Book Distributor Charged With Overcharging Schools

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The nation's largest book distributor was accused in a federal lawsuit last week of cheating public schools, libraries, universities, and government agencies out of more than $100 million.

Federal prosecutors in San Francisco joined the suit brought by two whistle-blowers who alleged that Baker & Taylor Inc., located in Charlotte, N.C., and Bridgewater, Conn., deliberately overcharged the institutions for discount books. The whistle-blowers' suit was kept under wraps until the government completed its investigation.

The plaintiffs, Robert N. Costa, a former city librarian for Richmond, Va., and Ronald Thornburg, who worked as a sales representative for Baker & Taylor for 17 years before taking a job with a competitor, claimed that the company intentionally misclassified books so that they would not be eligible for the deepest discounts. The deception, they contend, has cost public institutions from $100 million to $200 million during the past decade.

Company representatives said they are innocent of the charges.

Baker & Taylor President Jim Ulsamer said that the plaintiffs filed the suit for personal gain, as they, along with the federal government and the institutions, stand to profit from any award.

"We believe the charges are outrageous and totally unfounded, and we will take every legal action necessary to clear our name and preserve our fine reputation," Mr. Ulsamer said in an interview.

'Least Able To Afford'

In the suit filed in U.S. District Court, the company is accused of conspiring to defraud public agencies with which it held contracts, a violation of both the federal and California false-claims acts. The suit was filed in San Francisco because of the substantial business the company conducts in California. According to Eric R. Havian, a lawyer for the plaintiffs, public schools and libraries in the state lost up to $20 million.

Also named in the suit are the Carlyle Group, a Washington-based private merchant bank, and W.R. Grace & Co., a Boca Raton, Fla.-based chemical company, the distributor's current and former owners, respectively.

Mr. Havian said that preying on the institutions affected by the alleged fraud was unconscionable.

"Schools and libraries are the least able to afford to pay fraudulently inflated prices for books, especially in this time of budget cutbacks," Mr. Havian said.

In contracts with the public institutions, the company agreed to sell trade books at 30 percent to 40 percent off the retail price. Textbooks and nontrade publications were sold at a 10 percent discount, according to the suit.

The complaint, unsealed last week after a U.S. Department of Justice investigation, alleges that Baker & Taylor had concocted an elaborate coding scheme to give customers the smaller discounts for trade books with technical titles or with the reinforced bindings common on nontrade books.

Possible Penalties

The company reimbursed the city of Richmond several years ago for more than $10,000 after Mr. Costa complained, but the practices continued, Mr. Havian charged.

If found guilty, the companies could be held liable for penalties of up to $10,000 for each instance of overcharging plus treble damages.

The firm ships more than 40 million books a year, and it takes in about $400 million annually from public institutions, representing 70 percent of its business.

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