on post-judgment interest” but instead devised a

new calculation that required interest on the IBM and State judgments to be

“calculated separately, based on the different statutes, interest rates and accrual

dates” before any setoff. Appellant’s Appendix Vol. III at 40. By the State’s

calculations, it was owed over $4 million in additional post-judgment interest. [15] The parties extensively briefed the issue, and the trial court held a hearing on

February 10, 2020. Thereafter, on March 9, 2020, the trial court issued an

order denying the State’s motion, finding that “the Supreme Court affirmed the

[trial court’s] original damages calculation, including the offset of damages

prior to assessing post-judgment interest, and never explicitly remanded the

case for further consideration.” Appellant’s Appendix Vol. II at 188-89. The State

appeals from this order.

Discussion & Decision [16] Directly contrary to the position it stridently held for a number of years, the

State now contends that the damage awards should be considered separately,

with post-judgment interest calculated and added before any setoff. That is, the

interest due the State should be based on its gross award of $128 million at a

rate of 8% from August 4, 2017, and the interest due IBM should be based on

its award of approximately $49.8 million at a rate of 6% from March 14, 2018.

The State argues that this bifurcated interest determination is required by the

Supreme Court’s recent opinion on rehearing. We cannot agree.

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 9 of 12 [17] In her 2017 judgment, Judge Welch unambiguously determined that IBM was

entitled to no post-judgment interest. This resulted from IBM’s award being

entirely offset by the State’s greater award. The net amount was then entered as

a final judgment in favor of the State with post-judgment interest accruing on

that amount at 8% from August 4, 2017. [18] The trial court’s determination regarding post-judgment interest was considered

on appeal, first in our court and then by the Supreme Court. In fact, the only

issue that the Supreme Court chose to address on transfer was interest,

summarily affirming the other portions of this court’s opinion. Ultimately, the

Supreme Court expressly affirmed the trial court. Leaving little doubt in its

affirmance, the Court stated three times that it “affirm[ed] the trial court on all

issues.” IBM, 138 N.E.3d at 256, 257, 259. [19] The gist of the State’s appeal is that the Supreme Court, in actuality, reversed

the trial court on this issue and remanded. This can’t be so. A plain reading of

the Supreme Court’s opinion, and the trial court’s order which was affirmed,

indicates that no post-judgment interest was due IBM because its damage

award was zeroed out by the setoff. Indeed, the Court recognized that “what

was due and owed to IBM was necessarily contingent upon what damages were

due the State for the breach.” Id. at 259. Because IBM’s award was less than

what was awarded to the State in the 2017 order, IBM’s award was simply

applied to offset what was owed to the State. To be clear, “there is no money

that rightfully belonged to IBM as the amount awarded to it … was, only an

offset to what IBM owes the State.” Id.

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 10 of 12 [20] The Court reiterated that the rationale for awarding post-judgment interest is

that “it ‘compensates plaintiffs for the loss of money that has been determined

to be have rightfully belonged to them ….’” Id. (quoting Beam, 765 N.E.2d at

534). As of entry of the 2017 judgment, the only party that had money owed to

it was the State in the amount of $78,178,109 with post-judgment interest

accruing at 8%. [21] The modification made by the Supreme Court to the concluding paragraph of

its 2019 opinion did not alter the fact that the trial court’s judgment in favor of

the State and award of post-judgment interest was affirmed in its entirety. As

discussed above, there was no judgment due IBM and, thus, no post-judgment

interest on IBM’s offset award. The clarification, which did not disturb the

Court’s holding on this straightforward issue, simply made clear that any

money judgment due IBM from the State – of which there was none – would

draw interest, pursuant to I.C. § 34-13-1-6, at a rate of 6% from the

adjournment of the next ensuing session of the general assembly following entry

of judgment. In this case, that date would be March 14, 2018. Without the

clarification, the Court’s conclusion appeared to indicate, incorrectly, that the

date would be the date of the judgment, August 4, 2017. 4 The Court’s

understandable effort to avoid any erroneous implication regarding the

applicable date from which interest runs on judgments against the State has,

4 The date was relevant in the context of the issue being reviewed by the Supreme Court because IBM had argued, and this court had held, that post-judgment interest on IBM’s award ran from the 2012 judgment.

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 11 of 12

unfortunately, led to a remarkable misinterpretation by the State and

continuation of litigation that should have long since ended. The trial court

properly denied the State’s Verified Motion to Enter Final Judgment on

Remand. [22] Judgment affirmed.

Riley, J. and May, J., concur.

Court of Appeals of Indiana | Opinion 20A-PL-925 | December 9, 2020 Page 12 of 12