United States ex rel. Landis v. Tailwind Sports Corp., Case No. 1:10-cv-00976 (CRC)

UNITED STATES ex rel. LANDIS, Plaintiffs, v. TAILWIND SPORTS CORP., et al., Defendants.

Case No. 1:10-cv-00976 (CRC)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA

February 12, 2015

MEMORANDUM OPINION AND ORDER

Before the Court is the United States and Relator's Joint Motion to Strike, or in the Alternative for Partial Judgment on the Pleadings, as to Certain Affirmative Defenses [ECF No. 213]. Upon consideration of the motion, the opposition, and the reply, the Court will grant the motion in part and deny it in part.

I. Background

In June 2010, Relator Floyd Landis filed this qui tam action against Lance Armstrong, his former teammate on the United States Postal Service ("USPS") professional cycling team, and associated defendants, including Capital Sports & Entertainment Holdings, Inc., William Stapleton, and Barton Knaggs ("CSE Defendants"). After closing a criminal investigation of Armstrong in the Central District of California, the Government intervened in this case in February 2013. In June 2014, the Court denied Armstrong's Motion to Dismiss the Government's Complaint, denied Armstrong's Motion to Dismiss Relator's Second Amended Complaint, and granted in part and denied in part the CSE Defendants' Motion to Dismiss Relator's Second Amended Complaint. Mem. Op. June 19, 2014. Armstrong and the CSE Defendants answered the Complaints the following month. Plaintiffs now move to strike certain affirmative defenses from the Answers. In response, Armstrong and the CSE Defendantsvoluntarily withdraw several affirmative defenses, but oppose the motion to strike the remaining ones.

II. Standard of Review

The Court may strike insufficient defenses or "any redundant, immaterial, impertinent, or scandalous matter." Fed. R. Civ. P. 12(f). "'The decision to grant or deny a motion to strike is vested in the trial judge's sound discretion' . . . [h]owever, a motion to strike is a drastic remedy that courts disfavor." Gates v. District of Columbia, 825 F. Supp. 2d 168, 169 (D.D.C. 2011) (quoting Naegele v. Albers, 355 F. Supp. 2d 129, 142 (D.D.C. 2005)). Such motions are granted "'where it is clear that the affirmative defense is irrelevant and frivolous and its removal from the case would avoid wasting unnecessary time and money litigating the invalid defense.'" U.S. ex rel. Head v. Kane Co., 668 F. Supp. 2d 146, 150 (D.D.C. 2009) (quoting SEC v. Gulf & Western Indus., Inc., 502 F. Supp. 343, 344 (D.D.C. 1980)).

III. Analysis

The United States moved to strike 24 of Armstrong's affirmative defenses and Relator moved to strike 21 of Armstrong's affirmative defenses. Relator also moved to strike 23 of the CSE Defendants' affirmative defenses. In response, Armstrong withdraws seven affirmative defenses to the United States' Complaint and five affirmative defenses to Relator's Second Amended Complaint. The CSE Defendants withdraw nine of the affirmative defenses that Relator had sought to strike, as well as one additional defense that was not a subject of the motion. The Court will address the remaining defenses in turn.

A. Failure to State a Claim¹

All defendants assert failure to state a claim as an affirmative defense. Plaintiffs argue that failure to state a claim is not a proper affirmative defense and, regardless, that the Court has already rejected the defense by denying the defendants' motions to dismiss. Defendants respond with United States ex rel. Spay v. CVS Caremark Corporation, No. 09-4672, 2013 WL 1755214 (E.D. Pa. Apr. 24, 2013) (citation omitted), a False Claims Act ("FCA") case holding that "a party can set forth the defense of failure to state a claim as an affirmative defense in the answer," id. at *2. As plaintiffs point out, however, that case also holds that "[w]here . . . a court has previously made a legal determination that a Plaintiff's complaint stated a claim for relief, a subsequent affirmative defense claiming failure to state a claim or to properly plead should be stricken." Id. at *3. Consequently, the Court will grant the motion to strike as to this defense.

