REPLY IN SUPPORT OF THE UNITED STATES AND RELATORS JOINT MOTION TO STRIKE, OR IN THE ALTERNATIVE, FOR PARTIAL JUDGMENT ON THE PLEADINGS, AS TO CERTAIN AFFIRMATIVE DEFENSES Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 1 of 27 i
TABLE OF CONTENTS I. INTRODUCTION .............................................................................................. 1 II. DEFENDANTS EXTRINSIC EVIDENCE SHOULD BE DISREGARDED. ............................................................................................... 2 III. STANDARD OF REVIEW ............................................................................... 3 IV. ARGUMENT ...................................................................................................... 4 A. Defenses Raised by All Defendants ................................................................... 4 1. Defenses Attacking the Government's Damages ............................................... 4 2. Waiver, Consent/Ratification and Release ......................................................... 6 3. Estoppel ................................................................................................................. 8 4. Defenses based on Relator's wrongdoing ......................................................... 10 5. Public disclosure................................................................................................. 12 6. Government's failure to mitigate ...................................................................... 12 7. Failure to State a Claim/Failure to Plead Fraud with Particularity ............. 13 B. Affirmative Defenses Raised Only by Armstrong ......................................... 17 1. "Government's Lack of Diligence" ................................................................... 17 2. Recoupment/Setoff ............................................................................................. 18 3. Election of Remedies .......................................................................................... 19 4. Retroactivity ....................................................................................................... 21 C. Affirmative Defenses Raised Only by the CSE Defendants ......................... 21 1. Acts of Third Parties/No Vicarious Liability................................................... 21 2. Relators Bad Faith ........................................................................................ 22 VI. CONCLUSION ................................................................................................. 23
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TABLE OF AUTHORITIES Cases Armstrong v. Tygart, No. A-12-CA-606-SS (W.D. Tex. July 9, 2012) .............................. 2 Avante-Garde, LLC v. Mountain Spa Properties, LLC, No. CV 10-01499-PHX-NVW (D. Ariz. Oct. 25, 2011) ................................................................................................ 16 Bancoult v. McNamara, 227 F.Supp.2d 144 (D.D.C. 2002)............................................. 20 Cambridge Plating Co., Inc. v. Napco, Inc., 85 F.3d 752 (1st Cir. 1996) ........................ 13 Chidester v. Camp Douglas Farmers Cooperative, Nos. 13-cv-520-bbc & 13-cv-521-bbc (W.D. Wis. Dec. 9, 2013) ............................................................................................... 9 Chrysler Corp. v. General Motors Corp., 596 F. Supp. 416 (D.D.C. 1984) .................... 10 Cintron Beverage Grp., LLC v. Depersia, No. 07-3043, 2008 WL 1776430 (E.D. Pa. Apr. 15, 2008) ....................................................................................................................... 17 Dah Chong Hong, Ltd. v. Silk Greenhouse, Inc., 715 F. Supp. 1072 (M.D. Fl. 1989) ....... 2 Davsko v. Golden Harvest, Inc., 965 F. Supp. 1467 (D. Kan. 1997)................................ 15 FDIC v. Haines, 3 F.Supp.2d 155 (D. Conn. 1997) ..................................................... 5, 17 FDIC v. Modular Corp., 859 F. Supp. 117 (D.N.J. 1994) ................................................ 