Lance & USPS: Usurping Sponsors’ Payments from Steroid-users

The Justice Department has joined Floyd Landis (left) in suing his former US Postal Service teammate Lance Armstrong for unjust enrichment as a result of the proceeds Armstrong profited from his now-admitted steroid use.

As expected, the United States Justice Department has intervened in Floyd Landis’ whistleblower suit against Lance Armstrong, United States Postal Service (“USPS”) team director Johan Bruyneel, and team management company Tailwind Sports. The U.S. government filed its complaint in the District Court for the District of Columbia this week. The government’s complaint (provided in full below) sets forth the following in seeking treble damages:

Riders on the USPS-sponsored team, including Armstrong, knowingly caused material violations of the sponsorship agreements by regularly and systematically employing banned substances and methods to enhance their performance. . . The USPS paid approximately $40 million to sponsor the USPS cycling team from 1998 through 2004. Because the Defendants’ misconduct undermined the value of the sponsorship to the USPS, the United States suffered damage in that it did not receive the value of the services for which it bargained. Moreover, because they knowingly provided services that materially failed to comply with the USPS sponsorship agreement, the Defendants were unjustly enriched to the extent of the payments and other benefits they received from the USPS, either directly or indirectly. [emphasis added]

Unsurprisingly, the complaint devotes substantial attention to Armstrong’s use of performance-enhancing drugs (PEDs) and even details specific instances of doping (see pp11-16) and his active efforts to conceal and lie about his usage (see pp17-23). As true as these allegations may be, the fact remains that the government will need to show damages in order to recover the full amount it is demanding under the lawsuit, which could prove difficult given USPS’ success before Armstrong’s professional cycling ban.

ESPN reports that “previous studies done for the Postal Service concluded the agency reaped at least $139 million in worldwide brand exposure in four years — $35 million to $40 million for sponsoring the Armstrong team in 2001; $38 million to $42 million in 2002; $31 million in 2003; and $34.6 million in 2004.”

The U.S. District Court for the District of Columbia has stated that unjust enrichment occurs when:

(1) the plaintiff conferred a benefit on the defendant;
(2) the defendant retains the benefit; and
(3) under the circumstances, the defendant’s retention of the benefit is unjust.

Further, an unjust enrichment claim may not be asserted when a contract governs the parties’ relationship. Notably, the complaint is organized so that the unjust enrichment claims are only against Armstrong and Bruyneel (former employees of Tailwind), whereas the contract provisions that form the foundation of this lawsuit were between USPS and Tailwind (or its predecessors). Some commentators are already putting forth the notion that it would be outside the scope of the unjust enrichment remedy in that the money paid to sponsor the USPS cycling team was far outweighed by the revenues earned. It is now up to the federal judicial system to decide.

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