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

United States District Court, District of Columbia

February 13, 2017

UNITED STATES ex rel. LANDIS, Plaintiffs,
TAILWIND SPORTS CORP., et al., Defendants.


          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 ¶ 00601199. Although the agreement expired after a year, it was automatically renewed on a year-to-year basis until 2000. Id. at ¶ 00601194. 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 ¶ 000601197. 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 ¶ 00167835. 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 ¶ 00167833-34. “Events of Default” included 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. When the agreement expired on December 31, 2004, USPS opted not to renew it.

         Barton Knaggs and William Stapleton acted as Armstrong's business manager and agent throughout his cycling career. Knaggs began working with Armstrong in 1993 and introduced him to Stapleton in 1994. Gov't's Opp'n, Ex. 20 (“Stapleton Dep.”) at 70:19-23. Stapleton went on to be Armstrong's agent from 1995 to 2013. Id. Stapleton created Capital Sports Ventures in 1998 and renamed it CSE in 2001. Gov't's Opp'n, Ex. 22 (“Knaggs Dep.”) at 24:3-21. From 2001 onwards, CSE maintained a contract with Armstrong with Stapleton serving as his agent. CSE's Mem. Supp. Mot. Summ. J. (ECF No. 311), Ex. I (“Knaggs Decl.”) at ¶ 3. Around 2001, Knaggs joined Stapleton at CSE, and, in 2004, began acting as Armstrong's business manager. Id. Stapleton and Knaggs were both principals of CSE, and as of 2002 they collectively owned a controlling interest in the company. Id. During the early 2000's, Armstrong was CSE's primary client.

         In October 2003, Tailwind (the team's owner) and CSE entered into a service contract in which CSE agreed to manage Tailwind's business affairs. Gov't's Opp'n, Ex. 45. Under the contract, Stapleton and Knaggs were to perform “general management” services for Tailwind on CSE's behalf. Id. For instance, CSE assumed “responsib[ility] for the Team's sponsors, including . . . servicing the sponsors, subject to contractual agreements in place.” Id. at 5663. CSE also agreed to provide “all sales and marketing services related to Tailwind and the Team, ” such as “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. CSE was responsible for submitting Tailwind's invoices for sponsorship fees to USPS from 2003 to 2004. CSE's Mem. Supp. Mot. Summ. J., ECF No. 311, Ex. A ¶ 2.

         B. Armstrong's History with Tailwind, USPS, and Professional Cycling

         Armstrong rode for Tailwind and the USPS cycling team from 1998 until 2004. In his first Professional Rider Agreement with Tailwind, he agreed to abide by the rules and regulations of professional cycling's governing bodies. Gov't's Opp'n, Ex 57. The rider agreement also forbade Armstrong from issuing intentionally false public statements and from using any PEDs while he rode for the team. Id. at ¶ 00031411-12. Throughout USPS's sponsorship, Armstrong was the highest-paid rider on the team, with a salary over double that of the next highest-paid rider. See Gov't's Opp'n, Ex. 48 (“Armstrong shall be the highest paid rider on the team in terms of overall compensation, bonuses, and benefits.”); Ex. 61 (listing rider salaries). While Armstrong's agreement with Tailwind was independent of the USPS sponsorship agreements, the two were often linked. For example, in 2000, Armstrong extended his commitment to the team for another three years so that Tailwind could successfully negotiate a four-year sponsorship agreement with USPS under more favorable terms. See Gov't's Opp'n, Ex. 23 at 35:15-24, 36:13-37:2. Additionally, USPS had the right to use Armstrong's name, likeness, and image in their promotions-a right extended to only one other of the team's sponsors. Gov't's Opp'n, Ex. 47 at ¶ 00031751.

