2024 IL App (1st) 240379-U
SECOND DIVISION December 24, 2024
No. 1-24-0379
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the limited circumstances allowed under Rule 23(e)(1).
IN THE APPELLATE COURT OF ILLINOIS FIRST JUDICIAL DISTRICT
PEOPLE OF THE STATE OF ILLINOIS, ex rel. ) Appeal from the Circuit Court of RICHARD LINDBLOM and RALPH LINDBLOM, ) Cook County. ) Plaintiffs-Appellants, ) ) ) No. 19 L 50393 v. ) ) ) BEST BUY STORES, L.P., a Minnesota corporation, ) Honorable John J. Curry, Jr. ) Judge Presiding. Defendant-Appellee, ____________________________________________________ JUSTICE HOWSE delivered the judgment of the court. Presiding Justice Rena Marie Van Tine and Justice Ellis concurred in the judgment.
ORDER
¶1 Held: We reverse the trial court’s order entering summary judgment in defendant’s favor. Defendant was not entitled to summary judgment due to plaintiffs failing to file their amended complaint under seal or due to public disclosure of the facts supporting plaintiffs’ claims. Plaintiffs raised a genuine issue of material fact concerning whether defendant knowingly violated tax laws for its actions after issuance of the compliance alert; therefore defendant was not entitled to summary judgment post-compliance alert. Therefore, we reverse and remand for further proceedings. 1-24-0379
¶2 Plaintiffs Richard and Ralph Lindblom, on behalf of the State of Illinois, filed this case
against Defendant Best Buy Stores, L.P., a company that operates numerous retail stores in
Illinois. The Lindbloms claim that Best Buy violated the Illinois False Claims Act when it failed
to collect and remit sales tax for the sale of dishwashers and over-the-range microwaves that
were purchased from Best Buy along with installation. The trial court granted summary
judgment to Best Buy. The Lindbloms appeal the trial court’s summary judgment ruling. For the
following reasons, we reverse and remand for further proceedings.
¶3 BACKGROUND
¶4 Plaintiffs Richard and Ralph Lindblom own and operate Advanced Appliance Service, a
retail appliance store located in Schaumburg. The Lindbloms’ father opened Advance Appliance
Service in 1956. The Lindbloms’ store is a direct competitor of Best Buy as it pertains to the sale
of consumer appliances. The Lindbloms allege that the competition between their store and Best
Buy has been unfair because the Lindbloms at all times charged sales tax on the sale of installed
dishwashers and microwaves, while Best Buy has been able to offer its customers lower prices
by not collecting and remitting sales tax from its customers on such transactions.
¶5 In Illinois, retailers are required to collect and remit the State sales tax in the amount of
6.25% of gross receipts from sales of tangible personal property. 35 ILCS 120/2-10 (West 2022).
In addition, retailers collect local sales tax which is added to the State sales tax. In Chicago, for
example, retail sales of consumer goods are taxed at a rate of 10.25% which is made up of the
6.25% State sales tax and 4% of local sales taxes. Some sales of personal property are, however,
exempt from the general sales tax and instead incur Illinois’ use tax. Illinois imposes a use tax of
6.25% on either the selling price or the fair market value of the tangible personal property. 35
ILCS 105/3-10 (West 2022). “This use tax is intended to serve as a complement to the Retailers’
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Occupation Tax Act (35 ILCS 120/1 et seq. (West 2008)), which is the primary means by which
Illinois taxes retail sales of tangible goods.” Shared Imaging, LLC v. Hamer, 2017 IL App (1st)
152817, ¶ 24. “The purpose of the use tax is to preclude buyers from avoiding the retailers’
occupation tax by making purchases from out-of-state vendors and to protect Illinois vendors
from lost sales to those out-of-state vendors.” Id. (citing Irwin Industrial Tool Co. v. Department
of Revenue, 238 Ill. 2d 332, 340 (2010)).
¶6 Construction contractors do not need to collect sales tax when they incorporate tangible
personal property into real estate under a construction contract. Instead, under Illinois law, the
construction contractor himself is considered to be the end user of the product. When a
contractor incorporates tangible personal property into real estate, rather than paying the sales tax
generally paid on the purchase of that tangible property, the construction contractor instead
incurs the Illinois 6.25% use tax, which the contractor must pay to the State.
¶7 When a construction contractor sells and installs a water heater, furnace, roofing
materials, or other materials and fixtures that are incorporated into the structure, the contractor
does not incur sales tax liability but instead pays the State use tax. But when a construction
contractor sells and installs a refrigerator, washing machine, or other portable equipment, the
contractor incurs state and local sales tax liability.
¶8 Best Buy is a retailer of consumer electronics. It also engages in the business of
delivering appliances and installing them in customers’ homes. Between 2002 and November 17,
2020, Best Buy collected and remitted taxes differently for different types of transactions. When
Best Buy sold a dishwasher or microwave to a customer who took the appliance from the store at
the time of purchase, it collected the State and local sales tax and remitted the collected sales tax
to the State. If, however, the customer hired Best Buy to deliver and install a dishwasher or over-
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the-range microwave, Best Buy paid use tax to the State on the cost of the good rather than sales
tax. Best Buy claims it paid use tax rather than sales tax for such transactions because when it
delivered and installed a dishwasher or microwave, it acted as a construction contractor and
therefore was exempt from the general sales tax.
¶9 In 2002 and 2008, Best Buy sought and received outside professional tax advice for its
tax treatment of installed appliances. Best Buy conducted an analysis of all 50 states’
requirements for use tax and sales tax on installed appliance sales. Jessica Nowlin, Best Buy’s
head of indirect tax, testified that her department and the accounting firm KPMG created a
matrix reflecting the tax treatment for installed appliances in each state. Best Buy claims it
updated the matrix over the years, and it relied on internal and external tax professionals to
determine its tax obligation for installed dishwashers and over-the-range microwaves. For
Illinois, Best Buy determined its obligation was to pay use tax. Best Buy did not seek or receive
any advice on its tax treatment for the subject transactions after 2008.
