On June 19, 2014, a memorandum opinion was issued in United States ex rel. Landis v. Tailwind Sports Corp., et al., No. 10-cv-00976 (RLW) (D.D.C.), refusing to dismiss the lawsuit against cyclist Lance Armstrong and a number of associations for alleged violations of the False Claims Act. The alleged violations arose in connection with two sponsorship agreements between the United States Postal Service (“USPS”) and the companies that owned and managed the professional cycling team on which Armstrong was the lead rider from 1999 to 2004. The plaintiffs alleged that members of the cycling team, including Armstrong, used performance enhancing drugs that were banned by the governing cycling organizations, in violation of the USPS sponsorship agreements, and that former team manager Johan Bruyneel (who is also named as a defendant) and Armstrong’s management company, Tailwind Sports, among others, knowingly flouted the sponsorship agreements.
The USPS had paid about $42 million in sponsorship fees under its sponsorship deal from 1996 to 2004. Armstrong won each Tour de France during that period.
As an initial matter, the court addressed whether, and to what extent, the tolling provision of the FCA Statute of Limitations (“SOL”) at 31 U.S.C. § 3731(b)(2) applied to relators. If the tolling provision did not apply to relators, then Relator Floyd Landis would be subject to the six-year SOL provided in section 3731(b)(1), and would not be able to recover against any defendant on allegedly false claims for payment that were submitted by the defendants to the USPS prior to June 10, 2004 (six years prior to the date on which relator filed his initial complaint). Conversely, if the court were to conclude that the tolling provision did apply to relators, then Landis could recover on alleged false claims or reverse false claims dating back ten years.
The court adopted the reasoning of the Fourth Circuit in U.S. ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F.3d 288 (4th Cir. 2008), which found that “[t]he government’s knowledge of ‘facts material to the right of action’ does not notify the relator of anything, so that knowledge cannot reasonably begin the limitations period for a relator’s claims.” Id. at 294. The court held “the statute’s express language demonstrates that Congress did not intend to apply the tolling provisions to relators” and that section 3731(b)(2) applies to lawsuits brought, or intervened in, by the United the States, such that the three-year SOL applies to the government’s knowledge – and not the relator’s knowledge. Op. at 28-30. (In adopting the Sanders approach, the court declined to follow the Ninth Circuit’s approach in U.S. ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211 (9th Cir. 19996), under which Landis would not be able to satisfy the standard for tolling under section 3731(b)(2) because he had first-hand knowledge of the alleged doping as it allegedly occurred. Op. at 27.) Thus, the six-year limitations period applied to relator’s claims against all of the defendants, and relator’s FCA claims based on alleged fraudulent payments or reverse false claims that occurred prior to June 10, 2004 were dismissed with prejudice. Op. at 30. The court noted that “[b]ased on the current record, it appears that of the approximately $31 million paid under the 2000 sponsorship agreement, all except approximately $68,000 would be time-barred” under the six- year SOL. Op. at 26, n.19.
Armstrong and the other defendants, however, may still be liable for damages claimed by the government. The tolling provision applicable to the government’s FCA claim – section 3731(b)(2) – provides for up to a ten-year limitations period. The defendants argued that because the government did not independently investigate the doping allegations, its claims could not be tolled. The court decided it could not make a determination based on the present record whether the government should have conducted its own investigation sooner, and that if such an investigation had been undertaken, it would have uncovered doping. Accordingly, the court denied without prejudice the defendants’ motion to dismiss the government’s action as time-barred.
The court next examined the applicability of the Fraud Enforcement and Recovery Act Amendments (“FERA”) to the case, concluding that it was not appropriate to mechanically apply the statutory definition of “claim” in the FCA to the FERA amendment at § 4(f)(1), and holding that “claims under the False Claims Act” means a civil action or legal claim under Section 3729(a)(1)(B). The court thus held that FERA applied to the plaintiffs’ claims which were FCA actions based on false records or statements.
The court then addressed the reverse false claims count. The reverse false claims provision imposes liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C. 3729(a)(7) (2006). The court held that the term “obligation” under the pre-FERA reverse false claims statute (31 U.S.C. § 3729(a)(7) (2006)) “encompasses a breach of a government contract and the attendant obligation to repay the government.” Op. at 63. That said, every alleged breach of contract does not give rise to the type of obligation that would serve as the basis for a reverse false claim. Op. at 64. Rather, the allegations must be sufficient to show that the defendant owed the government “an obligation sufficiently certain to give rise to an action of debt at common law.” Id. (quoting Am. Textile Mfrs. Inst., Inc. v. The Ltd., Inc., 190 F.3d 729, 736 (6th Cir. 1999)). The court found that the team’s alleged doping activity would have been a “total breach” of the USPS sponsorship agreements, and as such, the USPS could have sought repayment of the sponsorship fees as a remedy. Op. at 68. Consequently, under both agreements, the defendants owed the government an obligation sufficiently certain to give rise to an action of debt at common law.Id.
Because plaintiffs had sufficiently pled that the defendants owed an obligation to “reimburse” the government due to the alleged breach of the sponsorship agreements as a result of the riders’ doping, the court denied defendants’ motions to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The court also refused to dismiss the reverse false claims count against Armstrong, finding that “[t]he government’s and relator’s complaints are rife with allegations that Armstrong had knowledge of the doping, and that he made false statements to conceal the doping.” Op. at 72.
See our earlier post on this case here.