17 First Financial Sav. Bank, Inc. v. American Bankers Ins. Co., 783 F. Supp. 96 (E.D.N.C. 1991) ............................................................................................................................... 2 Gates v. D.C., 825 F. Supp. 2d 168 (D.D.C. 2011) .............................................. 17, 20, 21 Greiff v. T.I.C. Enters., LLC, 2004 WL 115553 (D. Del. Jan. 9, 2004).......................... 5, 6 Henneberry v. Sumitomo Corp., 415 F. Supp.2d 423 (S.D.N.Y. 2006) ........................... 15 Hispanic Indep. Television Sales, LLC v. Kaza Azteca Am. Inc., No. 10-CIV-932, 2012 WL 1079959 (S.D.N.Y. Mar. 30, 2012) ....................................................................... 18 HMBI v. Schwartz, No.: 1:06-CV-24-TS, 2009 WL 3390865 (N.D. Ind. Oct. 19, 2009) 15 Index Fund, Inc. v. Hagopian, 107 F.R.D. 95 (S.D.N.Y. 1985) ......................................... 2 Knit With v. Knitting Fever, Inc., Nos. 08-4221, 08-4775, 2009 WL 973492 (E.D. Pa. Apr. 8, 2009) ................................................................................................................. 15 Lane v. Page, 272 F.R.D. 581 (D.N.M. 2011) ........................................................ 4, 20, 22 Makuch v. F. B.I., CIV.A. 99-1 094 RMU, 2000 WL 9 15767 (D.D.C. Jan. 7, 2000) ....... 3 Microsoft Corp. v. Computer Support Servs., 123 F. Supp.2d 945 (W.D.N.C. 2000) ....... 2 Mills Corp. v. Miller, No. 97-219, 1997 WL 280599 (D.D.C. May 27, 1997) .................. 8 Morris Communications Inc. v. FCC, 566 F.3d 184, 191 (D.C. Cir. 2009)) ...................... 8 Mortgages, Inc. v. U.S. District Court for the District of Nevada (Las Vegas), 934 F.2d 209 (9th Cir. 1990) ........................................................................................................ 11 Nashville Lodging Co. v. Resolution Trust Corp., 59 F.3d 236 (D.C. Cir. 1995) ............ 19 Nwachukwu v. Karl, 216 F.R.D. 176 (D.D.C. 2003) .......................................................... 3 Paleteria La Michoacan, Inc. v. Productos Lacteos Tocumbo S.A. De C.V., 905 F. Supp. 2d 189 (D.D.C. 2012) ................................................................................................... 10 Reiter v. Cooper, 507 U.S. 258 (1993) ............................................................................. 18 SEC v. Gulf & Western Indus. Inc., 502 F. Supp. 343 (D.D.C. 1980) ............................ 3, 8 Stabilisierungsfonds Fur Wein v. Kaiser Stuhl Wine Distribs. Pty. Ltd., 647 F.2d 200 (D.C. Cir. 1981) .............................................................................................................. 3 Sweeney v. Am. Registry of Pathology, 287 F. Supp. 2d 1 (D.D.C. 2003) ................... 3, 21 Telectronics Proprietary v. Medtronic, 687 F. Supp. 832 (S.D.N.Y. 1988) ...................... 2 Todaro v. Orbit Intl Travel, Ltd., 755 F. Supp. 1229 (S.D.N.Y. 1991) ........................... 15 Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 3 of 27 iii
U.S. Bank Natl Assoc. v. Ables & Hall Bldrs., 696 F. Supp.2d 428 (S.D.N.Y. 2010) .... 13 U.S. Oil Co., Inc. v. Koch Refining Co., 518 F. Supp. 957 (E.D.Wis. 1981) ..................... 2 U.S. v. Intrados/Int'l Mgmt. Group, 277 F. Supp. 2d 55 (D.D.C. 2003) ...................... 8, 18 Ulyan v. Solis, 706 F. Supp. 2d 44 (D.D.C. 2010) .............................................................. 3 United National Records, Inc. v. MCA, Inc., 609 F. Supp. 33 (N.D.Ill. 1984) ................. 15 United States ex rel. Durham v. Prospect Waterproofing, Inc., 818 F. Supp. 2d 64 (D.D.C. 2011) ............................................................................................................... 12 United States ex rel. Garrison v. Crown Roofing Servs., Inc., No. H-07-1018, 2011 WL 4914971 (S.D. Tex. Oct. 14,2011) .................................................................................. 