¶ 10 The Illinois Department of Revenue conducted audits of Best Buy’s use and sales tax for
the periods from 2005-2007 and 2011-2013. During those periods, Best Buy was assessing and
paying use tax on the sale of installed dishwashers and microwaves. At the conclusion of both
audits, the Department of Revenue did not assess any liability against Best Buy for improper tax
practices.
¶ 11 The Lindbloms, plaintiffs, informed the Illinois Department of Revenue in a February
2015 email that certain big-box appliance retailers were not charging sales tax on the sale of
built-in dishwashers and microwaves if the customer ordered installation. The Lindbloms
informed the Department that, for example, Home Depot and Lowe’s were declining to charge
sales tax to customers for installed dishwashers and microwaves and, thus, were obtaining an
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unfair competitive advantage over retailers who were collecting sales tax. The Lindbloms stated
in the email that their own accountant advised them against adopting the same tax practice. The
Lindbloms believed that the retailers who were not charging sales tax were obtaining an unfair
competitive advantage over every other appliance seller in the State who was playing by the
rules. The Lindbloms claimed in their email that the State and its taxpayers have “been screwed
out of millions of dollars of tax revenue that we were entitled to year after year.”
¶ 12 Dan Hall, audit bureau manager for the Department of Revenue responded to the
Lindbloms’ email, stating that the Lindbloms “have it all pretty well correct from a tax
perspective.” Hall explained that the Department was going to send out a compliance alert to
retailers to clarify when sales tax needed to be collected on the sale of installed appliances.
¶ 13 In June 2015, the Department of Revenue issued a compliance alert on the issue. The
Department explained that an “investigation has revealed that some taxpayers are incorrectly
treating sales of appliances and other tangible personal property as construction contracts and
failing to remit Retailers’ Occupation Tax (ROT).” The Department explained that the
compliance alert was intended to assist taxpayers in determining if they are acting as retailers or
construction contractors and clarify the tax liabilities for each type of transaction. The first line
of the alert states that “[m]ost retailers will not act as a construction contractor.” One particular
paragraph of the compliance alert is particularly relevant here because it specifically uses the
example of a dishwasher.
“The sale of tangible personal property with a separate agreement to install it does not
convert the retail sale to a construction contract. This frequently occurs when an
appliance is sold, the purchaser requires installation of the appliance, and the invoice lists
the charge for Installation separately. For example, a person may purchase a dishwasher
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at an appliance store and the seller and purchaser enter into a separate agreement for the
installation of the dishwasher. The seller in this case would pay [sales tax] on the receipts
from the sale of the dishwasher.”
¶ 14 Best Buy received and analyzed the Department of Revenue’s June 2015 compliance
alert. Best Buy concluded that the compliance alert was a misstatement of Illinois law. Best Buy
believed that its practices of assessing use tax rather than sales tax complied with the law while
the compliance alert was at odds with the law. Best Buy continued its existing tax practices after
receiving the compliance alert.
¶ 15 The Illinois Department of Revenue initiated a special audit of Best Buy’s tax practices
on August 31, 2015. Mark Larsen, the auditor assigned to the matter, concluded that Best Buy
was incorrectly designating sales of built-in appliances as construction contracts. Larsen
provided Best Buy with a memorandum explaining that Best Buy owed sales tax on the sale of
the subject appliances regardless of agreeing to install them. A few months after the special
audit, the Department of Revenue issued a notice of proposed liability against Best Buy for
$173,610 along with additional interest and penalties. The Department did not, however, assess
any penalty against Best Buy for fraud. Best Buy requested an abatement of the late payment
penalty, and the Department granted the abatement. The Department explained that Best Buy
exercised ordinary business care in executing its sales tax responsibilities.
¶ 16 Best Buy conferred with other big-box retailers, Lowe’s and Home Depot, and all three
elected to maintain their existing tax treatment for installed appliances despite the compliance
alert. On behalf of Best Buy, Home Depot, and Lowe’s, the Illinois Retail Merchants Association
contacted the Illinois Department of Revenue about the tax treatment for installed appliances. On
November 3, 2016, the Department responded to the inquiry with a General Information Letter
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confirming that when a dishwasher or microwave is sold at retail, it is subject to sales tax even if
the seller installs the product. The General Information Letter explains that “[t]he Department
does not consider the sale of a dishwasher by a retailer with a separate agreement or listing on
the invoice for installation to be a construction contract.”
¶ 17 Best Buy appealed the result of the special audit, and its appeal was denied by the
Department of Revenue. Best Buy then paid, under protest, the tax liability assessed under the
special audit. Best Buy thereafter filed a lawsuit against the Department of Revenue under the
Protest Monies Act (30 ILCS 230/1 et seq. (West 2022)). The circuit court in the case found that
Best Buy was obligated to pay sales tax for the installed dishwashers and microwaves. Best Buy
Stores, L.P. v. Department of Revenue, No. 17 L 050591, 2019 WL 10817221, at *1 (Ill. Cir. Ct.
July 29, 2019). Best Buy appealed the circuit court’s decision, and we affirmed, finding Best
Buy liable for sales tax on the sale of installed dishwashers and microwaves. Best Buy Stores,
L.P. v. Department of Revenue, 2020 IL App (1st) 191680, ¶ 22. Best Buy filed a petition for
leave to appeal to the Illinois Supreme Court, but the petition for leave to appeal was denied.
Best Buy Stores, L.P. v. Department of Revenue, 159 N.E.3d 937 (Table) (Nov. 18, 2020).
¶ 18 Best Buy claims that, since November 18, 2020, when the supreme court denied its
petition for leave to appeal, it has been collecting and remitting sales tax for installed
dishwashers and over-the-range microwaves. The Lindbloms, however, claim that Best Buy did
not change its practices and start charging sales tax until September 2021. Best Buy maintains
that its failure to start collecting sales tax in 2020 was due to a computer issue. Best Buy also
claims that it has paid the Department of Revenue all outstanding sales tax liability for installed
appliance sales from 2014 to November 2020.
