Bowman v. Int'l Bus. Machines Corp.

• Decision Date: 21 February 2012
• Docket Number: No. 1:11–cv–00593–RLY–TAB.,1:11–cv–00593–RLY–TAB.
• Citation: 853 F.Supp.2d 766
• Court: U.S. District Court — Southern District of Indiana
• Parties: 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, v. 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.

853 F.Supp.2d 766

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,

v. 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.

No. 1:11–cv–00593–RLY–TAB.

United States District Court,

S.D. Indiana,

Indianapolis Division.

Feb. 21, 2012.

Anna May Howard, Severns & Stinson Law Firm, Scott Richard Severns, Severns & Associates, Benjamin C. Ellis, Kevin W. Betz, Sandra L. Blevins, Betz & Associates, Indianapolis, IN, Craig L. Briskin, Steven A. Skalet, Mehri & Skalet, PLLC, Thomas J. Henderson, Henderson Law Firm PLLC, Washington, DC, for Plaintiffs.

Aaron D. Charfoos, Anne M. Sidrys, Diana M. Watral, Martin L. Roth, Steven D. McCormick, Wendy Netter Epstein, Zachary D. Holmstead, Kirkland & Ellis, Chicago, IL, Andrew W. Hull, Daniel K. Burke, Jason L. Fulk, Laurie E. Martin, Hoover Hull LLP, Jenny R. Buchheit, L. Alan Whaley, Melanie E. Harris, Michael A. Wukmer, Ice Miller LLP, John F. Ittenbach, Robert M. Koeller, Ittenbach Johnson Trettin & Koeller, John B. Drummy, Michael Wroblewski, Robert M. Kelso, Kightlinger & Gray, Indianapolis, IN, for Defendants.

Adam Clay, Andrew T. Glier, Office of the Attorney General, Indianapolis, IN, for Interested Party.

ORDER ON DEFENDANT INTERNATIONAL BUSINESS MACHINES CORPORATION'S MOTION TO DISMISS PLAINTIFFS' CLAIMS FOR BREACH OF CONTRACT

RICHARD L. YOUNG, Chief Judge.

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 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 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 sub-contractors, 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, 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 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, 127 S.Ct. 1955, 167 L.Ed.2d 929 (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.¹Deckard v. Gen. Motors Corp., 307 F.3d 556, 561 (7th Cir.2002) (citing OEC–Diasonics, Inc. v. Major, 674 N.E.2d 1312, 1314–15 (Ind.1996)). However, a non-party, 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 Agreementis 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...