In an ongoing, multi-state lawsuit stemming from a qui tam (whistleblower) complaint filed under the False Claims Act by a former employee of the company, Office Depot faces myriad allegations of overcharging various government agencies for provision of office supplies pursuant to government contracts. Office Depot has an arrangement whereby it contracts with governments in numerous jurisdictions, as well as non-profit agencies. The complaint of the whistleblower, David Sherwin, focuses on a contract that was in place between Office Depot and roughly 10,000 government and non-profit entities nationwide between 2006 and 2010. Purchases under the contracts totaled $3.6 billion. Government auditors and investigators in several states are reviewing the allegations in the whistleblower complaint. Office Depot’s contract is negotiated via a Bay Area co-op called the U.S. Communities Government Purchasing Alliance; the largest governments that participate in the co-op conduct a competitive bid process, and other entities may then exercise the option of purchasing supplies under the pre-negotiated agreement. Sherwin’s complaint, in addition to the allegations of fraud, also alleges that he was fired by Office Depot in retaliation for raising concerns about the conduct. If Sherwin prevails, Office Depot will be liable for treble damages under the False Claims Act and a hefty civil penalty of up to $11,000 for each alleged violation. Sherwin stands to recover an award of perhaps as high as 30% of any final judgment or settlement in the case.

The lawsuit claims Office Depot intentionally misapplied discounts and changed prices in violation of its agreements. Moreover, the company is alleged to have failed to fulfill lowest-price guarantees and switched some buyers to alternate pricing options without disclosing that the change would likely end up costing more money.

In 2009, Congress passed the Fraud Enforcement and Recovery Act (“FERA”), a statute that has turned the False Claims Act into a more capacious vehicle for whistleblowers to bring claims of fraud. Amendments to the law brought about by passage of the Patient Protection and Affordable Care Act (“PPACA”) further expanded the scope of the law’s reach. Since fraud is often perpetrated in a way that makes the conduct difficult to detect, suits brought by private whistleblowers under the False Claims Act have been the primary means of recovery for the federal government in cases of fraud and abuse. Thirty states have enacted their own false claims acts, and the governments of New York City, Chicago, Philadelphia, and Allegheny County, Pennsylvania have as well.

The federal False Claims Act is a statute dating back to 1863 that contains qui tam provisions allowing relators (i.e, whistleblowers) to sue on behalf of the government for fraud. Relators stand to recover 15% and 30% of any final judgment or settlement, and, as in this case, may proceed privately with their claims even if the U.S. government declines to exercise its right to intervene in the litigation. When a person or entity submits a false claim for payment from the government, or submits a false claim in order to reduce a liability owed to the government, there is liability under the False Claims Act. The statute also recognizes so-called “reverse false claims,” whereby a party fails to return an overpayment from the government, as violations of the law. A series of amendments passed in 2009 heightened the statute’s protections against employer retaliation. Qui tam suits brought under the  False Claims Act are projected to result in over $9 billion worth of recoveries for the federal government in the year 2012 alone.

 

 

 

 

 

 

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