Court of Appeals of Illinois, First District, Second Division
THE PEOPLE OF THE STATE OF ILLINOIS ex rel. RICHARD LINDBLOM and RALPH LINDBLOM, Plaintiffs-Appellants,
SEARS BRANDS, LLC, an Illinois Corporation, HOME DEPOT, U.S.A., INC., a Georgia Corporation, LOWE'S HOME CENTERS, LLC, a North Carolina Corporation, BEST BUY STORES, L.P., a Minnesota Corporation, and GREGG APPLIANCES, INC., an Indiana Corporation, Defendants Best Buy Stores, L.P., a Minnesota Corporation, Defendant-Appellee.
from the Circuit Court of Cook County, Illinois. No. 15 L
50776 Honorable James E. Snyder, Judge Presiding.
JUSTICE MASON delivered the judgment of the court, with
opinion. Justices Pucinski and Hyman concurred in the
judgment and opinion.
1 Relators-appellants, Richard Lindblom and Ralph Lindblom,
brought this qui tam action on behalf of themselves
and the State of Illinois under the Illinois False Claims Act
(Act) (740 ILCS 175/1 et seq. (West 2014)) against
defendants Sears Brands, LLC (Sears); Home Depot U.S.A., Inc.
(Home Depot); Lowe's Home Centers, LLC (Lowe's); Best
Buy Stores, L.P. (Best Buy); and Gregg Appliances, Inc.
(Gregg Appliances). This appeal involves only
defendant-appellee Best Buy. For purposes of this appeal,
relators alleged that Best Buy knowingly engaged in a scheme
to avoid payment of retailers' occupation tax (sales tax)
and use tax by treating the sale and installation of
dishwashers and over-the-range microwave ovens as a
construction contract, which is not subject to the collection
of sales tax from purchasers. At the time relators added Best
Buy as a defendant, the Illinois Department of Revenue
(Department) was in the process of auditing Best Buy's
sales tax calculation practices and had issued a proposed tax
liability. Best Buy requested review of the proposed tax
liability by the Department's Informal Conference Board
(Board). Best Buy moved to dismiss relators' qui
tam complaint under section 2-619(a)(9) of the Code of
Civil Procedure (735 ILCS 5/2-619(a)(9) (West 2014)),
asserting that the "government action bar" set
forth in section 4(e)(3) of the Act (740 ILCS 175/4(e)(3)
(West 2014)) barred relators' qui tam action
because it was the subject of an administrative civil money
penalty proceeding (the audit combined with the Board's
review) and the State was already a party in that proceeding.
The trial court agreed with Best Buy's position and
dismissed Best Buy from relators' qui tam
2 Relators appeal the dismissal, asserting that the audit and
the Board's review were not adversarial and, thus, could
not be an administrative civil money penalty proceeding.
Relators also contend that the subject of the audit and the
Board's review were different from the qui tam
suit that focused on fraud and Best Buy's knowing
misclassification of sales of over-the-range microwaves and
dishwashers as a construction contract in order to avoid
remittance of sales tax to the Department. Finding merit in
relators' position, we reverse and remand for further
4 A. Retailers' Occupation Tax Act
5 In Illinois, the Retailers' Occupation Tax Act (35 ILCS
120/1 et seq. (West 2014)) imposes sales tax on
retailers selling tangible personal property to purchasers
for use or consumption. Kean v. Wal-Mart Stores,
Inc., 235 Ill.2d 351, 362 (2009) (citing 35 ILCS 120/2
(West 2006)); 86 Ill. Adm. Code 130.101 (2005). The use tax
complements the sales tax and is imposed on taxpayers for the
use of tangible personal property purchased from a retailer.
Irwin Industrial Tool Co. v. Department of Revenue,
238 Ill.2d 332, 340 (2010) (citing 35 ILCS 105/3 (West
2008)); 86 Ill. Adm. Code 150.101(a) (1991). The sales tax is
computed as a percentage of "gross receipts" (35
ILCS 120/2-10 (West 2014)), defined as the "total
selling price" (id. § 1).
Citibank, N.A. v. Illinois Department of
Revenue, 2017 IL 121634, ¶ 2. A retailer remits the
sales tax collected from the purchaser to the Department.
