TCS settles lawsuit with Orange County for $26 mn

IT major Tata Consultancy Services (TCS), India's largest IT services provider, said that it has settled an ongoing law suit with Orange County, California. The company has paid $26 million to settle the three-year long dispute.

The dispute was over a failed replacement to the county's automated property tax system that initially was to be completed by 2010 but was not delivered. "TCS and Orange County have agreed to settle an ongoing dispute regarding the joint development of a Property Tax Management System. Both parties had asserted claims against each other, but neither admits any liability. The settlement was reached after a mediation conducted by Magistrate Judge Jay C Gandhi, representing a compromise between the two parties, versus the prospect of a lengthy trial in Orange County," said a TCS spokesperson.

The settlement was reached after mediation was held late last month, the Board of Supervisors approved the settlement proposal of United States Magistrate Judge Jay C Gandhi. In a press statement, the County Executive office of Orange County said that Tata also approved the mediator's proposal, which resulted in a binding agreement.

On Friday, August 19, 2016, the county received notification that the $26 million settlement payment from Tata had been wired to the County Treasurer-Tax Collector. "In exchange for this payment, the County will now dismiss its lawsuit against Tata, which in turn will dismiss its cross complaint," said the statement.

Had the litigation not been settled, trial would have begun on August 2, 2016. The county sued Tata in 2013, claiming the software giant, violated the California False Claims Act and engaged in fraud, intentional misrepresentation, negligent misrepresentation and fraudulent concealment, as well as breach of contract. The software programme was to interface on behalf of the assessor, treasurer-tax Collector and auditor-comptroller departments to generate annual tax bills for secured and unsecured property, including land, buildings, boats, aircraft and business equipment.

In its legal complaint, the county alleged that Tata fraudulently induced the county into selecting Tata to develop the property tax system and then presented false claims in the form of invoices and reports, provided false and unachievable milestone completion dates, and intentionally understaffed the project to maximise profit. In the litigation, the county alleged that Tata took what was originally promised to be a two-year, $6.4 million contract and tried to stretch it into a six-year, $17 million project.

TCS too filed a cross-complaint and also asked the court to dismiss the county's fraud claims. In a court order filed April 1, 2016, the US District Court denied Tata's attempt to persuade the Court to dismiss the county's fraud claims, noting that Tata's internal e-mails, obtained during discovery, revealed Tata employees "appearing to strategise as to how to mislead the county about the status of the property tax management system".

The initial contract with Tata America International Corporation, operating as TCS America, was approved by the county in July 2008. In June 2010, supervisors extended the delivery date for a year. TCS is battling another lawsuit filed by Verona-based electronic medical records vendor, Epic. The jury had slapped a $940 million fine on TCS. A final verdict is yet to come on the case.

On Wednesday, TCS shares on BSE closed 1.2% lower at Rs 2,572.