On January 14, 2015, Office Depot agreed to a settlement of $68.5 million to be paid to California government entities, for allegedly violating the False Claims Act (FCA) by overcharging for office and school supplies.  The qui tam lawsuit filed by David Sherwin, former Office Depot account manager, and the whistleblower in this case, alleged that Office Depot did not abide by the terms of its contract with the government when it did not charge the California government the best prices available for school and office supplies.  The settlement will be shared by more than 1000 city and local government entities in California, including school districts, and city and local government agencies.  However, the city of Los Angeles will receive the largest portion of the settlement in the amount of $11.7 million.  Although Sherwin died one month after his testimony in this case, his estate will receive $23 million which represents Sherwin’s whistleblower share of the settlement for exposing Office Depot’s alleged illegal practices.

Best pricing for office and school supplies purchased by the U.S. and state governments is governed by the U.S. Communities program, a national government purchasing cooperative designed to allow state and local governments to receive the best supplier government pricing.  Through this program, Office Depot was awarded the government contract to supply offices and schools in California with discounted pricing for furniture, school and office supplies.  However, according to the lawsuit filed in 2009, between 2001 and 2011, Office Depot did not abide by its agreement and instead knowingly and repeatedly overcharged California government entities higher costs for items that were otherwise available at discounted rates.  In addition, the government alleged that Office Depot instructed company managers to manipulate their government customers into purchasing the more expensive items, which according to the contract, was forbidden.

Provisions of the FCA prohibit a company or individual from committing fraud against the government by overcharging on a product, goods or services.  When Office Depot was awarded the contract to supply the California government with supplies, it was expected to adhere to all aspects of the contact.  By so intentionally violating the contract, it violated the FCA.