- Federal prosecutors’ track record in going after PED-tainted athletes is not very impressive. So why did Lance Armstrong opt to settle in his lawsuit with the U.S. government?
Five years after then-U.S. Attorney General Eric Holder announced that the U.S. Justice Department would co-sign onto Floyd Landis’s whistleblower lawsuit against Lance Armstrong, the sides have reached a settlement. Armstrong has agreed to pay $5 million to resolve the claims against him, and pay an additional $1.65 million to cover Landis’s legal fees. In a statement, assistant U.S. attorney general Chad Readler says the settlement “demonstrates that those who cheat the government will be held accountable.”
However, for a case that threatened Armstrong with over $100 million in damages and that required substantial time and energy of taxpayer-funded investigators, prosecutors and court officers, it’s not clear the government has proven that cheaters are held accountable. One might go so far as to say that Armstrong brought government to a draw, if not edged it out.
After all, Armstrong has agreed to pay just $6.65 million, only $3.9 million of which will go to the government ($1.1 million heads to Landis and $1.65 million will go to Landis’s attorneys). Armstrong, a former seven-time Tour de France winner, also does not admit to any wrongdoing in the settlement. The case against him is simply dropped in exchange for his payment.
Does a check for $3.9 million justify the Justice Department’s very public decision to take on Armstrong—a decision made under the administration of President Barack Obama and continued under the administration of President Donald Trump?
A troubled case from the start
Whether Armstrong doped—which refers to using artificial means to increase red blood cell count and thus increase oxygen-carrying capacity and endurance—hasn’t been up for debate for a long time. After years of firm denials and even suing his accusers, Armstrong in January 2013 divulged to Oprah Winfrey that he had doped. And doped quite often and for a long time—as did many other top cyclists from at least the 1980s into the 2000s. Not long after Armstrong’s interview with Winfrey, I sat down with Armstrong at his home in Austin, Texas to discuss the impact of his admission. I detailed that conversation in an SI feature titled My Dance With Lance.
The admission triggered a bevy of consequences for Armstrong, who five months earlier had suffered the indignity of the U.S. Anti-Doping Agency permanently banning him from competitive cycling and the Tour de France stripping him of his titles. Unwanted legal developments were among the more dire consequences. Various parties, such as an insurance company that demanded Armstrong pay back $12 million in tournament winnings, swiftly sued Armstrong, claiming that his cheating had defrauded them. The most threatening of those parties was the United States Government. About five weeks after the Winfrey interview, the Justice Department announced that it would join a whistleblower lawsuit filed against Armstrong in 2010.
The plaintiff of that lawsuit, Floyd Landis, was a familiar name. The former cyclist who was stripped of the 2006 Tour de France title and Armstrong were on a team sponsored by the U.S. Postal Service in the early 2000s. During that time, Landis insists, Armstrong and others connected to the team violated their sponsorship deal with USPS. They did so by engaging in performance-enhancing techniques that were barred by a federal agency contract. In other words, the cyclists arguably defrauded the government by knowingly violating—and unjustly profiting from—a government contract. Landis depicts Armstrong as more than a mere doper and fraudster. Armstrong, Landis charges, pressured other cyclists to dope, thereby putting those cyclists in an awkward position to either follow the leader and break the law or defy him and be exiled from the team.
To some, Landis heroically shed light on an era of cheating. Further, they say, Landis revealed to Americans that their nation’s dominance in cycling was a sham. Yet to others, Landis was a traitor and an exaggerator, motivated by jealously of Armstrong—a much more accomplished cyclist who was admired by many Americans for his charitable work with the Livestrong Foundation.
Landis, like Armstrong, also had credibility issues. In 2008, he authored Positively False: The Real Story of How I Won the Tour de France. In it, Landis categorically denied persistent allegations that he doped and tried to brush off the significance of testing positive for synthetic testosterone during the 2006 Tour de France. Despite his legal efforts, Landis would be suspended from competitive cycling for two years. After returning and struggling to regain his form, Landis in 2010 publicly admitted he had doped. In 2016, SI’s Austin Murphy sat down with Landis to discuss the now-42-year-old’s controversial career.
Landis’s lawsuit against Armstrong attracted public notice, but was filed under seal, thereby limiting the disclosure of information. The lawsuit was also regarded with some skepticism due to questions about Landis’s veracity. Armstrong capitalized on these dynamics and undermined Landis’s claims. Through spokespersons, Armstrong ridiculed Landis as a “swindler,” “serial liar” and an “epic cheater.” Many fans didn’t know what to believe.
The complexion of Landis’s lawsuit changed dramatically in 2013, when Holder, acting on behalf of the federal government, co-signed onto the lawsuit. Suddenly a dispute between two cyclists became one in which the federal government claimed a stake.
Understanding the Justice Department’s lawsuit and why it was so threatening to Armstrong
At its core, the government’s case against Armstrong was not about doping, but rather whether doping gave rise to contractual fraud. From 2000 to 2004, USPS paid $32.3 million to a cycling team known as Tailwind. Various partners, including Armstrong, co-owned Tailwind (Armstrong held a small stake and was granted stock in the company in 2007). USPS’s interest in sponsoring Tailwind emerged mainly because of Armstrong, who embodied the kinds of characteristics consumers demand in an express postal carrier: speediness and dependability.
