Last week, a federal court refused to dismiss the United States’ claims against Lance Armstrong regarding the U.S. Postal Service’s sponsorship of Armstrong’s racing team. The Postal Service paid Armstrong and his team a whopping $32 million over a number of years as part of a sponsorship agreement. The Judge ruled that the government would be allowed “to present admissible evidence [at trial] regarding the negative publicity the Postal Service received following” Armstrong’s admission that he had relied upon performance enhancing drugs throughout his career despite brazenly denying it for years.
The government’s case is premised on a theory that Armstrong fraudulently induced the Postal Service to enter into the sponsorship deal on the basis that Armstrong and his team promised to abide by the rules and conditions of their sport and not to engage in otherwise improper conduct. This case is unique because the United States isn’t often paying athletes or celebrities to promote its services. As a result, it creates a relatively novel damages question: How was the Postal Service harmed when it was revealed that the team and athletes it sponsored were cheaters?
Unlike many other government agencies, the Postal Service is a customer centered enterprise that is engaged in fierce competition with UPS, FedEx, and DHL to deliver packages around the country. From a marketing perspective, the Postal Service’s sponsorship of Armstrong and his team helped them gain a competitive advantage through an enhanced public image and increased brand visibility from being associated with a winning athlete. But once the evidence of Armstrong’s doping came to light, the Postal Service suffered negative publicity from being connected to the scandal. Both the benefits and costs of the sponsorship are extremely difficult, if not impossible, to quantify, and it will be up to a jury to decide if the damages to the government are greater than the benefits they received from entering into the sponsorship agreement.
Another interesting point is that the government picked up this case after it was filed under the False Claims Act by a whistleblower, who is a former Armstrong teammate. The False Claims Act rewards whistleblowers by sharing a percentage of the ultimate recovery with the whistleblower. If a jury finds that the costs of the Postal Service’s sponsorship outweighed the benefits, Armstrong’s former teammate will be entitled to a portion of the recovery. Last year, the United States paid out over $500 million to whistleblowers for bringing successful False Claims Act cases. While the federal judge overseeing the case has cleared the way for a jury trial, it remains to be seen whether the government will ultimately recover in this case.
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