Court Opinion

ID: 9406276
Source: CourtListenerOpinion
Date Created: 2023-06-30 16:05:24.246766+00
Date Added: 2024-06-11T17:20:28.775790
License: Public Domain

2023 IL App (1st) 220195
                                             No. 1-22-0195
                                       Order filed June 30, 2023
                                                                                       Sixth Division
 ______________________________________________________________________________

                                                IN THE
                                  APPELLATE COURT OF ILLINOIS
                                           FIRST DISTRICT
 ______________________________________________________________________________
 THE PEOPLE ex rel. STEPHEN B. DIAMOND, P.C.,                    )   Appeal from the Circuit Court
                                                                 )   of Cook County, Illinois.
           Plaintiff-Appellant,                                  )
                                                                 )   No. 2018 L 10136
     v.                                                          )
                                                                 )   The Honorable
 HENRY POOLE & CO., LTD.,                                        )   Daniel J. Kubasiak,
                                                                 )   Judge, Presiding.
           Defendant-Appellee.                                   )

           JUSTICE C.A. WALKER delivered the judgment of the court, with opinion.
           Justices Oden Johnson and Tailor concurred in the judgment and opinion.

                                              OPINION

¶1        Plaintiff Stephen B. Diamond, P.C. (Relator), on behalf of the State of Illinois, brought a

qui tam action under the Illinois False Claims Act (740 ILCS 175/1 et seq. (West 2018)) against

defendant Henry Poole & Co., Ltd. (Poole), alleging Poole knowingly failed to collect and remit

taxes under the Retailers’ Occupation Tax Act (35 ILCS 120/1 et seq. (West 2018)) and the Use

Tax Act (35 ILCS 105/1 et seq. (West 2018)). Poole filed a motion for summary judgment. The

circuit court found an issue of material fact existed on the issue of whether Poole had the requisite

knowledge under section 3 of the Illinois False Claims Act (740 ILCS 175/3 (West 2018)) and
No. 1-22-0195

denied summary judgment. Poole filed a motion to reconsider. The court granted the motion to

reconsider and ordered summary judgment in favor of Poole, finding that Relator failed to show

Poole acted with reckless disregard, one of the three mental states of knowledge, and failed to

show Poole submitted a false record or statement to the State, as required to establish a violation

under section 3 of the Illinois False Claims Act. On appeal, Relator argues that (1) the circuit court

erred by applying the wrong standard for “reckless disregard” under the Illinois False Claims Act

because (a) the court erroneously held Diamond sought to impose a negligence standard, and

(b) the court precluded discovery on nexus between Poole and the State of Illinois but relied on

nexus as a basis for its grant of the motion to reconsider, and (2) the circuit court wrongly relied

on the Illinois False Claims Act’s false record and statement requirement, which the legislature

eliminated in 2010. For the following reasons, we affirm the circuit court’s judgment.

¶2                                       I. BACKGROUND

¶3     On June 5, 2017, Charles Diamond, Relator’s son, met with a representative of Poole, a

family-owned tailoring shop located in the United Kingdom (UK), at a hotel in Chicago. During

the meeting, the Poole representative took Charles’s measurements and discussed shirt options

with Charles. When Poole returned to the UK, Poole confirmed the shirt order and transmitted an

invoice to Charles. Poole processed the payment for the shirts in its UK shop and charged Charles’s

credit card in British Pounds Sterling. At Charles’s request, Poole shipped the shirts to Charles at

a Chicago address.

¶4     On September 18, 2018, Relator filed a complaint against Poole to recover damages and

civil penalties, pursuant to the Illinois False Claims Act (740 ILCS 175/1 et seq. (West 2018)). In

the complaint, Relator alleged that Poole sells special order clothing in Illinois. During its visits to

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Chicago, Poole’s representative meets with customers at a hotel to show them fabric samples, take

their measurements, contract for clothing, and accept credit card payment. All sales are completed

in Illinois. Poole then manufactures the clothing in the UK and ships the clothing to customers.

Poole makes sales through its website, where customers can order clothing using their

measurements obtained in Illinois. Customers can also purchase clothing using measurements

obtained in Illinois by e-mail and telephone. Relator asserted that Poole knowingly failed to collect

and remit taxes in accordance with the Retailers’ Occupation Tax Act (35 ILCS 120/1 et seq. (West

2018)) and the Use Tax Act (35 ILCS 105/1 et seq. (West 2018)) on its merchandise sold in Illinois

and on its Internet and telephone sales to Illinois customers, in violation of the Illinois False Claims

Act.

¶5      Poole filed a combined motion to dismiss pursuant to sections 2-615 and 2-619 of the Code

of Civil Procedure (735 ILCS 5/2-615, 2-619, 2-619.1 (West 2018)). The circuit court dismissed

the allegations regarding the Retailers’ Occupation Tax Act and allowed Relator to proceed on the

allegations regarding the Use Tax Act. Both parties filed motions to reconsider, and the court

denied the motions. In its written order, the court found, “questions of fact still remain as to

whether Poole acted with scienter regarding whether Poole had knowledge of the UTA that cannot

be determined at this stage in the proceeding.” The court entered a case management order that

Poole “shall respond to Relator’s discovery with information reasonably appropriate to address the

court’s order on the parties’ motions to reconsider on scienter.”