7 United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416 (9th Cir. 1991) ............................................................................................................................... 7 United States ex rel. Head v. Kane Co., 668 F. Supp. 2d 146, 150 (D.D.C. 2009) ........ 3, 4 United States ex rel. Jordan v. Northrop Gruman Corp ., No. CV 95-2985, 2002 U.S. Dist. LEXIS 26622 (C.D. Cal. Aug. 5, 2002) ................................................................. 7 United States ex rel. Miller v. Bill Harbert Intl, 505 F. Supp. 2d 20 (D.D.C. 2007) 11, 20 United States ex rel. Monahan v. Robert Wood Johnson Hosp., No. 02-5702 (JAG), 2009 WL 4576097 (D.N.J. Dec. 1, 2009) ....................................................................... 4 United States ex rel. Robinson-Hill v. Nurses Registry and Home Health Corp., No. 5:08-145-KKC, 2013 WL 1187000 (E.D. Ky. Mar. 20, 2013)....................................... 9 United States ex rel. Roby v. Boeing Co., 100 F. Supp. 2d 619 (S.D. Ohio 2000) ............. 8 United States ex rel. Spay v. CVS Caremark Corp., No. 09-4672, 2013 WL 1755214 (E.D. Pa. Apr. 24, 2013) ..................................................................................... 6, 16, 17 United States v. 416.81 Acres of Land, 514 F.2d 627 (7 th Cir. 1975) ................................. 2 United States v. Center for Diagnostic Imaging, Inc., No. Civ. A-05- 058, 2011 WL 6300174 (W.D. Wash. Dec. 16, 2011) ............................................................................ 8 United States v. Honeywell Intl, 841 F. Supp. 2d 112 (D.D.C. 2012) ...................... passim United States v. Manhattan-Westchester Medical Services, P.C., No. 06-Civ-7905, 2008 WL 241079 (S.D.N.Y. Jan. 28, 2008) ............................................................................ 4 United States v. MWI Corp., Civil Action No.: 98-2088 (RMU), 824 F.Supp.2d 12 (D.D.C. Nov. 14, 2011)........................................................................................... 15, 20 United States v. Sci. Applications Intl Corp., 626 F.3d 1257 (D.C. Cir. 2010) ........ 13, 19 Statutes 31 U.S.C. 3730(d)(3) ............................................................................................... 10, 11 31 U.S.C. 3730(d)(4) ..................................................................................................... 22 Rules Fed. R. Civ. P. 12(f) .......................................................................................................... 22 Other Authorities James Wm. Moore et al., Moore's Federal Practice (3d ed.1997) ...................................... 5 JAMES WM. MOORE et al., MOORE'S FEDERAL PRACTICE (2009)) .................... 15 C. Wright and A. Miller, Federal Practice and Procedure (1990) ..................................... 2 Brent Schrotenboer, USA Today, April 24, 2013, Justice Says Lance Armstrong Was Unjustly Enriched, ....................................................................................................... 5
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
REPLY IN SUPPORT OF THE UNITED STATES AND RELATORS JOINT MOTION TO STRIKE OR, IN THE ALTERNATIVE, FOR PARTIAL JUDGMENT ON THE PLEADINGS, AS TO CERTAIN AFFIRMATIVE DEFENSES
I. INTRODUCTION In response to plaintiffs motion to strike, defendant Armstrong has withdrawn twelve of his affirmative defenses and the CSE Defendants have withdrawn ten. See ECF No. 225, Defendants Joint Opposition to United States and Relators Motion to Strike Certain Affirmative Defenses (Opposition) at 1 n.1. The affirmative defenses that remain at issue should be stricken as a matter of law. With scant basis to oppose plaintiffs motion on its merits, defendants response appears primarily intended to advance their strategy of attacking the plaintiffs and laying out the theories of their case, with no less than twenty exhibits filed in support of their response. It is hornbook law, however, that such extrinsic evidence is not to be considered on a motion to strike, which looks only to the pleadings themselves. Accordingly, plaintiffs have largely refrained from refuting the supposed factual matters raised by defendants, as they are generally irrelevant to the motion and should be disregarded. Plaintiffs reply to defendants legal arguments below. Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 5 of 27 2
