Indiana agency paying law firm $5.25M to sue IBM

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Indiana's human services agency is paying $5.25 million to a private law firm, including the brother of a key aide to Gov. Mitch Daniels, to represent the state in its fight over a canceled IBM Corp. welfare outsourcing contract.

Barnes & Thornburg of Indianapolis was hired despite several conflicts of interest arising from the fact that it also represents former IBM partners involved in the welfare deal. Bryan Corbin, a spokesman for the state attorney general's office, said in an e-mail to The Associated Press that "hiring this firm was a specific request of the Governor's Office."

Daniels' press secretary, Jane Jankowski, said the hire "made the most sense given the scope and complexity of the case."

The law firm's contract with the Family and Social Services Administration outlines its conflicts, and Barnes & Thornburg even suggests in the document that the agency consider hiring a co-counsel to handle conflict-of-interest issues as needed. The contract was obtained by the AP.

"They're very good litigators and that's why they were chosen," family and social services spokesman Marcus Barlow said of Barnes & Thornburg. Barlow said the $5.25 million is "a small fraction" — less than 1 percent — of the $1.3 billion in damages the agency is seeking from IBM.

Indiana House Speaker Patrick Bauer, however, called it foolish for the agency to hire outside counsel when the Indiana attorney general's office could represent it for no cost in attorneys' fees.

"To spend another $5 million is bad money after bad money, and the taxpayers are the losers," said Bauer, a Democrat from South Bend.

Daniels, a Republican, fired Armonk, N.Y.-based IBM last October from a 10-year, $1.37 billion contract to introduce call centers, document imaging and other automation to the process of applying for food stamps, Medicaid and other benefits. IBM and Indiana sued each other in state court last May.

The $5.25 million contract with Barnes & Thornburg also calls for the human services agency to pay attorneys' expenses. Barlow said the money would come out of the agency's administrative budget, which includes legal costs.

The Barnes & Thornburg team includes longtime Republican activist Peter Rusthoven at a rate of $475 per hour, John Maley at $465 and Brian Burdick at $405. Burdick is the brother of Betsy Burdick, Daniels' deputy chief of staff.

Signed by Brian Burdick and members of the Daniels administration in August, the contract covers Dec. 18, 2009 — a few days after IBM's state contract ended — through June 30, 2012. The case is scheduled to go to trial next September.

"This just smells to the highest heaven," said Rep. Charlie Brown, a Democrat from Gary and chairman of the General Assembly's Health Finance Commission.

Brown questioned the legality of a contract not signed until eight months after work began, but Barlow said it's normal for the state to sign contracts after a vendor has started a project.

Three pages of the 9½-page contract detail Barnes & Thornburg's conflicts of interest from having represented ACS Human Services, a division of Dallas-based Affiliated Computer Services Inc.; Arbor Education and Training; and other subcontractors involved in the IBM deal. Arbor and ACS have new eight-year contracts with the state totaling $853.2 million.

The contract says Barnes & Thornburg attorneys, in representing the human services agency, expect to make claims against its other clients but will not share with the state any "potentially relevant" information gained from representing them. It said the state's case will be screened from other clients.

The state agency also should expect IBM's attorneys "will look for creative ways to exploit the fact that (the firm) represented and continues to represent" the other clients, the contract says.

Julia Vaughn, policy director for the government watchdog group Common Cause/Indiana, said the conflicts of interest were "handing IBM a potential hornet's nest to bat around."

"For a lot of different reasons it screams that Barnes & Thornburg isn't an appropriate firm to put in charge of this case. It looks like their political connections overrode common sense," Vaughn said.

Barlow, the human services agency spokesman, said "any law firm that could handle a lawsuit of this size would have conflicts."

Barnes & Thornburg spokesman Ty Gerig said the firm would not comment on the contract.

IBM spokesman Clint Roswell had no immediate comment. The company is suing the state agency for $52.8 million it claims it is owed under the contract.