¶6      On April 4, 2021, Poole filed a motion for summary judgment. In the motion and

supporting documents, Poole stated it visits Chicago twice annually to conduct clothes fittings and

show sample fabrics and garments to its customers. During each visit, Poole spends two days in

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Chicago and meets with customers at a hotel. Poole has no place of business and does not have

any agents or affiliates working in Illinois. After the visit, Poole returns to London and determines

whether a customer’s fabric is available. If the fabric is available, Poole sends a proposal to the

customer with the purchase price in British Pounds Sterling. Once a proposal is accepted, Poole

processes the customer’s credit card in the UK shop and does all the work, including construction,

adjustments, and altercations, in the UK. The customer can retrieve the order by picking it up at

the UK shop or having it shipped to the customer. Poole never sells or delivers garments to

customers during its Chicago visits. Poole alleged that it was entitle to summary judgment because

Relator (1) “cannot establish Poole possessed the fraudulent intent necessary for liability under the

Illinois False Claims Act” and (2) “has not and cannot establish that Poole made any

misrepresentations to or filed any false or fraudulent records with the Illinois Department of

Revenue in order to establish False Claims Act liability in connection with its sole remaining claim

predicated on a violation of the UTA.”

¶7     Relator filed a response to the motion for summary judgment contending Poole’s argument

of no fraudulent intent overlooks this court’s interpretation of reckless disregard in People ex rel.

Schad, Diamond & Shedden, P.C. v. My Pillow, Inc., 2017 IL App (1st) 152668, ¶ 42. Relator

claimed this court in My Pillow defined reckless disregard as the “failure to make such inquiry as

should be reasonable and prudent to conduct under the circumstances, a limited duty to inquire as

opposed to a burdensome obligation.” Relator asserted, based on this definition, that Poole’s

failure to investigate its tax obligation under the Use Tax Act showed Poole acted with reckless

disregard in violation of the Illinois False Claims Act. Relator also argued that invoices showing

Poole failed to collect use taxes evince a false statement under the Illinois False Claims Act.

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¶8      Poole filed a reply arguing Diamond misconstrued the holding in My Pillow and the failure

to investigate, alone, is not indicative of reckless disregard. Poole further claimed that, unlike My

Pillow, it had no knowledge of the use tax and did not ignore any “obvious warning signs” that

would trigger its duty to investigate. Poole also alleged that it did not file a false statement in

violation of the Illinois False Claims Act because (1) the information contained in the invoices

were not false and (2) the invoices were not submitted to the State of Illinois.

¶9      The court denied the motion for summary judgment. In its written order, the court held that

a genuine issue of material fact still existed as to Poole’s reckless disregard to abide by its Illinois

tax obligations, stating:

        “The court finds Relator’s argument persuasive. This situation appears to be an “ostrich

        type situation” where Poole failed to make an inquiry that would alert him as to the use

        tax. As Relator argues, Poole, like My Pillow, did not review Illinois statutes or regulations,

        did not review case law, did not review the IDOR website or IDOR publications, and never

        sought advice from IDOR. My Pillow, 2017 IL App (1st) 152668, ¶ 53. Like My Pillow,

        Poole does not ‘demonstrate that it had a good-faith dispute over its use-tax obligation one

        way or another.’ Id. ¶ 62. As to this issue, Relator argues that Poole’s conduct went beyond

        ‘innocent mistakes and negligence,’ and as such, satisfies the standard for reckless

        disregard under the Act.”

¶ 10    Poole filed a motion to reconsider. In its written order, the circuit court stated it

“erroneously applied a negligence standard to Relator’s claim.” The court explained that, pursuant

to People ex rel. Beeler, Schad & Diamond, P.C. v. Relax the Back Corp., 2016 IL App (1st)

151580, and State ex rel. Schad, Diamond & Shedden, P.C. v. National Business Furniture, LLC,

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2016 IL App (1st) 150526, “a defendant must choose to disregard some known indicator that an

obligation is owed—‘obvious warning signs,’ ‘red flags,’ or similar triggers.” The court found

“Relator did not identify any ‘obvious warning sign’ or red flag which Poole choose to ignore, and

Relator has identified no affirmative action that Poole took to avoid paying Illinois use tax.” The

court also found “Relator has presented no other fact, record or documents to establish that Poole

knowingly concealed its purported use tax obligation to the State of Illinois.” The court granted

the motion to reconsider and granted summary judgment in favor of Poole. This appeal follows.

