IBM Support helped me solve this problem. It's a known issue. Here's how it works. When you drag an item from TODO to IN PROGRESS to DONE, you are not really dragging it from one state to the next. In fact you are dragging it through state GROUPS. If you look at your workflow configuration, you will see your states are in one of three groups - OPEN, IN PROGRESS, and CLOSED. Those are the real columns you are using in Developers Taskboard. So when you drag something from IN PROGRESS to DONE, RTC finds the first state that is in the CLOSED group (and valid for your workflow) and changes the state to that. Ok, so why is INVALID the first state in the CLOSED group when it should be DONE? It's based on internal state IDs. For whatever reason, the INVALID state had a lower state ID than the DONE state. The solution is simple. Go to the project workflow tab and delete the INVALID state, then re-add the INVALID state, which creates a new INVALID state with a later internal state ID than the DONE state. Make note of the workflow settings before you delete it. However, note that any work items with that state will not suddenly have the new INVALID state. They will have a state that is not a valid state, which could cause all sorts of problems. So follow this:

1. Rename your old INVALID state to OLD INVALID.
2. Add a new state of INVALID and set the workflow settings to match OLD INVALID.
3. Do a query for anything with a status of OLD INVALID and change the state to INVALID for all those work items.
4. Delete the state of OLD INVALID.

If you have already fixed the problem and now have work items with a state that is not a valid state, have no fear, that can be fixed. Do a query for Status "is not" and check all states. The work items with states that are not in the list of states will be returned and you can fix them. However, since the states are not valid you will not be able to fix them in bulk. In fact you will have to edit them one at a time, make a change to the description (tap the spacebar) and then save, which will re-initialize the work item to New, which will then allow you to mark it with a valid Invalid state! :)

Note that we had this issue for Task, Story, and Epic. You need to make the change in all three workflows. We also had this issue for the Deferred state. Dragging an item from IN PROGRESS back to TODO would automatically mark it DEFERRED!

There is another way to avoid this issue, but it's a workaround, not a solution. Make sure your workflow only has one path. If your workflow has only one option to go from one group to another, then it will not mark your item erroneously. However, that's not really practical.