One of President Trump’s first executive order was titled “Buy American, Hire American”. That order demands greater enforcement of our Buy America laws, laws designed to protect American jobs and help American businesses. Some of those laws have been on the books since the Great Depression. Today a government supplier in Sunrise Florida is learning what happens if you misrepresent Chinese and other foreign made goods as made in America.
Our story begins with Louis Scutellaro in Roanoke, Virginia. Mr. Scutellaro is the owner of lighting products business, Mario Industries. One of his biggest customers is the U.S. government. Since it opened its doors in 1988, Mario Industries insures that everything that it sells to the government is made in the United States.
Since 1933 and the passage of the Buy American Act, Congress has insisted that goods sold to federal agencies be made in America. There are exceptions for items not made domestically but most products purchased with federal dollars are made here.
Although the first preference law is almost 100 years old, its purpose and commitment to protecting American workers is alive and well. Congress and the federal government continue to advance “Made in America” products. In 1983, Congress passed the Buy America Act (often confused with the older Buy American Act). A more recent law passed after the 2008 financial crisis, the American Recovery and Reinvestment Act of 2009, requires projects financed with stimulus monies to use American made goods.
The latest support for domestic goods comes from Donald Trump who signed his Buy American Hire American executive order as one of his first official acts as president.
With such a commitment, one would think that businesses would get the idea. Apparently some still try to cut corners. That is where Scutellaro surfaced. He claims that he is losing business because some of his competitors are selling “cheap, shoddily made Chinese goods.” Since then, he has been on a campaign to level the playing field and expose companies that misuse the “Made in America” label.
In 2009, Scutellaro lost a bid for supplying lighting products to the Air Force and to the EPA. Because he lost the bid, he had to lay off 5 workers and cut the hours of many more.
He later learned that the successful bidder, Grandrich Corp, was purchasing its lighting fixtures from China and then passing them off as being made in the United States. Since then, Scutellaro has been on a mission to ferret out competitors that sell products to the government from non-approved countries.
In his most recent complaint, he claims that Capitol Supply of Sunrise, Florida is selling foreign made goods to the government in violation of the Buy American, Buy America and the Trade Agreements Act. The latter law allows sales of certain foreign made goods from trade friendly countries. China is not on that list.
Scutellaro filed his complaint 7 years ago in 2010. Since then, it has been quite a battle.
Justice Department Intervened in Small Portion of Capitol Supply Case
The government intervened in his case and wants to fine Capitol Supply for selling shredders made in China. The Department of Justice is looking for $367,419.84 in trebled (triple) damages and an additional $5.88 million in penalties. (More on penalties and damages below.)
Under the False Claims Act, a Civil War era whistleblower law, the government has the right to take over a case or allow the whistleblower’s own legal team to prosecute. In Scutellaro’s case, the Justice Department took over only that portion of the case relating to shedders. Since 2013, the remainder of the foreign made good claims are being prosecuted by Scutellaro directly.
The Justice Department says of the shredders that “Capitol Supply falsely certified these sales knowingly. GSA had repeatedly notified Capitol Supply of its noncompliance, and despite these red flags of systematic noncompliance, Capitol Supply continued to use the same system to determine country of origin.”
Scutellaro’s Continued Buy America Battle Against Capitol Supply
Today, Capitol Supply is fighting the case on two fronts. They are fighting the government and the government’s demand for millions of dollars in penalties for the Chinese made shredders. At the same time, they are fighting a much bigger battle with Scutellaro over dozens of other products made in China and other non-approved countries. These products include light fixtures (products in competition with Mario Industries) heaters, batteries, thermostats and computer equipment.
If Scutellaro’s calculations are right, Capitol Supply could be on the hook for $14.7 million in actual damages and $278 million in penalties.
Since the complaint became unsealed years ago, Capitol Supply has been waging a vigorous war to dismiss the claims and avoid paying any penalties or damages. Scutellaro issued a subpoena for records in 2014 yet three years later, very little has been produced. At one point, the Justice Department jumped into the fray and brought its own enforcement action against the company.
Both the Justice Department and Scutellaro want to know how many foreign made products sold to Uncle Sam were improperly represented as Made in America.
