BOWMAN et al v. INTERNATIONAL BUSINESS MACHINES CORPORATION et al
Filing
146
ORDER granting Defendant's 41 Motion to Dismiss Plaintiffs' Claims for Breach of Contract. Signed by Judge Richard L. Young on 2/21/2012. (PG)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
INDIANAPOLIS DIVISION
)
)
)
)
)
)
)
)
vs.
)
)
INTERNATIONAL BUSINESS
)
MACHINES CORPORATION, ACS
)
HUMAN SERVICES, LLC, PHOENIX
DATA CORPORATION and ARBOR E&T,)
)
LLC,
)
Defendants.
)
)
)
INDIANA FAMILY AND SOCIAL
)
SERVICES ADMINISTRATION,
)
Interested Party.
JAMES BOWMAN, individually and as
next friend for JAMEEL BOWMAN, and
MELISSA GIBSON, as next friend for
COURTNEY ANDERSON, on behalf of
themselves and others similarly situated,
Plaintiffs,
1:11-cv-00593-RLY-TAB
ORDER ON DEFENDANT INTERNATIONAL BUSINESS MACHINES
CORPORATION’S MOTION TO DISMISS PLAINTIFFS’ CLAIMS FOR
BREACH OF CONTRACT
Defendant, International Business Machines Corporation (“IBM”), moves to
dismiss the state law breach of contract claim brought by Plaintiffs, James Bowman
(“Bowman”) as next friend of Jameel Bowman (“J.B.”), and Melissa Gibson (“Gibson”)
as next friend for Courtney Anderson (“Anderson”) (collectively, “Plaintiffs”), under
Federal Rule of Civil Procedure 12(b)(6) (“Rule 12(b)(6)”) for failure to state a claim
1
upon which relief can be granted. For the reasons set forth below, IBM’s Motion is
GRANTED.
I.
Background
The Family and Social Services Administration (“FSSA”) of the State of Indiana
administers the State’s Medicaid program. (Complaint ¶ 4). In December 2006, IBM
entered into a Master Services Agreement (the “MSA”) with the FSSA and assumed the
overall management of the eligibility determination process. (Id. ¶¶ 6-7). IBM then
delegated to other contractors, primarily ACS Human Services, LLC (“ACS”), most of
the day-to-day responsibilities of working with beneficiaries to determine their eligibility
and process their appeals. (Id. ¶¶ 7-8). In turn, the FSSA transitioned 1,500 state
employees into the employ of IBM and its sub-contractors. (Id. ¶ 9). The FSSA retained
final authority to approve or disapprove eligibility; however, it was dependent upon the
fact-gathering, computer entries, and recommendations of the IBM Coalition staff when
making correct determinations on whether to start, stop, or change Medicaid coverage for
an individual. (Id. ¶ 10). The sub-contractors represented themselves as the FSSA to the
public by mediating virtually all communications between beneficiaries and the FSSA;
displaying the FSSA’s signage and official seal; using the FSSA’s letterhead; and
identifying themselves as representatives of the FSSA to beneficiaries during telephone
calls. (Id. ¶¶ 10-15).
In March 2009, the State of Indiana notified IBM that IBM’s management through
its subcontractors of the functions critical to eligibility determinations was grossly
2
deficient. (Id. ¶ 16). Accordingly, the State terminated the MSA with IBM seven years
before its expiration, and the parties have sued each other over the termination. (Id.).
After the termination, the FSSA established direct contracts with many of the former subcontractors, which continued carrying out their previously delegated functions. (Id. ¶ 17).
During the life of the MSA, a Medicaid beneficiary’s due process rights included
the right to have the benefits continue while the appeal of a proposed termination of his or
her benefits is pending. (Id. ¶ 19). Also, before terminating benefits Defendants had a
duty to assess whether a recipient who no longer qualified under one Medicaid category
might qualify under another category. (Id. ¶ 26). When a timely request for an appeal of
a proposed termination or reduction of benefits was made, Defendants were responsible
for assuring that all appropriate steps were taken to maintain Medicaid coverage for the
individual or family without interruption until the appeals office could hold a fair hearing.
