A Chicago man’s qui tam action claim against a U.K. tailor was dismissed by a circuit court. The dismissal was recently affirmed by an Illinois Appellate Court.
The story begins in 2017 when a representative of Henry Poole & Co., Ltd. (Poole), a family-owned fashion company based in London, U.K., met with Charles Diamond in a Chicago hotel. There, Diamond’s measurements were taken. Upon return to the U.K., Poole began work on Diamond’s clothing, with manufacturing occurring in the U.K., Poole charged Diamond for the shirts only (without Retailers’ Occupation Tax) and shipped the shirts to Diamond’s Chicago address.
In 2018, Diamond’s father, Stephen B. Diamond P.C., filed a complaint to recover damages against Poole under the Illinois False Claims Act. In the complaint, Diamond argued that Poole failed to investigate their tax obligation under the Use Tax Act. Diamond alleged that Poole acted with scienter (the knowledge that one is doing wrong) and reckless disregard.
Reckless disregard was referred to by the court as an ostrich-type situation, in which an individual “has their head buried in the sand.” The court deemed Poole’s situation as an ostrich-type situation, as Poole failed to ask a question that, given the answer, would have alerted the company of their tax obligation.
However, the court found no evidence that Poole had knowingly avoided paying tax or had utilized a false record or statement material to an obligation to pay or transmit money or property to the state. After the circuit court dismissed Diamond’s claim, an Illinois Appellate Court judge affirmed the dismissal.
This case exemplifies the intricacies of the Illinois False Claims Act and some of the different ways in which courts determine whether someone has knowingly avoided a sales or use tax obligation.
(People ex rel. Stephen B. Diamond PC v. Henry Poole & Co. LTD, No. 2018 L 10136 (Ill. App. Ct. June 30, 2023))