FORT COLLINS – OtterBox is embroiled in a whistleblower lawsuit in which it is accused of underpaying federal import taxes on products it manufactured in China.

According to the lawsuit, OtterBox failed to pay customs duties on the full value of its popular cell-phone cases, violating the False Claims Act. The case was filed in 2011 but remained under seal in U.S. District Court in Denver until Aug. 19, when portions of the case were unsealed by U.S. District Judge Raymond Moore.

"We plan to vigorously contest this matter and we have every confidence in a favorable outcome through the judicial process," said OtterBox spokeswoman Kristen Tatti, who declined to comment further. On Sept. 26, the company asked that the case be dismissed, saying that it already had notified the government of the deficiencies in its import-tax payments.

The U.S. government also is investigating and may choose to prosecute the case. In an August court filing, the U.S. Attorney's Office declined to intervene in the case, but said investigation of the claims is continuing. The agency also asked that the case not be dismissed or settled without its written consent.

A spokesman for U.S. Attorney John Walsh declined to comment.

In the lawsuit, former OtterBox employee Bonnie M. Jimenez, of Brighton, contends that OtterBox failed to pay customs duties on the value of engineering and tooling of its cases performed in China. Companies must pay customs duties on the material costs associated with their products and for other work, such as design and engineering. Jimenez, who was fired by OtterBox in 2010, did not respond to a request for comment.

Michael Porter, a Wheat Ridge attorney representing Jimenez, said his client has since found other employment.

"We feel very confident in our allegations and we look forward to litigating the case," said Porter, who declined to comment further.

Porter, a nationally known false-claims attorney, successfully represented federal auditor Bobby Maxwell, a whistleblower in a case accusing oil company Anadarko Petroleum Corp. (NYSE: APC) of underpaying royalties to the federal government. The company eventually settled the case for more than $20 million, according to published reports.

False Claims Act lawsuits often begin with an employee who handles customs affairs for a company. The employee becomes a whistleblower and can receive a portion of a settlement or fine collected by the U.S. government.

In April 2010, OtterBox bought 3,000 Blackberry cases from a Chinese manufacturer for $2.13 apiece, according to the lawsuit. OtterBox paid customs duty on the cases, but the value set for the cases did not include the value of the engineering and tooling, which typically ranged from $2,500 to $12,000 per mold, the lawsuit stated.

"This April 9, 2010, incident is provided as an example of OtterBox's customs underpayment scheme, which was consistently employed by OtterBox from at least 2006," the lawsuit says.

Jimenez's lawsuit lists about 150 similar purchase orders.

Jimenez contends that she notified OtterBox founder Curt Richardson that the company was underpaying customs duties, but that Richardson disagreed with her assessment of the law and adamantly refused to pay the additional costs.

OtterBox responded to Jimenez's lawsuit in late September, asking the judge to dismiss the case. In what is known as a "prior disclosure," OtterBox said in a court filing that it admitted to the government before Jimenez sued the company that it had broken the law by not paying enough customs duties. Prior disclosure is a typical way a company can correct errors in its product valuation.

If the government accepts OtterBox's prior disclosure, the lawsuit could be dismissed, said David Glynn, of counsel with Holland and Hart LLP in Denver. Such a disclosure could prevent OtterBox from paying higher penalties – from $5,500 to $11,000 plus treble damages – if it lost the lawsuit, according to legal experts.

OtterBox also acknowledged in its court filing that the government was investigating "in order to issue a penalty."

U.S. Customs and Border Protection (CBP) "is now investigating the circumstances of those violations and verifying the amount of those payments," says OtterBox's court filing asking the judge to dismiss the case. "CBP will require additional payments to cover its loss of revenue by OtterBox if CBP finds that the payments were inadequate. In addition, CBP will impose a penalty on OtterBox."

Jimenez may have a "very high mountain to climb," said Frank Schuchat of Denver-based Schuchat International Law Firm LLC, which specializes in international law.

"If OtterBox made an effective prior disclosure before the False Claims Act complaint was filed, I would wager my money on OtterBox," he said.

Not paying customs duties on product engineering and tooling, known as "assists," is a common mistake made by companies that import manufactured products, Glynn said. That's because invoices for assists come after a company has paid duties on the prices of products. In OtterBox's case, it was supposed to pay 20 percent duties on the value of its assists.

"Many companies struggle with it," he said.

Patrick Burns, executive director of Taxpayers Against Fraud, an organization that follows False Claims Act litigation, said the court will have to decide whether Jimenez's lawsuit is sufficiently detailed.

"The public relations cost of OtterBox's customers discovering that (an $18) OtterBox case costs less than $2.50 to make is reason enough to settle, I would think," he said.