¶ 11                                    II. JURISDICTION

¶ 12   On April 4, 2021, Poole filed a motion for summary judgment. The circuit court denied the

motion, and Poole filed a motion to reconsider. On January 12, 2022, the Court granted the motion

to reconsider and granted summary judgment in favor of Poole. Relator filed a notice of appeal on

February 10, 2022. We have jurisdiction over this appeal pursuant to article VI, section 6, of the

Illinois Constitution (Ill. Const. 1970, art. VI, § 6) and Illinois Supreme Court Rule 303 (eff. July

1, 2017).

¶ 13                                      III. ANALYSIS

¶ 14   On appeal, Relator raises two arguments: (1) the circuit court erred by applying the wrong

standard for “reckless disregard” under the Illinois False Claims Act because (a) the court

erroneously held Diamond sought to impose a negligence standard, and (b) the court precluded

discovery on nexus between Poole and the State of Illinois but relied on nexus as a basis for its

grant of the motion to reconsider and (2) the circuit court wrongly relied on the Illinois False

Claims Act’s false record and statement requirement, which the legislature eliminated in 2010.

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¶ 15    The purpose of summary judgment is to determine whether a genuine issue of material fact

exists. Wolff v. Bethany North Suburban Group, 2021 IL App (1st) 191858, ¶ 29. A motion for

summary judgment should be granted only if the pleadings, depositions, and affidavits on file

demonstrate that no genuine issues of material fact exist and the movant is entitled to judgment as

a matter of law. Id. In determining whether a genuine issue as to any material fact exists, a

reviewing court must view the evidence in light most favorable to the nonmoving party. Id. A

genuine issue of material fact, precluding summary judgment, exists where the material facts are

disputed or, if the material facts are undisputed, reasonable persons might draw different inferences

from the undisputed facts. Id. We review the circuit court’s decision to grant summary judgment

de novo. Id. ¶ 30.

¶ 16                 A. “Reckless Disregard” Under the Illinois False Claims Act

¶ 17    The Illinois False Claims Act allows the Attorney General or a private individual to bring

a civil action on behalf of the State for false claims. See 740 ILCS 175/1 et seq. (West 2018); My

Pillow, 2017 IL App (1st) 152668, ¶ 6. A party that perpetuates fraud against the State is liable for

civil penalties and treble damages. 740 ILCS 175/3(a)(1) (West 2018). Claims may be brought on

the State’s behalf by the Attorney General or by a private person—referred to as a relator—in a

qui tam action. Id. § 4(a)-(c). In a qui tam action, the State may choose to intervene or, as in this

case, may instead let the relator proceed with the litigation. Id. § 4(b)(4). The relator is considered

a party to the action and is entitled to a percentage of the proceeds or settlement if the suit is

successful. Id. § 4(c)(1), (d).

¶ 18    Relevant here, the False Claims Act mandates

        “any person who:

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                                                        ***

                       (G) 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,

       is liable to the State for a civil penalty.” Id. § 3(a)(1)(G).

The Act defines “knowing” and “knowingly” as a person, with respect to information (1) having

actual knowledge of the information, (2) acting in deliberate ignorance of the truth or falsity of the

information, or (3) acting in reckless disregard of the truth or falsity of the information. Id.

§ 3(b)(1)(A). “[N]o proof of specific intent to defraud” is required. Id. § 3(b)(1)(B).

¶ 19                   1. Proper Application of the Reckless Disregard Standard

¶ 20   To begin, Relator claims that the circuit court erred by applying the wrong standard for

reckless disregard when assessing whether Poole violated the Illinois False Claims Act. Relator

argues that this court in My Pillow defined “reckless disregard” as the “failure to make such inquiry

as would be reasonable and prudent under the circumstances, a limited duty to inquire as opposed

to a burdensome obligation.” Relator alleges Poole never performed its limited duty to inquire

about its tax obligation.

¶ 21   Poole argues that Relator’s misinterpretation of My Pillow imposes an improper negligence

standard. Poole claims that this court, in National Business Furniture and Relax the Back,

established that reckless disregard requires more than ordinary negligence and involves a

defendant ignoring red flags and obvious warning signs that would trigger a limited duty to

investigate. Poole asserts that Relator failed to provide any evidence that Poole ignored any red

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flag or warning sign, and as such, its failure to investigate a potential tax obligation, alone, was

not sufficient to establish a claim under the Illinois False Claims Act.

¶ 22   The Illinois False Claims Act closely mirrors the federal False Claims Act (31 U.S.C.

§§3729-3733 (2018)). My Pillow, 2017 IL App (1st) 152668, ¶ 6. Thus, in construing the Illinois

statute, Illinois courts have relied on federal courts’ interpretation of the federal False Claims Act

for guidance. Id. ¶ 7. A seminal Seventh Circuit case on this issue is United States v. King-Vassel,

728 F.3d 707 (7th Cir. 2013). There, relator filed a complaint against the defendant, alleging that

the defendant received Medicaid funds from the government for medications not approved by the

federal Food and Drug Administration in violation of the federal False Claims Act. Id. at 709-10.

