Judge tosses racketeering claims in Marin County lawsuit against SAP

IDG News Service - A judge has tossed out a number of claims in a California county's lawsuit against SAP over an allegedly failed ERP software implementation, including the claim that SAP had engaged in a racketeering conspiracy with Deloitte Consulting, which served as a systems integrator on the project.

On balance, Marin County failed to allege sufficient facts to bring a racketeering claim against SAP under the terms of the federal Racketeer Influenced and Corrupt Organizations act (RICO), Judge Susan Illston wrote in a ruling filed Tuesday in U.S. District Court for the Northern District of California.

However, the judge also ruled that Marin County can file an amended complaint if it would like to "correct the deficiencies" in its claims.

Marin County had originally sued Deloitte in 2010 and later filed a new suit also naming SAP. The RICO allegations could have led to triple the US$35 million in damages demanded by the county, which has decided to rip out and replace the SAP system rather than fix problems with it, believing that doing so would cost less.

Marin County had based its racketeering conspiracy claim on a number of grounds, including that SAP and Deloitte had engaged in wire fraud when convincing the county to join a "Ramp-Up" early adopter program for a new software release.

"Marin does not allege that any of the representations made in those emails or reports were false," Illston wrote. "Instead, Marin bases its wire fraud claim on the fact that SAP sent 'deliberately misleading emails and reports representing the purported benefits of becoming a Ramp-Up customer, while concealing the extraordinary risks known exclusively to SAP.'"

"With respect to the 'risks' regarding the status of the Project, Marin's claim fails," Illston added. "As Marin acknowledges in its own Amended Complaint, during the time period at issue SAP did disclose in an October 2005 Report to Marin that 'the County is at risk of an improperly designed system which could lead to substantial rework during the Project or a re-implementation after go live.'"

The county is also suing former county employee Ernest Culver, alleging that he was interviewing for jobs at Deloitte and SAP while "approving Deloitte's deficient work on the project, approving payments, and causing Marin County to enter into new contracts with Deloitte and SAP Public Services."

While finding that Marin County had alleged sufficient facts to bring a "plausible" bribery claim against SAP with respect to Culver, "at least two separate predicate acts" are required to show a pattern of racketeering activity, the judge added.

Illston also granted SAP's motion to dismiss a claim of common law conspiracy, but Marin County will be allowed to file an amended complaint on those allegations as well.