Qui Tam - Illinois' New Form of Ambulance Chasers Targeting the Wine Industry

An Illinois Plaintiff's lawyer has recently been targeting the wine industry in qui tam class action suits alleging that wineries with direct ship sales have been breaking the law by deliberately disregarding the Illinois tax code. The Illinois False Claims Act (IFCA), formerly known as the Whistleblower Reward and Protection Act, derives from the Federal False Claims Act. 740 ILCS 175/1, A provision allows a private citizen to bring a civil suit on behalf of the government in the name of the government to recover damages for the government.

The Plaintiff in this case is the lawyer himself, Stephen Diamond of Chicago. Diamond is suing on his own - claiming he made the purchases and discovered the act - and thus not sharing in any recovery. Diamond has filed over 300 suits against out of state retailers.  Some of those claim that Illinois wine retailers are defrauding the Illinois government because they do not charge tax on the shipping and handling portion of the sales. The Illinois Department of Revenue has addressed the shipping charges, and does not require shipping charges if the shipping charges are separate from the price of goods or if the shipping charges are equal to the cost to the retailer of using the common carrier. Ill. Dept. Rev. Reg. Title 86 Part 130 Section 130.415. The shipping charges are taxable if the shipping charges exceed the cost to the retailer of using the common carrier, or if the shipping charges are included in the price. 

So if the Code is pretty clear, how does the Plaintiff have a leg to stand on? The Illinois Supreme Court held in Kean v. Wal-Mart Stores, Inc., 235 Ill. 2d 351, (Illinois 2009) that the tax on shipping charges was part of the “selling price” according to 35 ILCS 105/3-10 (2006), and 35 ILCS 120/1 (2006).  The Court concluded that because internet purchases must be delivered, that shipping was an inseparable part of the transaction. The court held that “under the Retailers Occupation Tax Act, that the shipping charge is inseparable of the Internet “selling price,” and tax must be assessed on the shipping charge.

While there are defenses, the litigation has been costly to those affected. Because Diamond is filing on his own behalf, he is actually making purchases himself.  Most of the cases have settled on terms favorable to Diamond as opposed to litigating the defenses.  The Illinois Attorney General has not yet gotten involved to make a determination, and the legislature has not yet addressed the disparity in the tax code and the Supreme Court ruling.  Until then, if you're a direct to consumer seller, it is advisable to beware and take precautions to avoid being a target of the suit. 

The Clark Hill Food and Beverage Team is well-equipped to help if you have questions about these actions, or how to avoid these actions. Please contact Jonathan Boulahanis, jboulahanis@clarkhill.com if you have questions.

Chicago Bars Face De Ja Vu This New Year's As Crackdown on Happy Hour Violations Continue

The City of Chicago Department of Business Affairs and Consumer Protection has investigators racketing up to enforce the Illinois Happy Hour Law of 1989 again this New Year's Eve.  Last year, the City cited over 80 establishments for violations of the Happy Hour Law by promoting open bar packages. The Happy Hour Law only allows an open bar during a set period of time for a private event like a wedding or private fundraiser.  It came as a surprise to many of the establishments, as the State of Illinois Liquor Control Commission previously had been the exclusive regulatory authority for all intents and purposes until that point.   The establishments faced fines from the City in the range of $5,000, and included threats to revoke their liquor license for repeat offenders.  It is expected that the City will again cite establishments, and that the City has already started investigating establishments that are advertising such packages on social media. 

If your bar or restaurant has questions about your event, or compliance with the Illinois Happy Hour Law, Clark Hill's Food and Beverage Team is ready to assist.  Contact Jonathan Boulahanis at jboulahanis@clarkhill.com


http://chicago.eater.com/2014/12/17/7410623/new-years-eve-chicago-liquor-crackdown-open-bar

http://www.cityofchicago.org/city/en/depts/bacp/supp_info/top_tips_for_liquorlicensees.html

Quote from San Diego Union Tribune Article Re: "Handmade" Label Suits

Attorney Jonathan Boulahanis, co-leader of the food and beverage team with the law firm Clark Hill PLC, who is not involved in any of these cases, agrees.

Buzzwords like “small batch” and “handmade” are starting to get challenged in consumer fraud cases more frequently, he said.

