United States ex rel. Landis v. Tailwind Sports Corp.

• Decision Date: 19 June 2014
• Docket Number: Civil Action No. 10–cv–00976 RLW
• Citation: 51 F.Supp.3d 9
• Court: U.S. District Court — District of Columbia
• Parties: United States of America ex rel. Floyd Landis, Plaintiffs, v. Tailwind Sports Corporation, et al., Defendants.

51 F.Supp.3d 9

United States of America ex rel. Floyd Landis, Plaintiffs

v.Tailwind Sports Corporation, et al., Defendants.

Civil Action No. 10–cv–00976 RLW

United States District Court, District of Columbia.

Signed June 19, 2014

Jon Linden Praed, Lani Anne Remick, Paul D. Scott, Law Offices of Paul D. Scott, P.C., San Francisco, CA, for Plaintiffs.

Blair Gerard Brown, Rachel F. Cotton, Zuckerman Spaeder, LLP, John Patrick Pierce, Themis PLLC, Christopher Michael Viapiano, Sullivan & Cromwell, LLP, Robert David Luskin, Benjamin Dalrymple Wood, Patton Boggs LLP, Thomas Edwin Zeno, Rebecca A. Worthington, Squire Sanders (US) LLP, Washington, DC, Marc S. Harris, Scheper Kim & Harris LLP, Robert A. Sacks, Sullivan & Cromwell LLP, Los Angeles, CA, Brendan P. Cullen, Sullivan & Cromwell LLP, Palo Alto, CA, Elliot R. Peters, John W. Keker, R. James Slaughter, Sharif E. Jacob, Tia A. Sherringham, Keker & Van Nest, LLP, San Franisco, CA, for Defendants.

MEMORANDUM OPINION

ROBERT L. WILKINS, United States Circuit Judge (Sitting by designation in the United States District Court for the District of Columbia)

This is a civil action brought by the United States (“the government”) and relator Floyd Landis under the False Claims Act (“FCA”) against Lance Armstrong and several other defendants to recover damages and penalties because of alleged fraudulent claims and statements made by the defendants in connection with two sponsorship agreements between the United States Postal Service (“USPS” or “Postal Service”) and the companies that owned and managed the professional cycling team on which Lance Armstrong was the lead rider. Both the government and the relator assert claims against Defendants Lance Armstrong, Johan Bruyneel, Tailwind Sports Corporation (“TS Corp”) and Tailwind Sports, LLC (“TS LLC”) (collectively, the “intervened defendants”). The relator also asserts claims against Defendants Thomas W. Weisel, Capital Sports and Entertainment Holdings, Inc. (“CSE”), William J. Stapleton, Barton B. Knaggs, Ross Investments, Inc. (“Ross Investments”), and Montgomery Sports, Inc. (“Montgomery Sports”) (collectively, the “non-intervened defendants”).

Pending before the Court are motions to dismiss by each defendant. For the reasons set forth below, the Court grants in part and denies in part the defendants' motions to dismiss.

I. BACKGROUND¹

From 1995 to 2004, the USPS sponsored a professional cycling team owned by Montgomery Sports and its successor, TS LLC. United States' Compl. (“Gov't Compl.”) ¶ 2; Relator's Second Am. Compl. (“Relator SAC”) ¶¶ 6, 7, 22–23.² The team was called the USPS cycling team, and Lance Armstrong was the lead rider of the team from 1999 to 2004. Gov't Compl. ¶¶ 2, 10; Relator SAC ¶¶ 6, 7, 22–23. Relator Floyd Landis also was a member of this cycling team from 2002 to 2004. Gov't Compl. ¶ 7; Relator SAC ¶¶ 5, 80. The cycling team, which was managed by Defendant Johan Bruyneel from approximately 1998 to 2004, Gov't Compl. ¶ 2; Relator SAC ¶ 13, achieved great success. Most notably, Mr. Armstrong won the Tour de France every year from 1999 to 2004, Relator SAC ¶ 110, and the Tour de France is widely considered professional cycling's most prestigious race. Pursuant to two agreements—in 1995 and in 2000—the USPS paid Montgomery Sports and its successor companies approximately $42 million for sponsorships. Gov't Compl. ¶ 26; Relator SAC ¶ 208. The plaintiffs contend that the defendants breached these agreements and submitted false claims for payment pursuant to these agreements.

A. The 1995 Sponsorship Agreement³

In 1995, the USPS entered into an agreement with Montgomery Sports and, under this agreement, the USPS agreed to pay Montgomery Sports “in exchange for certain promotional rights, including the prominent placement of the USPS logo on the cycling team's uniform and the provision of hospitality services in connection with team events.” Gov't Compl. ¶ 15; Relator SAC ¶¶ 23–24. This agreement expired on December 31, 1996, but was “subject to automatic renewal on a year-to-year basis unless the Postal Service elected not to renew.” Gov't Compl. ¶ 15; Relator SAC ¶¶ 23–24. The USPS allowed the agreement to renew each year through 2000. Gov't Compl. ¶ 15; Relator SAC ¶ 29. The agreement required the USPS to pay Montgomery Sports “a net sponsorship fee of $1 million in 1996, $1.5 million in 1997, and $2 million in 1998.” Relator SAC ¶ 24. The parties made additional financial modifications to the agreement in subsequent years, and by the end of the first sponsorship agreement in 2000, the USPS had paid approximately $11 million to Montgomery Sports and its successor companies. Relator SAC ¶ 35.