II. DEFENDANTS EXTRINSIC EVIDENCE SHOULD BE DISREGARDED. Defendants opposition includes a declaration by Armstrongs counsel with twenty exhibits attachedprimarily news articles and documents produced by the United States in discoverywhich defendants refer to in a four-page Factual Background section and throughout their brief. Opposition at 2-6; and ECF Nos. 225-1 through 225- 21, Declaration & Exhibits. 1 These materials are plainly irrelevant and should be disregarded. Courts have long held that [t]he essence of a motion to strike . . . is the consideration of the defense on its face without further facts or elaboration . . . . United States v. 416.81 Acres of Land, 514 F.2d 627, 630 (7 th Cir. 1975) (footnote omitted). Thus, as with a Rule 12(b)(6) motion to dismiss, it is well-established that [w]hen a court considers a motion to strike pursuant to Fed. R. Civ. P. 12(f), matters outside the pleading are not to be considered. First Financial Sav. Bank, Inc. v. American Bankers Ins. Co., 783 F. Supp. 963, 966 (E.D.N.C. 1991) (citing 5A C. Wright and A. Miller, Federal Practice and Procedure, Sec. 1380 (1990)). 2 Accordingly, plaintiffs object to the extrinsic evidence submitted by defendants and ask that the Court disregard it in ruling on
1 The opposition is in line with Armstrongs strategy of using court filings to discuss extraneous matters. See Armstrong v. Tygart, No. A-12-CA-606-SS, 2012 U.S. Dist. LEXIS 186474 at *3 (W.D. Tex. July 9, 2012) (striking Armstrong complaint against Travis Tygart and USADA sua sponte on same day it was filed on the ground that it was filled with allegations wholly irrelevant to Armstrong's claims--and which, the Court must presume, were included solely to increase media coverage of this case, and to incite public opinion against Defendants).
2 See also Microsoft Corp. v. Computer Support Servs., 123 F. Supp.2d 945, 950 (W.D.N.C. 2000); Dah Chong Hong, Ltd. v. Silk Greenhouse, Inc., 719 F. Supp. 1072, 1073 (M.D. Fl. 1989); Telectronics Proprietary v. Medtronic, 687 F. Supp. 832, 840 n.19 (S.D.N.Y. 1988) (In deciding a motion to strike, a court will not consider matters outside the pleadings . . . .) (quoting Index Fund, Inc. v. Hagopian, 107 F.R.D. 95, 100 (S.D.N.Y. 1985)); U.S. Oil Co., Inc. v. Koch Refining Co., 518 F. Supp. 957, 959 (E.D. Wis. 1981) (In evaluating a motion to strike, the Court . . . cannot consider matters beyond the pleadings.) (citing 5 Wright & Miller Fed. Prac. & Pro. 1380).
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the motion. See ECF No. 174, Memorandum Opinion on Motions to Dismiss, at 13-14 (holding that Court would disregard extrinsic evidence submitted by defendants on motion to dismiss). 3
III. STANDARD OF REVIEW Although defendants cite authority to the effect that motions to strike are disfavored, most of the cases they cite do not involve striking affirmative defenses. 4
Of the few cases that did involve affirmative defenses, the courts confirmed the propriety of striking such defenses when they are insufficient as a matter of law. 5 See also United States v. Honeywell Intl, 841 F. Supp. 2d 112, 116 (D.D.C. 2012) (striking insufficient affirmative defenses serves to avoid wasting unnecessary time and money litigating the invalid defense and clarify the issues). In the context of the False Claims Act in particular, courts have often granted Rule 12(f) motions in order to eliminate baseless affirmative defenses. See, e.g., United States v. Honeywell Intl, 841 F. Supp. 2d at 116;
3 Plaintiffs also note that defendants have neither requested judicial notice of these materials nor have they requested that the motion be converted to a motion for summary judgment. See id.
