EAST ST. LOUIS – Acting U.S. attorney Gerald Boyce and District Judge Nancy Rosenstengel saved the bacon of taxpayers by stripping provisions from a trust fund that Stephen Tillery of St. Louis set up for a settlement with K-Mart. 

Rosenstengel declared the provisions inappropriate on Nov. 15, six days after assistant U.S. attorney Gerald Burke raised objections. 

 Burke accused Tillery of infringing on Internal Revenue Service jurisdiction. 

Tillery represents the estate of James Garbe, an Ohio pharmacist who sued K-Mart under the False Claims Act. 

Relators of false claims qualify for a third of any recovery. 

Garbe claimed K-Mart charged customers with insurance higher prices than customers who paid out of pocket. 

Carl Ireland of Ohio entered the action as estate administrator after Garbe died. 

Mediation failed this January, and Rosenstengel set trial in August. 

At a hearing in April, K-Mart counsel Catherine O’Neil of Atlanta said K-Mart’s financial position wasn’t the best. 

She said K-Mart argued in settlement discussions that it didn’t have the money to pay a large judgment and that it would force them into bankruptcy. 

In August, Rosenstengel vacated the trial date and stayed all deadlines. 

She held weekly conferences that succeeded where mediation failed. 

On Nov. 3, Tillery associate Robert King moved to establish a settlement fund. 

He wrote that K-Mart didn’t object. 

Burke replied that Ireland attempted to obtain tax rulings favorable to him or his counsel through the court rather than through proper procedures. 

He wrote that if Ireland had questions about potential tax consequences, he should seek a written determination from IRS. 

He quoted a sentence in the trust fund agreement on punitive damages and two sentences on constructive receipt, and wrote that all three were questions of tax law that could not be adjudicated without IRS proceedings. 

Burke specifically opposed language that transferors had no right to refunds and that no transferor might restrict the fund’s ability to use or dispose of property. 

He wrote that the provision was contrary to the settlement agreement. 

He wrote that the agreement required Garbe to return his shares within seven days of receiving notice that the government had an obligation to return any payments it received from K-Mart under the agreement. 

Rosenstengel agreed with Burke, finding it would be inappropriate to include in her order certain language that carried certain tax implications. 

She cited two full pages of Burke’s brief. 

In a separate order, she established the trust fund and appointed former Missouri Supreme Court Justice Michael Wolff as trustee. 

Tillery and K-Mart hadn’t moved for approval of the settlement agreement as of Nov. 28, and the case record didn’t show the price of the settlement.

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