Keywords: FCA, Tariff Act, Otterbox, customs duties, qui tam actions
On April 21, 2014, it was announced that Otter Products LLC (operating as "OtterBox") has paid $4.3 million to settle a whistle-blower suit alleging that its import practice violated the False Claims Act ("FCA") and the Tariff Act of 1930.1 OtterBox is a US company that imports and sells protective cases for phones, tablets and similar products. It allegedly underpaid customs duties owed to the US government when importing goods into the United States. The civil settlement was reached without any admission of liability by OtterBox. It resolved the qui tam action brought by a former employee under the FCA, in which the US government intervened.
The FCA (31 USC § 3729) creates liability against any person who: (i) knowingly submits a false claim to the government; (ii) knowingly makes a false record or statement in order to receive payment from the government for a false claim; (iii) knowingly acts to avoid making a payment to the government; or (iv) conspires with another to violate the FCA. The FCA is rare among US laws because it allows private parties to bring a lawsuit on the government's behalf; such suits are known as "qui tam" actions and the private plaintiff is termed a "relator." Qui tam actions are filed under seal, which triggers a government investigation. As a result of the investigation, the government may either intervene in the action (i.e., take over the case), or decline to intervene and allow the relator to proceed. Relators are generally entitled to a portion of the recovery, the size of which depends on whether the government intervenes: 15 to 25 percent when the government intervenes, 25 to 30 percent when the government does not. Legal fees and expenses may also be recovered.
The quit tam action against OtterBox was filed in 2011 under seal by former employee Bonnie M. Jimenez. The government intervened and alleged that between January 1, 2006 and December 31, 2011, the company knowingly omitted the value of "assists"2 from the dutiable value declared to US Customs and Border Protection ("Customs") on entry documentation and made false statements in other documents submitted to Customs. As a result of the company's alleged omission and false statements, OtterBox knowingly underpaid customs duties that were owed to the government by undervaluing imports it entered into the United States.
In spite of the settlement, OtterBox continues to deny the allegations included in the qui tam action. According to OtterBox's CEO, the company experienced rapid global growth during the period alleged in the complaint and self-reported two customs payment discrepancies. In addition, the company has corrected those isolated incidents, enhanced its internal controls and proactively paid all duties that were owned.
Nevertheless, OtterBox paid a significant amount out-of-pocket to resolve the customs violation allegations. Commenting on the settlement, the government pronounced that trade enforcement is a priority for Customs due to the significant role that it plays in the economic security of the United States, and it is the agency's responsibility to enforce the laws against the evasion of duties that protect against unfair trade practices.
The OtterBox settlement is just another example of the substantial uptick in FCA cases involving US import violations over the last few years.
1 Press Release, United States Attorney's Office for the District of Colorado, United State Settles False Claims Act Allegations Against Otterbox for $4,300,000 (Apr. 21, 2014), available at http://www.justice.gov/usao/co/news/2014/apr/4-21-14.html.
2 An "assist" includes any materials or components incorporated in the imported merchandise that is supplied directly or indirectly by the buyer of such merchandise, without adequate compensation, for use related to the production or the sale for export to the United States.
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