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¶ 19 Before Best Buy’s litigation challenging its tax obligations, on November 12, 2015, the
Lindbloms filed suit against several appliance retailers under the Illinois False Claims Act
alleging that those businesses were knowingly avoiding their tax obligations and presenting the
State with false monthly tax returns. Best Buy was not named in the Lindbloms’ original filing
and was not mentioned in the Lindbloms’ statement of material evidence provided to the Illinois
Attorney General.
¶ 20 On August 25, 2016, the Lindbloms amended their complaint to add a claim against Best
Buy for a violation of the Illinois False Claims Act. The Lindbloms added specific allegations to
their complaint about Best Buy’s tax practices and its alleged failure to collect and remit the
sales tax properly owed for installed appliances. The Lindbloms did not file their amended
complaint under seal, as their original complaint in the case had already been unsealed. Best Buy
successfully moved to have the claims against it severed from the claims against the other
defendants. It then filed a motion for summary judgment arguing that it is entitled to judgment as
a matter of law for three reasons: (1) the Lindbloms failed to comply with the mandatory pre-
filing procedures under the Illinois False Claims Act; (2) the Illinois False Claims Act’s public
disclosure bar precluded the Lindbloms’ claims; and (3) the Lindbloms failed to raise a genuine
issue of material fact in support of the scienter requirement under the False Claims Act.
¶ 21 The circuit court entered summary judgment in Best Buy’s favor. The circuit court
decided in Best Buy’s favor on each of the three grounds raised in its motion for summary
judgment. The circuit court found that the Lindbloms failed to comply with the Illinois False
Claims Act’s pre-filing procedures when they amended their complaint to add a count against
Best Buy for a violation of the Act. The circuit court found that, even if the Lindbloms’ failure to
comply with the Act’s pre-filing procedures did not merit judgment being entered in Best Buy’s
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favor, Best Buy was entitled to summary judgment because the Lindbloms did not present any
evidence that Best Buy acted with knowledge or reckless disregard of the tax laws. The circuit
court also found that the public disclosure bar under the Illinois False Claims Act precluded the
Lindbloms’ claim because the Illinois Department of Revenue had audited and examined Best
Buy’s tax practices during the relevant periods in this case such that the Lindbloms were not the
original source of the information.
¶ 22 The Lindbloms now appeal the judgment entered in favor of Best Buy as a matter of law.
The Lindbloms argue that they complied with the statutory pre-filing requirements, that the
public disclosure bar does not preclude their claims, and that there is a genuine issue of material
fact regarding whether Best Buy acted with the requisite scienter to be held liable under the
Illinois False Claims Act.
¶ 23 ANALYSIS
¶ 24 The Lindbloms argue that the trial court erred when it granted Best Buy’s motion for
summary judgment. Summary judgment is appropriate when the pleadings, depositions,
admissions, and affidavits, viewed in a light most favorable to the nonmovant, fail to establish
that a genuine issue of material fact exists, thereby entitling the moving party to judgment as a
matter of law. 735 ILCS 5/2-1005 (West 2022); Fox v. Seiden, 2016 IL App (1st) 141984, ¶ 12.
If disputes as to material facts exist or if reasonable minds may differ with respect to the
inferences drawn from the evidence, summary judgment may not be granted. Associated
Underwriters of America Agency, Inc. v. McCarthy, 356 Ill. App. 3d 1010, 1016-17 (2005).
Summary judgment is encouraged as an expeditious manner of disposing of a lawsuit, but it
should only be utilized when a party’s right to a judgment is clear and free from doubt. Adams v.
Northern Illinois Gas Co., 211 Ill. 2d 32, 43 (2004). We review the trial court’s decision to
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grant summary judgment de novo. Illinois Tool Works Inc. v. Travelers Casualty & Surety Co.,
2015 IL App (1st) 132350, ¶ 8.
¶ 25 The Illinois False Claims Act’s Pre-Filing Requirements
¶ 26 The first basis on which the trial court found Best Buy to be entitled to judgment as a
matter of law was the Lindbloms’ alleged failure to comply with the pre-filing provisions of the
Illinois False Claims Act. Section 4(b)(2) of the Illinois False Claims Act sets forth the
procedures a plaintiff must follow before filing a qui tam complaint under the Act. 740 ILCS
175/4(b)(2) (West 2022). The Act requires a copy of the complaint and a written disclosure of
substantially all material evidence to be served on the State. Id. The complaint must be filed in
camera, or under seal, for at least 60 days and is not to be served on the defendant until the
circuit court so orders. Id. This procedure gives the State 60 days to intervene in the action and
take over the prosecution of the case. Id.
¶ 27 Here, there is no dispute that the Lindbloms complied with the pre-filing requirements
before they filed their original complaint in the case. However, the Lindbloms acknowledge that
they did not repeat these steps when they amended their complaint and added a claim against
Best Buy as a new defendant.
¶ 28 In ruling on Best Buy’s motion for summary judgment, the circuit court explained that
Best Buy only learned of the Lindbloms’ failure to comply with the pre-filing requirements just
before filing the motion for summary judgment, so it excused Best Buy’s failure to raise the
issue at any earlier point. The circuit court found that the Lindbloms’ actions of pleading Best
Buy into the case without complying with the Act’s pre-filing requirements deprived the State of
the opportunity to consider the claims at its own pace and make a determination as to whether to
proceed on the claim. The circuit court noted that the State would have to show “good cause” to
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intervene in the case following the amendment which imposes a higher burden on the State. The
circuit court also found that it was an appropriate sanction to dismiss the claims against Best Buy
for the Lindbloms’ failure to follow the statutory pre-filing requirements. The circuit court
expressed concern that qui tam plaintiffs might intentionally leave a defendant out of an initial
pleading only to later add the defendant while being able to circumvent the Illinois False Claim
Act’s pre-filing requirements.