  • Conflict of Interest to the Max
    I am absolutely floored by this deal. I supported Mitch financially and working on his campaign. I assumed he was going to run an ethical administration. Now this comes up. What were they thinking in the Governor's Office. If Betsy Burdick did this to steer business to her brother's firm, then she should be fired. If the Governor did it, well the Governor needs to forget running for President.

    Barnes & Thornburg represented ACS and several other IBM subcontractors on the FSSA welfare privatization project. Now they have signed a contract for $5.25 million to represent FSSA against IBM on the very deal B and T worked on. In the contract, they even talk about how they might on behalf of FSSA have to sue B and T's own clients, ACS, and the other subcontractors for screwing up the very privatization effort they represetned those companies on. And yet we're supposed to believe B and T will somehow keep all the inevitable conflicts separate. You think B&T is going to aggressively go after ACS on the IBM privatization deal, when B&T put the deal together and the firm wants to continue having ACS as a client? Worst conflict of interest I've ever seen.

    The Disciplinary Commission should definitely be investigating the attorneys involved. The feds and the next Marion County Prosecutor also needs to be looking at what criminal laws might have been violated.

    I ams so disappointed in the fact that Attorney General Greg Zoeller signed off on this contract. Surely he knew it was not in the best interest of the state and highly unethical, yet he approved the contract.
    Mitch: You have done alot of really great things for this State, and I applaud you for them. This, however, is an unnecessary and potentially very damaging move. WHAT were you thinking? Contracts with attorneys are easily set aside, especially if there are conflicts, and no one would fault you for taking charge of this and hiring another equally competent law firm. Those at B&T that claim to have special knowledge could be hired as Advisors, and may be great witnesses, but they should not also be making the legal decisions. What if the case turns on some language in an IBM-related contract that B&T drafted? Are they going to invite a lawsuit from a former/present client because that language was defective? They cannot serve the State and also themselves.
    There is an old saying that "some law firms never met a conflict of interest they didn't like." While that may be true of some law firms, it should not be true of you, or this State. If B&T discovers half-way through the case that there are conflicts that cannot be waived, and then exits the case, you will need to find someone new and pay more money to educate them. Better to do that now, remove the public relations problem, and be able to proceed with a clear conscience.
    Even cutting you all of the slack that I can muster, this still stinks. Get rid of the smell if you want the Republican candidates to do well in two weeks.
  • No Mitch for Pres
    If true, this could kill any chance of Mitch successfully running for president.
  • Much Worse Than IURC
    This has the potential to be a scandal much worse than the one involving IURC. The problem is that according to the article, the Governor specifically requested Barnes & Thornburg get the $5.25 million contract to represent FSSA. The conflicts are so thick you can cut them with a knife. Barnes & Thornburg was deeply involved in putting together the deal and working with IBM's partners, and now they're filing a lawsuit on behalf of the state about the deal now gone sour?

    The Supreme Court Disciplinary Commission needs to inivestigate the attorneys involved in this conflict-ridden representation and file charges as it appears the rules have been violated. Donald Lundberg head of the Commission always looked the other way when it came to complaints filed against Barnes & Thornburg and other big firtms in town but he's no longer there...and of course is now a partner at Barnes.

    This deal stinks to high heaven. Reporters need to be asking if the Governor himself approved this deal and if not, exactly who in the Governor's Office was involved. If the IURC deal required swift action, then this surely does even more. Unfortunately, the scandal might go all the way to the top.
  • Massa or Curry
    Another example of wy we cannot permit Mark Massa to hold the Marion County Prosecuors Office. Can you imagine the blind eye he would give his boss Mitch Daniels, were he to be elected?!?!

    Terry Curry just makes so much sense at this point. There's a lot of sketchy dealings going on in the Daniels Administration, and we need someone to stop this nonsense I for one will be talking to all my friends to block this candidacy. You can take a look at Massa campaign finance report and see that most of the donors are Mitch Daniels oney baggers, for sure.

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