People v. ex rel. Schad, Diamond and Shedden, P.C. v. QVC, Inc., 31 N.E.3d 363

In 1995 Illinois told QVC it must collect use tax on sales delivered to Illinois; QVC agreed to collect taxes on sales after that date but did not collect tax on shipping and handling and the State’s 2006 audit approved QVC’s returns without adjustment.
The Illinois Supreme Court decided in Kean v. Wal‑Mart (2009) that shipping and handling charges are taxable in many internet sales contexts.
In Aug. 2011 the law firm Schad filed a qui tam suit under the Illinois False Claims Act alleging QVC failed to collect use tax on shipping/handling; the State initially declined to intervene and Schad served QVC in Nov. 2011.
Less than two weeks after service, QVC voluntarily began collecting and remitting use tax on shipping and handling for post‑service sales; QVC did not seek to recover taxes for sales before Nov. 21, 2011.
The State later intervened and moved to dismiss the qui tam suit, arguing the 2006 audit barred the action; the trial court allowed only a deposition of QVC’s tax director (Pileggi) and then dismissed Schad’s complaint and denied Schad a relator’s share of QVC’s subsequent tax remittances.
On appeal the court reviewed (1) the limited discovery ruling, (2) the State’s dismissal of the qui tam action, and (3) whether post‑service tax collections by QVC are "proceeds of the action" subject to a relator’s share.

Issue	Plaintiff's Argument (Schad)	Defendant/State's Argument (QVC/State)	Held
Whether relator should get broader discovery into alleged settlement between State and QVC	Schad argued circumstances (timing of QVC’s tax change) suggested a secret settlement and more discovery would show bad faith	State argued it controls discovery in qui tam suits and the deposition of QVC’s tax officer was sufficient	Court: Limiting discovery to Pileggi’s deposition was not an abuse of discretion; no basis shown for broader discovery
Whether State acted in bad faith in dismissing the qui tam action	Schad contended dismissal was a cover for a settlement and that the State ignored controlling precedent (Levenstein)	State relied on the 2006 audit that approved QVC’s tax treatment and its statutory prerogative to dismiss qui tam suits	Court: Presumption of good faith for the State; Schad failed to produce "glaring evidence" of bad faith and dismissal was proper
Whether QVC’s voluntary post‑service tax collections are "proceeds of the action" entitling relator to a share	Schad argued the timing shows those payments resulted from the lawsuit and thus are proceeds subject to 15–25% relator share	State/QVC argued payments were voluntary, for sales after service, and there was no court‑ordered relief or settlement tying them to the suit	Court: Payments were not proceeds of the action; Schad is not a prevailing party and is not entitled to a relator’s share

Kean v. Wal‑Mart Stores, Inc., 235 Ill. 2d 351 (Ill. 2009) (holding shipping and handling charges can be taxable use subject to Illinois use tax)
State ex rel. Beeler, Schad & Diamond v. Burlington Coat Factory Warehouse Corp., 369 Ill. App. 3d 507 (Ill. App. 2006) (explaining State control over qui tam actions and presumption of good faith in dismissals)
People ex rel. Levenstein v. Salafsky, 338 Ill. App. 3d 936 (Ill. App. 2003) (limiting the scope of "subject" in §4(e)(3) to matters actually litigated in a prior suit)
Melton v. Frigidaire, 346 Ill. App. 3d 331 (Ill. App. 2004) (a party who obtains voluntary change in defendant’s conduct but no judgment is not a prevailing party)
United States ex rel. Miller v. Bill Harbert Int’l Constr., Inc., 786 F. Supp. 2d 110 (D.D.C. 2011) (federal authority that relief must be obtained to award relator share under FCA)
Miller v. Holzmann, 575 F. Supp. 2d 2 (D.D.C. 2008) (relator not entitled to fees where claims were dismissed in their entirety)