¶ 29 The Lindbloms argue that they complied with the Illinois False Claims Act’s pre-filing
procedures. They argue that the procedures apply to the original complaint and not to an
amended complaint (citing Wisz ex rel. U.S. v. C/HCA Development ,Inc., 31 F. Supp. 2d 1068,
1068-69 (N.D. Ill. 1998)). The Lindbloms rely on several federal court decisions from across the
country in which the courts have held that the pre-filing requirements in the federal counterpart
statute, the False Claims Act, do not apply to amended complaints. See, e.g., U.S. ex rel. Milam
v. Regents of University of California, 912 F. Supp. 868, 889-90 (D. Md. 1995). Best Buy
similarly relies on federal court decisions in which the courts have found that the pre-filing
requirements in the federal False Claims Act apply equally to original and amended complaints.
See, e.g., United States ex rel. Williams v. Landmark Hospital of Athens, LLC, 676 F. Supp. 3d
1323 (M.D. Ga. 2023).
¶ 30 The federal courts that have found the pre-filing requirements to apply to amended
complaints have done so on the basis that the amended complaint at issue differed substantially
from the original complaint. See U.S. v. Walgreens, 2017 U.S. Dist. LEXIS 226205, at **10-11
(C.D. Cal. May 1, 2017). Here, the allegations and the theory of liability are consistent between
the original and amended complaints. The purpose of the amendment was solely to add a new
defendant to the case when the Lindbloms learned of the new defendant’s allegedly wrongful
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conduct. Best Buy has not produced any case law where a qui tam defendant successfully
invoked noncompliance with the pre-filing requirements to secure a dismissal after the plaintiff
simply added that defendant to the case in an amended complaint while making the same
allegations of liability already existing in the case. Instead, in such cases, federal courts seem to
have uniformly held that the pre-filing requirements need not be repeated when a defendant is
added to the case. See Milam, 912 F. Supp. at 890.
¶ 31 The case Best Buy relies upon most heavily, and which the circuit court seems to have
found most persuasive, is a case in which the qui tam plaintiff sought to add new claims and new
defendants after the government had already decided to intervene in the case. United States ex
rel. Brooks v. Stevens-Henager College, Inc., 359 F. Supp. 3d 1088 (D. Utah 2019). The putative
amendments in Brooks not only added new defendants but also added entirely new claims that
were not covered by any prior pleading. Id. at 1128. We do not find Brooks persuasive to the
outcome of the factual and legal situation presented here. The government did not decide to
intervene in this case and instead allowed the Lindbloms to continue managing the litigation. The
Lindbloms did not act against the State’s interests in any way.
¶ 32 The Illinois False Claims Act does not provide that any pleading filed subsequent to the
complaint needs to be filed under seal. See 740 ILCS 175/4(b)(2) (West 2022). Instead, the pre-
filing procedures relate to the initiation of the action. Indeed, the pre-filing requirements are in
place to protect the rights of the government in the action, not to benefit the defendants. United
States ex rel. Landis v. Tailwind Sports Corp., No. 1:10-CV-00976 (CRC), 2015 WL 13711120,
at *4 (D.D.C. July 2, 2015). The sealing provision’s purpose is to “provide the government with
the opportunity to decide whether it wants to intervene in a pending fraud suit.” U.S. ex rel.
Davis v. Prince, 766 F. Supp. 2d 679, 682 (E.D. Va. 2011). “If the amended complaint does not
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include new claims or substantially different allegations of fraud, the purpose of the sealing
requirement loses force because the government does not need another opportunity to decide
whether to intervene.” Id. at 684. Additionally, once the initial case is unsealed, the benefits of
filing the amended version of the complaint in camera and under seal appear to be diminished
because the defendant and the public are already aware of the case. United States ex rel. Guzder
v. MKM Engineers Inc., No. CV H-05-895, 2009 WL 10697670, at *4 (S.D. Tex. Mar. 3, 2009)
(citing Claire M. Sylvia, The False Claims Act: Fraud Against the Government § 11:100
(Updated 2009 WL FCAG § 11:100)).
¶ 33 There is no actual harm to the government here and there is nothing in the record to
suggest the government would have benefitted from the amendment being filed under seal before
it was filed publicly. The State was served with every filing in the case, and it never raised any
issue about the amended complaint not being filed under seal. The government maintained
sufficient control of the litigation here and could have sought to intervene or dismiss the case at
any time if it believed the Lindbloms were acting contrary to the State’s interests. Scachitti v.
UBS Financial Services, 215 Ill. 2d 484, 510-12 (2005) (the Attorney General retains the right to
intervene in the lawsuit at any time and, most critically, the Attorney General has authority to
dismiss or settle the action at any time, despite the objections of the qui tam plaintiff). Despite
ample notice, the government never raised any issue with Best Buy being added to the case.
There is no reason to believe the government might have decided to intervene against Best Buy
but not all the other named defendants.
¶ 34 A future case might present us with facts to substantiate some of the fears of
gamesmanship or deception by a qui tam plaintiff envisioned by the trial court. But in this case,
there is no indication that the Lindbloms sought to secure some advantage by not filing the
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amended complaint under seal or that they intentionally withheld their claims against Best Buy
from the initial complaint. Rather, the record shows that the Lindbloms learned about Best Buy’s
allegedly wrongful conduct after filing the original complaint and then they promptly sought to
add Best Buy as a defendant. We find that Best Buy was not entitled to summary judgment on
the basis of the Lindbloms’ failure to file the amended complaint under seal or otherwise comply
with the pre-filing requirements.
