More than 50 cases have been filed against out-of-state liquor
retailers and other retailers pursuant to the Illinois False Claims
Act ("FCA") in Cook County, Illinois Circuit Court in
Chicago. These cases are currently pending before Circuit Court
Judge James Snyder.
On April 20, 2015, counsel for the Illinois Attorney General
represented to Judge Snyder that the state of Illinois intended to
intervene and dismiss all of the lawsuits against liquor retailers
brought in circuit court pursuant to the FCA by a private law firm
in the name of the state for alleged nonpayment of certain taxes on
the sale of alcoholic beverages to Illinois residents. On April 28,
2015, the Attorney General's Office carried through on that
representation and filed motions to dismiss more than 80 unsealed
cases filed against liquor retailers.
These lawsuits, all brought by the same relator, Chicago attorney
Stephen Diamond, allege that out-of-state liquor retailers violated
the FCA when they failed to collect, remit, and list on invoices
and confirmation statements sales, use, excise, and bottle taxes on
sales to Illinois residents. The relator does not allege that the
retailers have any physical presence in Illinois that requires them
to collect and remit the taxes. Rather, the relator claims that
retailers were selling liquor directly to Illinois customers
without licenses in violation of the Liquor Control Act
("LCA"). The relator admits that the retailers are not
eligible for retailer licenses under the LCA but claims that, if
they had obtained licenses, they would have had to pay the taxes.
Mr. Diamond has also brought more than 100 cases on somewhat
similar theories against out-of-state wine producers that ship to
Illinois, alleging that those producers have failed to remit tax on
shipping and delivery charges. We understand the Attorney
General's intention to dismiss the cases against retailers does
not extend to these pending cases against wine producers.
For more than 10 years, Mr. Diamond has made a cottage industry of
bringing hundreds of FCA cases on behalf of the state against
internet retailers across a variety of industries related to
alleged nonpayment of taxes. Because the allegedly unpaid tax
involved generally is de minimis, Mr. Diamond uses the threats of
costly litigation fighting the allegations, along with the
potential for penalties and attorneys' fees in the Illinois
FCA, to extract settlements in many of these cases. Beginning in
late 2014, Mr. Diamond turned his attention to out-of-state
retailers and producers of alcoholic beverages, filing dozens of
FCA lawsuits on behalf of the state against members of that
industry.
For years, taxpayer constituencies, business organizations, and
even the Illinois Department of Revenue have urged the Illinois
Attorney General's Office, as the lawyer for the state of
Illinois, the real party at interest in these cases brought by Mr.
Diamond, to intervene and dismiss the majority of the cases.
However, until this most recent development last week, the Attorney
General's Office has largely stood on the sidelines and allowed
Mr. Diamond to continue his campaign against out-of-state
retailers, further adding to Illinois's reputation as an
anti-business environment.
Now, the Attorney General's Office has used its powers under
state law as the attorney for the state to intervene in at least
those cases brought by Mr. Diamond against out-of-state retailers
and moved to dismiss them. As previously stated, we understand that
the Attorney General's decision has no impact on the dozens of
similar cases pending against wine producers shipping into
Illinois, which, as of now, it appears will continue forward.
Nevertheless, the Attorney General's actions this week are a
welcome first step in combating these abusive FCA cases, and they
may help restore some order to Illinois tax enforcement.
Jones Day currently represents numerous retailers and producers
in these Illinois FCA cases.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.