Under the terms of the 1995 agreement,

[t]he performance of the obligations of the parties under this Agreement shall at all times and in all events be subject to “compliance with all applicable rules of the Union Cycliste Internationale [UCI], the Federation Internationale du Cyclisme Professional [FICP]; the United States Professional Cycling Federation, Inc. [USPCF], the International Olympic Committee [IOC], the United States Olympic Committee [USOC], the International Amateur Cycling Federation [IACF], the United States Cycling Federation [USCF] and all other governing organizations.”

1995 Agreement ¶ 13.⁴

Throughout the duration of both sponsorship agreements, the UCI and IOC prohibited “the use of certain performance enhancing drugs and prohibited other practices known to enhance rider performance.” Gov't Compl. ¶ 17; Relator SAC ¶ 36.

B. The 2000 Sponsorship Agreement⁵

In December 2000, the USPS and TS LLC (then known as DFP Cycling) entered into a four-year sponsorship agreement, which commenced on January 1, 2001 and continued through December 31, 2004, unless terminated earlier by the parties. Gov't Compl. ¶ 18; Relator SAC ¶ 29. Prior to entering into the 2000 sponsorship agreement, in November 2000 “various media outlets reported that French authorities had begun an investigation into allegations that Armstrong and the USPS cycling team used banned substances in winning [that year's] Tour de France.” Gov't Compl. ¶ 19.

Despite the defendants' “vehement[ ] deni[al] [of] the allegations,” the USPS was “concerned” about the allegations and “consequently inserted into the [2000] sponsorship agreement several additional provisions relating to the use of banned substances and methods.” Gov't Compl. ¶ 19. Specifically, the following clauses were included in the 2000 agreement as events of default: “The Company fails to take immediate action without notification by the Sponsor in a case of a rider or Team offense related to a morals or drug clause violation”; and/or “[t]here is negative publicity associated with an individual rider or team support personnel, either permanent or temporary, due to misconduct such as, but not limited to, failed drug or medical tests, alleged possession, use or sale of banned substances, or conviction of a crime.” 2000 Agreement ¶ 8(a). The 2000 agreement also included a clause stating:

The Company represents that each rider on the Team has a morals and drug clause that allows the Company to suspend or terminate the rider for cause which shall include items such as (1) conviction of a felony; (2) acts that require the Team to suspend or terminate a rider under the applicable rules of the [UCI, FICP, USPCF, IOC, IACF, and USCF] and all other applicable governing organizations; (3) failure to pass drug or medical tests; (4) inappropriate drug conduct prejudicial to the Team, or the Postal Service, which is in violation of Team rules or commonly accepted standards of morality; and (5) gross neglect of the rider's duty. If any rider on the Team is found guilty of such offense, the Company agrees to take appropriate action within thirty (30) days.

2000 Agreement ¶ 9(a). The 2000 sponsorship agreement also retained the requirement from the 1995 agreement that “the team adhere to the rules of the UCI, IOC, and the other bodies that govern international cycling.” 2000 Agreement ¶ 12.

The USPS's payments to TS LLC increased significantly under the 2000 agreement, by more than $20 million. The 2000 agreement required the USPS to pay TS LLC approximately $31 million over its four-year term. Gov't Compl. ¶ 25; Relator SAC ¶¶ 30, 33. The USPS ended its sponsorship of the cycling team by not renewing the 2000 sponsorship agreement beyond the December 31, 2004 termination date. Gov't Compl. ¶ 18; Relator SAC ¶¶ 29, 32.

C. Performance Enhancing Drugs and Blood Doping

The plaintiffs allege that members of the cycling team, including Defendant Armstrong and the relator, used performance enhancing drugs and techniques that were banned by the governing cycling organizations. These performance enhancing drugs and techniques included “blood doping,” as well as using human growth hormones (“HGH”), anabolic steroids, and corticosteroids.

Blood doping refers to extracting one's own blood, storing the blood for a certain period of time until the red blood cell count has been restored, and then re-injecting the blood back into the body just before or during competition. Gov't Compl. ¶ 28E; Relator SAC ¶ 61. This artificial means of increasing one's red blood cell count increases the oxygen carrying capacity of an individual's blood and thus enhances his endurance. Gov't Compl. ¶ 28E; Relator SAC ¶ 61. Blood doping may also involve the use of Erythropoietin (“EPO”). Gov't Compl. ¶ 28A; Relator SAC ¶ 61–62. EPO is a hormone that stimulates the production of red blood cells in the human body. Gov't Compl. ¶ 28E; Relator SAC ¶¶ 61–62. Although EPO is a naturally occurring hormone that is produced by the kidneys, it can also be produced in a lab and later ingested. Relator SAC ¶¶ 61–62.

D. Allegations of the Use of Banned Performance Enhancing Drugs and Blood Doping

The plaintiffs' complaints include numerous allegations of specific instances of doping⁶ by Defendant Armstrong and other members of the cycling team. Plaintiffs...