Supreme Court: Daniels doesn't have to testify in IBM case

INDIANAPOLIS (WISH/AP) - Indiana Supreme Court on Monday reversed a previous Marion County court ruling, meaning Gov. Mitch Daniels will not have to answer questions in a $400 million lawsuit that state filed against IBM after Daniels canceled the company's contract to process welfare applications.

The Supreme Court heard arguments from attorneys for the state and IBM on whether a state law prohibiting governors from facing a court subpoena applies in lawsuits over the 2009 cancelation of state's $1.37 billion contract with the company.

State lawyers argued that a Marion County judge's order in December that IBM could question Daniels was wrong and that the company has been able to interview many of Daniels' aides about the decision. Company attorneys maintained that Daniels was closely involved with decisions about the contract and that the state law doesn't apply to requests for him to be questioned under oath by attorneys before the trial.

Monday afternoon, the Supreme Court ruled that the decision to require Daniels to testify was indeed incorrect.

During proceedings, Justice Frank Sullivan questioned whether the state was trying using the governor's immunity as a legal tactic to prevent his testimony in a lawsuit filed by the state.

Peter Rusthoven, an attorney representing the Indiana Family and Social Services Administration, said the state didn't intend to present anything based on what the governor said about the contract as evidence in the case.

"The only issue is do we have a right to terminate the contract?" Rusthoven told the justices.

The state agency is suing IBM for $437 million, the money it paid IBM to introduce call centers, document imaging and other automation to applications for food stamps, Medicaid and other public assistance programs. Daniels fired IBM for breach of contract in 2009, less than three years into the 10-year-deal, amid complaints of lost documents, lengthy hold times for the call centers and improperly denied benefits.

IBM's countersuit says the state still owes the company about $100 million in deferred payments and equipment costs.

Jay Lefkowitz, an attorney for IBM, contended the state law in dispute protects the governor from facing a subpoena to testify in court but not from a notice seeking a deposition.

Justice Robert Rucker asked Lefkowitz whether that interpretation would give more power to an attorney filing a lawsuit than a judge overseeing a trial.

Lefkowitz responded the Marion County judge's ruling still allows the governor to decline to testify without facing any personal penalty, but IBM could then ask the judge to limit what evidence the state could present.

Lefkowitz said after the hearing that depositions by aides to Daniels have shown that he was closely involved in the state's dealings with IBM.

"He signed the contract. He made decisions about where the call centers should be," Lefkowitz said. "He sat down with IBM executives and talked to them on the phone about implementation."

The trial in the lawsuits is due to start Feb. 27 in the Marion County court and last four to five weeks. In its ruling, the Supreme Court said trial proceedings will continue as scheduled.

Marion Superior Court Judge David Dreyer said in his ruling that the law state attorneys say protects Daniels from testifying is "ambiguous" and excluding Daniels from being deposed would be "illogical," given that the state filed the first lawsuit in the case.

Rusthoven said the law shielding the governor from testifying is needed because the state faces potentially thousands of lawsuits at any one time.

"People elect a governor to make decisions, they don't elect him to be witness in chief," Rusthoven said.