Feds announce settlement in qui tam action against shredding companies; Suit alleged docs not shred to size required

A settlement agreement has been reached in a whistleblower case between the United

States government and two of the nation's largest commercial shredding services companies, according to court records and a recent announcement by the U.S. Attorney’s Office in Philadelphia.

Douglas Knisely, who owns and operates a Lock Haven, Pa.-based paper shredding business, brought a qui tam suit in the name of the United States under the False Claims Act naming as defendants Shred-It Inc. and Iron Mountain Inc.

The complaint claimed that the two businesses contracted with the government to provide shredding services but did not cut the government’s documents to the size required under the General Services Administration’s standards.

The companies’ claims for payment, therefore, were allegedly false and fraudulent, the lawsuit had asserted.

Zane David Memeger, the U.S. Attorney for the Eastern District of Pennsylvania, announced on July 9 that as per the terms of the settlement agreement, Iron Mountain would pay the federal government $800,000 while Shred-It would pay $300,000.

Both companies also agreed to pay attorneys’ fees stemming from the litigation.

While Knisely, the business owner who brought suit on behalf of the United States, is entitled to a portion of the settlement, prosecutors did not divulge the exact amount of money the man should expect to receive stemming from the settlement.

Court records also didn’t indicate how much he might receive.

Shred-It and Iron Mountain are considered to be two of the largest companies in the country that provide commercial document shredding services to the U.S. government.

Court records show that the suit, originally filed in March 2010, was ordered by U.S. District Judge Stewart Dalzell to remain under seal last June.

Dalzell lifted the seal last month, the docket sheet shows.

The record further shows that a third defendant was originally named in the civil action, a business called Cintas Corp., but that that defendant was not a party to the settlement agreement.

The complaint alleged that the defendants had repeatedly failed to shred sensitive government documents pursuant to the size specifications mandated in their contracts with the U.S. government.

The companies, as part of their scheme, then knowingly submitted false claims to the United States for payment for shredding services that failed to comply with their contracts, the suit stated.

“Defendants’ scheme has resulted in substantial financial damages to the United States because they were paid for specific shredding services that the United States did not actually receive,” read the first amended complaint, which was filed on Nov. 27, 2012.

The suit alleged that the scheme also exposed the country to potentially serious security and privacy risks resulting from the defendants’ failure to shred sensitive governmental internal documents.

“Defendants’ failure to shred government documents using shredders designed to meet the size specifications mandated in their contracts with the United States potentially exposes sensitive, private and sometimes classified government information to persons not authorized to receive such information,” the complaint stated.

The plaintiff who filed the qui tam action on behalf of the United States operates a Clinton County-based company called Knisely Security, a division of which is Knisely Shredding, with the latter offering shredding services in central Pennsylvania.

The suit stated that Douglas Knisely has more than 38 years in law enforcement and security experience.

The complaint had been filed by lawyers with The Beasley Firm and fellow Philadelphia-based law firm Pietragallo Gordon Alfano Bosick & Raspanti LLP.