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IBM Beats Suit Alleging IRS Was Duped Into Signing Software Deal

Oct. 1, 2019, 3:14 PM

IBM defeated a whistleblower’s false claims suit in D.C. federal court accusing the company of fraudulently inducing the Internal Revenue Service into signing a $265 million software contract.

Paul Cimino failed to adequately allege that IBM worked with Deloitte LLP to create a false audit in an attempt to coerce the IRS into paying for unwanted software, Judge Amit P. Mehta of the U.S. District Court for the District of Columbia ruled Sept. 30.

Cimino didn’t show that the agency agreed to the contract because of alleged misrepresentations in the audit, the court said.

Cimino’s claims also failed for lack of materiality under the False Claims Act because the agency paid IBM all or a substantial portion of the contract after becoming aware of Cimino’s allegations, the court said.

“The court finds it implausible that the IRS sat on its hands upon learning that IBM had tricked it into signing a contract for $265 million for software that it did not need,” the court said.

Cimino alleged that IBM, with Deloitte’s assistance, fabricated audit findings concerning the agency’s software usage, and then presented those false findings to the agency to coerce the agency into agreeing to the contract.

Cimino said the IRS agreed to the deal under the threat of a $91 million license charge penalty.

Hogan Lovells US LLP represented IBM. Nixon Peabody LLP represented Cimino.

The case is Cimino v. Int’l Bus. Mach. Corp., D.D.C., No. 13-907, 9/30/19.

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bloomberglaw.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com