On Thursday, a federal judge rejected a settlement between two of Lance Armstrong’s associates and Floyd Landis. For $600,000, the deal would have dismissed Bill Stapleton, Armstrong’s longtime agent, and Barton Knaggs, Armstrong’s longtime business partner, from a false-claims lawsuit filed by Landis in 2010. But the settlement wouldn't have included Armstrong.
Confused? You’re not the only one. Here are the basic facts you need to know:
#1 Who’s Suing Whom?
In 2010, Floyd Landis filed a lawsuit under the federal False Claims Act, alleging that the doping and subsequent cover-up at the U.S. Postal Service pro cycling team amounted to defrauding the federal government, the team’s principal sponsor.
As defendants, Landis named: Armstrong; team director Johan Bruyneel; the team’s holding company, Tailwind Sports; the team’s one-time owner, Thom Weisel; Stapleton; Knaggs; and Capital Sports and Entertainment—the agency Stapleton and Knaggs co-founded and which for a time controlled the team.
The federal government joined the suit in 2013, but only partly, declining to name Knaggs, Stapleton, CSE, and Weisel as defendants. Last June, Weisel was dismissed as a defendant. He is so far the only defendant to be let out of the case.*
#2 What’s the False Claims Act?
The False Claims Act is a federal statute designed to protect the federal government from fraud by private contractors. It’s also known as Qui Tam or the federal whistleblower law.
The government can bring its own suit, but the False Claims Act also allows a private citizen to bring legal action on behalf of the government and claim a portion of the damages if he wins. That’s designed to encourage a whistleblower with knowledge of fraud to come forward. Many False Claims Act cases start with private whistleblower suits.
The federal government can decide whether to intervene or join the case. That’s usually a major development when it happens, because it brings the federal government’s considerable resources and legal expertise to bear. It also adds a measure of validity to what would otherwise just be a case between two private parties.
In Landis v. Armstrong, the government didn’t intervene in 2013 when it came to Stapleton, Knaggs, CSE, and Weisel. But it reserved its right to do so later. Federal law permits the government to join part of a False Claims Act case, without invalidating the part it did not join. However, intervention does give the federal government control over parts of the case it did not join, including dismissal of defendants.
#3 What’s at Stake?
Under the False Claims Act, damages are high. The law allows for damage awards up to three times the original amount of fraud, plus legal expenses. In the USPS case, the Postal Service invested more than $30 million in sponsorship of the team from 1999 to 2004. So damages could theoretically be in the $100 million range, at their max.
The defendants, including Armstrong, would be collectively liable for those damages. But the number of defendants depends on who wins the case. If Landis wins his action, then all the defendants are liable. If the government wins—but Landis can’t make the case that all the defendants are responsible—then the damages are limited to the defendants named by the government: Armstrong, Bruyneel, and Tailwind Sports. And because Tailwind Sports is out of business, it comes down to Armstrong and Bruyneel.
Note that a False Claims Act is purely a civil action. There is no possibility of jail time. In 2012, U.S. District Attorney André Birotte, Jr. declined to bring charges in a federal grand jury investigation of Armstrong and his associates.
#4 Where’s the Case Now?
The parties are arguing over which parties are on the docket once the case goes to trial.
Armstrong’s previous request to be dismissed from the case was unsuccessful.
Last December, Knaggs and Stapleton (whom, you’ll remember, aren’t part of the governments action), reached a settlement with Landis in exchange for $600,000 to the government and $100,000 to Landis’s lawyer, Paul Scott. But the federal government objected to the settlement. Court filings by Knaggs and Stapleton’s attorneys suggest that the objection was designed to keep the pair as defendants, thus encouraging them to cooperate with the government’s case.
The federal judge upheld the objection and rejected the settlement agreement Thursday. Knaggs and Stapleton may appeal that judgment. The rejection has implications for settlement negotiations with other defendants as well.
#5 What Will Happen Next?
Here’s the basic legal theory in the Landis case: Armstrong and the rest of the defendants defrauded the federal government by doping and then covering it up. Doping is a form of cheating, which is against the rules of the sport, and the contract between Tailwind Sports and the USPS had clauses in it that would nullify the deal if the team violated USPS policies or ethical standards, what’s often called a “moral turpitude” clause.
Further, Landis argues that, had the USPS known about the doping, it would not have renewed its original sponsorship agreement. Doping wasn’t the only fraud—the cover-up is an issue, too.
Armstrong, on the other hand, argues that court filings suggest senior USPS officials knew (or should have known), that the team was doping. More specifically, Armstrong claims the USPS has valued the sponsorship deal at over $100 million when it comes to exposure, which would mean there are no damages to recoup.
The case does not have a hearing date yet. But most likely the outcome will hinge on settlement agreements with one or more of the defendants. As the federal government has made clear, those agreements must include a satisfactory level of cooperation. Unless that happens, all parties in the case will head toward trial.
Correction: Previously Outside reported that Weisel was still a defendant in the case.
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