¶ 35 Public Disclosure Bar
¶ 36 The Illinois False Claims Act provides for the dismissal of a qui tam action when the
allegations supporting the claim have been publicly disclosed before the qui tam plaintiff files
suit. 740 ILCS 175/4(e)(4)(A) (West 2022). The Act provides that “[t]he court shall dismiss an
action or claim under this Section, unless opposed by the State, if substantially the same
allegations or transactions as alleged in the action or claim were publicly disclosed: (i) in a
criminal, civil, or administrative hearing in which the State or its agent is a party; (ii) in a State
legislative, State Auditor General, or other State report, hearing, audit, or investigation; or (iii)
from the news media.” Id. Dismissal is not warranted under the public disclosure bar if “the
action is brought by the Attorney General or the person bringing the action is an original source
of the information.” Id. The public disclosure bar is intended to preclude a relator’s action when
the alleged fraud was publicly disclosed in a listed source, unless the relator was an original
source of certain information underlying the action. People ex rel. Lindblom v. Sears Brands,
LLC, 2019 IL App (1st) 180588, ¶ 31.
¶ 37 Best Buy argued in the trial court that it was entitled to summary judgment on the basis
of public disclosure because the same allegations or transactions that are at issue in this case
were publicly disclosed by Best Buy to the State in a State audit of Best Buy. The circuit court
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agreed, finding that the Department of Revenue was indisputably aware of Best Buy’s tax
practices relevant to this case before the Lindbloms filed suit. The circuit court likewise found
that the Lindbloms were not the “original source” of the information because the Lindbloms
never identified or reported to the State that Best Buy failed to pay sales tax on the subject sales.
¶ 38 The Lindbloms argue that there was no “public disclosure” here because the audits in
which the information was disclosed were confidential and, therefore, not public. See 35 ILCS
120/11 (West 2022). Indeed, in a prior appeal in this case we observed that “[t]he Department’s
audit of Best Buy was confidential and not publicly disclosed.” Sears Brands, 2018 IL App (1st)
171468, ¶ 14. In that prior appeal, Best Buy made a similar but different argument for dismissal,
contending that the claims against it should be found to be precluded by the “government action
bar.” Id. at ¶ 22.
“Best Buy took the position that the government action bar applied because by the
time relators named Best Buy as a defendant, the Department had completed its
field audit and issued a notice of proposed liability and Best Buy had initiated the
Board’s review, which collectively constituted an administrative civil money
penalty proceeding that addressed the exact tax issues raised by relators in the qui
tam action. Best Buy characterized the qui tam action as nothing more than a
parasitic lawsuit that provided no benefit to the State.” Id.
¶ 39 Again, the parties present federal case law interpreting the federal False Claims Act in
which the courts have reached differing conclusions on the issue of whether confidential
disclosures to the government constitute “public disclosures” mandating dismissal in false claims
cases.
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¶ 40 In Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 910 (7th Cir. 2009), the United
States Court of Appeals for the Seventh Circuit held that when the government agency with the
responsibility for investigating the claims has knowledge of the allegedly improper activity, the
information has been publicly disclosed for purposes of the False Claims Act. Id. at 913-14. The
majority of the federal circuit courts that have reviewed the issue, however, have found that
disclosures made pursuant to a confidential government investigation or audit do not constitute
“public” disclosures, within the meaning of the False Claims Act’s public disclosure bar. See
United States ex rel. Foreman v. AECOM, 19 F.4th 85, 126 (2d Cir. 2021). The Seventh Circuit
has recognized that its position is an outlier and acknowledged the “significant force in the
position of the other circuits.” Cause of Action v. Chicago Transit Authority, 815 F.3d 267, 276-
77 (7th Cir. 2016).
¶ 41 In Foreman, the United States Court of Appeals for the Second Circuit set forth several
reasons the holding in Glaser should be rejected, and we find those reasons persuasive. The
Foreman court observed that “allowing private suits when the information underlying the action
is known only to government auditors and others involved in a confidential audit or investigation
balances Congress’s goals in encouraging private citizens with first-hand knowledge to expose
fraud while avoiding civil actions by opportunists attempting to capitalize on public information
without seriously contributing to the disclosure of the fraud.” Foreman, 19 F.4th at 126.
Additionally, allowing such suits prevents the government from sitting on fraud of which it had
knowledge. Id. We add that allowing private actions could help to uncover or root out corruption.
These are persuasive reasons for not mandating dismissal of a qui tam case simply because the
information has been disclosed to the government confidentially.
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¶ 42 Best Buy argues that our unpublished decision in People ex rel. Schad, Diamond &
Shedden, P.C. v. PersonalizationMall.com, Inc., 2016 IL App (1st) 133360-U is particularly
illuminating on the public disclosure bar issue because the State itself argued in that case that
confidential tax audits constituted public disclosures barring the relators’ claims. Id. at ¶ 9.
However, the issue was not adjudicated on appeal in that case. Moreover, we never endorsed the
position taken by the State, we simply recounted what occurred in the circuit court. The
overwhelming majority of courts have taken the position that confidential disclosures to the
government are not public disclosures for purposes of false claims cases. We choose to follow
that well-reasoned and well-developed body of law.
¶ 43 As with the issue of the amendment addressed above, the State maintains the ability in a
qui tam case to intervene or dismiss the claims in the case at any time. Scachitti, 215 Ill. 2d at
510-12 (the Attorney General retains the right to intervene in the lawsuit at any time and, most
critically, the Attorney General has authority to dismiss or settle the action at any time, despite
the objections of the qui tam plaintiff). The State’s broad authority over qui tam cases entitles it
to act against a qui tam plaintiff who might be proceeding in a parasitic fashion or otherwise
attempting to capitalize on public knowledge. We find that Best Buy was not entitled to
summary judgment on the basis of the public disclosure bar of false claims cases.