The defendant moved for summary judgment, arguing, inter alia, that it did not have the requisite

knowledge under the federal False Claims Act of the alleged Medicaid fraud. Id. at 710. The

district court granted summary judgment in favor of the defendant. Id. The Seventh Circuit

determined that the district court improperly held that the relator could not establish that the

defendant recklessly disregarded its submission of a fraudulent claim. Id. at 713. The court

explained relator

       “need only show that [the defendant] had reason to know of facts that would lead a

       reasonable person to realize that she was causing the submission of a false claim (per

       Black’s) or that [the defendant] failed to make a reasonable and prudent inquiry into that

       possibility (per the Senate report).” (Emphasis added.) Id.

¶ 23   In forming its decision, the King-Vassel court relied on Senate Report No. 99-345 (1986),

which addresses Congress’s adoption of “reckless disregard” to the federal False Claims Act in

1986. See King-Vassel, 728 F.3d at 712-13. The Senate Report explains:

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       “[T]he constructive knowledge definition attempts to reach what has become known as the

       ‘ostrich’ type situation where an individual has ‘buried his head in the sand’ and failed to

       make simple inquiries which would alert him that false claims are being submitted. While

       the Committee intends that at least some inquiry be made, the inquiry need only be

       ‘reasonable and prudent under the circumstances,’ which clearly recognizes a limited duty

       to inquire as opposed to a burdensome obligation. The phrase strikes a balance which was

       accurately described by the Department of Justice as ‘designed to assure the skeptical both

       that mere negligence could not be punished by an overzealous agency and that artful

       defense counsel could not urge that the statute actually require some form of intent as an

       essential ingredient of proof.’ ” S. Rep. No. 99-345, at 21 (1986), as reprinted in 1986

       U.S.C.C.A.N. 5266, 5286.

The court also relied on Black’s Law Dictionary’s definition that “a person acts with reckless

disregard ‘when the actor knows or has reason to know of facts that would lead a reasonable person

to realize’ that harm is the likely result of the relevant act.” King-Vassel, 728 F.3d at 713 (quoting

Black’s Law Dictionary 540-41 (9th ed. 2009)).

¶ 24   The Seventh Circuit has applied the two criteria for establishing reckless disregard set forth

in King-Vassel in subsequent cases. See United States ex rel. Berkowitz v. Automation Aids, Inc.,

896 F.3d 834, 842 (7th Cir. 2018) (finding relator only had to allege that the defendants had reason

to know of facts that would lead reasonable persons to realize that they were causing the

submission of a false claim or the defendants failed to make a reasonable and prudent inquiry into

that possibility); Thulin v. Shopko Stores Operating Co., 771 F.3d 994, 1000-01 (7th Cir. 2014)

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(analyzing reckless disregard as grossly negligent or with reason to know of facts that would lead

a reasonable person to realize that it was submitting false claims).

¶ 25   Based on these Seventh Circuit cases, reckless disregard under the federal False Claims

Act occurs in two instances. First, a defendant acts with reckless disregard when he fails to make

an inquiry as would be reasonable and prudent under the circumstances. Some inquiry must be

made; however, this is a “limited duty to inquire as opposed to a burdensome obligation.” Second,

a person acts with reckless disregard when the person has reason to know of facts that would lead

a reasonable person to realize that they were causing the submission of a false claim.

¶ 26   Mimicking federal case law, Illinois courts have found that reckless disregard requires

more than “ ‘[i]nnocent mistakes or negligence.’ ” National Business Furniture, 2016 IL App (1st)

150526, ¶ 33 (quoting King-Vassel, 728 F.3d at 712). It refers to (1) the failure “to make such

inquiry as would be reasonable and prudent to conduct under the circumstances,” (2) “a limited

duty to inquiry as opposed to a burdensome obligation,” and (3) the condition that “[o]nly those

who act in gross negligence of this duty will be found liable.” (Internal quotation marks omitted.)

Id. (quoting United States ex rel. Williams v. Renal Care Group, Inc., 696 F.3d 518, 530 (6th Cir.

2012), quoting S. Rep. 99-345, at 20-21 (1986), as reprinted in 1986 U.S.C.C.A.N. 5266, 5285-

86). Thus, reckless disregard has been described as “an extreme version of ordinary negligence

[citation], an aggravated form of gross negligence [citation], gross negligence-plus [citation], and

a state of mind lying on a continuum between gross negligence and intentional harm.” (Internal

quotation marks omitted.) Id. Reckless disregard is “ ‘the ostrich type situation where an individual

has buried his head in the sand and failed to make simple inquires which would alert him that false

claims are being submitted.’ ” Id. (quoting United States ex rel. Ervin & Associates, Inc. v.

