SPRINGFIELD — For Jeff Pape, there’s another name for a civil whistleblower lawsuit filed under the state’s False Claims Act.
“Four months of agony.”
Pape, who runs an online store that specializes in wrestling gear, said that’s how long it took him to settle a civil claim filed by an attorney who said he hadn’t paid certain taxes to the state.
The False Claims Act allows private parties to bring such claims in court and potentially recover 25 to 30 percent of any awards, plus fees. The attorney general can take control of the suit once it enters the courts, and even if the office declines to do so, the private party can continue the litigation itself.
But the law is under new scrutiny by state legislators because of what some business owners say is a barrage of frivolous — and costly — legal suits.
Legislators are contemplating a law that would prevent such suits in the future.
Senate Bill 1828, filed earlier this year, would change the law so that only the state’s Department of Revenue can bring an administrative action that stems from false tax claims, and only the attorney general can pursue those claims in court.
The measure hasn’t gone anywhere since February, when it was sent to the Senate’s Assignments Committee. But the underlying issue was the subject of a Senate hearing last week.
Pape, who runs Elmhurst-based WrestlingGear.com, said he was served with a suit at his home while he was at work, so his wife had to call and tell him about it. He said it triggered “four months of agony” at his home and for his company.
“I just wanted to kind of state — the cost to settle along with the legal fees were over $25,000, and to a company my size, that was a huge thing,” Pape said. “I had to come up with that money basically as soon as the settlement was done. It was difficult for me to come up with that money so quickly.”
Pape’s business, like many others, was sued under the law by Stephen B. Diamond, of Stephen B. Diamond P.C. He was set to respond to their concerns about the statute and lawsuits during a hearing of the Senate Revenue Committee last Wednesday, but it was cut short with promises to be resumed at a future date.
He declined to comment today.
Representatives of the Illinois Trial Lawyers Association were also set to testify about the issue before the meeting ended. The group’s president, Perry J. Browder, also could not be reached for comment today.
Constance W. Beard, director of the Revenue Department, said there have been 789 False Claims Act lawsuits filed against Illinois businesses over the last decade.
“These are not true whistleblower lawsuits, where an insider who has knowledge (that) his company has done something wrong and comes forward at risk to himself and earns some form of compensation and protection from retaliation,” Beard told the committee. “These are lawsuits that simply accuse Illinois business taxpayers of doing something wrong.”
She said the claims typically stem from a citizen or law firm that makes a small purchase from the business and disagrees with how that business collects sales taxes.
Beard said the Department of Revenue is not party to such claims, even though the agency has business tax returns that indicate whether a business collected taxes correctly. She said the claims are typically “a fishing expedition” that force businesses into settlements.
Robert Jones III, president of American Sale, which sells patio furniture and pool and spa equipment among other items throughout the Chicago area, was also sued by Diamond under the False Claims Act in January 2012.
Jones said a state audit earlier in the month failed to uncover any improper actions, but he ultimately spent about $30,000 handling and settling the case.
“I really have no disregard for Mr. Diamond’s firm. He’s a smart attorney who has figured out how to use this twist in the law to go out and sue hundreds and hundreds of companies and make millions of dollars,” Jones said.
“This, in my opinion, is not a good policy for Illinois, and it is very painful for our companies to have to go through these things, and it’s just not fair to the businesses of Illinois.”