A federal judge from the District of Columbia has handed Lance Armstrong and others a victory in case in which a former professional cyclist and Armstrong rival, Floyd Landis, filed a False Claims Act (FCA) qui tam action against Armstrong, alleging that Armstrong had a duty to repay the U.S. Postal Service (USPS), which sponsored Armstrong’s cycling team, because of the team’s admitted use of performance-enhancing drugs.
In so ruling, the court concluded that the FCA’s reverse false claims provision “simply does not encompass contingent obligations that arise only because the government has prohibited an act whose commission may generate a relationship of indebtedness if the United States chooses to create one.”
Instead, the legal instrument “must include a self-executing obligation to tender money or property to the United States, and not merely conditions indebtedness on the exercise of governmental discretion. Such an obligation was not present in the instant case.”
Because that “essential condition” was not met, there was no statutory obligation to repay, and Armstrong was entitled to summary judgment on Landis’ reverse-false-claims count.
By way of background, the USPS agreed to sponsor the professional cycling team (Team) prominently linked with Lance Armstrong in 1995 and again in 2000. The 2000 Sponsorship Agreement (Agreement) was a contract between USPS and DFP Cycling, LLC, a predecessor of Tailwind Sports Corporation (Company), which managed the USPS team. Under the Agreement and subsequent modifications, USPS was obligated to pay Tailwind sponsorship fees in exchange for various “Promotional Rights and Activities,” including media exposure, the display of USPS’s logo on the team’s uniforms, and hospitality at major cycling events.
In the contract, Tailwind’s predecessor represented to USPS that “each rider on the Team has a moral turpitude and drug clause that allows the Company to suspend or terminate the rider” for reasons such as failure to abide by the rules of international cycling organizations, “failure to pass drug or medical tests,” or “inappropriate drug conduct prejudicial to the Team, or the Postal Service, which is in violation of the Team rules or commonly accepted standards of morality.”
The “Company agreed to take appropriate action within thirty (30) days” in the event of such behavior. The Sponsorship Agreement itself did not obligate Tailwind to return any funds received during periods of noncompliance, but it did authorize USPS to “immediately terminate” the contract, and recognized its right to “exercise any . . . right or remedy available to it under law or in equity,” upon the occurrence of a specified event of default. Two such events were Tailwind’s “failure to take immediate action . . . in a case of a rider or Team offense related to a morals or drug clause violation,” and “negative publicity associated with an individual rider or team support personnel, . . . due to misconduct such as but not limited to, failed drug or medical tests, alleged possession, use or sale of banned substances, or a conviction of a crime.”
After the filing of the qui tam action in June of 2010, the defendants moved to dismiss. Four years later, the court granted in part and denied in part the motion. The defendants then moved to dismiss the remaining claims, leading to the instant opinion on the reverse- false-claims holding and other matters.
The defendants argued that “justice requires” reconsideration of the court’s previous reverse-false-claim holdings. “They contend both that the court misread a key D.C. Circuit precedent that forecloses Landis’ theory of obligation, and that it misinterpreted a line of cases from other jurisdictions that it invoked to support its holding. After considerable review, (the court) agreed that the defendants owed no legal obligation to the United States at the time that any defendants allegedly made (or caused to be made) false statements to avoid repaying money received under the Sponsorship Agreement.”
Next, the court looked at whether the defendants had “an obligation” to repay the United States.
“A considerable body of case law confirms that the government’s ability to pursue reimbursement for overpayments or fraudulently induced payments does not constitute an ‘obligation.’ See Chesbrough v. VPA, P.C., 655 F.3d 461, 473 (6th Cir. 2011).
“An equally extensive body of case law has affirmed the existence of an ‘obligation’ when a contract, statute, or regulation explicitly contemplated the payment or transmission of money or property to the United States. But it is also black-letter law that one does not incur reverse-false-claim liability by violating, and affirmatively concealing one’s violation of, a statute, regulation, or contract that merely authorizes the government to levy certain fines and penalties.”
