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

• Citation: 160 F.Supp.3d 253
• Decision Date: 12 January 2016
• Docket Number: Case No. 1:10-cv-00976 (CRC)
• Parties: United States ex rel. Landis, Plaintiffs, v. Tailwind Sports Corp., et al., Defendants.
• Court: U.S. District Court — District of Columbia

160 F.Supp.3d 253

United States ex rel. Landis, Plaintiffs,

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

Case No. 1:10-cv-00976 (CRC)

United States District Court, District of Columbia.

Signed January 12, 2016

Filed February 12, 2016

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

Marc S. Harris, Margaret E. Dayton, Scheper Kim & Harris LLP, Los Angeles, CA, John Patrick Pierce, Themis PLLC, Robert David Luskin, Paul Hastings LLP, Benjamin Dalrymple Wood, Rebecca A. Worthington, Thomas Edwin Zeno, Squire, Patton, Boggs (US) LLP, Washington, DC, Elliot R. Peters, John W. Keker, R. James Slaughter, Sharif E. Jacob, Elizabeth K. McCloskey, Tia A. Sherringham, Keker & Van Nest, LLP, San Francisco, CA, for Defendants.

MEMORANDUM OPINION

CHRISTOPHER R. COOPER

, United States District Judge

Former professional cyclist Floyd Landis filed this False Claims Act (“FCA”) qui tam action against Lance Armstrong—his former teammate on the U.S. Postal Service (“USPS”) cycling team—and a host of associated defendants. Landis (“Relator”) alleged that the defendants had wrongly obtained and retained money under a Sponsorship Agreement with USPS by concealing the team's use of performance-enhancing drugs. The Government intervened against Armstrong but has thus far declined to do so against his longstanding business representatives William Stapleton and Barton Knaggs, and their company, Capital Sports & Entertainment Holdings, Inc. (collectively, “CSE Defendants”).

While the case was still in the early stages of discovery, the CSE Defendants moved for summary judgment on the five counts that remain against them. Four of these counts relate to “direct” false claims, while the other alleges a series of “reverse” false claims. Direct false claims cause the United States to remit money directly to claimants, whereas reverse false claims facilitate the improper withholding of money or property to which the United States is legally entitled. Compare 31 U.S.C. § 3729(1)–(2) (2006)

, with id. § 3729(a)(7) (2006). Direct and reverse false claims are mirror images of one another—both result in a loss to the Government. See United States ex rel. Ervin & Assocs., Inc. v. Hamilton Sec. Grp., Inc. , 370 F.Supp.2d 18, 37 (D.D.C.2005) (noting that Congress intended § 3729(a)(7) “to treat ‘an individual who makes a material misrepresentation to avoid paying money owed to the Government ... as if he submitted a false claim to receive money’ ” (quoting United States ex rel. Wilkins v. N. Am. Constr. Corp. , 173 F.Supp.2d 601, 630 (S.D.Tex.2001)

). Armstrong has joined those parts of the CSE Defendants' motion pertaining to reverse-false-claim liability. The Court held a hearing on the motion for summary judgment on December 7, 2015.

Because a genuine issue of material fact exists as to whether any false claims for payment under the Sponsorship Agreement were submitted within the FCA's six-year limitations period, the Court will deny the CSE Defendants' motion as to Relator's Counts 1, 2, 3, and 6 (direct false claims). But the Court will grant the CSE Defendants' motion with respect to Count 4 (reverse false claims), because the Sponsorship Agreement created no legal obligation to repay USPS any sponsorship fees obtained as a result of materially false statements. Accordingly, the Court will enter summary judgment in favor of both the CSE Defendants and Armstrong on Count 4 of Relator's Second Amended Complaint.

I. Background

A. The Sponsorship Agreement, Tailwind, and the CSE Defendants

In 1995 and again in 2000, USPS agreed to sponsor the professional cycling team prominently linked with Lance Armstrong.¹ The 2000 Sponsorship Agreement (“Sponsorship Agreement”) was a contract between USPS and DFP Cycling, LLC, a predecessor of Tailwind Sports Corporation (“Tailwind”), 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. Decl. of Laura Hundley Ritts Supp. Defs.' Mot. Summ. J. (“MSJ”) (“Ritts Decl.”), Ex. A (“Sponsorship Agreement”) 4–6. The Sponsorship Agreement specified the amount and frequency of lump-sum payments from USPS to Tailwind over a four-year period, but it also contemplated various other “incidental costs” to be allocated between the parties, depending on which promotions were undertaken. Id. at 7, 9.

