A federal appeals court whose jurisdiction spans some of the busiest ports in the United States has cleared the way for whistleblower cases based on customs fraud — a reminder of why consulting a skilled customs fraud whistleblower attorney can be so important.

The 9th U.S. Circuit Court of Appeals, which is based in San Francisco and covers the West Coast, affirmed a district court’s judgment in which a jury found a company liable for knowingly lying on customs forms to sidestep tariffs on pipe fittings from China.

Importantly, the case (Island Industries Inc. v. Sigma Corp.) was brought by a private whistleblower — in this instance, a company — on behalf of the U.S. government under the qui tam provision of the False Claims Act, one of the nation’s oldest and strongest whistleblower laws.

The decision, filed June 23, resolves some lingering legal questions, bolstering the foundation for similar cases in the future.

Competitor is the whistleblower

Island sued competitor Sigma on behalf of the United States, alleging that it knowingly evaded tariffs for years. A sales manager had researched import regulations after consistently seeing Island’s prices undercut by products from China.

The United States imposes “antidumping duties” to prevent importers from flooding the market with underpriced goods, thus harming domestic companies. The Department of Commerce determines covered products and rates; the importer is supposed to file an entry with Customs and Border Protection declaring the merchandise value, classification and rate of duty, and typically depositing estimated duties at the time of entry.

The final figuring of duties is called liquidation; generally, it’s assumed complete after a year passes, though the Commerce Department can later pursue duties and penalties through litigation before the U.S. Court of International Trade (CIT) if it discovers problems.

Sigma imported what are called “welded outlets” from China and marketed them as such. But Sigma described the merchandise to U.S. Customs as steel couplings, which are not subject to antidumping duties.

Island pursued the FCA case against its competitor without federal intervention, as the qui tam provision allows, and a jury found Sigma liable for violating the FCA. The jury determined that Sigma owed more than $8 million in unpaid tariffs, an amount that would be tripled under the FCA to cover damages and penalties. (FCA whistleblowers are eligible for up to 30 percent of recoveries as an incentive to uncover fraud against the government.)

Notably, the 9th Circuit determined that it has jurisdiction in the case, even though the U.S. government is supposed to initiate such lawsuits in the CIT. That’s because, although Island brought suit on behalf of the government, it is not the government.

FCA applies to customs law

One of Sigma’s arguments was that the FCA doesn’t apply; rather, a law used for customs enforcement would. Under the customs law (19 U.S.C. § 1592), only the government can initiate legal action, though it may reward a whistleblower up to $250,000. But the court said the FCA spans all types of fraud against the U.S. government (excluding IRS matters), and the customs law never states that it is the only option to recover payments. While the two statutes overlap, they don’t irreconcilably conflict.

“One statute should be read to impliedly repeal another only if there is irreconcilable conflict between the two,” the court stated.

Doesn’t matter if government asks for customs duties

Sigma also argued that, because the Commerce Department never asked for payment through the liquidation process, the government didn’t lose any money (and thus, the FCA doesn’t apply). And even now, as the Commerce Department pursues additional duties from recent years, it is not pursuing older payments based on its interpretation of the complicated regulations.

The court rejected the argument, saying neither the regulations nor their implementation mean the duties were never owed.

“In sum, an importer cannot evade duties, wait until its entries are liquidated, and then assert based on that liquidation that its actions did not deprive the government of money,” the decision stated.

Fraud was committed knowingly

A key requirement in determining whether the FCA was violated is proving whether fraud was committed knowingly. That can mean with actual knowledge, in deliberate ignorance, or by recklessly disregarding the truth.

Island alleged that:

• Sigma knowingly falsely declared that it didn’t owe antidumping duties on its products.
• Sigma knowingly misrepresented its products as steel couplings.

Sigma argued that a reasonable person could have believed that no duties were owed, so it shouldn’t be liable under the FCA. By that logic, the court stated, “an FCA defendant would always prevail if a hypothetical reasonable person could have believed the defendant’s statements were true, regardless of any evidence that the real-life defendant had actual knowledge of, was deliberately ignorant of, or recklessly disregarded the falsity of its statements.”

Besides, the court stated, Sigma’s actions offer sufficient evidence of knowledge: Its declaration that it didn’t owe duties; ignoring that antidumping duty orders are common on products from China, especially steel products; failure to look into whether it owed the duties before it declared that it didn’t; and labeling of its product differently depending on whether it was communicating with Customs or customers.

