Freedom of Information Act

The False Claims Act case against Lance Armstrong lasted longer than his 7 year Tour de France win streak.

While the settlement of the False Claims Act case against Lance Armstrong has generated a press release, a quick online search didn’t produce a copy of the actual agreement. So I filed a Freedom of Information Act request and the next day the Department of Justice provided me a copy of the Lance Armstrong settlement agreement.  Thank you, Team DOJ!  Below is my take on that agreement and what it tells us about the case.

The settlement amount

The settlement agreement provides that Lance Armstrong will pay $5 million to the Government and $1.65 million to the relator Floyd Landis. To put this in context, the Postal Service had paid about $40 million to sponsor Team Postal. Trebling that amount, and throwing in civil penalties and investigative costs, bumps up potential damages to well over $100 million. The settlement amount was thus less than 7 cents on the dollar.

Damages was always the Government’s weakness – because there weren’t any. This should have been apparent at the outset from the contemporaneous USPS reports on how much publicity and new revenue the Team Postal sponsorship had generated. These reports were poppycock, of course, but they still posed insurmountable problems for the Government’s case.

The USPS-generated reports on the value of the Team Postal sponsorship came in response to criticism over the deal. The Postal Service is often wrongly criticized for anything it spends on advertising. In my view, it should be spending a lot more, especially to defend the remains of First Class Mail. But these critics had a point. Why spend tens of millions of dollars on an event that takes place on foreign soil, and that most Americans have never seen and don’t care about?  And how will promoting the U.S. Postal Service in foreign countries generate more U.S. Mail?

To counter these criticisms, USPS needed to show that the six-year agreement made economic sense, so it generated report after report calculating the value it received.  Armstrong’s attorneys say these reports show USPS earned over $163 million in quantifiable benefits from the sponsorship – more than four times what USPS spent on it. These reports were backed by statements from high level USPS officials attesting to the great deal it had made. Armstrong’s summary judgment motion cited some of these beauties, including:

  • “I can assure you that the value of the brand advertising we receive from the USPS Pro-Cycling Team more than offsets the cost of the sponsorship.”
  • “The sponsorship has provided a substantial return-on-investment and has been a real bargain.”
  • “While postal officials decline to say how much they pay, spokesman Joyce Carrier said the free advertising they received ‘is way more than we ever spent’ to sponsor it. ‘Anyone who was looking at it on a return from investment, and everybody does . . . they think it’s pretty darn good.’”

How could the Government get past all of these contemporaneous statements from top USPS officials on the tremendous value USPS obtained from the sponsorship contract? And while Lance Armstrong later admitted to rampant doping during the Team Postal years, how did this revelation negate all of these previous economic benefits?

Yes, Lance Armstrong violated the no-doping clause of the USPS sponsorship agreement. But Armstrong somewhat successfully concealed the truth for a long time, thus allowing the Postal Service to get the benefit of the bargain.  If Armstrong had admitted to doping when the contract was in effect, maybe there would have been some damages, but his success at hiding the truth prevented that from happening. While that may be hard to swallow, the False Claims Act was not designed to mete out just desserts for all bad acts related to a government contract.

The round dollar figure

Next, let’s analyze the nice round $5,000,000 settlement figure itself. Having represented clients in various Government fraud investigations, most involving the Postal Service, I can tell you that the Government’s standard opening position is that it will only settle at twice the amount of actual damages. The Government prefers talking about damages, not entitlement, and its settlement offer is normally some specific dollar amount, multiplied by two.

The perfectly round number of the $5 million settlement shows it was not arrived at by an attempt to measure actual damages and multiplying by two. It is a number based on perceived litigation risk by both sides. From the Government’s side, the question was how much it could get from Armstrong without going to trial. Given its weakness on damages, the Government was staring at the possibility of getting only statutory penalties, which didn’t amount to much and would not have justified its pursuit of the case. From Armstrong’s side, the question was how much was finality worth?  Even though the Government was unlikely to recover significant damages, there is no telling what a jury would do.  Moreover, statutory penalties were likely, and an appeal would be required if the damages issue went the wrong way. Armstrong was looking at the possibility of spending millions more on professional fees with no assurance he would prevail.

The $1.65 million settlement with the Relator tells a different story. In context, this amount is not a perfectly round number – one hardly picks $1.65 million out of thin air. Instead, it is an approximation or discount on Relator’s attorney fees and expenses, likely based on actual numbers that were presented to Armstrong.

