Feb. 3, 1997 -- Baker and Taylor Inc., one of the nation's largest wholesalers and discount distributors of books, has been defrauding public libraries, schools, universities and government agencies of millions of dollars through a book-selling scheme, two whistleblowers have charged in a lawsuit unsealed today.
The U.S. Department of Justice has been investigating the matter and filed notice on Jan. 31 in federal court in San Francisco that they will join the case.
For at least the past 10 years, the whistleblowers and the government charge, Baker & Taylor has been deliberately miscategorizing certain books on their computerized invoices so that customers that buy books with public funds are not given the large discount rates for trade books that the company has promised in its contracts. Instead, those customers were receiving a very small or no discount on those books.
"Baker & Taylor's decision to target its least sophisticated customers — schools and public libraries — makes this fraud particularly unconscionable," said Eric R. Havian, an attorney in the San Francisco of Phillips & Cohen, which is representing the whistleblowers. "Schools and libraries are the least able to afford to pay fraudulently inflated prices for books, especially in this time of budget cutbacks."
Havian estimates the scheme has cost schools, libraries and other public institutions $100 million to $200 million. The whistleblowers and government are seeking triple damages plus $5,000 to $10,000 for each false claim, which is the maximum penalty allowed under the False Claims Act.
The federal False Claims Act allows private citizens to file lawsuits against companies that are defrauding the government of money. The lawsuit included a separate claim under California's False Claims Act.
Baker & Taylor ships over 40 million books each year. For at least the past 10 years, more than 70 percent of its book sales have been made to public libraries, schools, universities and other institutions that use federal, state and local funds to pay for purchases. Federal agencies, the Library of Congress, the state library of California, other California state offices as well as agencies of other states also have bought books from the company.
The company's contracts typically require their customers to guarantee them a certain portion of their business in exchange for discounts off of the publisher's suggested retail price. The discounts Baker & Taylor promises its customers for trade books typically exceed 40 percent for hardcover books and 30 percent for paperbacks.
Robert Costa, the former city librarian for Richmond, Va., and Ronald Thornburg, a former sales representative for Baker & Taylor, filed their lawsuit in federal court in June 1995.
The lawsuit has not been made public previously as it was filed under seal. The False Claims Act requires that lawsuits be filed under seal to give the government time to investigate the charges and decide whether it wants to join the case.
For more information, see the following news stories:
- "Book wholesaler charged with fraud," Julie L. Nicklin, The Chronicle of Higher Education, 2/14/97.
- "Justice Dept. joins suit against book wholesaler," David Streitfeld and David Segal, The Washington Post, 2/4/97.
- "U.S. joins suit against book wholesaler," Timothy L. O'Brien, The Wall Street Journal, 2/4/97.
- "Whistleblower suit claims B&T cheats libraries," Calvin Reid, Publishers Weekly, 2/10/97.