How we can help customs whistleblowers

If you have information about fraud against the government, such as customs fraud, you can help stop it — and protect taxpayers and U.S. businesses. Keller Grover has a long history of helping whistleblowers expose wrongdoing. Speaking with an experienced customs fraud whistleblower attorney can help you understand your rights, strengthen your claim, and protect against retaliation. If you would like more information, or have a potential case, contact us for a free, confidential consultation.

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The False Claims Act also provides that a relator is entitled to a portion of the recovery in any successful case. When the government intervenes, as it did in this case, the relator is entitled to between 15–25% of the recovery. The Act also has a fee-shifting provision pursuant to which the defendant must pay the relator’s attorney’s fees and costs. Here, the relator was awarded $187,000 representing 17% of the recovery, and VARI also agreed to pay the relator’s reasonable attorneys’ fees and costs. Keller Grover joined Price Benowitz and the Zuckerman Law Firm in representing the relator in this case.

Keller Grover’s Kathleen Scanlan, who represented the relator, noted: “Fraud involving healthcare and defense contracts regularly makes headlines. But this case highlights another way the government can be defrauded and the importance to be vigilant wherever taxpayer dollars are being lost to fraud.” She added: “We are grateful for the thorough investigation the lawyers and investigators at the U.S. Attorney’s Office for the Northern District of California did in this case and the work they did to recover taxpayer dollars.”

Click here to learn more about Best Price fraud and other frauds involving government procurement contracts. If you have unique information about a scheme that defrauds the U.S. government, involves financial wrongdoing, threatens public safety, or otherwise skirts U.S. or state laws, contact Keller Grover for a free and confidential consultation. Our experienced False Claims Act lawyers can answer questions, work with you to develop prudent next steps, and help you pursue a whistleblower case. In addition to providing a public service, whistleblowers who expose fraud through established programs may be eligible for a financial award.

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The California Department of Insurance intervened in Ms. Rudolph’s case in 2021 after an extensive investigation. The California Department of Insurance, together with Ms. Rudolph’s legal team, successfully opposed Essilor’s efforts to knock the case out. The parties subsequently agreed to a settlement in November 2022 under which Essilor agreed to pay $23.8 million to resolve the case.

See press release.

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Negligent release and disclosure of personal and medical information is unlawful under certain circumstances in California.  If you have been affected by a medical data breach, including the PIH Health data breach, you may be entitled to seek damages relating to the disclosure of your personal and medical information.    Keller Grover is experienced in the field of medical information privacy litigation and has represented clients in numerous medical data breach class action cases, including lawsuits against St. Joseph Health Systems, Stanford Hospitals and Clinics, Health Net and 21^st Century Oncology.  In aggregate, Keller Grover has helped victims of medical data breaches recover millions of dollars for the harm they have suffered.

If you have any information about the PIH Health data breach or are a California resident that has been affected by the data breach and have questions, contact Keller Grover’s attorneys at 415-543-1305 or by email at info@kellergrover.com.  Keller Grover will not charge you for reviewing your information and all information that you provide to Keller Grover in the process of seeking legal advice will be held strictly confidential.

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Negligent release and disclosure of personal and medical information is unlawful under certain circumstances in California.  If you have been affected by a medical data breach, including the Walgreens data breach, you may be entitled to seek damages relating to the disclosure of your personal and medical information.    Keller Grover is experienced in the field of medical information privacy litigation and has represented clients in numerous medical data breach class action cases, including lawsuits against St. Joseph Health Systems, Stanford Hospitals and Clinics, Health Net and 21^st Century Oncology.  In aggregate, Keller Grover has helped victims of medical data breaches recover millions of dollars for the harm they have suffered.

If you have any information about the PIH Health data breach or are a California resident that has been affected by the data breach and have questions, contact Keller Grover’s attorneys at 415-543-1305 or by email at info@kellergrover.com.  Keller Grover will not charge you for reviewing your information and all information that you provide to Keller Grover in the process of seeking legal advice will be held strictly confidential.

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Medicare  pays more to healthcare providers based on enrollees’ -risk adjustment scores, which are calculated using patients’ medical diagnoses. Higher risk adjustment scores are supposed to reflect these patients are sicker than an average patient, and increased risk-adjustment reimbursement is designed to offset increased costs associated with treating these patients.

