Attorney on Oracle lawsuit: 'Like throwing a rock at a hornet's nest'

PORTLAND, Ore. -- One day after Gov. John Kitzhaber announced plans to sue Cover Oregon's primary software developer for the state's failed health insurance exchange, reviews are mixed about whether a lawsuit will stick.

On Thursday, Kitzhaber asked Attorney General Ellen Rosenblum to initiate legal action against Oracle, which billed the state $134 million for its work on what became a largely dysfunctional website.

Also Thursday, Kitzhaber penned a letter to the Inspector General of the U.S. Department of Health and Human Services, encouraging the agency to "levy the appropriate fines and penalties" against Oracle.

Kitzhaber enlisted the help of Oregon's two U.S. Democratic senators, Ron Wyden and Jeff Merkley. Our reporters spoke to both men Friday at an unrelated press event and both stood by the governor's decision.

"It's our intent that anyone - anyone - involved in perpetrating fraud or ripping off Oregonians is going to be held accountable and that's the point of the investigation," Wyden told KATU.

Merkley followed suit, telling KATU, "I think it would be absolutely wrong not to try to recover funds, because when a company signs up to deliver a product and says it's going to deliver it on time, and then doesn't, there needs to be accountability."

Merkley contradicted previous statements when he said that any money the state can recover from Oracle should be returned to the federal government.

The On Your Side Investigators also questioned Merkley about what he could do to ensure better oversight and accountability in Oregon to prevent future IT disasters. Merkley deflected blame for Cover Oregon's problems, saying the state was in charge of building the website.

Kitzhaber ordered an independent third-party review of the Health Insurance Exchange Website Project by a company called First Data. That review documented poor relations between the state and Cover Oregon, a lack of response to warnings about problems with the website before it launched, and serious lack of oversight mechanisms, among other things.

In February, both senators joined a call by congressional Republicans for a federal audit of Cover Oregon. That request asked the Government Accountability Office (GAO) to look at how federal money was spent and how similar problems could be avoided in the future.

Wyden also chairs the Senate Finance Committee, which he said has jurisdiction over federal health programs.

But Oracle doesn't scare easily.

Not only does Oracle appear to welcome the fight, it predicted total exoneration in a statement sent to KATU.

"We understand the political nature of the announcement just made and that the Governor wants to shift blame from where it belongs," Oracle wrote in the email statement. "We are proud of the work that we have done to enable over 420,000 Oregonians to enroll in health care."

The On Your Side Investigators found Oracle has won four of its last six major court fights. It has beaten the federal government, tech giants like Google, and even the European Union.

"I expect that they will fight us tooth and nail," Kitzhaber said Thursday, testifying before lawmakers in a joint committee.

"Oracle is sitting on $30 billion in cash, and I think that they are concerned about their reputation. They're going to fight back," said David Friedman, associate professor of law at Willamette University's College of Law.

He described the governor's announcement to take legal action "like throwing a rock at a hornet's nest."

Friedman's been watching the Cover Oregon boondoggle unfold for months. Even though he believes a legal battle with Oracle will be very expensive and difficult to fight, he thinks it's a smart move to preliminarily investigate whether the state can recoup any money.

"This dispute is really kind of a narrow one," Friedman continued. "Take a look at the contract; take a look at what was delivered: is there a gap between what was promised and what was delivered? And if so, there are damages to collect but it might not be the full amount."

Friedman believes if the state recoups any money, it will fall well below the $134 million the state paid Oracle for its work.

However, Friedman believes the governor's own words could weaken a legal case since Kitzhaber admitted Oregon bears some responsibility for the disastrous website.

Kitzhaber admitted the state's contract with Oracle was a mistake, which only billed the company for its time and what it produced, rather than a finished product.

The governor also admitted that the state failed to hire a systems integrator, a sort of general contractor for IT projects. Oregon decided to oversee its own project, unlike many other states that built health insurance exchanges.

"So if I'm Oracle, I'm going to start off this lawsuit under the premise that the state has already admitted being at fault and starting off at that standpoint already puts the state in a really bad position," Friedman said.

Oracle has made no admission of guilt and has twice now blamed the state and Cover Oregon for the tech-riddled website.

Plus, the state is withholding more than $25 million from Oracle for not delivering a working website. Oracle could file a counterclaim.

Friedman said the case could come down to one question: "How much time and money is the state of Oregon going to put into the notion that there's a probability of recovering some amount of money?"

The decision to file a lawsuit rests with the state AG. According to the Associated Press, Rosenblum told Kitzhaber, "I share your determination to recover every dollar to which Oregon is entitled".

KATU called Rosenblum's office Friday but messages were not immediately returned.

If this case moves forward, there are a lot of questions about where it will be fought. The state and Cover Oregon are under investigation by several federal agencies including the FBI and the GAO. It's anyone's guess if the case will go to federal court.

The On Your Side Investigators confirmed the GAO investigation has been underway for several weeks, but the agency's spokesmen remained mum on the details, including the timeline and scope of the investigation.