B. Waiver, Ratification, Consent, and Release²

Defendants assert waiver, consent, ratification, and release as affirmative defenses. As plaintiffs note, another court in this district recently struck similar defenses in an FCA case because the defendant "fail[ed] to identify any clear and intentional relinquishment or abandonment by the Attorney General of the right to sue under the FCA" and had not "presented any support for the proposition that Department of Justice employees acted with the Attorney General's authority to waive the right to bring an FCA case[.]" United States v. Honeywell Int'l, Inc., 841 F. Supp. 2d 112, 115 (D.D.C. 2012). Thus, plaintiffs argue, defendants may continueto seek discovery to negate elements of plaintiffs' claims, but they cannot assert waiver, consent, ratification, or release as affirmative defenses. Yet, several cases from outside the district reveal that this proposition is subject to some dispute. E.g., U.S. ex rel. Jordan v. Northrop Grumman Corp., No. 95-2985, 2002 U.S. Dist. LEXIS 26622, at *21-22 (C.D. Cal. Aug. 5, 2002) (describing a "line of cases [that] show that courts consider ratification and waiver in determining whether a defendant possessed the requisite scienter to violate the FCA") (citing Wang ex rel. United States v. FMC Corp., 975 F.2d 1412 (9th Cir. 1992)); U.S. ex rel. Monahan v. Robert Wood Johnson Univ. Hosp. at Hamilton, No. 02-cv-5702, 2009 WL 4576097, at *7 (D.N.J. Dec. 1, 2009) (denying a motion to strike an affirmative defense of waiver in an FCA case because "[i]t is possible that evidence procured through discovery will show that the Department of Justice, under the direction of the Attorney General, waived the Government's claims"). In light of the high standard for striking a defense, the Court is persuaded by this authority to allow these defenses to proceed at this stage of the litigation.

C. Estoppel³

Armstrong and the CSE Defendants assert equitable estoppel as an affirmative defense. Defendants correctly observe that "'the fundamental principle of equitable estoppel applies to government agencies, as well as private parties.'" Honeywell, 841 F. Supp. 2d at 114 (quoting ATC Petroleum, Inc. v. Sanders, 860 F.2d 1104, 1111 (D.C. Cir. 1988) (internal quotations omitted)); see also Morris Commc'ns, Inc. v. FCC, 566 F.3d 184, 191 (D.C. Cir. 2009); Graham v. SEC, 222 F.3d 994, 1007 (D.C. Cir. 2000). Notwithstanding that general principle, the standard for establishing estoppel against the Government "is an exacting one," and "'[t]here is aclear presumption in this Circuit against invoking the doctrine [of equitable estoppel] against government actors in any but the most extreme circumstances.'" Honeywell, 841 F. Supp. 2d at 114 (citing Int'l Union v. Clark, No. 02-cv-1484, 2006 WL 2598046, at *12 (D.D.C. Sep. 11, 2006) (alteration in original)). Defendants must show that the Government "'engaged in affirmative misconduct'" in addition to showing that it made a definite representation that the defendants reasonably relied on in a manner that changed their position for the worse. Id. (quoting Morris, 566 F.3d at 191). As in Honeywell, defendants here have not alleged facts that could establish a reasonable reliance on the Government that changed their position; instead, defendants "merely describe[] continuing a course of action . . . that [they] had embarked on earlier." Id. As a result, the Court will grant the motion to strike as to this defense.

D. Conduct of Relator⁴

Armstrong asserts as an affirmative defense that the United States' claims are barred by 31 U.S.C. § 3730(d)(3), which requires dismissal of a relator convicted of criminal conduct arising from his role in the alleged FCA violation. The CSE Defendants also assert as an affirmative defense that illegal activity by Relator underpinning the lawsuit bars him from recovery. As plaintiffs argue, the plain language of Section 3730(d)(3) requires the relator to have been "convicted" in order to warrant his dismissal from the case. Here, Landis has entered into a deferred prosecution agreement; he has not been convicted. Defendants' Opp'n Ex. T. Although defendants have already withdrawn several unclean hands and in pari delicto defenses, Defendants' Opp'n at 1 n.1, they maintain that they "may have a defense premised on Section 3730(d)(3) or relator's illegal conduct based on Landis' deferred prosecution agreement with theGovernment" and thus are "entitled to discover whether Landis is subject to conviction." Defendants' Opp'n at 15-16. Not so. The possibility that Landis may be subject to conviction and that the Government would choose to prosecute him falls short of Section 3730(d)(3)'s unambiguous language with respect to dismissing a relator. Moreover, even if relator were to be dismissed, Section 3730(d)(3) explicitly provides that "such dismissal shall not prejudice the right of the United States to continue the action, represented by the Department of Justice." Consequently, the Court will grant the motion to strike with respect to these defenses.

E. Existence of United States' Injuries and Damages⁵

Armstrong asserts as affirmative defenses that the Government has suffered no injury, that its alleged damages are speculative, uncertain and/or contingent and are not recoverable, and that the Government has received full payment for services rendered. Both Armstrong and the CSE Defendants also assert as an affirmative defense that they provided all services due to the Government with respect to the transactions and occurrences that are the subject of this lawsuit. Plaintiffs ask the Court to strike these defenses because "actual damage to the United States is not" necessary to establish liability in an FCA cause of action. United States' and Relator's Joint Mot. to Strike at 17 (citing Rex Trailer Co. v. United States, 350 U.S. 148, 152-53 (1956)). While this may be true, a showing of damage is...