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Hamilton Securities Group, Inc., 370 F. Supp. 2d 18, 41 (D.D.C. 2005)). “Thus, one acting in

reckless disregard ignores ‘obvious warning signs’ and ‘refus[es] to learn of information which

[it], in the exercise of prudent judgment, should have discovered.’ ” Relax the Back, 2016 IL App

(1st) 151580, ¶ 27 (quoting Hamilton Securities Group, Inc., 370 F. Supp. 2d at 42).

¶ 27   This court reviewed whether a defendant acted with reckless disregard under the Illinois

False Claims Act. In National Business Furniture, the defendant was a Wisconsin company that

sold furniture by phone, catalog, and Internet and shipped its products to customers. 2016 IL App

(1st) 150526, ¶ 7. The relator alleged that the defendant knowingly failed to collect and remit use

tax on its shipping charges, in violation of the Illinois False Claims Act. Id. ¶ 11. At trial, the

evidence revealed that the defendant interpreted Illinois’s administrative rule as not requiring any

tax imposition on its shipping charges. Id. ¶¶ 13-14. The defendant subscribed to a tax publication

and used software that tracked changes in the sales tax rules by state. Id. ¶¶ 15-16. Also, the Illinois

Department of Revenue (IDOR) conducted a tax audit, and defendant showed its books to IDOR,

including all the sales transactions where the defendant was not collecting taxes on shipping. Id.

¶¶ 18, 21. The circuit court held the defendant did not act with reckless disregard when it relied on

the tax auditor’s conclusion that defendant followed Illinois law and its interpretation of the

administrative rule. Id. ¶ 23. On appeal, this court held that the circuit court’s decision was not

against the manifest weight of the evidence. This court noted that, although the defendant failed to

periodically review the company’s policies despite no tracked changes in state tax laws, it did not

act with reckless disregard because “more than an error, mistake, or ordinary negligence is

required, however, to demonstrate reckless disregard.” Id. ¶ 39.

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¶ 28    In Relax the Back, the defendant was a California business that sold back and neck care

products by Internet and catalog sales to customers in Illinois. Relax the Back, 2016 IL App (1st)

151580, ¶ 6. The relator alleged the defendant knowingly failed to collect and remit use tax for

catalog and Internet sales for its products in violation of the Illinois False Claims Act. Id. ¶ 7. The

trial evidence showed that the defendant consulted with legal and tax professionals and was audited

annually with no indication by the auditors that it had a tax obligation. Id. ¶ 21. Regarding the

defendant’s catalog sales, the circuit court found that the defendant recklessly disregarded its tax

obligation because “it did not investigate whether its tax liability changed after [the defendant]

required franchises to send catalogs to customers each year.” Id. ¶ 25. This court reversed the

circuit court’s decision determining that the defendant’s failure did not constitute reckless

disregard. Id. ¶ 29. This court explained, “Although [the defendant’s chief financial officer] did

not actively seek the opinion of the IDOR or reevaluate [the defendant’s] use tax obligation in light

of its catalog requirement, this failure to ensure that [the defendant] had no duty to collect Illinois

use tax is not evidence of reckless disregard,” where reckless disregard “does not apply to acts

resulting from innocent mistake or negligence.” Id. ¶ 30. This court reasoned that, even after the

defendant implemented the catalog requirement, it was audited annually and there was no

indication that it should be collecting a use tax. Id. ¶ 29.

¶ 29    The court in My Pillow also reviewed whether a defendant knowingly failed to collect and

remit use tax for Internet and telephone sales in violation of the Illinois False Claims Act. 2017 IL

App (1st) 152668, ¶ 35. The circuit court found defendant did not conduct a reasonable and prudent

inquiry into its tax obligations, such as to review statutes and regulations, the IDOR website,

publications, case law, or information from IDOR. Id. ¶ 53. The circuit court found no inquiry was

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done “ ‘even though My Pillow was participating at craft shows in Illinois and was selling products

over the Internet and through phone sales to Illinois customers.’ ” Id. ¶ 54. The defendant also

“paid its marketing company approximately $200,000 to nationally advertise its products.” Id. The

court also noted “ ‘[e]ven though the ST-1s [(IDOR form)] clearly informed My Pillow that its

Internet and telephone sales were taxable, My Pillow did no investigation and did not consult with

any professional whether Internet and telephone sales were taxable.’ ” Id. ¶ 55. This court affirmed

the circuit court’s judgment, finding the decision was not against the manifest weight of the

evidence. Id. ¶ 58.

¶ 30   Thus, in National Business Furniture and Relax the Back, this court held that the

defendants did not act with reckless disregard, where they conducted a reasonable and prudent

inquiry into their tax obligations under the particular circumstances. See National Business

Furniture, 2016 IL App (1st) 150526; Relax the Back, 2016 IL App (1st) 151580. By contrast, in

My Pillow, this court held that the defendant acted with reckless disregard where it conducted no

inquiry into its tax obligation, despite signs of a potential tax obligation. See My Pillow, 2017 IL

App (1st) 152668.