The payment terms

Typically, when the settlement amount is in this range and the defendant can afford it, the Government demands full or substantial payment upon agreement or soon afterwards, often within 10 days of signing. The settlement’s payment terms are lenient. Armstrong’s first payment was due 30 days after signing and was only $75,000; his second payment, due in 90 days, was $677,000. Armstrong then had 180 days to make the next payment of $1,879,000. No further payment was due until one year after signing, when Armstrong owed a balloon payment of $2,368,000. Nice payment terms, if you can get them.

Armstrong had similarly leisurely terms to pay the Relator. The first payment was due in 30 days and was only $25,000. The next payments were $223,000 in 90 days; $620,000 in 180 days; and the final $782,000 within one year.   [Rounded payment numbers used above.]

The settlement agreement’s layaway plan thus gives Armstrong plenty of time to sell “the Texas Collateral,” the proceeds of which he presumably intends to use to pay the settlement. Armstrong granted the Government and the Relator a lien on that property until it is sold. He also signed a Consent Judgment decree that can be filed against him should he default on his payment obligations.

Relator’s share

Now let’s look at the Relator’s share of the Government’s $5 million bounty. Since the Government intervened in the case, the Relator’s share could have been anywhere between 15 and 25 percent. The settlement agreement grants Relator a 22 percent share, which works out to $1.1 million. The Department of Justice has taken the positon that a 15 percent share is appropriate for a case that settled early (before trial or discovery) and a 25 percent share is reserved for fully litigated cases in which the relator’s contribution is substantial. All things considered, 22 percent was a healthy reward for the Relator in this case. One wonders whether the Government would have sought a lower Relator’s share if the recovery from Armstrong had been greater.

FCA claims with no real damages

I’ve been practicing long enough to remember when False Claims Act cases involved actual falsehoods, like doctored invoices and fake signatures. Rare is the case today where the Government alleges an affirmative falsehood by the contractor. Instead, modern day FCA cases involving government contracts are normally about a contract interpretation or breach of contract. Not only are these cases really contract disputes at heart, but in many of them, the contractor’s position is the most reasonable one. Evolving FCA standards have resulted in the fraudification of contract disputes.

The Armstrong case goes one step beyond fraudification to cases where the Government is not even monetarily harmed by the defendant’s bad actions.  There have been other FCA cases where the Government has suffered no or minimal damages from an alleged false claim. For example, in U.S. ex rel. Wall v. Circle C Constr., LLC, 813 F.3d 616 (6th Cir. 2016), the Government sought $1.6 million (after trebling) for a relatively minor violation of the Davis Bacon Act.  The Court found that the Government’s actual damages were only $9,900 and later held that the Government must pay the defendant’s attorney fees under 28 U.S.C. § 2412(d)(1)(D) because the Government’s demands were excessive.

With the teachings of the Circle C case, and the settlement of the Armstrong case after a 10 year slog, let’s hope the Government will be more reluctant to intervene in – and maybe even move to dismiss – future qui tam FCA cases where there are no real damages.

Contractors interested in the application of FOIA Exemption 4 should take note of the Ninth Circuit’s decision in American Small Business League v. Dep’t of Defense, No. 15-15120 (9th Cir. Jan. 6, 2017). The issue in the case was whether a declaration submitted by a Sikorsky Aircraft Corporation employee was sufficient to show the competitive harm necessary to withhold small business subcontracting data obtained from Sikorsky. The Sikorsky declaration was short, but it identified Sikorsky’s competitors and asserted that its small business subcontracting data could be used to gain a competitive advantage.

Soldiers conduct air assault operations on the deck of the 8th Theater Sustainment Command's Logistical Support Vessel-2, the Harold C. Clinger off the coast of Honolulu, Jan. 11, 2016. The soldiers are assigned to the 25th Infantry Division.
Army photo by Sgt. Jon Heinrich

In a November 2014 order, the District Court found the declaration too vague. It lacked “reasonably specific detail” as to the likelihood of competitive injury. It did not show how information found in the subcontracting plan would be “likely to cause substantial competitive injury.” Proof of competitive harm was based only on the fact that a Sikorsky competitor “could” use Sikorsky’s data to cause harm. In the words of District Judge William Alsup, “[t]hat is not enough to grant summary judgment for the agency.” The District Court ordered the government to produce Sikorsky’s master subcontracting plan, subject only to appeal.