He said the underlying idea of the lawsuits has some novelty to it, in that consumers are paying attention to those catchwords in deciding what to buy.

Whether the suits have merit is a different question, he said.

The full article can be viewed here:

http://www.utsandiego.com/news/2014/dec/11/lawsuits-handmade-liquor-label-makers-mark-tito/?#article-copy

Chicago Panera Decides Not to Renew Lease in Part Because of Wage Hike

A Panera Bread Co. in the Chicago neighborhood of Beverly has advised that it will not renew its lease in Chicago after the City passed an Ordinance increasing the minimum wage in the City limits. Panera is about 100 feet from nearby suburb Evergreen Park. The Illinois Restaurant Association, and several of its members, made emotional appeals to the City Council that warned of these ramifications and lobbied for a reasonable, statewide increase. It will be interesting to see how many other establishments bordering a suburb will look to relocate in the coming years.

http://www.dnainfo.com/chicago/20141204/beverly/beverly-panera-bread-closing-alderman-says-minimum-wage-hike-played-role

City of Chicago Approves $13 Minimum Wage Phased In By 2019

After much debate, and strong opinions on both sides, the Chicago City Council approved a minimum wage hike to be phased in over the next five years.  The City Council voted 44-5 today approving an increase to $13 per hour minimum wage by July 2019. 

Some key provisions of the new ordinance include:

- Increases in the minimum wage to $10.00 an hour in July 2015.  Minimum wage is currently set at $8.25 per hour.

- Future increases of the minimum wage to $10.50 in July 2016, $11.00 in July 2017, $12.00 in July 2018, and $13.00 in July 2019.

- After July 2019, annual increases will take place based on the Consumer Price Index and capped at a 2.5% increase per year.

- Employers utilizing the tip credit will also see a hike in minimum wage. Starting in July 2015, those employers will be permitted to utilize the tip credit allowed for in the Illinois Minimum Wage Law, but will need to add $0.50 per hour.  In July 2016, tipped employees will be paid according to the tip credit allowed in the Illinois Minimum Wage Law, but will need to add $1.00 per hour.  Starting in July 2017, and every July thereafter, tipped employees will be paid the amount from 2016 plus an increase tied to the Consumer Price Index and capped at 2.5% per year.

- If the federal government or Illinois passes a minimum wage increase above the City’s minimum wage at any time, the federal or state minimum wage will supersede the City’s.

- The City will require an additional poster regarding the City’s Minimum Wage to be posted in a conspicuous place.

- The City has authorized the Department of Business Affairs and Consumer Protection to enforce City violations, and violations range from $500-$1,000 per employee, per day.

- The Ordinance also allows for private suits by the employee to recover damages up to three times the amount of any underpayment, plus attorneys’ fees and costs.

Proponents of the Ordinance touted the increase as a way to lift thousands of families above the poverty line, and increase spending power in communities.   They also lamented the fact that no action had been taken in Springfield or Washington, and action needed to be taken now. The Raise Chicago Coalition called the Ordinance a major victory and celebrated the profound impact the raise will have on minimum wage workers.  The State of Illinois voters also passed a referendum this November calling for a $10 minimum wage by 2015 with a 66% vote.

Opponents have criticized the action as devastating to small businesses.  Governor elect Bruce Rauner warned that the minimum wage could make the city less competitive, and cause it to lose business  nearby communities and Indiana. The Illinois Restaurant Association, Chicagoland Chamber of Commerce, and Illinois Hotel and Lodging Association favored a lesser, statewide increase to allow for a level playing field.  Business owners testified that the increase will be devastating to their businesses. They further testified that small and mid-sized businesses, already feeling the impact of the Affordable Care Act, will be forced to lay off more employees. Additionally, the  increase will lead to higher demand for City of Chicago jobs, which may lead to even higher unemployment.

The new ordinance will have vast legal implications for Illinois businesses.  To discuss the impact the ordinance has on your business, please contact your attorney at Clark Hill PLC.  

The entire Ordinance can be found here:

https://chicago.legistar.com/LegislationDetail.aspx?ID=2077010&GUID=587B8AC5-864F-4C12-BB9D-4A0B58D84BC0&Options=&Search=