Finally, in April of this year a federal judge in DC had enough. Chief Judge Beryl Howell refused to grant Capitol Supply’s motion to have the case tossed. Instead, he ruled that when the case goes to trial, the jury will be instructed that it can draw an “adverse inference” against Capitol in cases where it has failed to provide country of origin (COO) information.
After three years of efforts to get the appropriate sales data and COO information, Capitol Supply still has not supplied documentation for almost 75% of certain sales to the government. That makes it difficult for Scutellaro and the Justice Department to prove their cases. That is where the court stepped in. The court ruled that it has the inherent authority to fashion sanctions when a party to a lawsuit doesn’t provide needed discovery.
In this case, it appears that Capitol Supply overwrote its computer systems such that the data is no longer available. Judge Howell ruled that they did so at their peril since they had an obligation to keep these records. In other words, he ruled that Capitol can’t profit from its apparent deliberate destruction of records.
In the words of the court,
“Likewise here, [Capitol Supply] does not argue that COO information was overwritten unknowingly or accidentally. This was simply [their] practice for many years, notwithstanding its clear regulatory and contractual obligations to retain such information for specified periods… [T]he plaintiffs here—the U.S. government, and the relator [Scutellaro], standing in the shoes of the government—are plainly within the “classes sought to be protected” by the regulations, which are intended to allow the government to track COO information to ensure compliance with applicable laws. Finally, there is no question that the spoliated COO information would constitute direct proof or disproof of the falsity of claims made to the government. Accordingly,. .. the relator and the government here are entitled to an adverse inference that the unavailable COO information would show that the relevant products came from non-designated countries, and their motions are granted.”
Adverse Inferences in Civil Lawsuits
An adverse inference in a lawsuit is an extremely powerful tool. The jury in this case will likely be instructed that whenever Capitol Supply can’t supply country of origin data for its products, the jury can assume that they were not made in America or from a country that complies with the Trade Agreements law.
Whistleblowers, Buy America & Buy American
The Buy America laws are vigorously enforced by the government. Click here to read about one of her recent successful cases involving Chinese and Turkish steel.
Most cases are brought by concerned present or former employees concerned about greed and corruption. As this case shows, sometimes competitors can become whistleblowers as well.
To qualify for a whistleblower award, one needs inside information about the fraud. Scutellaro qualified by researching the suppliers for the products listed on Capitol Supply’s GSA products list. He also researched customs and import records.
Why Become a Whistleblower?
Obviously, protecting taxpayers against fraud is the primary reason most whistleblowers come forward. Nobody likes a cheater.
Honest competitors who follow the law don’t like cheaters either. Mario Industries had to lay off workers and cut hours because Grandrich Corp was selling Chinese products cheaper than he could sell American made goods. Since the contracts required Made in America, Grandrich had an unfair – and illegal – competitive advantage.
Yet another reason is the huge whistleblower awards available under the False Claims Act. To encourage whistleblowers to step up, Congress allows whistleblowers to receive between 15% and 30% of whatever is collected from the wrongdoer. In the case of Capitol Supply, Scuterallo is eligible to receive over a $1 million just on the Chinese made shredders. Depending on what happens to the rest of the case, he may receive tens of millions of dollars more in whistleblower awards!
BUY AMERICA CALL TO ACTION – AMERICAN WORKERS, BUSINESSES AND UNIONS
It is rare for workers, unions and businesses to agree on anything. Add in Congress and the president of the United States and such universal agreement is even more rare. But when it comes to protecting American businesses and workers, we all agree.
Companies that lie about the country of origin of their products and companies that hurt American workers by falsely claiming that their products are made in the United States should be punished. When it comes to construction materials such as steal, there are important safety concerns as well.
If you have information about construction materials, steel or products falsely represented as being made in America or in compliance with the Trade Agreements Act or Buy America laws, call us. You may be entitled to a sizeable award.
For more information, visit our Buy American whistleblower page. Have questions or ready to see if you have a case? Contact attorney Brian Mahany at or by phone at (414) 704-6731 (direct). All inquiries kept in confidence.
MahanyLaw – America’s Whistleblower Lawyers “Protecting American Workers and Businesses”