OtterBox Settles Federal Whistleblower Lawsuit

Author: Marta Moakley, XpertHR Legal Editor

April 25, 2014

Otter Products LLC, maker of the popular OtterBox smartphone and tablet cases, has paid $4.3 million to settle a False Claims Act whistleblower lawsuit, the US Attorney's Office for the District of Colorado and the Department of Homeland Security, US Customs and Border Protection announced Monday. The lawsuit was initially filed by a former employee, who will receive $830,000 under the settlement's provisions.

Recent DOJ False Claims Act lawsuits have targeted the healthcare industry, focusing on Medicare fraud and violations of the Anti-Kickback Statute. However, this case involved allegations of underpayment of customs duties by Otter. In 2011, a former supply chain director filed a lawsuit in the US District Court in Denver under the qui tam provisions of the False Claims Act. The qui tam provisions of the law allow private citizens (often, current or former employees with particular knowledge of business practices) to file a complaint in federal court on behalf of the government for false claims, or fraudulent transactions, made under public contracts or in federal forms. The US then has the option to join the case, as it did in the Otter case.

Like many US employers, Otter manufactures many of its products in China and then imports the goods for distribution and retail sale. The lawsuit alleged that Otter underpaid its customs duties during a time of rapid growth. Specifically, the company was accused of knowingly omitting important information, or providing false information, regarding the value of its cases to US Customs and Border Protection, thereby resulting in decreased customs duties.

Otter denies knowingly violating US customs laws and did not admit to any liability as part of the settlement.

Any employer that imports goods for distribution and sale should take note of this settlement and ensure that customs duties are properly paid. In a statement, US Attorney John Walsh said "Customs duties are a significant source of revenue for the United States, and this settlement demonstrates that the Department of Justice will zealously enforce their lawful collection."