(Id. ¶ 24).
Plaintiffs claim to have been denied their due process rights as Medicaid
beneficiaries. Anderson had received Medicaid benefits since shortly after her birth;
however, her Medicaid disability application was denied in May 2009. (Id. ¶¶ 39, 44).
On Anderson’s behalf, Gibson filed a timely appeal with the FSSA that same month. (Id.
¶ 45). In June 2009, the sub-contractors re-assessed Anderson’s Medicaid eligibility and
processed her case for closure, despite the pending appeal. (Id. ¶ 46). Gibson filed
another appeal, yet, on July 1, 2009, Defendants submitted Anderson’s case for
termination. (Id. ¶¶ 47-48). Anderson did not receive Medicaid benefits from July 1,
3
2009, through July 15, 2009, when they were reinstated pending her appeal hearing. (Id.
¶¶ 50-51).
J.B. also received Medicaid benefits through the FSSA. (Id. ¶¶ 58-59). After his
annual telephone interview with an FSSA sub-contractor to determine his ongoing
Medicaid eligibility in April 2009, J.B. and Bowman received letters stating that their
Medicaid benefits would be discontinued as of May 31, 2009. (Id. ¶ 63). Although
Bowman filed an appeal on May 27, 2009, J.B.’s and his family’s Medicaid benefits were
terminated on June 1, 2009. (Id. ¶¶ 65-66). Their benefits were not reinstated until
December 2009. (Id. ¶ 67).
In the Complaint, Plaintiffs claim that they are beneficiaries of Medicaid, and
therefore by implication are intended beneficiaries of the contractual agreements between
and among Defendants and the FSSA. (Id. ¶ 84(3)). According to Plaintiffs, the harms
suffered by the deprivation of their Medicaid benefits are precisely the harms that
Defendants undertook to prevent under the contracts. (Id. ¶ 84(3)). Plaintiffs request
compensatory damages for the deprivation of their Medicaid benefits as a result of
Defendants’ violations. (Id. at Prayer for Relief ¶ 3). IBM filed a Motion to Dismiss
under Rule 12(b)(6), claiming that Plaintiffs are not parties to, or third-party beneficiaries
of, the MSA between IBM and the FSSA; therefore, Plaintiffs have no rights under the
MSA and have failed to state a claim. (IBM’s Motion to Dismiss (“Motion”) 1-2).
Because Plaintiffs’ federal claims give the court original federal question jurisdiction
under 28 U.S.C. § 1331, the court has supplemental jurisdiction over Plaintiffs’ state law
4
breach of contract claim pursuant to 28 U.S.C. § 1367(a).
II.
Motion to Dismiss Standard
Rule 12(b)(6) of the Federal Rules of Civil Procedure authorizes the dismissal of
claims for “failure to state a claim upon which relief may be granted.” FED.R.CIV.P.
12(b)(6). A complaint need not make detailed factual allegations to survive a Rule
12(b)(6) motion to dismiss, but it must contain more than labels and conclusions or a
formalistic recitation of the elements of a cause of action. Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007). The court must treat the factual allegations in the
complaint as true, construe the allegations liberally, and draw all reasonable inferences in
the plaintiff’s favor. See Brown v. Budz, 398 F.3d 904, 908 (7th Cir. 2005). Accordingly,
the facts outlined above are accepted as Plaintiffs allege them.
III.
Discussion
IBM contends that Plaintiffs are neither a party nor a third-party beneficiary to the
MSA; therefore, they have no rights under the MSA, including the right to sue for breach.
Plaintiffs do not claim that they are parties to the MSA; rather, they argue that they are
third-party beneficiaries to which Defendants owe certain duties. Thus, Plaintiffs believe
that they have a right to sue under the MSA if those duties are breached.
