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

• Decision Date: 13 February 2017
• Docket Number: Case No. 1:10–cv–00976 (CRC)
• Citation: 234 F.Supp.3d 180
• Parties: UNITED STATES EX REL. LANDIS, Plaintiffs, v. TAILWIND SPORTS CORP., et al., Defendants.
• Court: U.S. District Court — District of Columbia

234 F.Supp.3d 180

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 February 13, 2017

Jon Linden Praed, Lani Anne Remick, Paul D. Scott, Law Offices of Paul D. Scott, P.C., 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, Squire Patton Boggs (U.S.) LLP, Washington, DC, Elliot R. Peters, John W. Keker, R. James Slaughter, Sharif E. Jacob, Elizabeth K. McCloskey, Keker & Van Nest, LLP, San Franisco, CA, for Defendants.

MEMORANDUM OPINION

CHRISTOPHER R. COOPER, United States District Judge

In 1995, the United States Postal Service ("USPS" or "Postal Service") sponsored a professional cycling team that would soon recruit Lance Armstrong to be its lead rider. Five years later, after Armstrong had battled back from cancer

to win two consecutive Tour de France titles, the Postal Service renewed the sponsorship for an additional four years on the condition that Armstrong remain on the team. Armstrong proceeded to win the Tour de France five more times, making him one of the world's most recognized and celebrated athletes. From 2000 to 2004, USPS paid the team's owner just over $32 million, the lion's share of which went to Armstrong as the team's star rider. In exchange, the Postal Service sought to associate itself with the positive attributes that Armstrong presented to the public: perseverance, speed, and reliability. It hoped that this association would boost sales and enhance the reputation of its brand relative to its competitors in the express delivery market. Armstrong appeared to hold up his end of the bargain, and the Postal Service readily touted the benefits it received from the sponsorship.

But appearances proved to be deceiving. What few knew at the time was that Armstrong and his teammates had used performance enhancing drugs ("PEDs") throughout the course of the sponsorship. Their conduct was contrary to the team owner's contractual assurance to USPS that the team would abide by the rules of professional cycling and compete drug-free. It also conflicted with Armstrong's repeated denials of doping, both publicly and, allegedly, to Postal Service officials. After investigations by the United States Anti–Doping Agency and federal law enforcement confirmed the team's widespread PED use, Armstrong was banned from competitive cycling for life and stripped of his seven Tour de France titles. Only then did he come clean to the public, in a 2013 interview with Oprah Winfrey. Four months later, the federal government intervened in this False Claims Act ("FCA") lawsuit, which had been filed under seal in 2010 by Armstrong's former teammate, and fellow PED-user, Floyd Landis. The FCA permits private citizens, known as "relators," to bring so-called qui tam actions against anyone who has submitted false or fraudulent claims for payment to the United States government.

The government's suit alleges that Armstrong; the team's owner, Tailwind Sports Corporation ("Tailwind"); and the team's sporting director, Johan Bruyneel, violated the FCA by issuing payment invoices to the Postal Service under the sponsorship agreements (or causing them to be issued) while actively concealing the team's violations of the agreements' anti-doping provisions.

It also alleges common-law fraud and unjust enrichment. Landis' suit also alleges violations of the FCA, but includes Armstrong's agents at the sports management firm Capital Sports & Entertainment ("CSE") as additional defendants. The government seeks nearly $100 million in actual damages, calculated at three times the total amount of USPS's sponsorship payments. If successful, Landis, as the qui tam relator, would be entitled by statute to receive up to twenty-five percent of any monetary recovery.

With discovery in the case complete, both sides have moved for summary judgment. The government's motion is aimed narrowly. It seeks to establish as a matter of law the precise number (41) and the total amount ($32,267,279) of the payment invoices that Tailwind submitted to USPS during the period of the sponsorship that is at issue in this case. Because the record is uncontested as to those figures, the Court will grant the government's motion.

Armstrong, joined by the CSE Defendants, takes a broader approach, moving for summary judgment as to liability on all pending claims. Finding that the government has raised genuine issues of fact regarding the applicability of two recognized theories of FCA liability, as well as its common-law claims, the Court will largely deny the motion as to liability.

