People ex rel. Beeler, Schad and Diamond, P.C., 65 N.E.3d 503

Relator Beeler, Schad & Diamond, P.C. sued Relax the Back Corp. (RTB) under the Illinois False Claims Act, alleging RTB failed to collect and remit Illinois use tax on internet and catalog sales.
RTB is a California company with no Illinois offices, inventory, or employees (until 2013); five Illinois retail outlets were franchisee-owned and the franchise agreement disclaimed agency.
RTB maintained a website and catalogs; in 2005 it required franchisees to mail at least 1,000 catalogs annually. Sales were shipped from California; RTB did not collect Illinois use tax on internet or catalog sales until 2013.
RTB’s CFO (McMillan) consulted a long‑time tax attorney and a sales‑tax accounting specialist in 2004–05 and relied on annual audits; they concluded RTB lacked the physical nexus to trigger Illinois use‑tax collection.
The trial court found no liability for internet sales (crediting RTB’s good‑faith investigation) but found liability for catalog sales (concluding the catalog requirement created a sufficient nexus and RTB failed to reexamine its obligation).
The trial court assessed damages and trebled tax liability, imposed penalties, and awarded relator ~ $109,061 in attorney fees; the appellate court affirmed in part and reversed in part.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether RTB knowingly violated the False Claims Act by not collecting Illinois use tax on internet sales	RTB’s franchise relationship and activities created a nexus; failure to collect was knowing or reckless	RTB made a good‑faith, professional investigation and truthfully reported $0 tax; no knowledge or reckless disregard	No liability for internet sales — court found a "firm wall" between internet operations and franchisees and credited RTB’s good‑faith inquiry
Whether RTB knowingly violated the False Claims Act by not collecting Illinois use tax on catalog sales	Catalog distribution requirement created sufficient nexus; failing to collect was knowing or reckless	Same good‑faith investigation and professional advice; law unsettled so no reckless disregard	Reversed — appellate court held RTB did not act with reckless disregard; reliance on professionals and audits precluded FCA liability
Whether relator was entitled to attorney fees and costs based on the judgment	Fees warranted because relator prevailed at trial	Fees improper if liability reversed or not supported	Reversed — appellate court vacated fee award after reversing liability for catalog sales
Jurisdiction/timeliness of cross‑appeal and appeals	Relator timely cross‑appealed	RTB argued cross‑appeal untimely	Appellate court had jurisdiction; post‑judgment fee petition rendered earlier notice premature, cross‑appeal timely

State ex rel. Beeler, Schad & Diamond, P.C. v. Ritz Camera Centers, Inc., 377 Ill. App. 3d 990 (2007) (guides inquiry into when a retailer’s failure to collect use tax is "knowing" under the Illinois False Claims Act)
Brown’s Furniture, Inc. v. Wagner, 171 Ill. 2d 410 (1996) (discusses Quill standard and what physical presence suffices for a state use‑tax nexus)
Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (constitutional requirement that a substantial nexus exist before a state may impose use‑tax collection duties on out‑of‑state vendors)
National Geographic Soc. v. California Bd. of Equalization, 430 U.S. 551 (1977) (addressed nexus where defendant maintained in‑state offices and employees soliciting business)
United States v. King‑Vassel, 728 F.3d 707 (7th Cir. 2013) (explains that reckless disregard is more than negligence and excludes innocent mistakes)
United States ex rel. Ervin & Associates, Inc. v. Hamilton Sec. Group, Inc., 370 F. Supp. 2d 18 (D.D.C. 2005) (describes "ostrich"‑type reckless disregard where obvious warnings are ignored)
Wilkins ex rel. United States v. Ohio, 885 F. Supp. 1055 (S.D. Ohio 1995) (federal False Claims Act guidance on the knowing presentation of false records)