4 See Stabilisierungsfonds Fur Wein v. Kaiser Stuhl Wine Distribs. Pty. Ltd., 647 F.2d 200, 201 (D.C. Cir. 1981) (motion to strike portions of an appellate brief); Uzlyan v. Solis, 706 F. Supp. 2d 44, 51 (D.D.C. 2010) (motion to strike certain paragraphs of the complaint as scandalous or impertinent); Nwachukwu v. Karl, 216 F.R.D. 176, 178 (D.D.C. 2003) (motion to strike defendants entire answer on ground that responses to four individual paragraphs of amended complaint were inconsistent with previous responses to original complaint); Makuch v. F.B.I., 99-cv-1094 RMU, 2000 WL 915767, at *1 (D.D.C. Jan. 7, 2000) (motion to strike certain paragraphs of amended complaint as immaterial and impertinent).
5 See United States ex rel. Monahan v. Robert Wood Johnson Hosp., No. 02-5702 (JAG), 2009 WL 4576097 at *7 (D.N.J. Dec. 1, 2009) (in FCA case, striking affirmative defenses of failure to allege false statement, estoppel, failure to mitigate, and statute of limitations); Sweeney v. Am. Registry of Pathology, 287 F. Supp. 2d 1, 5 (D.D.C. 2003) (proper to strike irrelevant frivolous or insufficient affirmative defenses, but affirmative defense at issue did not fall into any of those categories); SEC v. Gulf & Western Indus. Inc., 502 F. Supp. 343 (D.D.C. 1980) (striking several affirmative defenses including unclean hands, equitable estoppel, and laches).
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United States ex rel. Head v. Kane Co., 668 F. Supp. 2d 146, 150 (D.D.C. 2009); United States ex rel. Monahan v. Robert Wood Johnson Hosp., No. 02-5702 (JAG), 2009 WL 4576097 at *7 (D.N.J. Dec. 1, 2009); United States v. Manhattan-Westchester Medical Services, P.C., No. 06-Civ-7905, 2008 WL 241079 at *34 (S.D.N.Y. Jan. 28, 2008). 6
IV. ARGUMENT A. Defenses Raised by All Defendants 1. Defenses Attacking the Government's Damages As explained in plaintiffs opening brief, actual damage to the United States is not a necessary element of a False Claims Act cause of action. See ECF No. 213, Memorandum of Points and Authorities in Support of the United States and Relators Joint Motion to Strike, Or, In the Alternative, For Partial Judgment on the Pleadings, As to Certain Affirmative Defenses (Opening Brief), at 16-17. Therefore, defendants claim that no damages were suffered by the United States cannot, a fortiori, form the basis for an affirmative defense to liability in this case. Defendants do not dispute this
6 The foregoing FCA cases also illustrate that defendants are incorrect in asserting that a motion to strike is inappropriate where discovery is ongoing . . . . Opposition at 7. A motion to strike generally must be filed within 21 days after service of the pleading containing the material to be stricken, Fed. R. Civ. P. 12(f)(2), and thus many motions to strike affirmative defenses are filed at or near the outset of discovery (and often are filed prior to the beginning of discovery). Contrary to defendants argument, one of the main purposes of the motion is to avoid unnecessary discovery on legally insufficient defenses. See, e.g., United States ex rel. Head v. Kane Co., 668 F. Supp. 2d at 150 (affirmative defense should be stricken where its removal from the case would avoid wasting unnecessary time and money litigating the invalid defense). Regarding defendants citation to the effect that motions to strike waste everyones time, Opposition at 8, the context of this comment was in explaining why Twombly/Iqbals heightened pleading standard should not apply to affirmative defenses, not to suggest that it is a waste of time to strike affirmative defense that are legally insufficient. In fact, in the very case quoted (the citation to which defendants omitted from their brief), the court granted a motion to strike. See Lane v. Page, 272 F.R.D. 581 (D.N.M. 2011) (striking eight affirmative defenses on the ground that they were merely negating elements of plaintiffs case, as well as a ninth affirmative defense that merely purported to reserve the right to assert additional affirmative defenses in the future).
