The Explainer: A tale of two lawsuits

business-Lawsuit

Dear Explainer,
I have been following the Armstrong thing for a while and have heard a lot about law suits that have been filed against him.

There are a couple that have me scratching my head. First is the one that was filed by people who bought and read his books and now say they were cheated out of money because the things were mostly lies. Now wait a minute. Weren’t those books written years ago? Isn’t there a statute of limitations?

Then I wonder about that company that promised to pay Armstrong something like $5 million when he won his fifth Tour de France. Wasn’t that settled like eight years ago? How long can you go back and overturn a settlement that everyone agreed to?
– An Occasional Bike Geek

Dear Occasional Geek,
Yeah, that book suit has me wondering, too. I have to admit, I had fun reading it, though. (You can have a look at that one, right here.)

Two California men, Robert Stutzman and Jonathan Wheeler, have filed a suit against Armstrong and his publishers and have left the door open to sue any number of future defendants, including I would have to assume, the co-author of two of those Armstrong tomes, Sally Jenkins of the Washington Post.

But what are these guys claiming? According to the suit, the two named plaintiffs are hoping to sue on behalf of themselves and any other California resident who bought – and I assume believed – the contents of “It’s Not About the Bike: My Journey Back to Life” and “Every Second Counts.”

They are seeking compensation for the fact that they and others have been “exposed to and victimized” by Armstrong’s “unlawful and/or wrongful business practices,” which include false advertising, misrepresentation, fraud and deceit and unfair competition.

Wow… all that from a $17 book.

“In perpetrating the fraud alleged herein, Defendant Armstrong acted in a willful, wanton and malicious manner, in callous, conscious and intentional disregard for the rights of Plaintiffs and members of the Class, and with knowledge that his actions and conduct were substantially likely to vex, annoy and injure Plaintiffs and members of the Class.”

These vexed, annoyed and injured plaintiffs are seeking refunds of the purchase price of the books they purchased and other “statutorily permissible damages, attorneys’ fees, expenses and costs.”

The goal here is to assemble a class of plaintiffs, each of whom can make a claim similar to those leveled by Stutzman and Wheeler. Indeed, the attorneys who filed the suit said they expect to assemble a class-action suit that would represent in excess of 100 plaintiffs with claims exceeding $5 million.

The suit is largely based on something known as the “Consumers Legal Remedies Act” (California Civil Code § 1750 et seq), which allows consumers who have been defrauded by any number of deceptive trade practices.

And yes, there is a statute of limitations provision in the CLRA. Section 1783 notes that the actions “shall be commenced not more than three years from the date of the commission of such method, act, or practice.”

A different kind of Discovery

There is generally a good way around the statute of limitations in civil cases. Known as “discovery,” the argument is based on the idea that the statute of limitations clock shouldn’t actually start to tick until that moment you actually discover that you’ve been defrauded.

The plaintiffs rightfully claim that Armstrong engaged in the fraudulent concealment of his doping. They claim not to have discovered that fraud “until at least August 2012, when the USADA imposed a lifetime ban on Defendant Armstrong and stripped him of all his Tour de France medals, and/or October 2012, when the USADA Report was published, and/or January 2013, when Armstrong made his televised disclosures to Winfrey, Plaintiffs did not have knowledge of the causes of action against Armstrong and the other Defendants.”

Okay, I’m not much of an Armstrong fan and maybe I was in a unique position to have reached my point of “discovery” pretty early in the process, given that, for one thing, David Walsh, Betsy Andreu and Emma O’Reilly are friends of mine. But still, these guys are claiming that Armstrong was, until this past summer, in “exclusive possession” of the truth and that, therefore, the statute clock shouldn’t start ticking until then.

Frankly, I think it’s something of a stretch to claim ignorance lasting all the way to the summer of 2012. Walsh’s first book came out in 2004. The facts were out there almost nine years ago.

Speaking, not as a lawyer, but as a hypothetical juror, I would have to say this one is a stretch. I like the suit, largely because I appreciate the … well, mostly because it made me laugh. (I kinda hope they pull it off. If they do, I’m ready to sue Dick Cheney for his autobiography, too.)

Nonetheless, Armstrong probably shouldn’t lose too much sleep over this one.

But he might be awake anyway, since he probably should be concerned about that other case.

The SCA matter

You might recall that big fight Armstrong engaged in with a Texas-based insurer known as SCA Promotions.

Based on allegations outlined in Walsh’s 2004 book “L.A. Confidentiel, Les Secrets de Lance Armstrong,” SCA withheld payment of a $5 million “insurance” policy taken out by Armstrong’s management company, “Tailwind Sports,” in the event that he won his sixth successive Tour in ’04. SCA had earlier made payments for Armstrong’s fourth and fifth Tour “wins” in amounts of $1.5 million and $3 million, as well.

Well, in 2004, the record books showed that Armstrong had won his sixth Tour. The owners at SCA, however, pointed to Walsh’s allegations and said that Armstrong had cheated, arguing that such actions would nullify the pay-out.

The contract called for the case to be resolved through arbitration and many, many billable hours ensued. After hours of depositions, tons of filings and a lot of talk from both sides, the question essentially came down to the fact that the original contract didn’t actually have a provision barring cheating and that even if SCA were successful in proving its allegations, the company still owed the $5 million. The two sides reached a Compromise Settlement Agreement for $7.5 million in February of 2006, requiring SCA to pay the original policy, lawyers fees, interest and other costs.

Flash forward to October, 2012 when the UCI affirmed USADA’s decision to strip Armstrong of all seven Tour de France titles he’d “won,” leaving the top spot on results empty. Logic would dictate, reasoned SCA, that since Armstrong is no longer the “official winner” of the Tours in question, they deserve their money back … along with lawyers fees, interest and other costs.”

