Cell Phone Accessory Maker OtterBox Faces False Claims Act Liability

The False Claims Act covers a wide array of fraudulent activities. In a case against cell phone accessory maker OtterBox, the federal government alleged its parent company, Otter Products, LLC, shortchanged the government’s Internal Revenue Service with regard to taxes due on imports from China.

Under the False Claims Act, Otter Products is required to verify the value of its products with customs agents and pay a duty fee congruent with market value. According to allegations, OtterBox attempted to circumvent this requirement by undervaluing its smartphone cases imported from China, resulting in a False Claims Act violation and an exposure to liability.

Details of Case Against Otter Products

Otter Products manufactures the wildly popular OtterBox, which fits snugly around smartphones and tablets in order to protect the products from destruction and damage if dropped. The average OtterBox for an iPhone, for instance, retails between $50 and $60 and is far more costly than a typical iPhone or smartphone cover.

In 2011, a former customs compliance officer of Otter Products filed a whistleblower complaint against the company in federal court after realizing the company was routinely undervaluing its OtterBoxes and underpaying federal fees and taxes. More specifically, Otter Products was alleged to have omitted the value of the engineering and tooling of the products, opting instead to report only the value of the materials from which the smartphone case was constructed.

According to recent court filings, Otter Products is seeking additional time to try to settle the whistleblower lawsuit and avoid any further publicity on the matter. It first attempted, however, to have the case dismissed under the theory that the whistleblower did not have “original” information of fraud since Otter Products had already self-reported to the government that it underpaid import taxes. Under False Claims Act rules, the government must approve any whistleblower settlement between a corporation and a private party, even if the government has not intervened in the matter.

The False Claims Act and Customs Tax

The False Claims Act is used quite frequently in the context of customs taxation and unpaid duties. For instance, in 2012, the U.S. government settled with CMAI industries for $6.3 million after allegations surfaced that it underreported the value of its auto parts arriving from China. Another case involving imported chemicals resulted in an assessment of $45 million in damages and fines after an international corporation failed to pay anti-dumping taxes. Although not as widely-publicized, the False Claims Act has proven historically useful in the fight against fraud at the border.

Contact a Whistleblower Attorney Today

Perhaps you do not have original information relating to underpayment of customs taxes – few people do! However, the False Claims Act is useful in the fight against fraud in other formats, notably healthcare and defense contracting.

If you are aware of possible fraudulent activity at your place of employment or medical care provider, we encourage you to contact a whistleblower attorney right away. Cases settled under the False Claims Act can result in a 30 percent reward for the plaintiff, and usually help protect all taxpayers from misuse of government money.

There are three easy ways to contact our firm for a free, confidential evaluation with one of our whistleblower attorneys:

1. Fill out the contact form on this page.
2. Email [email protected]
3. Call (888) 647-9292

Your submission will be reviewed by a Berger Montague qui tam attorney and remain confidential.