Under Indiana law, generally only parties to a contract have rights under the
contract.1 Deckard v. Gen. Motors Corp., 307 F.3d 556, 561 (7th Cir. 2002) (citing OEC1
The parties appear to agree that Indiana law applies to the breach of contract claim, considering
they raise no choice of law issues and briefed the claim using Indiana law; accordingly, the court applies
Indiana law. Norwood Promotional Products, LLC v. Kustomkoozies, LLC, 2011 WL 6415537, at *n.6
5
Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1314-15 (Ind. 1996)). However, a nonparty, also referred to as a third party, may enforce the contract by demonstrating that the
parties intended to protect the third party via the imposition of a duty in its favor. Id.
(citation omitted). In other words, a third-party beneficiary contract is formed when (1)
the parties to the contract intend to benefit a third party, (2) the contract imposes a duty
on
one of the parties in favor of the third party, and (3) the performance of the terms of the
contract directly benefits the third party. Id. (citing Kiltz v. Kiltz, 708 N.E.2d 600, 602
(Ind.Ct.App. 1999)). The controlling factor is the intent to benefit the third party.
Luhnow v. Horn, 760 N.E.2d 621, 628 (Ind.Ct.App. 2001) (citation omitted).
Plaintiffs and IBM disagree on whether the contract reveals an intent to benefit a
third party. IBM cites Section 21.6 of the MSA to support its contention that the parties
did not intend that Plaintiffs be third-party beneficiaries:
No Third-Party Beneficiaries. Other than the indemnity rights under
Article 17, (I) nothing contained in this Agreement is intended or shall be
construed to confer upon any person or entity (other than the Parties hereto)
any rights, benefits or remedies of any kind or character whatsoever, and
(ii) no person or entity shall be deemed a third-party beneficiary under or
by reason of this Agreement.
(IBM’s Ex. A (“MSA”) § 21.6) (emphasis added). According to IBM, such a clause is
enforceable and acts as an unambiguous expression of the parties’ lack of intent to benefit
a third party. While Plaintiffs acknowledge the “no third-party beneficiaries” clause, they
(S.D.Ind. Dec. 21, 2011) (citing ECHO, Inc. v. Whitson Co., Inc., 52 F.3d 702, 707 (7th Cir. 1995)).
6
contend that Section 21.6 is not the only indication of the parties’ intent to benefit a third
party. Plaintiffs believe that other provisions of the MSA are at odds with Section 21.6.
For example, the preamble notes the State’s responsibility to provide Medicaid services to
eligible persons, and the stated objectives of the MSA are “(I) to provide accurate and
timely eligibility determinations for individuals and families who qualify for public
assistance,” and “(ii) to improve the availability, quality and reliability of the services
being provided to Clients.” (MSA Preamble, § 1.1(1)). Plaintiffs claim that these
provisions cannot be reconciled with Section 21.6, creating an ambiguity that requires the
admission of parole evidence in order to determine the parties’ intent.
If a contract is unambiguous, the court will “give effect to the intentions of the
parties as expressed in the four corners of the document.” Evan v. Poe & Assoc., Inc.,
873 N.E.2d 92, 98 (Ind.Ct.App. 2007) (internal citations and quotations omitted). A
controversy between the parties concerning the proper interpretation of contract terms
does not necessarily indicate that the terms are ambiguous. Kiltz, 708 N.E.2d at 602.
When interpreting a contract, the court must read the contract as a whole and accept an
interpretation that reconciles its provisions. OEC-Diasonics, Inc., 674 N.E.2d 1315.
Additionally, the court should make every effort to avoid an interpretation that renders
any words, phrases, or terms ineffective or meaningless. Indiana Gaming Comp., L.P. v.
Blevins, 724 N.E.2d 274, 278 (Ind.Ct.App. 2000) (citation omitted). All provisions in the
contract are presumably there for a purpose, and the court should reconcile seemingly
conflicting provisions so as to give effect to all provisions, if possible. Id. (citation
7
omitted). Generally, under the parol evidence rule, extrinsic evidence may not be
admitted as a way to add to, vary, or explain the terms of a contract; however, this rule
does not apply under the “stranger to the contract” rule. Evan, 873 N.E.2d at 101. In
other words, under certain circumstances parol evidence may be admitted to explain the
terms of a written instrument if the controversy is between a third party and one of the
parties to the contract. Id.