Hence, SCA’s decision to file suit in Dallas County District Court seeking vacate that original settlement agreement based on the acts fraud committed by Armstrong and Tailwind in reaching it.

There is a substantial hurdle SCA has to clear if this case proves to be successful. Namely that the original settlement agreement is binding and includes language that would preclude any party from challenging, appealing or attempting to “set aside the Arbitration Award.”

SCA is now claiming that the only way that settlement was reached was due to Armstrong’s fraudulent acts. There are similar discovery issues, but they seem much more solid in the SCA case than they do in the case of the vexed, annoyed and injured readers.

But what about that provision barring appeal?

Most arbitration awards and arbitration settlements contain language barring attempts to set it aside. That doesn’t mean, however, that it’s totally impossible.

Historically, courts will agree to set aside arbitration awards and settlements in only a small set of very narrowly defined circumstances. The reason for that reluctance is that the outcome of an arbitration process is generally viewed by the courts as the end of litigation, not just the close of one chapter and the beginning of another.

The courts properly view those agreements as a valid and fully enforceable contract and, as a result, tend to shy away from overturning them, even when the arbitrators make an error of law or fact.

However, the courts have made exceptions, particularly involving cases in which fraudulent acts were involved in reaching that final arbitration award or settlement.

SCA is alleging that Armstrong, his partner and friend Bill Stapleton and Tailwind Sports engaged in a conspiracy to “defraud SCA and other third parties regarding Mr. Armstrong’s rampant drug use. That conspiracy continued up until Monday, January 14, 2013, when Mr. Armstrong finally admitted that he had lied during the last decade ….”

Now in reading case law relating to arbitration decisions in Texas in particular, often the fraud prompting a court’s interference relates to corruption of the arbitration process itself. For example, if a party to an arbitration agreement finds out that someone from the other side exerted undue influence or bribed a member of the arbitration panel, that would constitute fraud and warrant a court’s involvement.

Armstrong’s lies – and there were plenty – may not constitute the sort of fraud that would trigger a court’s involvement.

What’s interesting, though, is that SCA is arguing that the entire arbitration process was colored not only by Armstrong’s lies to the company, but fraud engaged in with respect to the UCI and USADA, the regulatory bodies overseeing the sport and doping enforcement. Then, add in the fact that Armstrong perjured himself in depositions in the case (he was under oath when he said he didn’t dope) and those could both give a court reason to look.

What looks to be a stronger argument for SCA, though, is that the arbitration case should be reopened on the grounds that leaving it in place would constitute “unjust enrichment” in that allowing him to keep the money earned such a fraudulent manner would in and of itself represent a miscarriage of justince. Furthermore, SCA points to the 2012 “Reasoned Decision” from USADA, which orders that all “prize” monies be returned. That latter one is an interesting argument.

On the surface, the USADA ruling simply means that he has to return the prize money awarded by ASO for winning the Tour. But SCA argues that its payments of $12 million constitute prize money and, therefore, should be returned.

Interesting.

Now, the original SCA agreements were touted as “insurance,” in that Tailwind took out policies that would be paid out in the event Armstrong “won” the Tours in question. So how is that prize money? Well, SCA asserts, that because Tailwind took out those policies to minimize its risk of having to pay bonuses or “prizes” to Armstrong for “winning” those Tours.

SCA is arguing that the ensuing payments, therefore, fall into the category of prizes and, as such, should be returned first to Tailwind and then to the insurance company that paid out the money.

The suit is a damn good read. I’m a lot more inclined to buy the basis of that suit than I am to accept the claims by those parties “injured” by their purchase of a work of fiction.

Either way, both suits will contribute to many billable hours for many of the lawyers involved and that’s not a bad thing, is it?
– Charles

Small HeadshotThe Explainer is a weekly feature on Red Kite Prayer. If you have a question related to the sport of cycling, doping or the legal issues faced by cyclists of all stripes, feel free to send it directly to The Explainer at Charles@Pelkey.com. PLEASE NOTE: Understand that reading the information contained here does not mean you have established an attorney-client relationship with attorney Charles Pelkey. Readers of this column should not act upon any information contained therein without first seeking the advice of qualified legal counsel licensed to practice in your jurisdiction.

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9 comments

  1. Dave O

    Let’s turn this around and ask the question, if someone had filed a lawsuit in 2005 claiming Lance Armstrong had cheated Lance & Co. would have responded with a defamation suit, assembled an army of lawyers who would have humiliated and impoverished the plaintiff(s) into surrender even though the assertions of the plaintiff would be borne out in later years by the admission of Lance Armstrong.

    So I can’t mock any plaintiffs claims. If memory serves me correctly Lance Armstrong effectively silenced by payment, threats of legal action leading to poverty and outright slander those who called into question the honesty of his wins. I can’t excuse bullies.

  2. Ransom

    I guess this is one of those things where a legal education is important, because from my not-thusly-educated perspective, it seems that relying on things like Walsh’s book for discovery at a time when Armstrong was still not *formally* guilty of anything would have constituted behaving as though he were not innocent until proven guilty. Certainly, you can avoid buying a book on a hunch that the author is guilty of misdeeds without breaking any laws, but if nothing has been proven and the author has made assurances of his innocence, isn’t it a reasonable stance to give him the benefit of the doubt, just as the law was doing at that point in time?

    I hereby give you leave to not bother answering legal trivia questions like this from random wingnuts like me on a cycling blog if you don’t feel like it :-P

  3. jorgensen

    Best remedy for the Book would be adjusting its placement in the public library to the fiction section. The “It’s not about the bike” book is what led me to think he was guilty of amping himself up.

    As the other lawsuits unfold only a leisurely periodic reporting is worthwhile. I do find Lance’s comparison of himself to Bill Clinton charming.

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