¶ 31   Unlike the defendants in National Business Furniture and Relax the Back, Poole concedes

that it “conducted no investigation” into a potential use tax obligation. However, Poole claims that

there is no evidence that IDOR “would even consider a foreign retailer’s transient visits—for

Poole, roughly 14 hours per year—enough to trigger a use tax collection obligation.” According

to federal and Illinois case law, the Illinois False Claims Act requires a limited duty to conduct an

inquiry as would be reasonable and prudent under the circumstances. King-Vassel, 728 F.3d at

712-13; National Business Furniture, 2016 IL App (1st) 150526, ¶ 33; My Pillow, 2017 IL App

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(1st) 152668, ¶ 42. While evidence of Poole’s potential tax obligation may not be as extensive as

the evidence in My Pillow, or even nonexistent, we find Poole’s failure to conduct any type of

inquiry still falls under “the ostrich type situation where an individual has buried his head in the

sand and failed to make simple inquires which would alert him that false claims are being

submitted.” (Internal quotation marks omitted.) National Business Furniture, 2016 IL App (1st)

150526, ¶ 33.

¶ 32   We note the United State Supreme Court’s recent decision in United States ex rel. Schutte

v. SuperValu Inc., 598 U.S. ___, 143 S. Ct. 1391 (2023). There, the Supreme Court reviewed

whether a petitioner may establish that a respondent had the requisite knowledge under the federal

False Claims Act by proving a respondent had a subjective belief that their claims were not

accurate. Id. at ___, 143 S. Ct. at 1395-96. The Court answered in the affirmative, finding that

knowledge is established when, inter alia, the respondent has actual knowledge of a false claim,

awareness of a substantial risk that information is false, or awareness of such a substantial and

unjustifiable risk but submitted the claims anyway. Id. at ___, 143 S. Ct. at 1400-01. The Court

acknowledged that courts have applied an objective form of reckless disregard, where one acts “in

the face of an unjustifiably high risk of illegality that was so obvious that it should have been

known, even if the defendant was not actually conscious of that risk.” Id. at ___, 143 S. Ct. at 1401

n.5. However, the Court declined to address whether the objective form of reckless disregard

applies to the federal False Claims Act because proof of a respondent’s subjective awareness

satisfied the knowledge requirement. Id. at ___, 143 S. Ct. at 1404. Because the Supreme Court

found that subjective awareness was sufficient, not necessary, to prove knowledge under the

federal False Claims Act, we find its decision in Schutte does not affect our analysis.

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¶ 33                             2. Evidence of Significant Nexus

¶ 34   Next, Relator argues that the circuit court erroneously held there was no constitutionally

significant nexus between Poole and the State of Illinois—and thus no obligation to pay the use

tax—because the court (1) previously held that Diamond sufficiently pled Poole had substantial

nexus with Illinois when it denied Poole’s combined motion to dismiss and (2) discovery was

limited to the issue of whether Poole acted with scienter, i.e., the requisite knowledge under the

False Claims Act.

¶ 35   We find Diamond’s argument unpersuasive for two reasons. First, the circuit court, in

ruling on the motion for summary judgment, was not bound by its findings on the motion to

dismiss. This court acknowledged a “clear distinction” between a motion to dismiss and a motion

for summary judgment:

                “A motion to dismiss under section 2-615 attacks only the legal sufficiency of the

       complaint. *** A significant difference between section 2-615 motions, as compared to

       *** motions for summary judgment is that a section 2-615 motion is based on the pleadings

       rather than on the underlying facts. Accordingly, affidavits [citation], the products of

       discovery [citation], documentary evidence not incorporated into the pleadings as exhibits

       [citation], testimonial evidence [citation], or other evidentiary materials [citation] may not

       be considered by the court in ruling on a section 2-615 motion. [Citation.] A basic premise

       of section 2-615 motion is that it accepts, for purposes of the motion, that all well-pled

       facts in the complaint are true.” Barber-Colman Co. v. A&K Midwest Insulation Co., 236

       Ill. App. 3d 1065, 1068-69 (1992).

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See Doe v. University of Chicago Medical Center, 2015 IL App (1st) 133735, ¶ 43 (applying a

similar rationale to section 2-619 motions to dismiss).

¶ 36   Hence, a court may find the pleadings sufficient to surpass a motion to dismiss but, after

review of affidavits and supporting documentation, may later find the facts supporting the cause

of action insufficient to surpass summary judgment. Furthermore, the parties ask us to review the

court’s grant of the motion for summary judgment, which we review de novo. Under de novo

review, the appellate court performs the same analysis the circuit court would perform with no

deference shown to the circuit court’s judgment. Beauchamp v. Dart, 2022 IL App (1st) 210091,

¶ 8. Thus, the circuit court’s findings have no bearing on our decision.

¶ 37   Second, nexus is a factor in the issue of scienter. Relax the Back and My Pillow discussed

the defendants’ nexus to Illinois in reviewing whether the defendants acted with reckless disregard.