Indiana courts agree with IBM that “no third-party beneficiaries” clauses explicitly
and unambiguously represent an intent by the parties to disallow a suit by third parties.
Blevins, 724 N.E.2d at 279. In Blevins, the City of Lawrenceburg and Indiana Gaming
Company, L.P. (“Indiana Gaming”), entered into a contract, which included guidelines
for workers’ wages as well as a clause stating that there shall be no third-party
beneficiaries to the agreement. Id. at 276. Alleging they were not paid according to the
wage guidelines in the agreement, workers sued Indiana Gaming for breach of contract.
Id. The workers claimed that despite the “no third-party beneficiaries” clause, the
contract granted them certain wage rights, making them intended third-party
beneficiaries. Id. at 277. The court found that the contract clearly precluded the workers
from being third-party beneficiaries, and that allowing the workers to enforce the section
regarding wage rights would render the “no third-party beneficiaries” clause meaningless.
Id. at 278-79. The court held that the provisions could be reconciled in that the wages
rights section does not render the “no third-party beneficiaries” section meaningless, but
merely limits the enforcement of those rights to the parties to the contract. Id. at 279.
8
Plaintiffs rely on Deckard v. Gen. Motors Corp. to support their contention that
granting IBM’s motion would be premature, because extrinsic evidence is needed to
determine the intent of the parties. 307 F.3d 556 (7th Cir. 2002). Following an
automobile accident and settlement, the plaintiffs in Deckard signed agreements releasing
the insurance company and “all other persons, firms or corporations” from any and all
claims as a result of the accident. Id. at 559. Despite the decisions of several Indiana
appellate courts upholding such language as plain and unambiguous, the Seventh Circuit
found that the release of the plaintiffs’ claim for personal injuries may not have been
within the contemplation of the parties. Id. at 564-65. The Seventh Circuit further noted
that Indiana recognizes the “stranger to the contract” exception to the parol evidence rule,
meaning that the parol evidence rule does not apply to third parties to the contract. Id. at
563. Accordingly, the Seventh Circuit held that even though the language in the contract
was clear and unambiguous, extrinsic evidence regarding the intent of the parties to
release GM was admissible under the “stranger to the contract” exception to the parol
evidence rule. Id. at 565.
Five years later, an Indiana appellate court disagreed with Deckard and held that
“in the context of a controversy that exists between a third party and one of the parties to
the instrument, when a release is unambiguous [the court] need not look at any other
evidence to determine the parties’ intent.” Evan, 873 N.E.2d at 104 (citing OECDiasonics, 674 N.E.2d at 1314). Similar to the plaintiff in Deckard, the Evans signed an
agreement with their insurance company releasing the insurance company and “all other
9
persons, firms and corporations, from any and all claims” arising out of a fire loss. Id. at
96. After signing the release agreement, the Evans filed a complaint for negligence
against their insurance agency and agent, who were not parties to the release agreement.
Id. at 97. The court affirmed a grant of summary judgment in favor of the defendants on
the grounds that the release was unambiguous, and thus, parol evidence was not
admissible to determine the intent of the parties to the agreement. Id. at 105.
Although the court is not bound by the analysis of an intermediate Indiana
appellate court, it is required to give it “great weight” in the absence of prevailing
authority from the state’s highest court. Allstate Ins. Co. v. Menards, Inc., 285 F.3d 630,
637 (7th Cir. 2002); Bontrager v. Ind. Fam. and Soc. Servs. Admin., 2011 WL 5386646,
at *8. Consequently, the court is persuaded by the Indiana appellate court’s rejection of
Deckard. The clause in the MSA is an unambiguous expression of the parties’ intent not
to create third-party beneficiaries to the MSA. Other provisions of the MSA mention
duties of the parties to the public regarding Medicaid services; however, as the court
demonstrated in Blevins, the clauses can be reconciled. The “no third-party beneficiaries”
clause of the MSA merely limits the enforcement of Medicaid recipients’ rights to the
actual parties to the MSA. See Blevins, 724 N.E.2d at 279. Because the MSA is clear
and unambiguous, the “stranger to the contract” exception to the parol evidence rule does
not apply and extrinsic evidence is inadmissible. See Evan, 873 N.E.2d at 105.