         Throughout the course of the Postal Service's sponsorship, Armstrong and Tailwind repeatedly denied all allegations of doping. In response to the French police's investigation in 2000, for example, the cycling team's spokesperson “categorically den[ied] any involvement with banned substances” and dismissed “[a]nything [said] in the media [as] pure speculation.” Gov't's Opp'n, Ex. 74 at 1. And in a 2003 autobiography, Armstrong proclaimed the team “absolutely innocent.” Gov't's Opp'n, Ex. 68 (“Every Second Counts”) at 73. Rumors of doping persisted nonetheless, and Armstrong continued to deny accusations of PED use after the USPS sponsorship ended in 2004. In 2010, the U.S. Department of Justice initiated a criminal grand jury investigation of Armstrong. About the same time, the United States Anti-Doping Agency (“USADA”) commenced its own investigation, partly on the basis of information provided by Armstrong's former teammate, Floyd Landis, who had himself received a two-year ban from cycling following a positive drug test during the 2006 Tour de France. USADA concluded its inquiry in 2012 by formally charging Armstrong with use and trafficking of PEDs and ultimately found that he had doped throughout the majority of his professional career. Bock Decl. at ¶ 5, 8. Based on its findings, USADA permanently banned Armstrong from professional cycling and the Union Cycliste Internationale (“UCI”), which governs international cycling competitions, stripped him of his seven Tour de France titles. Id. at ¶ 16. Shortly thereafter, in 2013, Armstrong acknowledged in a televised interview that he had used PEDs throughout his career, including his time on the Postal Service team. Gov't's Compl. ¶ 61.

         C. Procedural History

         While supplying information against Armstrong to investigators, Landis simultaneously filed this qui tam action on June 10, 2010. The suit raises various claims under the FCA against Armstrong, the CSE Defendants, Tailwind, the cycling team's sporting director Johan Bruyneel, and Tailwind's founder Thomas Weisel. After declining to charge Armstrong criminally, the government intervened in Landis's suit against Armstrong, Tailwind, and Bruyneel, and reserved the right to intervene against the CSE Defendants at a later time. The Court has since dismissed Landis's claims against Weisel, and the Clerk has entered a default against Tailwind and Bruyneel, who have been largely absent from the current litigation. In addition, the Court held that the FCA's six-year statute-of-limitations period, see 31 U.S.C. § 3731(b)(1) (2012), applied to all of Landis's claims, and thus, Landis could only recover for “direct” false claims submitted after June 10, 2004. Mem. Op. June 19, 2014, ECF No. 174. Accordingly, Landis's FCA claims against the CSE Defendants are limited to four payment invoices, totaling $68, 000, submitted by Tailwind in June, August, and September of 2004. Id. All of these invoices are requests for reimbursements for hospitality-related expenses, specifically food and beverage expenditures, tent rentals, and the costs associated with a victory celebration following Armstrong's 2004 Tour de France win. Id. In earlier rulings, the Court also awarded summary judgment in favor of all defendants on the claim that Armstrong and CSE were responsible for so-called “reverse” false claim violations.[4]

         The remaining active defendants, then, are Armstrong, against whom the government has intervened, and the CSE Defendants, against whom it has not. Multiple FCA claims remain against both defendants, and the government has also charged Armstrong with common-law fraud and unjust enrichment. With discovery having concluded, the parties now move for summary judgment. As noted above, the government has moved for partial summary judgment on two discrete issues related to the potential damages award, and Armstrong has moved for summary judgment on all of the remaining claims against him. Along with joining Armstrong's motion, the CSE Defendants also seek summary judgment on the specific claims against them. The Court heard oral argument on the pending motions on November 2, 2016.

         II. Standard of Review

         A party is entitled to summary judgment if the pleadings and other materials in the record, “including depositions, documents, electronically stored information, affidavits or declarations, stipulations . . ., admissions, [or] interrogatory answers, ” show that “there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56. The moving party bears the burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). “A fact is ‘material' if a dispute over it might affect the outcome of a suit under governing law.” Holcomb v. Powell, 433 F.3d 889, 895 (D.C. Cir. 2006). An issue is “genuine” “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party” on a particular claim. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The ultimate inquiry is “whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Id. at 251-52.