¶ 44 Best Buy’s Tax Obligation
¶ 45 Before we can address the third issue raised on appeal, whether there is a genuine issue of
material fact on the scienter requirement, it is helpful to establish that Best Buy indeed was
obligated to pay sales tax under the prevailing laws. Before fully litigating the issue
unsuccessfully, Best Buy had maintained that its sale of dishwashers and over-the-range
microwaves with installation service fell within the administrative code section where it is not
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obligated to collect sales tax because “[a] construction contractor does not incur Retailers’
Occupation Tax liability as to receipts from … tangible personal property … incorporated into a
structure as an integral part thereof … when furnished and installed as an incident of a
construction contract.” The Lindbloms meanwhile have always contended that Best Buy acted as
a retailer when it sold dishwashers and microwaves with installation and, therefore, it was
required to collect and remit sales tax on the sale of those goods.
¶ 46 A person violates the Illinois False Claims Act if they make, use, or cause to be made or
used, a false record or statement material to an obligation to pay or transmit money to the State,
or if the person improperly avoids or decreases an obligation to pay or transmit money to the
State. 740 ILCS 175/3(a)(1)(G) (West 2022). Under the Act, an “obligation” to pay means an
“established duty” to pay arising from a statute or regulation. 740 ILCS 175/3(b)(3) (West 2022).
¶ 47 Under the Retailers’ Occupation Tax Act (35 ILCS 120/1 et seq. (West 2022)), sellers of
goods are required to collect and remit sales tax for all “sales at retail.” Under the Act, “sale at
retail” means any transfer of the ownership of or title to tangible personal property to a
purchaser, for the purpose of use or consumption.” 35 ILCS 120/1 (West 2022). It is “presumed
that all sales of tangible personal property are subject to tax under this Act until the contrary is
established, and the burden of proving that a transaction is not taxable hereunder shall be upon
the person who would be required to remit the tax to the Department.” 35 ILCS 120/7 (West
2022). The construction contractor regulation is an exception to the general rule that all sales of
tangible personal property incur sales tax liability.
¶ 48 In Illinois, taxation is the rule; tax exemption is the exception. Best Buy Stores, 2020 IL
App (1st) 191680, ¶ 18. A statute, or a regulation, providing a tax exemption is strictly construed
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in favor of taxation and against exemption. Id. The party seeking the exemption must prove that
it is entitled to it, and it is a “very heavy burden.” Id.
¶ 49 Under the construction contractor exception, “Contractor” means any person who is
engaged in the occupation of entering into and performing construction contracts for owners. 86
Ill. Admin. Code § 130.1940 (West 2022). “A contractor holds himself out to the public as
having the skill and knowledge necessary to the construction of certain improvements. He does
not represent himself as being engaged in the business of selling building material.” J. H.
Walters & Co. v. Department of Revenue, 44 Ill. 2d 95, 103 (1969).
¶ 50 The definition of “contractor” in the relevant administrative regulation states that a
contractor is a person who “is engaged in the occupation of entering into and performing
construction contracts for owners (emphasis added).” 86 Ill. Admin. Code 130.1940 (West
2022). While Best Buy offered some contracted-for installation services, it was never engaged in
the occupation of performing construction contracts. With regard to dishwashers and
microwaves, Best Buy was a retailer of goods, sometimes providing installation. The “primary”
or “real” occupation of the taxpayer determines the tax classification. Best Buy Stores, 2020 IL
App (1st) 191680, ¶ 21 (citing Ingersoll Milling Machine Co. v. Department of Revenue, 405 Ill.
367, 370 (1950)).
¶ 51 For the relevant transactions, the installation of the appliances was incidental to the
transfer of the appliance to the customer. The overwhelmingly predominant part of the
transaction here was the sale of a good at retail. For tax purposes, Best Buy treated the sale with
installation of a single dishwasher or microwave as a construction project. The reality is that Best
Buy was selling an appliance at retail while also making an agreement to install the item which
does not transform the transaction into a construction contract. See Best Buy Stores, 2020 IL App
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(1st) 191680, ¶¶ 22-23. Accordingly, Best Buy was required to collect and remit sales tax for its
sale of dishwashers and microwaves with installation under the prevailing tax laws.
¶ 52 The results of the special audit and all of Best Buy’s failed efforts to secure a ruling that
it was properly interpreting the tax laws when selling installed appliances confirm that Best Buy
was required to pay sales tax on the subject transactions. Nonetheless, to be liable under the
Illinois False Claims Act, the Lindbloms are required to prove that Best Buy acted with the
requisite scienter—that Best Buy knowingly avoided its true tax obligations.
¶ 53 The Scienter Requirement
¶ 54 Best Buy contends that the Lindbloms failed to produce affirmative, admissible evidence
to create a genuine issue of material fact as to whether Best Buy acted “knowingly” for purposes
of the Illinois False Claims Act. Best Buy argues that there was no Illinois statute, caselaw, or
binding administrative guidance about the tax treatment for dishwashers and microwaves during
the period relevant to this case. It argues that, at most, there was a disputed question as to
whether sales tax needed to be collected for such transactions, which means there could be no
“established duty” on its part and, therefore, it did not “knowingly” file false returns. The circuit
court agreed with Best Buy that the state of the tax law was unclear and, thus, Best Buy did not
act knowingly in avoiding its tax obligations.
¶ 55 Under the Illinois False Claims Act (740 ILCS 175/1 et seq. (West 2022)), a taxpayer-
defendant is liable if it “knowingly makes, uses, or causes to be made or used, a false record or
statement material to an obligation to pay or transmit money or property to the State, or
knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or
transmit money or property to the State.” 740 ILCS 175/ 3(a)(1)(G) (West 2022). The Act
defines “knowingly” as: having actual knowledge, acting in deliberate ignorance of the truth, or
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acting in reckless disregard of the truth. 740 ILCS 175/3(b)(1)(A) (West 2022). It is not enough
for a relator-plaintiff to show “mere ‘[i]nnocent mistakes or negligence.’ ” State ex rel. Schad,
Diamond & Shedden, P.C. v. National Business Furniture, LLC, 2016 IL App (1st) 150526, ¶ 33.