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.” Id. at 5. The “Company agree[d] to take appropriate action within thirty (30) days” in the event of such behavior. Id. 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. Id. at 4. Two such events were Tailwind's “fail[ure] 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.” Id.

In October 2003, Tailwind and CSE entered into a Service Agreement in which CSE agreed to manage Tailwind's business affairs. For instance, CSE assumed “responsib[ility] for the Team's sponsors, including ... servicing the sponsors, subject to contractual agreements in place.” Decl. of Paul D. Scott Supp. Relator's Opp'n Defs.' MSJ (“Scott Decl.”), Ex. 5, at 50. CSE also agreed to provide “all sales and marketing services related to Tailwind and the Team,” including “hospitality for sponsors”; “media and public relations services”; “all accounting services required by Tailwind,” including preparation of “books of accounts and records”; “legal services”; and assistance in “complying in all material respects with all the regulations of all applicable cycling governing bodies.” Id. at 50–51.² CSE was responsible for submitting Tailwind's invoices for sponsorship fees to USPS during the time period relevant to the present motion. Ritts Decl. ¶ 2.

Stapleton and CSE began acting as Armstrong's business agents in 1995 and 2001, respectively. Decl. of William Stapleton Supp. Defs.' MSJ (“Stapleton Decl.”) ¶ 3; Decl. of Barton B. Knaggs Supp. Defs.' MSJ (“Knaggs Decl.”) ¶ 3. Stapleton remained in this position until around 2013. Scott Decl., Ex. 3, at 6:2–7. Knaggs began acting as Armstrong's business manager in 2004. Knaggs Decl. ¶ 3. Stapleton and Knaggs were both principals of CSE throughout the sponsorship period, and as of 2002 they collectively owned a controlling interest in the company. Stapleton Decl. ¶ 1; Knaggs Decl. ¶ 3; Scott Decl., Ex. 5, at 26:23–27:5. Under the Tailwind–CSE agency agreement, Stapleton and Knaggs were to perform “general management” services for Tailwind on CSE's behalf. Scott Decl., Ex. 5, at 53.

B. Prior Proceedings in This Case

Relator filed this qui tam action in June 2010 against Lance Armstrong and several other individuals and entities associated with the USPS professional cycling team. Relator's Second Amended Complaint included four counts (5 through 8) based on the FCA as amended by the Fraud Enforcement and Recovery Act (“FERA”) of 2009, Pub. L. No. 111-21, 123 Stat. 1617 (2009)

, and four counts (1 through 4) based on the pre-2009 version of the FCA. Relator's pre-FERA counts alleged that all defendants knowingly submitted, or caused to be submitted, false or fraudulent claims for payment under the Sponsorship Agreement, in violation of 31 U.S.C. § 3729(a)(1) (Count 1); knowingly made or used, or caused to be made or used, false records or statements to get false or fraudulent claims paid or approved by the United States, in violation of § 3729(a)(2) (Count 2); conspired to defraud the United States by getting false or fraudulent claims allowed or paid, in violation of 31 U.S.C. § 3729(a)(3) (Count 3); and avoided the obligation to return funds paid by the United States by concealing and failing to disclose the USPS team's doping, in violation of § 3729(a)(7) (Count 4). Am. Compl. ¶¶ 239–58. In February 2013, the Government intervened against Armstrong and certain other defendants but declined to intervene against the CSE Defendants.³

In June 2014, the Court granted in part and denied in part several defendants' motions to dismiss Relator's Second Amended Complaint in an opinion issued by Judge Wilkins, who previously presided over the case. Mem. Op. June 19, 2014, ECF No. 174. The Court initially held that 31 U.S.C. § 3731(b)(1)

's six-year statute-of-limitations period applied to all of Relator's claims. Id. at 30. The Court then dismissed Counts 5, 7, and 8 as to all defendants (including the CSE Defendants and Armstrong), id. at 44, 81, and held that Relator could recover under Counts 1, 2, 3, and 6 only for “direct” false claims submitted after June 10, 2004 (within the six-year limitations period), id. at 30.⁴ The Court further denied the CSE Defendants' motion to dismiss as to Count 4, brought under the pre-FERA reverse-false-claim provision. That provision imposed liability on anyone who “knowingly makes, uses, or causes to be made or used, a...