The Complaint alleges that Sutter Health and PAMF collected and retained payments from claims that falsely stated its patients were treated during the relevant period for:

• diagnoses the patients did not have;
• more severe diagnoses than the patients had;
• diagnoses for which patients were previously treated but that were not treated in the relevant year; and/or
• diagnoses that otherwise failed to meet CMS requirements for risk adjustment.

The complaint also states that Sutter Health and PAMF failed to correct previously submitted Medicare risk adjustment claims even though they knew, or should have known, that those claims were false. Under Medicare rules and regulations, the healthcare provider was required to report and reimburse the government for any overpayments.

Sutter Health and PAMF executives, according to the Complaint, suppressed efforts of internal auditors to measure and correct false risk adjustment claims.  Allegedly, auditors trying to correct the unsupported higher risk adjustment data and calculate how much Medicare should be repaid were ordered to halt their efforts and to instead concentrate on further increasing the stream of ill-gotten payments.  

The Complaint also alleges that Sutter Health and PAMF overstated the patients’ risk scores by conducting a review of patient medical records only looking for missed diagnosis that could be reported as higher risk adjustment scores, instead of looking for both missed and unsupported diagnoses that had falsely inflated risk scores, according to the complaint. Allegedly, when Sutter Health and PAMF audited previously submitted claims, error rates were as high as ninety-five percent (95%), yet, Sutter Health and PAMF management refused to take meaningful steps to identify and rectify the problems with the claims submitted to Medicare.

The complaint also alleges Sutter Health and PAMF had no effective compliance auditing program at all for several years while submitting hundreds of millions of dollars in bills to the Medicare Advantage program, and that although internal audit results warned of serious provider over-coding, Sutter and its affiliate failed to correct errors and return overpayments, but even canceled future audits.  

On December 4, 2018, the United States Justice Department filed their notice of intervention.  On December 11, 2018, the United States District Court ordered the case unsealed.

Relevant Pleadings:

• Relator’s First Amended Complaint
• United States Complaint-in-intervention
• Order Denying Motion to Dismiss

Other Relevant Information:

• DOJ Press Release

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It’s only gotten worse now that the hackers have learned that the big prizes are tucked away inside corporate networks, not individual PCs. One corporate hack can compromise the personally identifiable information (PII) of thousands of employees and customers—information like online passwords, credit card and bank account numbers, and even social security numbers. Hackers can use this information to rack up fraudulent charges, apply for government benefits, and even file phony tax returns in order to collect bogus refunds.

Companies that store PII must take reasonable steps to do so securely. If they fail to live up to this responsibility, victims whose data is exposed can hold them accountable in a data breach lawsuit under a host of federal and state laws as well as common-law doctrines like negligence or breach of contract. Additionally, California and other states require companies to quickly inform customers when a data breach has been discovered, and may be held liable if they delay.

Neiman Marcus settles data breach claims

In some data breach cases, a company may discover its network has been compromised before thieves have had a chance to actually use some or all of the stolen PII. Companies defending lawsuits in such situations have tried to get the cases dismissed, arguing that customers whose PII hasn’t been used lack “standing” required to sue because they haven’t suffered compensable harm.

Thankfully for consumers, courts across the country are increasingly denying companies this easy out. For instance, an Illinois federal judge recently gave preliminary approval to a $1.6 million settlement in a case against luxury retailer Neiman Marcus. In 2013, hackers allegedly installed malware on the luxury retailer’s computer networks and “scraped” payment information from several stores.

It took three months for Neiman Marcus to discover and remove the malware. A total of around 370,385 credit cards were exposed. The hackers ultimately used around 9,200 card numbers to rack up fraudulent charges.

Earlier in the case, Neiman Marcus had argued that the plaintiffs had no standing to sue if they hadn’t suffered any fraud. But last year an appellate court ruled that customers who had incurred expenses for fraud prevention resulting from the malware attack had secured the needed standing.

That ruling presumably helped spur the $1.6 million settlement announced this June. The four class representatives will each receive $2,500, while customers who can show their credit cards were used at an affected store can receive up to $100 each. Neiman Marcus has also taken voluntary measures to improve its data security including installing chip readers, bringing on a chief information security officer, and educating its workforce.

