Court Dismisses Whistleblower Suit Against Bankrupt Company, but Allows Case Against Owners to Proceed

The Northern Illinois U.S. District Court on March 19 dismissed a False Claims Act duty evasion lawsuit against a now-bankrupt pipe company, but allowed the case against that company’s two owners to proceed. Larry and Dennis Greenspon allegedly had their company, LDR Industries, falsely declare imports of plumbing pipe as exempt from antidumping and countervailing duties on circular welded pipe from China, and also should have paid marking duties on the imports, the lawsuit says.

The case was brought by Roger Schagrin and his law firm. Schagrin says he was perusing the plumbing section at his local Home Depot when he saw LDR plumbing pipe with a label indicating it was from China. He knew imports of circular welded pipe from China had declined to zero since AD/CV duty orders were issued in 2008. He also knew that the LDR pipe at Home Depot did not qualify for any of the exemptions in the scope; as an AD/CVD lawyer, he had personally written it.

This knowledge in hand, Schagrin filed an e-allegation with CBP, which investigated the claims and ended up seeking $4.85 million in unpaid duties from LDR. Then the Greenspons had LDR declare bankruptcy “to avoid these AD/CV duties,” Schagrin alleges. He filed the False Claims Act suit that same year in 2014. The government has not yet decided whether to intervene, the District Court said.

The District Court initially dismissed the case, finding Schagrin did not provide enough detail on whether LDR and the Greenspons knew their conduct was fraudulent. He filed an amended complaint in January. In it, he alleged that the Greenspons had full, day-to-day control over LDR, which was their family business, and also of its parent company, GB Holdings. Larry Greenspon touted himself as an expert when he testified at the hearings on injury that the International Trade Commission held during the original AD/CVD investigations on circular welded pipe.

“This is the case of a relatively small family-owned company principally run by two brothers who managed every material aspect of the business and given their knowledge, experience, and responsibilities necessarily would have known of and participated in the fraud alleged herein,” the complaint said. A marketing manager had even come forward since Schagrin’s first complaint saying that he left the company “because of the Greenspons’ shady business practices.” The lawyer representing the Greenspons did not comment.

The Greenspon brothers again asked the court to dismiss. This time, though the district court dismissed the case against LDR because the government already released it from any obligations to pay duties in the bankruptcy case, it allowed the case against the Greenspons to proceed. “The new allegations discussed above plausibly demonstrate that the Greenspons were intimately involved in LDR’s business, including its business importing pipe from China. That involvement, combined with their complete control of the company, is sufficient to plead knowledge and causation, hence liability,” it said.

While the allegations “do not exclude the plausibility of an alternative scenario in which the Greenspons did not have knowledge of the fraud,” at this stage, the existence of a plausible scenario where the Greenspons were liable means the case can’t be dismissed, the court said. It ordered lawyers representing Schagrin and the Greenspons to discuss a schedule for the next steps in the case.

(Schagrin, et al. v. LDR Industries, LLC et al., N.D. Ill. 1:14-cv-09125, dated 03/19/19, Judge Durkin)

Email ITTNews@warren-news.com for a copy of the court order and the complaint.