Bridgestone vs. IBM – Bridgestone Wins Round One and Increases the Pressure on IBM

In October of 2013 Bridgestone North America filed suit against IBM related to the catastrophic implementation of its OTC in January of 2012.  On March 22, 2016, two and a half years after the initial claim and 350 filings later, the Middle Tennessee District judge dismissed only one of the six claims that Bridgestone has leveled against IBM.  Now Bridgestone has turned up the heat on IBM by subpoenaing some very prominent IBM customers to turn over all documentation related to projects contracted with IBM dating back to 2003.

Background

In May of 2009, IBM completed work that confirmed for Bridgestone that the SAP OTC design that had been completed for one of Bridgestone’s North American subsidiaries could be extended to all of Bridgestone’s North American operations.  In the third quarter of 2009, IBM was contracted to implement the core solution and in December of 2009 an agreement was signed to complete the design and implement the solution across Bridgestone in a big bang fashion.

In late 2010, Phase 1 Design was completed late with both parties in agreement that each had contributed to the lateness of delivery.  A change order was agreed for adjusted scope and a new targeted delivery date of October 2011 was set.  By January of 2011 the project was falling behind and key IBM personnel were leaving without being replaced.  During May of 2011, Bridgestone requested IBM to review its WebSphere middleware solution.  IBM complied and reported that all of IBM’s work was in order and that the late delivery was attributed to Bridgestone’s participation.  In August 2011, the October go-live was scrapped and a new go-live date was set for Jan 3^rd of 2012.

On December 27^th 2011, during the late stages of the go-live activities, IBM management recommended that the implementation be stopped due to risks that were identified in early December.  Bridgestone had previously reviewed these risks and was either prepared to accept the consequences of said risks, or had put in place contingency plans.  On January 3^rd 2012 the system went live with catastrophic results.  Bridgestone could not reliably process orders, ship product, track product, determine inventory or perform normal business accounting.  These problems were well beyond what could have been expected and attributed to the risks that were identified in early December.  Six months later after both SAP and Fujitsu were brought in to assist, the system was still not operating reliably and IBM was off the project.

The Lawsuit

After more than a year of negotiating with IBM and being unable to reach a settlement, Bridgestone filed a civil lawsuit against IBM claiming that IBM had committed fraud, was negligent in representation, violated the Tennessee Consumer Protection act, was grossly negligent, and breached its contracts with Bridgestone.  According to Bridgestone, IBM was insisting that it was just there to work by the hour, do only what it was told, and collect over $78 million in hourly fees, bearing no responsibility for the damages to Bridgestone caused by IBM’s material breach of fundamental common law and contractual duties attached to its services.  Bridgestone requested and was granted a jury trial in its North American Headquartered home state of Tennessee.

In May of 2015, IBM filed a motion to dismiss five of the six claims.  IBM stated that Bridgestone should abide by its written promises and not rely on representations outside the contract.  IBM also claimed it had no contractual obligation or duty to disclose potential problems.  Finally, IBM put forward that Bridgestone had not provided sufficient evidence to support the claims filed.

In what can only be termed a victory for Bridgestone, the following ruling has been handed down regarding IBM’s motion to dismiss:

• Claim 1 – Fraud in the inducement of contracts:  The judge found it was plausible that IBM misrepresented material facts and that Bridgestone relied on this representation in support of its decisions.
• Claim 2 – Negligent misrepresentation in a business transaction:  The judge found that it was plausible that IBM withheld information that if known by Bridgestone, they may not have pursued additional contracts or went live in January.
• Claim 3 – Constructive Fraud:  This charge was dismissed.  Constructive fraud was described as unintentional fraud, the judge determined that Bridgestone had not presented enough evidence to let the claim stand.
• Claim 4 – Violation of the Tennessee Consumer Protection Act:  The judge let this claim survive but stated that the facts were however somewhat strained in support of the claim.
• Claim 5 – Gross Negligence:  Not challenged by IBM.
• Claim 6 – Breach of Contract:  Again, the judge let this claim survive but suggested that it will survive summary judgement unless the factual record narrows to specifics.

Amping up the Pressure

With the wind in its sails, Bridgestone has increased its pressure on IBM by literally dragging the neighbors into the fray.  Bridgestone has issued subpoenas to the following companies:

Viacom                                 General Motors                Abbott Labs

Verizon                                 Medtronic

Johnson Controls             General Electric

The subpoena requires these companies to turn over for review and copy all documentation related to their contractual dealings with IBM including:

• All contracts with IBM dating back to 2003
• Documents that identify all IBM personnel that worked on these contracts
• All document settlements associated with these contracts
• All documents concerning the complaints that these companies conveyed to IBM with regard to any services associated with these contracts
• All documents containing evidence of time slips, accounting ledgers, invoicing, checks, payments, accounting logs or summaries submitted to the client since 2003.

While it is not clear from the court records why these subpoenas were issued, it is clear that these court orders will not be looked upon kindly by the companies receiving them.  IBM has submitted motions to quash these subpoenas, but if they are allowed to stand, it is likely IBM will have some damage control to do with these clients.

With the trial date now moved to July of 2017, this case has plenty of turns to take before it gets to the Jury.  For Bridgestone there appears to be only upside.  Given that Bridgestone has already incurred these costs, shareholders only stand to gain in the continued pursuit of damages.  For IBM, aside from the potential monetary judgement, they have put at stake its brand and potential legal precedence that will make it easier for clients to file suits against system integrators.  With IBM’s services business on a downward trend, one wonders how long before IBM settles to get this case behind them and out of the news.