Oregon’s legal tab to outside law firms has passed $10 million in the battle with Oracle over who is to blame for the $300 million Cover Oregon website debacle.
The already staggering tab eventually could run far more than that, since there are still six months before the trial in Marion County Circuit Court is scheduled to begin, and there could be appeals after that.
But while Oregon and Oracle publicly accuse each other of incompetence and misrepresentations, they quietly have resumed settlement talks in search of a peaceful resolution. Oregon is using a special settlement lawyer, who has billed the state nearly $250,000 in the past two years.
“We continue to talk regularly in good faith about all kinds of settlement ideas with the state,” wrote Oracle Senior Vice President Ken Glueck in an email.
The state’s suit for more than $6 billion, as well as the project’s total failure, have drawn national attention. The website was never publicly unveiled, creating headaches for tens of thousands of Oregonians who sought to enroll in new health insurance offerings under the Affordable Care Act, also known as Obamacare. Oregonians faced delays, errors or had their applications lost entirely as the state tried to manually process their applications.
Oracle was paid $240 million for products and programming the state says were low-quality and unworkable.
Here are three things to know as the two sides talk.
1. The primary case is entering a crucial stage
On June 17, Oracle’s lawyers went to Marion County Circuit Court in an effort to essentially knock the heart out of Oregon’s case accusing Oracle of racketeering and fraud. The company’s lawyers argued two motions that question whether the state has a valid legal foundation for its suit.
Next month, the state will go to the same court for permission to amend the suit to claim punitive damages— meaning far more money — for what it says was egregious misconduct by the company.
At this point, neither side has a good understanding of the risks and probabilities as they head into trial scheduled for January 2017.
Until Marion County Circuit Judge Courtland Geyer settles those issues and some final questions around the evidence to be presented in court, it’s possible neither side will be ready to settle.
That, at least, is the usual pattern, says David Friedman, a Willamette University law professor who is tracking the case.
But, he adds, “There may be a break point right now where the state realizes it’s going to get a lot more expensive.”
2. Attorney General Ellen Rosenblum and Gov. Kate Brown may not be on the same page when it comes to settling
Oracle has filed a separate lawsuit that amounts to the legal equivalent of a tricky bank shot.
It claims aides to Brown reached an oral agreement to settle the state’s racketeering case for $25 million, only to have the deal not go through. The lawsuit attempts to enforce the alleged deal, which would make the entire legal fracas go away.
Rosenblum maintains that only she has the authority to fully settle the case, since she filed it and is an independently elected official. Brown has denied settling the case.
Oracle’s suit is pending, but the allegations it presents suggest that Brown, who is now running to fill the final two years of former Gov. John Kitzhaber’s term, was far more eager to settle the case than Rosenblum is. And that dynamic has likely not changed much, observers say.
“This is a very political environment,” Friedman says. “There may be a value to having a settlement before the election season heats up.”
The alleged $25 million settlement, while large on its face, would amount to pennies on the dollar of what Rosenblum has alleged. And nobody knows what advice she’s received from David Markowitz, the political supporter whose firm, Markowitz Herbold, she hired to litigate the case.
3. The state’s case rests on some tricky laws
June 17th’s court hearing concerned two laws that make up the heart of the state’s lawsuit. One of them is largely untested, while the other can be tricky to employ correctly.
Oregon has sued under the Oregon False Claims Act, a statute that has rarely been used. It originally was intended to be focused on Medicaid fraud — which is not alleged in the Oracle case. The law has never faced this kind of high-stakes test, legal experts say.
The other statute used by Oregon is the state’s version of a federal law originally intended for mobsters: the Racketeer Influenced and Corrupt Organizations Act. The law essentially allows companies and the state to allege criminal behavior and a pattern of wrongdoing in civil court. It has been used by the state to get around issues when the statute of limitations has passed on alleged crimes or misconduct.
Using the state RICO statute allowed Oregon to reach back in time to bring in Oracle’s promises made during the bidding process on Cover Oregon, which otherwise would have been off-limits. A former Oracle employee, David Jurk, submitted testimony to the state that many of Oracle’s promises were not only false, but they could never have been kept due to limitations of the company’s software.
The state also has obtained internal corporate documents suggesting that some of Oracle’s own experts considered the work done for Oregon to be inexcusable and unacceptably poor.
The state RICO statute allows the injured party to claim triple the damages it suffered.
But the state RICO law has some very specific rules on how it can be applied, setting a standard that Oracle claims Oregon has not met. And if the state loses a racketeering claim, it could be on the hook for Oracle’s hefty legal fees.
“There is some risk,” says Bob Lowry, a lawyer for Kell, Alterman and Runstein, due to the possibility of having to pick up the other side’s legal costs.
All this uncertainty is why the two sides are talking, Friedman says.
“It’s going to be risky to go into (court) and have their fates in the hands of those jurors,” he says. “This is their opportunity to jointly control how this thing plays out.”