Citicorp's winning the lucrative electronic benefits transfer contract for seven northeastern states has been overturned by a state court.
In a ruling Tuesday, the New York State Supreme Court said the contract was "illegally and arbitrarily" awarded to Citicorp in February 1996 by the New York Department of Social Services. New York had been designated lead state of the consortium known as the Northeast Coalition.
Citicorp has 30 days to appeal. A company spokeswoman said it is "reviewing the ruling" and would "discuss possible next steps with the state."
Transactive Corp., a unit of the lottery processor Gtech Corp., and the Check Cashers Association of New York had sued, claiming that the selection process was unfair and "violated state finance law."
Justice Vincent Bradley agreed, as he did with most of the plaintiffs' complaints.
The contract award, estimated to be worth nearly $1 billion over seven years, gave Citicorp a huge lead in the burgeoning business of delivering welfare and other public assistance benefits through automated teller machines and point of sale terminals. The judge's decision effectively annuls the contract and calls for a new request for proposals by the state.
Austin, Tex.-based Transactive, which runs Texas' electronic benefits transfer program, has won similar court challenges, notably against the U.S. Treasury Department's rules for awarding EBT contracts to banks.
Transactive won that case on appeal to the U.S. Supreme Court but was foiled by an 11th-hour congressional addition to the most recent federal budget, which cleared the way for banks to be prime contractors on federal EBT projects.
In that test case, Citibank, the victor, retained its award from the eight-state Southern Alliance of States. Citicorp has also won the bidding for the six states of the Western States EBT Alliance. It also processes benefits for Ohio, North and South Dakota, and a federal project in Texas.
In the Northeast case, the check cashers association, which has a contract with New York State to deliver cash assistance and food stamps to beneficiaries, argued that Citicorp's cash access plan was inadequate for certain New York neighborhoods. Justice Bradley concurred.
"There are no ATMs where we are-they just aren't here," said Joseph Coleman, vice president of RiteCheck Cashing Inc.
Gerald Goldman, counsel to the Check Cashers Association of New York, called the decision "pretty strong. (Citicorp) can appeal it, but they'll have a tough row to hoe."
Transactive spokesman Marc Palazzo said the ruling "clearly determines that the procurement process was flawed and a new request for proposal is necessary to ensure the integrity of the contract."
