Whistleblowers brought scheme to government's attention
August 3, 2000 — W.R. Grace & Co. and its former book division, Baker & Taylor Inc., agreed this week to pay $15.5 million to settle charges that they defrauded libraries, schools and government offices across the country by deliberately overcharging them for millions of books.
Baker & Taylor is now a privately held company that is one of the nation's largest wholesalers and discount distributors of books.
Robert Costa, the former city librarian for the city of Richmond, Va., and Ronald Thornburg, a former Baker & Taylor sales representative, brought the scheme to the government's attention by filing a "qui tam" (whistleblower) lawsuit in 1995. After investigating the allegations, the Justice Department and the state of California joined the lawsuit. Seventeen other states subsequently were granted permission to intervene.
"This was a fraud aimed specifically at public libraries, schools and government agencies," said Peter W. Chatfield, a Washington, D.C., attorney with Phillips & Cohen LLP, which represents the whistleblowers. "Libraries don't have the staff to check every invoice to make sure the prices they were charged were what they were promised."
This week's settlement has three parts: Grace will pay the federal government $3 million to settle claims involving book purchases made with federal funds. Grace and Baker & Taylor together will pay $4 million to the state of California to settle its claims. The remaining $8.5 million that both companies will pay will be divided between the other 17 states.
Baker & Taylor paid the federal government $3 million last year to settle its liability to the federal government.
Costa and Thornburg filed their qui tam case in federal court against Baker & Taylor and Grace in San Francisco in 1995. After the federal government joined the lawsuit, Costa and Thornburg were dismissed from the case on technical grounds. Now that the governments' claims are resolved, the two can appeal their dismissal and intend to do so.
"Both the Justice Department and the state of California credit Costa and Thornburg with bringing Baker & Taylor's fraud to their attention," Chatfield said.
Baker & Taylor had contracts with schools, libraries and other "institutional" customers to provide discounts on trade books of around 40 percent for hardcover books and 30 percent for paperbacks. In exchange, the customers guaranteed the company a certain portion of their business.
For at least 10 years, the lawsuit said, Baker & Taylor deliberately mischaracterized certain books on their computerized invoices so that customers paying with federal and state funds were receiving a very small or no discount on some trade books. Meanwhile, the company gave retailers the full discounts.
This scheme increased Baker &Taylor's profits by millions of dollars each year.
Eighteen states claimed damages on behalf of schools and libraries that used state and local funds for book purchases. In addition to California, they are: Arkansas, Connecticut, Florida, Hawaii, Idaho, Kentucky, Massachusetts, Minnesota, Missouri, Nevada, New Mexico, North Carolina, Oklahoma, Tennessee, Texas, Vermont and Wisconsin.
The False Claims Act allows private individuals to sue companies that are defrauding the government and recover money on the government's behalf. The "relators," as the whistleblowers are called, are entitled to a share of the recoveries. Liable companies may be required to pay up to three times the government's losses and $5,000 to $10,000 for each false claim.
For more information about this case, see the following news stories:
- "W.R. Grace, subsidiary to pay $15.5 million to settle charges of book overpricing," Federal Contracts Report, 8/8/00.
- "Grace, former unit to pay $15.5 million in book-sale accord," Wall Street Journal, 8/3/00.
- "Bookseller settles overcharging case with state libraries," San Jose Mercury News, 8/3/00.
- "Book vendors settle claims of defrauding government," San Francisco Chronicle, 8/3/00.
- "Texas to get share of $15.5 million," Kathy Walt, Houston Chronicle, 8/3/00.
- "Arkansas due $95,972 from suit over high price of books," Arkansas Democrat-Gazette, 8/3/00.
- "State gets over $800,000 in settlement on book prices," Milwaukee Journal Sentinel, 8/3/2000.
- "Book publisher to pay N.M. $247,424," Wrenn Propp, Albuquerque Journal, 8/3/00.