California courts increasingly following suit

While the matter is not settled law in the Ninth Circuit (which includes California and other West Coast states), in Walters v. Kimpton Hotel & Restaurant Group, the court denied Kimpton’s motion to dismiss along similar grounds as the appellate court in Neiman Marcus. In Walters, the plaintiff alleged that in 2016 he visited a Kimpton hotel and paid with his credit card during a five-month period during which “hackers used malware to access Kimpton computer systems and steal copies of customer data.”

The court found it “plausible” that Walters’s credit card information had been stolen by the hackers. Nevertheless, Kimpton argued the mere theft of credit card data, “coupled with evidence of a single or just a few unauthorized charges, was insufficient” to give Walters standing to sue. Disagreeing with previous rulings in other district courts, Judge Vince Chhabria didn’t buy that argument:

The Court respectfully disagrees that a plaintiff must actually suffer the misuse of his data or an authorized charge before he has an injury for standing purposes. . . . The theft of Walters’s payment card data and the time and effort he has expended to monitor his credit are sufficient to demonstrate injury for standing purposes.

Rulings protect data breach victims

Quoting a similar decision from the Sixth Circuit, Judge Chhabria write that “[t]here is no need for speculation where Plaintiffs allege that their data has already been stolen and is now in the hands of ill-intentioned criminals.” His Kimpton decision, while not binding on other courts, reflects a common-sense understanding of the costs—in money, inconvenience, ruined credit, and stress—that come with being victimized by a data breach.

[QUOTE FROM ERIC GROVER]

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Both Sunrun and eHealth are headquartered in California. Negligent release and disclosure of confidential personal information is unlawful in California under certain circumstances. Whether you worked for Sunrun or eHealth in California or another state, if you have been affected by a California data breach, including the Sunrun or eHealth data breaches described above, you may be entitled to seek damages and other relief under California law relating to the disclosure of your personal information. The California attorneys of Keller Grover are experienced in the field of privacy litigation and have represented clients in numerous data breach class action cases, including lawsuits against Seagate, St. Joseph Health Systems, Stanford Hospitals and Clinics, Health Net and 21st Century Oncology. In aggregate, Keller Grover has helped victims of data breaches recover millions of dollars in reparation for the harm they have suffered.

If you have any information about the Sunrun or eHealth data breaches and have questions, contact Keller Grover’s attorneys at 415-543-1305 or by email at eagrover@kellergrover.com. Keller Grover will not charge you for reviewing your information and all information that you provide to Keller Grover in the process of seeking legal advice will be held strictly confidential.

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Negligent release and disclosure of personal and medical information is unlawful under certain circumstances in California.  If you have been affected by a medical data breach, including the Quest Diagnostics data breach, you may be entitled to seek damages relating to the disclosure of your personal and medical information.    Keller Grover is experienced in the field of medical information privacy litigation and has represented clients in numerous medical data breach class action cases, including lawsuits against St. Joseph Health Systems, Stanford Hospitals and Clinics, Health Net and 21^st Century Oncology.  In aggregate, Keller Grover has helped victims of medical data breaches recover millions of dollars for the harm they have suffered.

If you have any information about the Quest Diagnostics data breach or are a California resident that has been affected by the data breach and have questions, contact Keller Grover’s attorneys at 415-543-1305 or by email at info@kellergrover.com.  Keller Grover will not charge you for reviewing your information and all information that you provide to Keller Grover in the process of seeking legal advice will be held strictly confidential.

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Negligent release and disclosure of personal and medical information is unlawful under certain circumstances in California.  If you have been affected by a medical data breach, including the 21 Century Oncology data breach described above, you may be entitled to seek damages relating to the disclosure of your personal and medical information.    Keller Grover is experienced in the field of medical information privacy litigation and has represented clients in numerous medical data breach class action cases, including lawsuits against St. Joseph Health Systems, Stanford Hospitals and Clinics, and Health Net. In aggregate, Keller Grover has helped victims of medical data breaches recover millions of dollars in reparation for the harm they have suffered.

If you have any information about the data breach or are a California resident that has been affected by the data breach and have questions, contact Keller Grover’s attorneys at 415-543-1305 or by email at info@kellergrover.com.  Keller Grover will not charge you for reviewing your information and all information that you provide to Keller Grover in the process of seeking legal advice will be held strictly confidential.

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