Word came last Friday that the United States would be intervening in the False Claims Act qui tam case filed against Lance Armstrong and others by former teammate Floyd Landis. DOJ Press Release attached. We discussed the allegations in this case in January when the complaint was obtained by the media and made public even though it was still under seal. Now we know that the U.S. Postal Service Inspector General and the Department of Justice (DOJ) strongly support the whistleblower's case and will be filing its own complaint within 60 days. We also know what Armstrong and his co-defendants' primary defenses will be (now that Armstrong has admitted doping): they are statute of limitations and damages. See USA Today, NYT, and WSJ. These are defenses that commonly arise in an FCA case so we thought we would give a thumbnail sketch of each issue.
First, statute of limitations; that means the defense is saying the whistleblower (and hence the United States) waited too long to file his complaint. The law sets time limits to bring certain kinds of cases to protect against memories fading, documents being lost, etc. The FCA statute of limitations provides that an action must be brought within "6 years after the violation [of the FCA] is committed", but it also has an alternative which is like a tolling provision; it provides that an action must be brought within "3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed". Simple, right? Here, the contracts with the USPS were from 1999-2004, with payments reportedly made between 2001-2004, and the complaint was filed in June 2010 (the whistleblower's filing tolls the statute of limitations for the United States). Under the prevailing case law, the 6 year statute of limitations starts to run with the submission of a claim under the contract, but many courts have held that the violation does not occur (and thus the statute does not begin to run) until the date of the government's final payment if this was 2004, then the government appears to be on solid ground. Similarly, under the 3 year/10 year rule, there are issues of who the responsible U.S. official is (most courts say the DOJ) and what did they know or reasonably should have known (bearing in mind Armstrong's denials of doping until very recently). The government is bringing its case within 3 years of the whistleblower's suit, and within 10 years of the last violation/payment, but arguably more than 10 years after at least some claims were submitted and some of the violations occurred. The U.S. has a backstop position also: when the U.S. files its complaint in 60 days or so, it can add common law claims for breach of contract, unjust enrichment, payment by mistake of fact (all with a 6 year statute of limitations), and fraud (3 years), and seek disgorgement of profits (no statute of limitations) by defendants. These provide for an extended statute of limitations where there is fraud that prevents discovery of the illegal conduct and for disgorgement, there is no statute of limitations. We can expect the government to argue that Armstrong's efforts to hide and deny his doping for years tolled the statutes of limitation, and seek disgorgement as an alternative to FCA recovery.
Second, how do you measure damages to the United States? The whistleblower and DOJ say that the single damages are the full amount of the contract payments, i.e. about $30 million; in other words, the United States says the contracts were basically worthless because they were violated in a material way and the USPS would not have entered the contracts had they known the truth, namely that Armstrong and his teammates were doping; basically, USPS did not get the benefit of its bargain. As we know, the FCA provides for trebling of the single damages (plus penalties) where liability is established, so the maximum recovery under the United States' view of the law approaches $100 million (plus penalties). The defense says that the damages need to be reduced by the benefit the government received and that there is a USPS study showing the government received $100 million or more in benefit from the contracts and sponsorship of Armstrong and his team (of course this was before the truth about Armstrong came out). In other words, the defense is saying the government got its money's worth and much more, and so no damages are due. While there is some legal support for Armstrong's position, it appears the government has the better of the argument here. And, if there were to be any reduction in damages for the benefit the USPS received, the case law is clear that the reduction is taken after the trebling, not before. In addition, as noted above, the U.S. can pursue common law claims as well, recover single damages and prejudgment interest; the measure of damages may not be exactly the same as in the FCA case.
According to press reports, these two defenses, and the parties' differing views on their impact, are standing in the way of a settlement. With the case heading to litigation, we may see some court decisions on these common FCA defenses, and given the stakes, any lower court decision(s) is likely to be appealed to the U.S. Court of Appeals for the D.C. Circuit. As more and more FCA cases are being litigated, the body of case law is growing, and may help add clarity on issues which will strengthen the government's legal position in FCA cases and its ability to settle cases. Time will tell.