Id. On the other hand, a construction contract
involves the incorporation of tangible personal property into
real estate, and such contracts are not subject to sales tax
on the labor furnished and tangible personal property
(materials and fixtures) incorporated into a structure. 86
Ill. Adm. Code 130.1940(c) (2000); id. §
130.2075(a)(2) (2001). Instead, the construction contractor
pays a use tax based on the price it paid for the affixed
property. Id. § 130.1940(c) (2000);
id. § 130.2075(a)(2) (2001). Stated simply, a
purchaser does not pay sales tax on a construction contract.
6 B. The False Claims Act
7 Several sections of the Act are relevant here. Section
3(a)(1)(G) provides that any person who "knowingly
conceals or knowingly and improperly avoids or decreases an
obligation to pay or transmit money or property to the
State" is liable to the State for a civil penalty. 740
ILCS 175/3(a)(1)(G) (West 2014). Section 4(b)(1) authorizes
private persons, referred to as plaintiffs- relators, to
bring civil actions on behalf of themselves and on behalf of
the State of Illinois against any person violating section
3(a)(1)(G). Id. § 4(b)(1); State ex rel.
Beeler, Schad & Diamond, P.C. v. Burlington Coat Factory
Warehouse Corp., 369 Ill.App.3d 507, 510 (2006) (citing
740 ILCS 175/4(b)(1) (West 2002)). The action brought by a
relator is known as a "qui tam" action.
Id. (citing 740 ILCS 175/4(c) (West 2002)). But
under section 4(e)(3), a relator may not "bring an
action under subsection (b) [permitting qui tam
actions] which is based upon allegations or transactions
which are the subject of a civil suit or an administrative
civil money penalty proceeding in which the State is already
a party." 740 ILCS 175/4(e)(3) (West 2014). Section
4(e)(3)'s restriction is known as the "government
action bar." See United States ex rel. Batty v.
Amerigroup Illinois, Inc., 528 F.Supp.2d 861, 876 &
n.12 (N.D. Ill. 2007) (referring to 31 U.S.C. §
3730(e)(3) (2006), a federal parallel provision to 740 ILCS
175/4(e)(3), as the government action bar). The government
action bar prohibits qui tam actions that are
parasitic in that they duplicate the State's civil suits
or administrative proceedings without giving the government
any useful return, other than the potential for additional
monetary recovery. People ex rel. Schad, Diamond &
Shedden, P.C. v. QVC, Inc., 2015 IL App (1st) 132999,
¶ 23; 740 ILCS 175/4 (West 2014).
8 After a relator files a qui tam action, the State
may elect to intervene, take over and proceed with the
action, or decline to intervene giving the relator the right
to conduct the action. Burlington Coat Factory Warehouse
Corp., 369 Ill.App.3d at 510 (citing 740 ILCS
175/4(b)(4) (West 2002)). A relator is a party to the qui
tam action and is awarded a percentage of the proceeds
or settlement if the action is successful. Id.
(citing 740 ILCS 175/4(c)(1), (d) (West 2002)).
9 C. The Lindbloms' Case
10 Richard and Ralph Lindblom are brothers, and they own and
operate Advanced Appliance, Inc., d/b/a Advanced Maytag Home
Appliance Center (Advanced Maytag), located in Schaumburg,
Illinois. Advanced Maytag's business consists of selling
and servicing home appliances. Likewise, a portion of Best
Buy's business includes selling home appliances, such as
dishwashers and over-the-range microwaves.
11 Beginning in the late 1970s, the relators' father, who
owned Advanced Maytag at the time, learned that Advanced
Maytag's competitor, defendant Sears, did not charge
sales tax on the retail sales of dishwashers and
over-the-range microwaves when the purchaser also arranged
for delivery and installation services from Sears because
Sears treated those sales as a construction contract, which
was not subject to the collection of sales tax from
purchasers. Relators later learned that the other named
defendants, including Best Buy, followed Sears's practice
of failing to remit sales tax on the gross receipts from the
sale of dishwashers and over-the-range microwaves by treating
sales of those appliances as construction contracts. Relators
believed this practice was a knowing and purposeful scheme to
avoid remitting the taxes owed on the sale of ...