Reed Smith Clients Vindicated – Illinois Circuit Court Grants Motion To Dismiss In Qui Tam Winery Cases

On January 20, 2016, Judge Thomas Mulroy of the Cook County Circuit Court in Chicago granted the Illinois Attorney General's Motions to Dismiss numerous qui tam cases brought against California wineries, 17 of which are represented by Reed Smith. We've written previously about the hundreds of False Claims Act cases alleging that out-of-state wineries improperly failed to collect sales tax on shipping charges for wine shipped to Illinois customers.1 These dismissals are the culmination of efforts by Reed Smith, the Wine Institute, and the affected taxpayers to combat these meritless cases.

Orders dismissing cases

Under the Illinois False Claims Act, the Illinois Attorney General has prosecutorial discretion to dismiss a False Claims Act case, though such discretion is not unfettered. Generally, absent fraud, misconduct, or bad faith on the part of the Attorney General's office, courts will defer to the prosecutorial discretion of the state and dismiss a matter if such dismissal is requested by the state. In the aforementioned cases, Judge Mulroy found no evidence of fraud or bad faith by the state associated with its handling of the cases or its Motions to Dismiss, and therefore, Judge Mulroy granted the state's Motions to Dismiss.

Events leading up to the dismissals

These rulings are the culmination of a process Reed Smith undertook in early 2015 to elicit a government response in cases where the Attorney General declined to intervene and allowed the qui tam plaintiff to proceed on behalf of the state. In a prior Tax Alert2, we advised that, as part of Reed Smith's representation of the Wine Institute and dozens of individual wineries, Reed Smith was able to obtain Private Letter Rulings from the Illinois Department of Revenue that established that an internet vendor that offered an online purchaser the option to decline shipping and take delivery at the vendor's location was, by offering that option, rendered not liable for tax collection on shipping charges to the purchaser.

These rulings prompted the Department of Revenue's proposal of a retroactive amendment to its regulation to clarify that such an option would result in no liability under its regulation, both as it stood at the time and after the decision in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351 (2009).3 The combined effect of the Private Letter Rulings, the Wine Institute lawsuit, and the proposed amended regulations released by the Department appears to have led the...