Honesty is the best policy. Major document shredding firms were misrepresenting their capabilities in order to win contracts.
Articles from KNOE.com, the Boston Globe and Boston Business Journal
PHILADELPHIA, July 9, 2013 /PRNewswire/ — Two of the biggest document-shredding companies in America, Iron Mountain Corporation (“Iron Mountain”, NYSE “IRM”) and Shred-It USA (“Shred-It”), have agreed to pay a total of $1.1 million to settle a lawsuit alleging that they defrauded the government by failing to shred sensitive documents as required by their contracts with the United States government.
The settlement follows a multi-year investigation by the United States Department of Justice triggered by a lawsuit filed by Pennsylvania resident Douglas Knisely, owner of a family-operated document-shredding business.
A third Defendant, Cintas Corporation (“Cintas”, NASDAQ “CTAS”), a multi-billion company based in Cincinnati, Ohio, continues to contest allegations that it defrauded the federal government by failing to properly shred sensitive documents.
The qui tam lawsuit filed in federal district court in Philadelphia in 2010 by Mr. Knisely alleged that Iron Mountain, Shred-It, and Cintas, the three largest vendors of secure document-shredding services in the United States, failed to shred sensitive government documents as required by their contracts with the United States General Services Administration (“GSA”). A copy of Mr. Knisely’s qui tam Complaint, which Iron Mountain and Shred-It are settling today can be found at www.falseclaimsact.com.
Details of the Iron Mountain, Shred-It, & Cintas Scheme
According to Mr. Knisely’s Complaint, since at least 2006, Iron Mountain, Shred-It, and Cintas have been paid millions of dollars pursuant to contracts with the United States to shred highly sensitive documents for federal government agencies, including: the Department of Defense; Department of Homeland Security; Department of Justice; Social Security Administration; Department of the Treasury; and the Department of Veterans Affairs.
Iron Mountain, Shred-It, and Cintas obtained these lucrative government contracts as a result of their application to the GSA to become approved GSA Schedule 36 vendors of document-shredding services. The GSA Solicitation to become an approved document-shredding vendor stated:
A) SHREDDINGS: include both on-site and off-site for shredding services, which is designed to handle a variety of classified and unclassified materials. Shredders shall be designed to produce residue particle size not exceeding 1/32 inch in width with a 1/64-inch tolerance by ½ inch in length. There is no need to separate paper grades or remove staples, clips or other bindings.
To protect the security of government documents, the solicitation unambiguously required that document-shredding vendors use shredders designed to produce residue particles not exceeding 1/32 inch in width (with a 1/64-inch tolerance) by 1/2 inch in length.
The Solicitation further requires vendors to certify to the United States the destruction of materials, as follows:
CERTIFICATE OF DESTRUCTION
A signed certificate of destruction must be issued upon completion of each job. The certificate shall indicate the date of destruction, identify the material destroyed, method of destruction, and be signed by the individuals designated to destroy and witness the destruction. Destruction officials shall be required to know, through their personal knowledge, that such material was destroyed.
According to the Qui Tam Complaint, Iron Mountain, Shred-It, and Cintas have repeatedly failed to shred sensitive documents of numerous federal government agencies using shredders that were designed to produce residue particles not exceeding 1/32 inch in width (with a 1/64-inch tolerance) by 1/2 inch in length. Employees of Iron Mountain and Cintas admitted, as alleged in the Complaint, that their employers did not possess equipment that could shred documents to sizes that small.
Cintas, for example, stated that it used a pierce-and-tear shred process that produced a standard shred size of 5/8 inch wide by 2 inches long – which is approximately 100 times larger than the size mandated by the GSA solicitation. Additionally, according to the allegations in the Complaint, by not using the shredders mandated by the GSA to produce residue particles not exceeding 1/32 inch, Defendants were able to obtain additional revenue by re-selling the improperly shredded government documents to paper recyclers. Documents shred using 1/32 inch shredders are generally unsuitable for recycling purposes.
Relator Douglas Knisely
Relator Douglas Knisely is the owner and operator of Knisely Security LLC (“Knisely Security”), based in Lock Haven, Pennsylvania. Knisely Security is a small, family-owned business that provides secure shredding services in rural, central Pennsylvania.
Mr. Knisely has over 32 years of experience in law enforcement and security, and is an expert on security related to document destruction. He is a graduate of the PennsylvaniaState Police Academy and the Executive Protection Institute. Mr. Knisely also received a protection professional certification from the American Society for Industrial Security. He also has significant experience shredding documents, having started his career performing Department of Defense classified document destruction.
Mr. Knisely Exposes Defendants’ Scheme
Mr. Knisely, as the owner and operator of a small family-owned document shredding business, was interested in performing secure document shredding for federal government offices located in central Pennsylvania. But he could not submit a bid for the government work because his company’s shredders did not satisfy the mandatory requirement in the GSA Solicitation that shredders be designed to produce residue particles not exceeding 1/32 inch in width (with a 1/64-inch tolerance) by 1/2 inch in length.
Mr. Knisely observed, however, that Iron Mountain, Shred-It, and Cintas (three of the largest players in the document shredding business) were receiving millions of dollars in shredding business from the U.S. government. As alleged in the Complaint, Mr. Knisely was concerned because, as an expert in the document-shredding industry, he knew that shredding trucks regularly used by the Defendants were not designed to produce residue particles not exceeding 1/32 inch in width (with a 1/64-inch tolerance) by 1/2 inch in length.
Mr. Knisely knew, therefore, that the three Defendants had obtained contracts to shred sensitive government documents by falsely representing that their shredding equipment satisfied the unambiguous requirements of the GSA Solicitation. Mr. Knisely, unwilling to misrepresent to obtain government contracts, also was concerned about the security risks caused by the three Defendants’ failure to shred sensitive government documents (including potentially classified materials) in compliance with the federal government’s clear requirements.
Mr. Knisely decided to contact legal counsel and, in 2010, he filed his qui tam lawsuit to stop the Defendants’ illegal scheme.
Details of the Settlement
The settlement with the United States announced today, required Iron Mountain and Shred-It to pay the United States a total of $1,100,000.
As required by statute, Mr. Knisely is entitled to receive a minority share of the government’s recovery for reporting Defendants’ fraudulent scheme. In addition, the False Claims Act requires a Defendant to pay the Relator’s reasonable attorneys’ fees and costs expended in the prosecution of this case.
Defendant Cintas has not, at this time, agreed to resolve the False Claims Act allegations against it-allegations that Iron Mountain and Shred-It have settled with the United States. Accordingly, Mr. Knisely’s whistleblower lawsuit on behalf of the United States will continue against Cintas. Pursuant to the False Claims Act, a Defendant found to have violated the Act is liable for treble damages plus an additional civil monetary penalty of $5,500 to $11,000 per false claim (which, in this case, could include each instance where government documents were shredded without the required documents shredders).
The Complaint also alleges that Cintas violated the federal Lanham Act by touting its document-destruction business with misleading statements that have deceived customers and given Cintas an unfair advantage in the marketplace.
Related articles available from Boston Globe and Boston Business Journal