Rather, the relator must prove that the taxpayer “ignored obvious warning signs, buried its head
in the sand, and refused to learn information from which its duty to pay money to the State
would have been obvious.” Id. at ¶ 39. A taxpayer can be found to have acted with knowledge
for purposes of the Illinois False Claims Act if it was aware it owed sales tax on the subject
transactions or if it was aware of a substantial risk that its tax returns were false but submitted
them anyway. People ex rel. Stephen B. Diamond, P.C. v. Henry Poole & Co., 2023 IL App (1st)
220195, ¶ 32.
¶ 56 For the following reasons, we conclude that the Lindbloms failed to prove that, prior to
the June 2015 compliance alert issued by the Department of Revenue, Best Buy knowingly
avoided its obligation to transmit sales tax to the State. Best Buy contends that it honestly
assessed its tax obligations, engaged its own accounting department and outside professionals on
the issue, relied on the outcome of its Department of Revenue audit, and otherwise made good
faith efforts to comply with its tax obligations so that it cannot be found to have acted with the
requisite scienter under the Illinois False Claims Act. For the period prior to the issuance of the
compliance alert, we agree.
¶ 57 The results of the Illinois Department of Revenue’s audits of Best Buy’s sales and use tax
for the periods from 2005-2007 and 2011-2013 support our conclusion that the relators failed to
prove Best Buy acted with the requisite knowledge to be found liable under the Illinois False
Claims Act prior to the Department of Revenue’s compliance alert. During those periods, Best
Buy was assessing use tax on transactions for installed dishwashers and microwaves. At the
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conclusion of both audits, the Department of Revenue did not assess any liability against Best
Buy for improper tax practices. The Department did not raise any issues at all during the 2005-
2007 and 2011-2013 audits about Best Buy’s tax practices for the transaction types relevant to
this case.
¶ 58 Under Illinois law, the findings of the Department after an audit is evidence the proper
amount was paid by the taxpayers: “In the event that the return is corrected for any reason other
than a mathematical error, any return so corrected by the Department shall be prima facie correct
and shall be prima facie evidence of the correctness of the amount of tax due, as shown therein.”
35 ILCS 120/4 (West 2022). Under Illinois law, the audit findings were prima facie proof that
the proper amount of taxes was paid. Id. The results of these audits demonstrate that State
auditors found no fault with Best Buy’s practice when the audits were completed.
¶ 59 Along with the audit results, Best Buy demonstrated that it made some other good faith
efforts to determine its tax obligations and comply with the prevailing tax laws prior to 2015.
Best Buy provided deposition testimony from Jessica Nowlin, Best Buy’s head of indirect tax,
who testified that Best Buy conducted an analysis of all 50 states’ requirements for use tax and
sales tax on installed appliance sales. Nowlin testified that her department and the accounting
firm KPMG analyzed the tax treatment for installed appliances in each state and concluded that
Best Buy needed to pay only use tax in Illinois. Best Buy claims it relied on internal and external
tax professionals when determining that its tax obligation for installed dishwashers and over-the-
range microwaves was to pay use tax. These efforts, prior to Best Buy receiving the compliance
alert and prior to the Department of Revenue initiating its special audit, demonstrate that Best
Buy was attempting to assess its true tax liability. The Lindbloms offer no evidence to the
contrary to show that, prior to June 2015, Best Buy was acting knowingly or in reckless
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disregard of its true tax obligations. The record shows, however, that Best Buy did not seek or
receive any advice on its tax treatment for installed appliances after 2008.
¶ 60 In June 2015, the Department of Revenue explained in a compliance alert that it
conducted an investigation which revealed that some taxpayers were incorrectly treating the sale
of appliances as construction contracts and failing to remit the required sales tax. In the
compliance alert, the Department of Revenue explained prominently that “[m]ost retailers will
not act as a construction contractor.” The Department explained that “[i]f a customer that is the
end user of the tangible personal property comes in and makes a retail purchase and enters into a
separate agreement for installation, the sale is an over-the-counter transaction subject to [sales
tax].” The Department continued by informing sellers that a person acts as a retailer and not a
construction contractor when the person sells “tangible personal property over-the-counter to the
end consumer regardless of a separate contract to install the tangible personal property; he incurs
[sales tax] on his gross receipts regardless of the tangible personal property being attached to real
estate or not.”
¶ 61 The compliance alert provides two examples, both which directly address dishwashers.
First, the Department explains in the alert that “if a contractor enters into an agreement with a
person to remodel a kitchen and furnish and install cabinets and a dishwasher as part of the
construction contract, the contractor pays Use Tax to his supplier, even if the contract breaks out
the charges for the cabinets, dishwasher and installation.” Second, the Department explains in the
alert the type of transaction in which sales tax needs to be collected.
“a person may purchase a dishwasher at an appliance store and the seller and
purchaser enter into a separate agreement for the installation of the dishwasher.
The seller in this case would pay [sales tax] on the receipts from the sale of the
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dishwasher. If the purchaser buys an appliance and requests a list of persons that
can install the item and the purchaser contracts with the person separately for the
installation, the seller must pay [sales tax] on receipts received from the sale of
the dishwasher.”
¶ 62 The Department stated in the alert that “the sale of tangible personal property with a
separate agreement to install it does not convert the retail sale to a construction contract. Such
sales frequently occur when an appliance is sold, the purchaser requires installation of the
appliance, and the invoice lists the charge for installation separately.” Taking these two
statements together, it is clear that the Department was notifying interested parties that when an
appliance is sold and the invoice lists the sale of the tangible personal property and then lists the
charge for installation, the retail sale is not converted into a construction contract just because
there is an agreement for installation of the appliance.