USPS sponsoring Tailwind and, by extension, Armstrong, made a lot of sense. Armstrong almost always won his races and exhibited an intense work ethic and doggedness. No competitor, no injury, no weather condition—whatever the obstacle, nothing ever seemed to stop Armstrong. If a consumer had to pick between using USPS, FedEx and UPS, perhaps an association with Armstrong would, consciously or subconsciously, tip the scales in favor of USPS.
Not only was USPS endorsing Tailwind logical, but studies also indicated that it was effective. In 2002, USPS retained a marketing firm to assess the financial consequences of the sponsorship. The study would help USPS, and the taxpayers who subsidize USPS, assess if the agency made a wise deal. The firm found that the domestic value of USPS’s exposure from the Tailwind deal was three times more than the sponsorship’s cost. Even more stunning, the international value was more than six times the cost. Other studies indicated similar findings: The sponsorship dramatically boosted USPS’s sales and exposure, and its value to USPS far eclipsed what USPS paid Tailwind and its racers.
So why then did the Justice Department, on behalf of USPS, sue Armstrong over a sponsorship deal that seemingly worked out well for USPS? And isn’t this the same USPS that operates on annual net losses of billions of dollars? Is the rare financial “win” for USPS really worthy of a lawsuit?
From the lens of the Justice Department and Landis, the government badly “lost” in its deal with Tailwind. As the government sees it, the contract proved essentially worthless because of Tailwind and Armstrong’s tainted connections to performance-enhancing drugs. The lawsuit charges that Tailwind, as directed by Armstrong and sporting director Johan Bruyneel, submitted payment invoices to USPS while intentionally concealing that the team repeatedly violated the sponsorship agreement’s anti-doping provisions.
Here is where the law kicked in: If you do business with the federal government, you are subject to laws and policies that are not in play in dealings with private businesses. One such law is the False Claims Act (also known as the FCA or the Lincoln Law). The FCA was enacted back in 1863 as a response to charlatans who sold defective weapons and other faulty armaments to the Union Army.
In general, the FCA outlaws knowingly deceiving the government in business dealings. The FCA imposes civil liability for conspiring with others to defraud the government, such as through submitting false payment claims. To deter such conduct, the FCA imposes a harsh penalty scheme that punishes the fraudster in ways that far exceed actual damage caused by the fraudster. Indeed, actual damages under the FCA are automatically multiplied by three, or trebled. The underlying policy of such a harsh penalty is deterrence: Fraudsters will be less likely to engage in wrongdoing if they account for the risk of a financially devastating sanction. Here, the government claimed $96.8 million in damages based on the trebling of $32.3 million in damages.
In addition, the FCA contains a provision for “qui tam,” which is Latin for a person “who sues this matter for the king as well as for himself." The qui tam provision is designed to incentivize whistleblowers. Without such an incentive, whistleblowers might remain silent out of fear of retaliation and blacklisting. The provision empowers persons with information about others defrauding the government to sue on behalf of the government. Such plaintiffs are termed “realtors,” but are often called whistleblowers when they are employed or previously worked for a company that they claim engaged in wrongdoing. If the government joins a whistleblower lawsuit—as it did with Landis’s lawsuit—the realtor stands to receive 15% to 25% of any recovery, whether through a favorable verdict or settlement.
In addition to FCA claims, the government sued Armstrong (and others) for common-law fraud and unjust enrichment. These claims essentially posit that Armstrong and others connected to Tailwind conspired to knowingly mislead USPS about their adherence to drug rules, thereby defrauding USPS and obtaining unearned financial benefits. With Armstrong, the government argued, he would be unjustly enriched if not held accountable for hiding the truth about his doping for such a long period of time. In finding a defendant liable for fraud, federal jurors normally enjoy wide latitude in assessing damages, both of the compensatory and punitive kind—thereby making these claims potentially very threatening to Armstrong.
Had Armstrong not reached a settlement, U.S. District Judge Christopher Cooper would have presided over a trial that was set to begin on Nov. 6. Judge Cooper, a summa cum laude graduate of Yale University and Stanford Law School, was nominated by President Obama in 2013 and confirmed by the Senate in a 100-0 vote. Prior to joining the bench, Judge Cooper was a partner at the prestigious Washington D.C. law firm Covington & Burling, which represents the NFL. He is also a former special assistant to the Deputy Attorney General. Judge Cooper’s expertise in white collar and anti-corruption matters made him uniquely well-suited to preside over the Armstrong trial.
Armstrong could have won the trial. Here’s how
Every case has two sides and that is no doubt true here. Until now, Armstrong had been unwilling to settle at an amount acceptable to the government. That disposition reflected his and his attorney’s assessment of the strength of the government’s case and the strength of his rebuttals.
If Armstrong could have convinced a jury that the government was not harmed by any fraud attributable to Armstrong, then the jury would have been directed to award the statutory penalty for violating the FCA: an amount between $5,000 and $11,000 for each violation. Since Armstrong faced 41 FCA claims, he would have had to pay somewhere between $205,000 and $451,000. There is no doubt that Armstrong would have regarded such a modest penalty as a clear win.
