Two of the largest document-shredding companies in America, Iron Mountain Corporation and Shred-It USA will 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 an 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.
Cintas Corporation, 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.
Since 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.
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.
Knisley alleged that 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 that their employers did not posses 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.
Knisley alleged that by not using the shredders mandated by the Government Service Administration (GSA) to produce residue particles not exceeding 1/32 inch, the companies 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.
Knisely is the owner and operator of Knisely Security LLC, based in Lock Haven, Pennsylvania.
Knisely Security is a small, family-owned business that provides secure shredding services in rural, central Pennsylvania.
Knisley, 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.
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.
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.
Knisely knew, therefore, that the three companies had obtained contracts to shred sensitive government documents by falsely representing that their shredding equipment satisfied the unambiguous requirements of the GSA Solicitation.
Knisely, unwilling to misrepresent to obtain government contracts, also was concerned about the security risks caused by the three companies’ failure to shred sensitive government documents — including potentially classified materials — in compliance with the federal government’s clear requirements.
Knisely decided to contact legal counsel and, in 2010, he filed his qui tam lawsuit to stop the Defendants’ illegal scheme.
The settlement with the United States 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 the fraudulent scheme.
Knisely was represented by Marc S. Raspanti and Michael A. Morse of Pietragallo Gordon Alfano Bosick & Raspanti and James E. Beasley, Jr., and Maxwell S. Kennerly of The Beasley Firm.
“This case presents a real-life David versus Goliath,” said Morse. “Mr. Knisely, the owner of a small, family shredding business in central Pennsylvania refused to cut corners in order to obtain government contracts. He had the courage to blow the whistle on the three largest shredding companies in the nation.”