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argument and, accordingly, their damages-based affirmative defenses should be stricken. 7
Defendants argue that, even if they are not affirmative defenses, their asserted defenses based on the supposed absence of damages do not need to be stricken. Opposition at 9. But in Greiff v. T.I.C. Enters., LLC, which defendants cite in support of their harmless error approach, the court made clear this analysis does not apply to misguided attempts to assert the negation of damages as an affirmative defense. Greiff, 2004 WL 115553, at *3 (D. Del. Jan. 9, 2004). Although it declined to strike several other asserted failures of proof that had been expressed as affirmative defenses, the Greiff court granted the motion to strike defenses that were based on the absence or limitation of damages. In so doing, it stated:
The court finds that these averments do not constitute affirmative defenses because they will not defeat defendants' counterclaims if proven. In other words, these averments entirely overlook liability and focus solely on potential relief. In contrast, [a]ffirmative defenses, if accepted by the court, will defeat an otherwise legitimate claim for relief. FDIC v. Haines, 3 F.Supp.2d 155, 166 (D. Conn. 1997) (quoting 2 James Wm. Moore et al., Moore's Federal Practice 8.07[1] (3d ed.1997)). Moreover, it is clear that the concept of damages serves a purpose far different from an affirmative defensedamages are intended to redress injuries incurred by a plaintiff after liability has been established, not as a means to shield liability in the first instance.
7 Given their apparent indifference as to whether their putative defenses should be regarded as formal affirmative defenses or some other type of factual showing, see Opposition at 10, the defendants could have served the interests of efficiency and clarity by simply conceding that these defenses are not viable. Instead, Armstrong opportunistically injected into the public record the studies that are the cornerstone of both his legal defense and his media strategy. Compare Brent Schrotenboer, USA Today, April 24, 2013, Justice Says Lance Armstrong Was Unjustly Enriched, (Armstrong attorney Elliot Peters said in a statement provided to USA TODAY Sports The U.S. Postal Service benefited tremendously from its sponsorship of the cycling team. Its own studies repeatedly and conclusively prove this.), http://www.usatoday.com/story/sports/cycling/2013/04/23/ justice-says-armstrong-was- unjustly-enriched/2108015/, with Opposition at 10, Exh. A through C. Plaintiffs will address these arguments at the appropriate juncture. Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 9 of 27 6
Id. Thus, because the concept of damages serves a purpose far different from an affirmative defense, the court struck each defense rooted in the alleged absence of damages. In addition, the defendants putative defenses do not serve the notice rationale animating the cases upon which they rely. Id. (specific denials give defendants notice of the particular issues to be litigated); United States ex rel. Spay v. CVS Caremark Corp., No. 09-4672, 2013 WL 1755214, at *16 (E.D. Pa. Apr. 24, 2013). That is, Armstrong denied six times in his answer that the Government sustained damages, ECF No. 200 ( 76, 79, 82, 85, 88, and 93), and his proposed defenses can do no more to elucidate his position on damages. To the contrary, these alleged defenses which are made-up, cryptically-worded, and unsupported by factual allegations are likely to create confusion, and should be stricken. Id. (citing potential confusion as a basis for striking denials of liability expressed as affirmative defenses). 2. Waiver, Consent/Ratification and Release Defendants fail to contest plaintiffs argument that only a Department of Justice official can waive a False Claims Act cause of action, and they do not purport to have any basis to assert that DOJ waived the FCA claims at issue here. Accordingly, defendants waiver-related defenses should be stricken. See Opening Brief at 15 (citing cases). Defendants contend that further discovery would show that USPS employees knew about the Teams doping and failed to take action. Opposition at 12-14. 8 While evidence of government employees knowledge of might be relevant to certain elements