Relax the Back, 2016 IL App (1st) 151580, ¶¶ 22-24; My Pillow, 2017 IL App (1st) 152668, ¶¶ 36-

40. Specifically, in My Pillow, this court considered nexus as a basis for finding the defendant

recklessly disregarded its tax obligation. My Pillow, 2017 IL App (1st) 152668, ¶¶ 36-41.

Therefore, Diamond had an opportunity to seek and submit discovery on Poole’s nexus to Illinois

to support a finding of scienter. As such, we reject Diamond’s claim.

¶ 38    B. False Record and Statement Requirement Under the Illinois Fraud Claims Act

¶ 39   Lastly, Diamond claims the court wrongly relied on the false record or statement

requirement in granting the motion to reconsider. Diamond argues the legislature eliminated the

requirement when it amended section 3(a)(1)(G) of the Illinois False Claims Act by adding an

alternative liability for any person who “knowingly conceals or knowingly and improperly avoids

or deceases an obligation to pay or transmit money or property to the State.” Poole argues that the

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amendment did not eliminate the false record or statement requirement. Rather, the amendment

broadens the language of section 3(a)(1)(G) by including knowing omissions to the false record

and statement requirement.

¶ 40    This issue presents a question of statutory interpretation. In construing a statute, the goal

of the court is to ascertain and effectuate the intent of the legislature in enacting the provision.

Cassidy v. China Vitamins, LLC, 2018 IL 122873, ¶ 17. The statutory language, given its plain and

ordinary meaning, is generally the most reliable indicator of that legislative intent. Id. Where the

meaning of the statute is unclear from a reading of its language, courts may look beyond the

statutory language and consider the purpose of the law, the evils it was intended to remedy, and

the legislative history of the statute. Id. at 175-76. The issue of statutory construction is a question

of law, and our review is de novo. Id. at 176.

¶ 41    Prior to the 2010 amendment, section 3 held a person liable to the State for a civil penalty

if he “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal,

avoid or decrease an obligation to pay or transmit money or property to the State.” 740 ILCS

175/3(a)(7) (West 2008). Effective July 27, 2010, the legislature amended section 3(a)(1)(G) to

provide a person is liable to the State for a civil penalty if he

        “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 2018).

¶ 42    Looking at the plain language of section 3(a)(1)(G), the statute provides two theories of

liability: (1) knowingly making, using, or causing to be made or used a false record or statement

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No. 1-22-0195

material to an obligation to pay or transmit money or property to the State or (2) knowingly

concealing or knowingly and improperly avoiding or decreasing an obligation to pay or transmit

money or property to the State. Id. The legislature’s removal of “statement to conceal, avoid or

decrease” from the subsequent amendment evinces the legislature’s intent to create an alternative

theory separate from the false record or statement requirement. See 740 ILCS 175/3(a)(7) (West

2008); In re Detention of Lieberman, 201 Ill. 2d 300, 320-21 (2002) (an amendment to a statute

may be an appropriate source for discerning legislative intent).

¶ 43   In construing the knowingly avoid, conceal, or decrease provision, Relator argues that the

act of avoiding or concealing an obligation to the State under section 3(a)(1)(G) equates to the act

of failing to meet an obligation to the State. Because section 3 does not define “avoid” and

“conceal,” we rely on the dictionary for guidance. People v. Chapman, 2012 IL 111896, ¶ 24

(when a statute contains a term that is not specifically defined, it is entirely appropriate to look to

the dictionary to ascertain the plain and ordinary meaning of the term). Relevant to the provision’s

context, Merriam-Webster Online Dictionary defines “fail” as “to miss performing an expected

service or function for” or “to leave undone.” Merriam-Webster Online Dictionary,

https://www.merriam-webster.com/dictionary/fail          (last     visited    June      22,     2023)

[https://perma.cc/PB5L-YQT9]. “Avoid” is defined as “to keep away from,” “to prevent the

occurrence or effectiveness of,” and “to refrain from.” Merriam-Webster Online Dictionary,

https://www.merriam-webster.com/dictionary/avoid           (last    visited    June      22,    2023)

[https://perma.cc/SS6W-J4L2]. The online dictionary provides that the word “avoid” “stresses

forethought and caution in keeping clear of danger or difficulty.” Id. “Conceal” is defined as “to

prevent disclosure or recognition of.” Merriam-Webster Online Dictionary, https://www.merriam-

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webster.com/dictionary/conceal (last visited June 22, 2023) [https://perma.cc/4W3V-PRJ9]. The

online dictionary provides the word “conceal” “usually does imply intent and often specifically

implies a refusal to divulge.” Id.

¶ 44   These definitions reveal that the words “avoid” and “conceal” denote an intent to commit

a violation, whereas the word “fail” lacks any connotation of intent. Therefore, in choosing to use

the words “avoid” and “conceal,” the legislature intended to cover only those persons who

intentionally choose not to meet their tax obligation. Relator’s broad interpretation would be

contrary to the language of section 3(a)(1)(G). See Hubble v. Bi-State Development Agency of the

Illinois-Missouri Metropolitan District, 238 Ill. 2d 262, 283 (2010) (a court construing the

language of a statute will assume that the legislature did not intend to produce an absurd or unjust

result and will avoid a construction leading to an absurd result, if possible).

