Hardware Distributor Grainger to Pay $70,000,000 for Fraud Against the Government

For this entry in my
whistleblower lawyer blog, I want to discuss a settlement that the Government announced just
before Christmas. The Department of Justice announced a whopper of a settlement
— $70,000,000 — with hardware distributor W.W. Grainger. Grainger
is based in Lake Forest, Illinois, about 30 miles north of Chicago.

Grainger’s False Claims Act troubles started back in 2006, when a
former employee filed a
Milwaukee, Wisconsin lawsuit against the company. Brian Holbrook, a former sales manager for Grainger,
alleged that the company had violated the False Claims Act by knowingly
submitting false or fraudulent claims to the federal government. Holbrook
brought his suit under the False Claims Act as a “qui tam”
lawsuit, meaning that Holbrook sued on behalf of the United States Government
to recover the money he said that Grainger had fraudulently charged the
Government. Holbrook said that Grainger had agreed to sell products to
the Government at a fixed markup of 26% above the prices that Grainger
itself paid for the products, but that instead Grainger was charging markups
greater than 26%. He also said that Grainger was violating its government
contracts by buying products from countries, like China and Taiwan, that
did not have reciprocal trade agreements with the United States.

In 2008, Grainger settled the case that Holbrook had bought, paying

$6 million to the federal government. Holbrook, who was the “relator”
in the case because he initiated the suit on behalf of the United States,
received a percentage of the money that the United States recovered.

In December 2012, Grainger agreed to pay the U.S. government another $70,000,000.
According to the Justice Department, the
new Grainger settlement was the result of an audit by the General Services Administration Inspector
General (GSA IG) and an investigation by the United States Postal Service
Inspector General (USPS IG). The Inspector General for the GSA said that
Grainger was not providing sales and pricing information, which it had
agreed to do in order to qualify as a favored procurement source for government
agencies. The Inspector General for the USPS alleged that Grainger was
not treating the postal service as a “most-favored customer”,
which it had agreed to do. In both cases, the Inspectors General said,
the government wound up paying Grainger more than it should have had to.

The False Claims Act seeks to stop fraud against the federal government,
and in order to do that it incentivizes private citizens to come forward
with information that will enable the Government to stem the increasing
tide of taxpayer money being lost to fraud each year. The Government starts
an investigation based on the information from the relator, using the
information to build a suit to recover the money stolen by fraud. Under
the False Claims Act, a relator is entitled to receive a percentage of
the recovery by the Government, if a relator brings the suit. Most people
refer to a relator – like Mr. Holbrook — as a “whistleblower.”
Whistleblowers like Brian Holbrook help the Government recover billions
of dollars every year.