Armstrong likely felt encouraged by some of Judge Cooper’s remarks during pretrial proceedings. SI obtained a transcript of a hearing held on Nov. 16, 2016. Much of the hearing centered on the dramatically different views of how damages should be measured in Armstrong’s case. Attorney Elliot Peters—a former federal prosecutor who successfully defended MLB players during the steroids era—delivered the bulk of arguments for Armstrong, while several federal prosecutors spoke for the government.
Although Judge Cooper was critical of both sides, he repeatedly expressed doubt that the government could prove the Postal Service suffered significant financial harm. For instance, Judge Cooper asked, “Is there any evidence from which a juror can infer that the Postal Service lost revenue as a result of the disclosures and then compare that to the amount of revenue it may have gained as a result of the endorsement activities during the sponsorship agreement?” Prosecutors insisted that jurors could make such an inference by listening to expert testimony and weighing the billions of “negative impressions” found online. Yet, as Judge Cooper suggested, the actual link between Internet articles containing “Lance Armstrong,” “Postal Service” and “doping,” and the Postal Service losing money was not immediately clear.
On the other hand, in a Feb. 13, 2017 order denying Armstrong summary judgment, Judge Cooper identified a potential flaw in Armstrong’s reasoning on damages. Judge Cooper ruled that a jury should consider, as the government contends, “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.” How jurors would have perceived damages, then, partly depended on which sequence of time they find most meaningful. During the years of the contract, USPS appeared to benefit considerably from its association with Armstrong, but years later—after Armstrong admitted he doped—USPS’s brand may have taken a hit from its link to Armstrong.
Another key defense for Armstrong rested in the idea of an implicit waiver, which refers to Armstrong’s contention that USPS knew Armstrong was doping and intentionally took no action to stop it. USPS, Armstrong stresses, profited greatly from the sponsorship, which spanned from 1995 to 2004. This relationship worked so well that USPS extended the contract in 2000. USPS, then, arguably waived any rights it enjoyed under the sponsorship to take action against Armstrong. Along those lines, Armstrong highlighted how the government admits it was aware of allegations of Armstrong doping—allegations that were reported in the late 1990s by The New York Times, NPR and other national media—but did not investigate. Instead, USPS negotiated new contractual terms that dealt with negative publicity from any failed drug test. Contractually, you might say, USPS “made a deal with the devil” and knew exactly what it was getting.
There were still other defenses for Armstrong. One such defense was that the case was barred by time: Armstrong insisted the relevant statute of limitations had run out.
Armstrong could have lost everything by risking a trial
No matter the rebuttals Armstrong raised, he knew that the government usually wins its false claim cases or at least negotiates a settlement in which the defendant must pay a great deal of money. According to one recent analysis of false claim cases where the government has intervened, approximately 95% lead to a favorable judgment or settlement. These realities likely played a motivating force in Armstrong’s decision to settle in spite of his rebuttals and in spite of the fact that so few qui tam defendants possess the level of resources necessary to retain a legal team of top attorneys as Armstrong had assembled.
Along those lines, Armstrong realized that if he had lost the trial, a jury and Judge Cooper could have ordered him to pay $100 million or more in damages. As detailed in the SI article Wheels of Justice last year, there was reason to believe that Armstrong would have been unable to pay off such a sizable judgment. Armstrong has already paid out in excess of $20 million in litigation settlements and additional millions in related expenses. In addition, he has not generated meaningful income in recent years. Armstrong has lost his endorsement deals and since he no longer competes in tournaments, he no longer wins any tournament prizes. His net worth, once thought to be around $125 million, is nowhere near that number. By settling, Armstrong gains closure and certainty in what he must pay. He and his family can move on with their lives.
For its part, the Justice Department also had plenty of reason to settle after six years of going after Armstrong. As explained above, the government’s case was by no means airtight, particularly in regard to proving that Armstrong harmed USPS. A de facto loss in a trial this fall would have been a setback for the federal government. After all, the government had pursued Armstrong to stress that those who do business with the federal government must fulfill the contractual obligations. Losing to Armstrong would have sent the wrong message in a high-profile trial.
Further, federal prosecutors’ track record in going after PED-tainted athletes is not very impressive. After appeals, the government batted 0 for 10 in charges against Roger Clemens and Barry Bonds—baseball’s poster children for PEDs. Granted, those were perjury criminal cases whereas Armstrong’s is a qui tam civil case. And, to be sure, the government successfully prosecuted other PED-implicated athletes and coaches, such as Marion Jones and Trevor Graham. Yet, whether federal prosecutors should invest such taxpayer-funded efforts in athlete-PED cases is an open-ended question. Such a modest take from Lance Armstrong certainly won’t tilt the answer to “yes.”
Michael McCann is SI's legal analyst. He is also the Associate Dean for Academic Affairs at the University of New Hampshire School of Law and co-author with Ed O'Bannon of the new book Court Justice: The Inside Story of My Battle Against the NCAA.