Facts

The State Controller's Office brought a complaint against SAP Public Services Inc., a software provider. SAP filed a cross-complaint against the State Controller's Office.

PLAINTIFF'S CONTENTIONS:
Plaintiff contended that it entered into a contract with SAP and paid it $50 million to integrate software into a new payroll and benefits system for the State of California. Plaintiff contended that the new system was a disaster, resulting in a percentage of payroll errors. Eventually, plaintiff terminated the contract for default due to defendant's failure to cure the material breach of the contract.

Plaintiff filed for damages for breach of contract and breach of the covenant of good faith and fair dealing

DEFENDANT'S CONTENTIONS:
Defendant denied plaintiff's allegations and asserted various affirmative defenses. It claimed that the State Controller's Office was responsible for the failures of the payroll system and that it wrongfully terminated the contract so that it could avoid making payments to defendant. Furthermore, it contended that the State Controller's Office breached the contract by failing to perform its duties under the contract and willfully refusing to accept and pay for SAP's performance.

Defendant filed a cross-claim for breach of contract, breach of the implied covenant of good faith and fair dealing, account stated, and declaratory relief.

Result

The parties reached a settlement pursuant to which both parties did not admit liability and denied fault. SAP will pay the State Controller's Office $59 million, will forego its cross-claims of $23 million, and the termination of the contract for default was rescinded. Subject to certain exceptions, the software contract between the parties remained in full force and effect. The State Controller's Office will retain certain license rights as part of the settlement.

Other Information

MEDIATOR: Hon. Robert C. Hight, ret., of JAMS in Sacramento.