Armstrong also asks the Court to find, as a matter of law, that the government has suffered no actual damages, entitling him to summary judgment on that issue. The government's actual damages are zero, in his view, because the present record conclusively demonstrates that the benefits USPS reaped from the sponsorship exceeded its $32 million price tag. This issue presents a closer question. The Court generally adopts Armstrong's proposed "benefit-of-the-bargain" approach to calculating damages in FCA cases, like this one, where the market value of goods or services supplied under a government contract are difficult to determine. It also agrees that the record evidence—including internal Postal Service correspondence and contemporaneous third-party valuation studies—supports a finding that USPS received substantial benefits as a direct result of the sponsorship. Ultimately, however, the Court concludes that the monetary amount of the benefits USPS received is not sufficiently quantifiable to keep any reasonable juror from finding that the agency suffered a net loss on the sponsorship, especially if one considers the adverse effect on the Postal Service's revenues and brand value that may have resulted from the negative publicity surrounding the subsequent investigations of Armstrong's doping and his widely publicized confession. Determination of damages must therefore be left to a jury. Accordingly, the Court declines to grant Armstrong summary judgment on damages and will set the case for trial.

I. Background

A. Sponsorship Agreements

In 1995, the Postal Service entered into an agreement with Montgomery Sports, Inc., later renamed Tailwind, to sponsor a professional cycling team.¹ Armstrong's Mem. Supp. Mot. Summ. J. ("Armstrong's MSJ"), Ex. 21 ("1995 Sponsorship Agreement").² Under that agreement, USPS made quarterly sponsorship payments in exchange for various "Promotional Rights and Activities," including media exposure, the right to prominently display USPS's eagle insignia on team uniforms, and hospitality at major cycling events. Id. at US00601199. Although the agreement expired after a year, it was automatically renewed on a year-to-year basis until 2000. Id. at US00601194. USPS's motivations for sponsoring a cycling team evolved over the course of its relationship with Armstrong and the team. Originally, it intended to use the sponsorship to generate corporate sales by inviting potential clients to cycling events. But by 2000, USPS placed more emphasis on the favorable media attention it garnered through coverage of the team's racing success and Armstrong's compelling personal story. Gov't's Opp'n Armstrong's MSJ ("Gov't's Opp'n"), Ex. 32 ("Sonnenberg Decl.") at ¶¶ 3, 7.

Heralding Armstrong's Tour de France victories in 1998 and 1999, USPS modified the sponsorship agreement in 2000 to extend for a full four years. See Armstrong's MSJ, Ex. 22 ("2000 Sponsorship Agreement"). Under the sponsorship terms, Tailwind remained responsible for managing the cycling team and submitting payment invoices to USPS. Both sponsorship agreements specified the amount and frequency of lump-sum payments from USPS to Tailwind, and provided for various other "incidental costs" to be allocated between the parties, depending on the promotions undertaken. See 1995 Sponsorship Agreement; 2000 Sponsorship Agreement. Across the entire period of sponsorship, the Postal Service paid Tailwind over $42 million. See Gov't's Mem. Supp. Mot. Partial Summ. J. ("Gov't's MPSJ") Statement of Material Facts ¶¶ 3, 5 (citing Landis's Second Am. Compl. ("SAC") ¶¶ 24–33, Gov't's Compl. ¶ 25, and Armstrong's Am. Answer SAC ¶¶ 24–33).³

The 1995 agreement required that the parties "in all events be subject to compliance with all applicable rules of the Union Cycliste Internationale, the Federation Internationale du Cyclisme Professionel, ... the United States Cycling Federation and all other governing organizations." 1995 Sponsorship Agreement at US000601197. Those rules strictly prohibited the use of PEDs. Gov't's Opp'n, Ex. 35 ("Bock Decl.") at ¶¶ 8–9. After the French police investigated the Postal Service team on accusations of doping in 2000, USPS insisted on including specific provisions in the 2000 agreement concerning the use of banned substances by team members. See Sonnenberg Decl. ¶ 8; Armstrong's MSJ, Ex. 47; 2000 Sponsorship Agreement. The new agreement, for example, required Tailwind to "represent[ ] that each rider on the Team has a morals turpitude and drug clause that allows [Tailwind] to suspend or terminate the rider" for reasons such as "failure to pass drug or medical tests," or "inappropriate drug conduct prejudicial to the Team, or the Postal Service [,]" and "to take appropriate action within thirty (30) days" of discovering such behavior. 2000 Sponsorship Agreement at US00167835. While the agreement did not obligate Tailwind to return any funds received during periods of noncompliance, it did authorize USPS to terminate the contract and exercise any "right or remedy available to it under law or in equity" if an "Event of Default" occurred. Id. at US00167833–34. "Events of Default" included Tailwind's "fail[ure] to take immediate action...