CHICAGO, Oct. 12, 2016 /PRNewswire/ -- Chicago whistleblower attorneys Stephen B. Diamond and Matthew Burns of Chicago's Stephen B. Diamond, P.C. announce a $6.272 million settlement of a 13-year qui tam lawsuit against Gateway, Inc. and its subsidiary Cowabunga Enterprises, Inc. in State of Illinois ex rel. Stephen B. Diamond, P.C. v. Cowabunga Enterprises, Inc., No. 2007 L 12287 (Cook County) (formerly No. 2003 L 3071). The settlement resolves allegations that Gateway and Cowabunga violated the Illinois False Claims Act by their knowing failure to collect and remit Illinois use tax on Internet sales to Illinois customers.
This action followed Relator Stephen B. Diamond, P.C.'s investigation of Gateway in Illinois, which revealed Gateway and Cowabunga sold untaxed merchandise through the Internet to Illinois customers despite the presence of agents or representatives in Illinois operating on behalf of Gateway and Cowabunga. After conducting its investigation, Stephen B. Diamond, P.C. acted as the whistleblower by disclosing its allegations to the State of Illinois. Attorneys from Stephen B. Diamond, P.C. filed the lawsuit under seal in 2003 and represented the firm throughout the litigation. The Office of Illinois Attorney General Lisa Madigan, led by Special Litigation Bureau Assistant Attorney General Charles Godbey, investigated Relator's claims and intervened to prosecute the action.
Gateway moved to dismiss the case and the circuit court denied the motion in 2005. Gateway filed an interlocutory appeal. The Attorney General and Stephen B. Diamond, P.C. opposed Gateway's appeal and the appellate court rendered its decision in State of Illinois ex rel. Beeler, Schad & Diamond, P.C. v. Ritz Camera Centers, Inc., 377 Ill. App. 3d 990 (1st Dist. 2007). The appellate court held the False Claims Act "seeks to penalize actions that deprive the government of funds rightfully owed to it regardless of the nature of the underlying transaction giving rise to the claim." (at 1006-07.) The appellate court concluded "use tax claims relating to Internet and/or catalog sales may be brought under the [False Claims] Act." (at 1008.)
Gateway was dismissed as a defendant in 2013, but the action proceeded against Cowabunga. In October 2016, after 13 years of litigation, the Attorney General and Relator entered into a settlement agreement with Gateway and Cowabunga. The defendants agreed to pay $6.272 million for their failure to collect and remit $2.56 million in taxes during the period October 1, 1999 through June 30, 2003.
Relator's attorney Stephen Diamond noted, "Illinois is one of only a few states that have false claims acts with 'qui tam provisions' permitting private individuals to sue state sales tax evaders on behalf of the government. Actions for unpaid taxes pursuant to the False Claims Act give the State a means to recover substantial amounts of lost revenue, including treble damages and penalties." Diamond explained, "The False Claims Act incentivizes whistleblowers to come forward by permitting them to receive a share of recovered funds." In this case, under the settlement agreement the whistleblower Stephen B. Diamond, P.C. received $940,000 (15%) as Relator's share of the proceeds. In addition to the $6.27 million in taxes and damages, Defendants paid $365,000 for Relator's attorneys' fees, expenses and costs.
For additional information, contact Stephen B. Diamond or Matthew Burns at Stephen B. Diamond, P.C. at (312) 939-6280.
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SOURCE Stephen B. Diamond, P.C.