¶ 63 Best Buy acknowledges that it received the Department’s compliance alert and reviewed
it. However, instead of changing its tax practices or engaging outside tax consultants to discover
its tax obligations, Best Buy erroneously concluded that the compliance alert was an incorrect
interpretation of the law and that its own interpretation was the correct one. Best Buy made the
decision to continue its tax practices despite the Department of Revenue’s directive that should
have caused Best Buy to alter or at least further examine its prevailing tax practices. We
conclude Best Buy’s conduct following its receipt of the compliance alert creates a genuine issue
of fact as to whether Best Buy acted with sufficient knowledge to be liable under the Illinois
False Claims Act from that period forward.
¶ 64 We find that the compliance alert should have caused Best Buy to revisit its tax practices
for the subject transactions and that its failure to do so can be considered evidence of its desire
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not to learn about the proper interpretation of its Illinois tax obligations or to willfully disregard
them. That evidence and different inferences that could be drawn from it, creates a triable
question of fact on the issue of Best Buy’s knowledge under the Illinois False Claims Act. The
compliance alert specifically put Best Buy on notice that its assumptions about its tax obligations
for installed dishwashers and over-the-range microwaves were incorrect, but it failed to change
its practices. Despite Best Buy’s prior inquiries to outside advisors regarding its sales tax
obligations for installed appliances, it did not engage with any such experts following its receipt
of the compliance alert. Instead of taking any steps to assess its practices in light of the
compliance alert, Best Buy decided that the Department of Revenue was wrong and that the
compliance alert was a misstatement of the law. Best Buy’s inaction after receiving the
compliance alert is arguable evidence that it “ignored obvious warning signs, buried its head in
the sand, and refused to learn information from which its duty to pay money to the State would
have been obvious.” National Business Furniture, 2016 IL App (1st) 150526, ¶ 39.
¶ 65 The circuit court found that, as a matter of law, Best Buy did not act knowingly. Whether
a taxpayer acts knowingly in a false claims case is a question of fact. United States v. Domestic
Industries, Inc., 32 F. Supp. 2d 855, 863 (E.D. Va. 1999); Plywood Property Assocs. v. National
Flood Insurance Program, 928 F. Supp. 500, 510 (D.N.J. 1996). Nevertheless, the circuit court
found that it was a “gray area” whether use tax or sales tax needed to be collected for installed
sales of dishwashers and over-the-range microwaves and, therefore, Best Buy could not be liable.
¶ 66 While Best Buy might have had uncertainty about its obligations prior to the compliance
alert, the Department of Revenue’s directive makes any subsequent uncertainty unreasonable.
The compliance alert did not set forth any new law or any new interpretation of the existing law:
it merely informed retailers such as Best Buy that, under the existing tax laws, they were
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“incorrectly treating sales of appliances and other tangible personal property as construction
contracts and failing to remit Retailers’ Occupation Tax (ROT).”
¶ 67 The circuit court also found that Best Buy engaged in research and stayed up to date on
its tax obligations such that its violation could not have been done with knowledge. But, as
previously stated, Best Buy did not engage in professional analysis of Illinois tax law after 2008
and crucially did not engage in professional analysis after the 2015 compliance alert informed
Best Buy and other retailers that they were applying the law incorrectly. There is also evidence
that one of Best Buy’s tax advisors instructed it to collect sales tax on the subject transactions as
early as 2002.
¶ 68 The circuit court also found that the results of Best Buy’s audits vindicated the position it
took on the tax issue. But the auditors did not ever explicitly condone Best Buy’s tax treatment
of installed dishwashers and over-the-range microwaves. The relevant audits covered the periods
from 2005-2007 and 2011-2013, so while the audits may help shield Best Buy from liability
during those periods, the compliance alert changed the calculus because it directly addressed the
tax practice at hand. The issuance of the June 2015 compliance alert should have caused Best
Buy to revisit its tax practices going forward, but Best Buy instead reached an independent
conclusion that the Department of Revenue was incorrect on the law. Best Buy’s failure to
examine and modify its tax practices after receiving the compliance alert could be determined by
a factfinder to constitute a knowing violation of the Illinois False Claims Act.
¶ 69 In summary, we hold that the Lindbloms failed to raise a genuine issue of material fact
with regard to Best Buy’s knowing violation of the tax laws for the period before June 2015.
However, for the period beginning June 2015, after the Department of Revenue’s compliance
alert was issued, there is a triable question as to whether Best Buy acted knowingly for purposes
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of the Illinois False Claims Act. The relators submitted sufficient evidence to demonstrate that
there is a genuine issue of material fact as to whether Best Buy acted in knowing violation of the
tax laws after June 2015. Therefore, the order of summary judgment on that issue was error. The
relators proved that Best Buy was obligated to pay sales tax on its installed sales of dishwashers
and over-the-range microwaves during that time, and they submitted sufficient evidence to
demonstrate that there is a genuine issue of material fact as to whether Best Buy acted in
knowing violation of the tax laws after June 2015.
¶ 70 The Relators’ Request for Reassignment of Judge
¶ 71 Finally, the relators ask that we order the case to be assigned to a new judge on remand
under the authority granted to us by Illinois Supreme Court Rule 366(a)(5) (West 2022) (eff.
Feb. 1, 1994). The relators suggest that the trial judge has already made his opinions known
about the case and would be unlikely to reconsider those views on remand.
¶ 72 We see no reason to order the case to be reassigned. A trial judge is presumed to be
impartial, and the burden of overcoming this presumption rests on the party making the charge of
prejudice. Eychaner v. Gross, 202 Ill. 2d 228, 280-81 (2002). Erroneous findings and rulings by
the trial court alone are insufficient reasons to believe that the court has a personal bias for or
against a litigant. Id. The conclusion that a judge is not impartial is not lightly made. In re Estate
of Baldassarre, 2018 IL App (2d) 170996, ¶ 41. The record does not support the argument that a
fair judgment is unlikely on remand. Therefore, we deny the relators’ request for a reassignment
of the case on remand.
¶ 73 CONCLUSION
¶ 74 Accordingly, we reverse and remand for further proceedings consistent with this order.
¶ 75 Reversed and remanded.