Accordingly, Plaintiffs are not third-party beneficiaries to the MSA; therefore, they do not
have the right to sue under the MSA for breach of contract.
10
IV.
Conclusion
For the reasons set forth above, IBM’s Motion to Dismiss (Docket # 41) is
GRANTED.
SO ORDERED this 21st day of February 2012.
__________________________________
RICHARD L. YOUNG, CHIEF JUDGE
RICHARD L. YOUNG, CHIEF JUDGE
United States District Court
United States District Court
Southern District of Indiana
Southern District of Indiana
Electronic copies to:
Kevin W. Betz
BETZ & BLEVINS
kbetz@betzadvocates.com
Sandra L. Blevins
BETZ & ASSOCIATES
sblevins@betzadvocates.com
Craig L. Briskin
MEHRI & SKALET, PLLC
cbriskin@findjustice.com
Jenny R. Buchheit
ICE MILLER LLP
jenny.buchheit@icemiller.com
Daniel K. Burke
HOOVER HULL LLP
dburke@hooverhull.com
11
Aaron D. Charfoos
KIRKLAND & ELLIS LLP
aaron.charfoos@kirkland.com
Adam Clay
INDIANA ATTORNEY GENERAL
Adam.Clay@atg.in.gov
John B. Drummy
KIGHTLINGER & GRAY
jdrummy@k-glaw.com
Benjamin Conard Ellis
BETZ & BLEVINS
bellis@betzadvocates.com
Wendy Netter Epstein
KIRKLAND & ELLIS LLP
wendy.epstein@kirkland.com
Jason L. Fulk
HOOVER HULL LLP
jfulk@hooverhull.com
Andrew T. Glier
OFFICE OF THE ATTORNEY GENERAL
andrew.glier@atg.in.gov
Melanie E. Harris
ICE MILLER LLP
melanie.harris@icemiller.com
Thomas J. Henderson
HENDERSON LAW FIRM PLLC
tjh@hendersonfirm.net
Zachary D. Holmstead
KIRKLAND & ELLIS
zachary.holmstead@kirkland.com
12
Anna May Howard
SEVERNS & STINSON LAW FIRM
amh@severns.com
Andrew W. Hull
HOOVER HULL LLP
awhull@hooverhull.com
John F. Ittenbach
ITTENBACH JOHNSON TRETTIN & KOELLER
jfittenbach@IJTKlaw.com
Robert M. Kelso
KIGHTLINGER & GRAY
rkelso@k-glaw.com
Robert M. Koeller
ITTENBACH JOHNSON TRETTIN & KOELLER
rkoeller@ijtklaw.com
Laurie E. Martin
HOOVER HULL LLP
lmartin@hooverhull.com
Steven D. McCormick
KIRLAND & ELLIS LLP
smccormick@kirkland.com
Martin L. Roth
KIRKLAND & ELLIS LLP
martin.roth@kirkland.com
Scott Richard Severns
SEVERNS & ASSOCIATES
sseverns@severns.com
Anne M. Sidrys
KIRKLAND & ELLIS LLP
anne.sidrys@kirkland.com
13
Steven A. Skalet
MEHRI & SKALET, PLLC
sskalet@findjustice.com
Diana M. Watral
KIRKLAND & ELLIS LLP
diana.watral@kirkland.com
L. Alan Whaley
ICE MILLER LLP
whaley@icemiller.com
Michael Wroblewski
KIGHTLINGER & GRAY
mwroblewski@k-glaw.com
Michael A. Wukmer
ICE MILLER LLP
michael.wukmer@icemiller.com
14
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?