U.S. District Judge Joel Slomsky ruled on Thursday in Philadelphia that the suit against the individuals would continue to have RICO status. The judge did disconnect IBM from the RICO allegations, although the corporation will still face fraud, breach of contract and negligent supervision claims.
Devon IT, founded by Devon Health Preferred Provider Organization founder Dr. John Bennett of Villanova, alleges that the IBM execs defrauded it of $12 million by diverting funds Devon IT had invested in two products with IBM for other purposes within the corporation without telling Devon IT that one of the projects had been cancelled.
The defendants argued that 8 of the 9 claims against them were invalid because of releases signed by Devon IT, but the judge found that Devon IT may have been fraudulently induced into signing them. Although Slomsky did dismiss three of Devon's claims, he upheld the others and the RICO status applying to them, saying that "plaintiffs have sufficiently alleged predicate acts of wire fraud or 'racketeering activity.'".
Devon also claims that the defendants had been under the supervision of Robert Moffatt, a former top IBM exec who was convicted last year on insider trading charges, although he is not named in this suit.
The defendants have until April 21 to file a response.
Devon IT seeks damages in excess of $100 million. Mitts Milavec, LLC of Philadelphia is representing Devon IT.
Here is a Devon IT 2009 presentation to IBM (pdf), still hosted on IBM's website.