¶ 45   The legislative history of the federal False Claims Act provides further guidance. See My

Pillow, 2017 IL App (1st) 152668, ¶ 6 (the Illinois False Claims Act closely mirrors the federal

False Claims Act originally enacted in 1863). Notably, Congress made the same amendment to

section 3729(a)(7) of the federal False Claims Act, the provision equivalent to section 3(a)(1)(G),

in 2009. Compare Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, § 4(a), 123

Stat. 1621 (2009) (codified as amended in sections of Titles 18 and 31 of the United States Code),

with Pub. Act 96-1304, § 10 (eff. July 27, 2010) (amending 740 ILCS 175/3). The Congressional

record on June 3, 2009, states:

                “Currently, Section 3729(a)(7) of the False Claims Act imposes liability for

       ‘reverse’ False Claims Act violations when a person makes or uses false records or

       statements to conceal, avoid, or decrease an obligation to pay or transmit money or property

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No. 1-22-0195

      to the Government. This liability provision is analogous to the liability established under

      current Section 3729(a)(2) for making false records or statements to get false or fraudulent

      claims paid or approved. The Act, however, currently contains no provision that expressly

      imposes liability on a person who wrongfully avoids a duty to return funds or property to

      the United States by remaining silent. The amendments address this issue by expressly

      imposing liability on anyone who ‘knowingly conceals or knowingly and improperly

      avoids or decreases an obligation to pay or transmit money or property to the United

      States.’ This language is intended to make clear that a person who retains an overpayment,

      while avoiding a duty to disclose or return the overpayment that arises from a statute,

      regulation or contract, violates the False Claims Act. Indeed, to address any potential

      confusion among the courts as to what is intended to be encompassed within the term

      ‘obligation’ as used in Section 3729(a)(7), the amendments define that term in new Section

      3729(b)(3) as encompassing legal duties that arise from the retention of any overpayment.

                A legal obligation to disclose or refund an overpayment can arise in various ways.

      Examples include but are not limited to: (i) Government contracts that incorporate a rule

      of the Federal Acquisition Regulations that requires disclosure of an overpayment, and

      (ii) criminal statutes that penalize a party’s non-disclosure of an overpayment in order to

      fraudulently secure the overpayment. Importantly, the amendments do not impose liability

      in situations in which the law clearly permits the recipient of the overpayment to retain the

      overpayment without disclosure pending a reconciliation process.” (Emphasis added.) 155

      Cong. Rec. E1295-03 (daily ed. June 3, 2009) (statement of Rep. Berman).

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No. 1-22-0195

¶ 46     Like Congress, the Illinois legislature added a definition for “obligation” as “an established

duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or

licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation,

or from the retention of any overpayment.” (Emphasis added.) Pub. Act 96-1304, § 10 (eff. July

27, 2010) (amending 740 ILCS 175/3). Thus, the intent of the provision at issue is to hold liable

“a person who retains an overpayment, while avoiding a duty to disclose or return the overpayment

that arises from a statute, regulation, or contract.” 155 Cong. Rec. E1295-03 (daily ed. June 3,

2009).

¶ 47     Here, the record fails to show that Poole knowingly concealed, avoided, or decreased an

overpayment it received from the State of Illinois. The record also fails to show that Poole made

or used a false record or statement material to an obligation to pay or transmit money or property

to the State. As such, we find the circuit court’s grant of summary judgment in favor of Poole was

proper, where, as a matter of law, Relator failed to show Poole was liable under section 3 of the

False Claims Act (740 ILCS 175/3 (West 2018)).

¶ 48                                     VI. CONCLUSION

¶ 49     We find, as a matter of law, that Poole did not violate the Illinois False Claims Act in

failing to collect and remit Illinois use tax on its merchandise sold in Illinois and on its Internet

and telephone sales to Illinois customers. Therefore, we affirm the circuit court’s grant of summary

judgment in favor of Poole.

¶ 50     Affirmed.

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No. 1-22-0195

 People ex rel. Stephen B. Diamond, P.C. v. Henry Poole & Co., 2023 IL App (1st) 220195

Decision Under Review:      Appeal from the Circuit Court of Cook County, No. 2018-L-
                            10136; the Hon. Daniel J. Kubasiak, Judge, presiding.

Attorneys                   Matthew Burns and Tony Kim, of Kim & Burns LLP, and Stephen
for                         B. Diamond, of Stephen B. Diamond, P.C., both of Chicago, for
Appellant:                  appellant.

Attorneys                   John J. Scharkey, Michael H. King, and William C. O’Hara, of
for                         Sweeney, Scharkey & Blanchard, LLC, of Chicago, for appellee.
Appellee:

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