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Business Victorious in Unclaimed Gift Card False Claims Case

The Delaware Supreme Court gave Overstock.com a win in a False Claims Act (FCA) suit alleging the retailer failed to remit unclaimed gift card funds to the state. Overstock.com Inc. v. the State of Delaware and French, DE Sup. Ct., No. 327,2019 (June 25, 2020). A jury previously found Overstock liable for approximately $7.3 million. The Delaware Supreme Court, interpreting the FCA statute in effect for the years at issue, determined the trial court judge improperly instructed the jury that the knowing failure to file unclaimed property reports was the making of a false statement as required to succeed on an FCA claim. Contrary to the trial judge’s instructions, the Supreme Court determined that to meet the FCA standard in effect for the years at issue, some document incorporating the alleged false claim must have been provided to the government. Failure to file a report was by definition not a false record or statement because there was not record or...

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Illinois Appellate Court Blows the Whistle on Serial Relator

In a bombshell opinion, the Illinois Appellate Court held that a law firm serving both as client and attorney may not recover statutory attorneys’ fees under the Illinois False Claims Act (the Act). In People ex rel. Schad, Diamond & Shedden, P.C. v. My Pillow, Inc., 2017 IL App (1st) 152668 (June 15, 2017), the Illinois Appellate Court, First District, reversed the trial court’s award of attorney fees in excess of $600,000 for work performed by Diamond’s law firm on behalf of itself as the relator. McDermott represents My Pillow in this matter. Much like its federal counterpart, the Act allows private citizens (referred to as relators) to file fraud claims on behalf of the state of Illinois. If successful, relators can collect up to 30 percent of the damages award plus attorneys’ fees. The Diamond firm is hardly a traditional “whistleblower” with “inside knowledge,” as it has filed approximately 1,000 different qui tam actions as the relator over the...

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Illinois Bills to Watch

Just days away from the May 31 close of its regular legislative session, the Illinois General Assembly has yet to enact the comprehensive series of tax and budget reforms that were first proposed by the Illinois Senate leadership late last year. Yesterday, the Senate passed a modified version of Senate Bill (SB) 9, the tax proposal we described in a previous post, without any Republican support. SB 9 now moves to the Democratically-controlled House for consideration. Even if approved by the House, it seems likely that Illinois’ Republican Governor will veto the legislation. Other bills to watch over the next week include the following: False Claims Act Penalty Increase Proposal Senate Bill 1577 proposes to change the penalty amounts imposed for violation of the Illinois False Claims Act (740 ILCS 175/1 et. seq.). Currently, a penalty of between $5,500 and $11,000 is imposed for each violation of the Illinois False Claims Act (740 ILCS 175/3(a)(1)). The...

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Illinois Appellate Court Delivers Another Blow to Relator in False Claims Act Litigation

On Monday, October 17, the Illinois Appellate Court issued another taxpayer-friendly opinion in an Illinois False Claims Act case alleging a failure to collect and remit sales tax on internet and catalog sales to customers in Illinois (People ex. rel. Beeler, Schad & Diamond, P.C. v. Relax the Back Corp., 2016 IL App. (1st) 151580)). The opinion, partially overturned a Circuit Court trial verdict in favor of the Relator, Beeler, Schad & Diamond, PC (currently named Stephen B. Diamond, PC). Consistent with its opinion in State of Illinois ex rel. Schad, Diamond & Shedden, P.C. v. National Business Furniture, LLC, 2016 IL App (1st) 150526 (Aug. 1, 2016)), the Appellate Court emphasized the high standard of proof imposed on a whistleblower seeking to prove a reckless disregard of the tax laws. The opinion is noteworthy because the court repeatedly acknowledged that “what constitutes sufficient physical presence to justify collection of the use tax is...

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Cook County Circuit Court Dismisses 201 False Claims Act Lawsuits

At a hearing yesterday, Cook County Circuit Judge James Snyder granted the State of Illinois’ (State) Motion to Dismiss 201 Illinois False Claims Act (FCA) cases filed by the law firm of Stephen B. Diamond, PC (Relator) against out-of-state liquor retailers.  The lawsuits alleged that the defendants were obligated to collect and remit sales tax on their internet sales of alcohol shipped to Illinois customers.  The complaints admitted that the defendants lacked any physical presence in the state, and would not qualify for any Illinois liquor retail license, but nevertheless asserted a tax collection obligation for sales and a tax remission obligation for gallonage tax arising under the 21st Amendment of the US Constitution and the Supreme Court’s decision in Granholm v. Heald, 544 U.S. 460 (2005). In its motion to dismiss and at oral argument, the State relied upon the favorable standard for consideration of motions to dismiss False Claims Act cases filed by...

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Illinois Appellate Court Affirms Dismissal of State Tax Qui Tam Lawsuit

On March 31, 2015, the Illinois Appellate Court issued an opinion affirming the dismissal of a qui tam lawsuit filed by a law firm acting as a whistleblower on behalf of the State of Illinois against QVC, Inc., under the Illinois False Claims Act.  The opinion affirmed an important precedent previously set by the court regarding the standard for dismissal of such claims when the State moves for dismissal, and established favorable precedent for retailers by holding that use tax voluntarily paid after the filing of a qui tam action does not qualify as “proceeds” of the action within the meaning of the Illinois False Claims Act. Read the full article.

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Illinois Law Firm Continues to Clog Court System with Tax-Related False Claims Act Allegations—but Proposed Legislation May Offer Relief

As many readers of this blog know, over the past 12 years the Circuit Court of Cook County, Illinois has been deluged with lawsuits filed by a Chicago law firm against internet retailers as a “whistleblower” under the Illinois False Claims Act.  The factual support for the lawsuits comes solely from internet-based investigations, including purchases made on retailer websites.  The lawsuits typically allege that the retailers have knowingly failed to collect and remit sales and use tax on some aspect of their internet sales shipped to Illinois.  See 740 ILCS 175/1 et seq.  Substantial damages are claimed, including up to three times the tax allegedly owed to the State, attorneys’ fees, and a penalty assessment for each tax filing that failed to disclose the tax due. An initial wave of approximately 90 lawsuits was filed in 2003 and 2004 against retailers that did not collect Illinois tax on their internet sales.  In 2011, the whistleblower firm began to file a...

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