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.