Focusing in on the D.C. Circuit, the court noted that “absent an acknowledgment of indebtedness, reverse-false-claim liability is unavailable under § 3729(a)(7) unless the relevant legal instrument imposes a self-executing obligation to tender money or property to the United States. That essential condition was not met here. Because the Court’s prior opinion misarticulated the basis for identifying a statutory ‘obligation’ under § 3729(a)(7), the Court will grant summary judgment in favor of (the defendants).”
UNITED STATES ex rel. LANDIS v. TAILWIND SPORTS CORP., et al.; D.C.; Case No. 1:10-cv-00976 (CRC), 2016 U.S. Dist. LEXIS 3280; 1/12/16
Attorneys of Record: (For TREK BICYCLE CORPORATION, Non-Party Petitioner) Olivia Sealey Singelmann, LEAD ATTORNEY, FOLEY & LARDNER, LLP, Washington, DC. (For WILLIAMS & CONNOLLY, LLP, Non-Party Respondent) Daniel P. Shanahan, LEAD ATTORNEY, WILLIAMS & CONNOLLY LLP, Washington, DC. (For NIKE, INC., Non-Party Respondent) Sean Curtis Griffin, LEAD ATTORNEY, GARVEY SCHUBERT BARER, Washington, DC. (For FLOYD LANDIS, United States of America ex rel., Plaintiff) Jon Linden Praed, LAW OFFICES OF PAUL D. SCOTT, PC, San Francisco, CA; Lani Anne Remick, Paul D. Scott, PRO HAC VICE, LAW OFFICES OF PAUL D. SCOTT, P.C., San Francisco, CA. (For UNITED STATES OF AMERICA, Intervenor Plaintiff) Darrell C. Valdez, LEAD ATTORNEY, Carl Ezekiel Ross, U.S. ATTORNEY’S OFFICE FOR THE DISTRICT OF COLUMBIA, Washington, DC; David Michael Finkelstein, U.S. DEPARTMENT OF JUSTICE, Civil Fraud Section, Washington, DC; Gregory A. Mason, U.S. Department of Justice, Civil Division, Fraud Section, Washington, DC; Robert E. Chandler, UNITED STATES DEPARTMENT OF JUSTICE, Civil Division, Fraud Section, Washington, DC; Robert Joseph McAuliffe, Tracy Lyle Hilmer, U.S. DEPARTMENT OF JUSTICE, Civil Division, Washington, DC. (For CAPITAL SPORTS & ENTERTAINMENT HOLDINGS, INC., Defendant) Marc S. Harris, Margaret E. Dayton, LEAD ATTORNEYS, PRO HAC VICE, SCHEPER KIM & HARRIS LLP, Los Angeles, CA; John Patrick Pierce, THEMIS PLLC, Washington, DC. (For LANCE ARMSTRONG, Defendant) Elliot R. Peters, R. James Slaughter, Sharif E. Jacob, LEAD ATTORNEYS, PRO HAC VICE, KEKER & VAN NEST, LLP, San Franisco, CA; John W. Keker, LEAD ATTORNEY, KEKER & VAN NEST, LLP, San Francisco, CA; Robert David Luskin, LEAD ATTORNEY, PAUL HASTINGS LLP, Washington, DC; Benjamin Dalrymple Wood, SQUIRE PATTON BOGGS (US) LLP, Washington, DC; Elizabeth K. McCloskey, PRO HAC VICE, KEKER & VAN NEST, LLP, San Franisco, CA. (For WILLIAM J. STAPLETON, BARTON B. KNAGGS, Defendants) Marc S. Harris, LEAD ATTORNEY, PRO HAC VICE, SCHEPER KIM & HARRIS LLP, Los Angeles, CA; John Patrick Pierce, THEMIS PLLC, Washington, DC.