Continue Reading The Ninth Circuit sides with DOD on Sikorsky small business subcontract data

Since the Federal Awardee Performance and Integrity Information System opened to the public on April 15, 2011, contractors have been concerned that their trade secrets and other proprietary information might also become accessible. With good reason—the interim version of FAR 52.209-9 provided for the public availability of all newly submitted information other than “past performance reviews.”

broken lock picture.jpg

The final rule on public access to FAPIIS specifically addresses the problem. Rather than simply ignoring Freedom of Information Act exemptions entirely as the interim rule did, the final form of FAR 52.209-9 (Jan. 3, 2012) [pdf] includes a mechanism that allows the contractor to identify information covered by a FOIA exemption.

Continue Reading Applying FOIA exemptions to contractor information in FAPIIS

Corrections to the proposed rewrite of FAR 42.1503 reinstate the contractor’s role in past performance evaluations. As published on June 28, 2011, the rewritten FAR provision omitted language from the existing clause that protects the contractor’s interests in the process. As corrected on August 9, the contractor protections have been restored.

Continue Reading Reinstating the contractor’s role in past performance evaluations

Should the federal government require prospective government contractors to disclose their political contributions? The Obama administration weighed in on this issue in April with a draft executive order entitled “Disclosure of Political Spending by Government Contractors.” As the title suggests, the draft order would require a contractor submitting an offer to perform a federal contract to disclose political contributions exceeding $5,000 made within two years preceding the offer. The order has generated significant controversy. Many have expressed fear that the information would be used inappropriately as a new factor in awarding federal contracts. The controversy intensified last month when Senator Susan Collins (R-ME) and Representative Darrell Issa (R-CA) proposed the Keeping Politics Out of Federal Contracting Act of 2011, which would prohibit the disclosures called for in the draft executive order.

Continue Reading Contractor political contributions as a factor in contract award decisions

Contractors seeking to comply with the new requirement to report the compensation of their five highest paid executives under FAR 52.204-10 (July 2010) still have a lot of unresolved questions. We heard some of the questions during our June 8, 2011 webinar on the topic, which was sponsored by L2 Federal Resources, LLC, publisher of The Contracting Post. Thanks for hosting!

Here are some of the questions posed, along with our answers.

Continue Reading Executive compensation FAQ

Efforts to increase transparency in federal contracting are well underway. But it’s still not clear exactly how much contractor information will be made public under the new rules, or how they will be interpreted in light of existing laws. We know that FAPIIS is now online and accessible to the public, for example, but that only the government will have access to contractor past performance reports. GSA published a notice saying that executive compensation reported under FAR 52.204-10 [pdf] and proceedings information reported under under FAR 52.209-9 [pdf] may be exempt under FOIA Exemption 4 even though it will presumably be in FAPIIS. It’s not just these types of conflicts that are creating uncertainty. Proposals are in the works to require contractors and trade associations to disclose their campaign spending. There is even a pending proposal that would involve posting all federal contract documents on the internet.

I’ll be discussing the practical aspects of these issues in a June 8, 2011 webinar. The discussion will include the ins and outs of the new transparency requirements that are already in effect, including the executive compensation reporting rules, the requirement to report findings of liability in criminal, administrative, and civil proceedings, as well as some of the new transparency rules that have been proposed. I will also discuss the protections available for contractors in the Freedom of Information Act and the Trade Secrets Act.

Registration information is available here.

The ongoing federal contracting transparency initiatives will not yet include the publication of actual contract documents on the internet. According to a Federal Register notice published on February 10, 2011 [pdf], that proposal has been withdrawn, at least for now.

Continue Reading Contract Documents Won’t Be Posted on the Internet . . . Yet

It’s a common assumption in litigation under the Freedom of Information Act that trade secrets lose value with the passage of time. The January 19, 2011 decision in Taylor v. Babbitt, No 03-0173-RMU (D.D.C. Jan. 19, 2011), shows there’s much more to the story. The case involved a 2002 FOIA request seeking “plans, blueprints, specifications, engineering drawings and data” submitted to the government in 1935 in support of a type certificate application for the Fairchild F-45.  After a harrowing ride through the court system, including a trip to the Supreme Court, United States District Judge Ricardo M. Urbina ordered the government to produce the 75-year-old documents.

Continue Reading FOIA trade secrets exemption unavailable for 75-year-old aircraft design