         When reviewing a motion for summary judgment, courts “view the evidence in the light most favorable to the nonmoving party and draw all inferences in its favor.” Mastro v. Potomac Elec. Power Co., 447 F.3d 843, 850 (D.C. Cir. 2006). “Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions” and thus inappropriate for “a judge at summary judgment.” Barnett v. PA Consulting Grp., Inc., 715 F.3d 354, 358 (D.C. Cir. 2013) (quoting Pardo-Kronemann v. Donovan, 601 F.3d 599, 604 (D.C. Cir. 2010)). A party seeking to defeat summary judgment cannot simply rest on its pleadings, but rather must support its opposition with depositions, affidavits, declarations, or other evidence setting forth specific facts that reveal a genuine issue warranting a trial. Fed.R.Civ.P. 56(c).

         III. Analysis

         A. Government's Motion for Summary Judgment

         The government has moved for summary judgment against Armstrong on two narrow issues relating to its FCA claims: (1) the presentment of claims by Tailwind to the United States and (2) the amount paid by the United States on those claims. The first issue is a necessary predicate for the government's remaining FCA claims, while the second is relevant to its damages claim. Neither issue, however, prevents Armstrong from contesting his liability or the proper amount of damages at trial.

         “A party may move for summary judgment, identifying each claim or defense-or the part of each claim or defense-on which summary judgment is sought.” Fed.R.Civ.P. 56(a) (emphasis added). When Rule 56(a) was amended in 2010, the accompanying commentary indicated that the quoted sentence was intended to clarify that summary judgment is proper for even a portion of a claim. See Fed.R.Civ.P. 56(a) advisory committee's note to 2010 amendment. Regardless of whether a party seeks summary judgment on part of a claim or the entire claim, the same standard applies: The movant must establish through its pleadings that no genuine issue exists as to a material fact. See Celotex Corp., 477 U.S. at 324.

         Applying that standard, the existence of a “claim” is clearly essential to-and thus part of- the FCA violations alleged in the government's complaint. Gov't's MPSJ 6-7. The FCA defines a claim as “any request or demand, whether under a contract or otherwise, for money or property, that . . . is presented to an officer, employee, or agent of the United States.” § 3729(b)(2). Here, Tailwind submitted requests for money to the Postal Service, in the form of invoices, under the sponsorship agreements. Invoices requesting payment for goods or services are certainly “claims” under the FCA. See United States v. Bornstein, 423 U.S. 303, 312 (1976). The government puts forth evidence to establish that Tailwind submitted forty invoices to USPS, totaling $31, 442, 279.85, under the 2000 Sponsorship Agreement. Gov't's MPSJ, Ex. 5 (Invoices Under 2000 Agreement). It also offers proof that, on July 25, 2000, Tailwind submitted another invoice for $825, 000 under the 1995 Sponsorship Agreement. Gov't's MPSJ, Ex. 2 (“Pugliese Decl.”), Ex. 8. In sum, the government has shown that USPS paid $32, 267, 279.85 on 41 invoices, or “claims.” See Gov't's MPSJ, Ex. 4 (“Findley Decl.”) at ¶¶ 18, 21.

         Armstrong does not dispute these figures, but instead argues that the Court may not decide facts at summary judgment and, alternatively, that the government's evidence would be inadmissible at trial and thus cannot support summary judgment on this issue.[5] The Court rejects both arguments.

         First, summary judgment can be entered on narrow, factual issues. The cases Armstrong relies upon to contend otherwise either pre-date the 2010 amendment to Rule 56-which clarifies that summary judgment is permissible on portions of a claim-or involve disputed facts that prevented summary judgment in the first place.[6] By contrast, courts in this district have entered summary judgment on discrete factual issues when warranted by the record. See, e.g., Branch Banking & Trust Co. v. Rappaport, 982 F.Supp.2d 66, 69 (D.D.C. 2013) (entering summary judgment on the principal amount of money owed on a loan). Armstrong's objections are thus unfounded and ...

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