8 As noted above, plaintiffs object to defendants improper citation of extrinsic evidence.
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of plaintiffs FCA claims, government knowledge is not a defense to an FCA action. 9
Defendants also argue that officials outside the Department of Justice can waive contractual provisions that later form the basis for an FCA claim. Opposition at 12. But if defendants argument is that the provisions of the Sponsorship Agreements prohibiting doping were waived, their argument amounts to no more than an attempt to negate proof of the Governments claims. That is, they argue that, as a result of the supposed waiver, no contractual requirement was violated and, therefore, no false claim was submitted. See Honeywell Intl, 841 F. Supp. 2d at 115-116 (holding that a waiver defense is not a proper affirmative defense if it merely negates an element of plaintiffs case and thus should be stricken). 10
Defendants assertion that it would be pointless to strike these defenses because discovery on the issue of government knowledge will still proceed is directly contrary to the holding in Honeywell. In Honeywell, the court found that the defendants allegations regarding the governments knowledge of their actions were insufficient to support an affirmative defense of waiver or estoppel, but could still be relevant to defendants non-
9 In United States ex rel. Jordan v. Northrop Gruman Corp., No. CV 95-2985, 2002 U.S. Dist. LEXIS 26622 (C.D. Cal. Aug. 5, 2002), cited by defendants, the court explained that defendants ratification and waiver defenses based on government knowledge would be relevant in determining whether a defendant possessed the requisite scienter to violate the FCA. Id. at 21-22; see also United States ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1420 (9th Cir. 1991) ("[T]he knowledge possessed by officials of the United States . . . may show that defendant did not submit its claim in deliberate ignorance or reckless disregard of the truth.").
10 The two cases cited by defendants -- Garrison and Jordan -- did not address this issue. Moreover, contrary to defendants description of the Garrison case as allowing defendants to assert waiver defense, Opposition at 12, the court actually struck the defendants waiver defense, finding that it was insufficient for defendants to merely list their affirmative defenses without any factual basis to put the Government on fair notice of the defenses. United States ex rel. Garrison v. Crown Roofing Servs., Inc., No. H-07-1018, 2011 WL 4914971, at *2 (S.D. Tex. Oct. 14, 2011). The court held that defendants could replead their waiver defense with sufficient detail, if defendants could do so consistent with Rule 11(b). Id.
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affirmative defense regarding the scienter element. 841 F. Supp. 2d at 116. The court nevertheless struck the waiver and estoppel defenses, holding that [r]emoving the insufficient defense will avoid wasting unnecessary time and money litigating the invalid defense and will clarify the issues. Id. (quoting SEC v. Gulf & Western Indus., Inc., 502 F. Supp. 343, 345 (D.D.C. 1980)). Similar to the present matter, discovery was not yet complete in the case, yet the court specifically noted that [i]n striking the defense, there is no prejudice to Honeywell's ability to marshal the factual allegations that underlay the stricken defense in support of its argument that it did not knowingly cause the submission of false claims. Id. Here, as in Honeywell, defendants may continue to seek discovery to the extent relevant to the scienter or falsity elements, but cannot assert waiver, consent/ratification, or release as affirmative defenses. 11
3. Estoppel The party asserting equitable estoppel must show that (1) there was a definite representation to the party claiming estoppel, (2) the party relied on its adversarys conduct in such a manner as to change his position for the worse, (3) the partys reliance was reasonable and (4) the government engaged in affirmative misconduct. Honeywell Intl, 841 F. Supp. 2d at 114 (quoting Morris Communications Inc. v. FCC, 566 F.3d 184, 191 (D.C. Cir. 2009)).
11 The remaining cases cited by defendants are easily distinguishable. See Mills Corp. v. Miller, No. 97-219, 1997 WL 280599, at *3 (D.D.C. May 20, 1997) (plaintiffs argued that defendants had failed to plead their affirmative defense of material breach with sufficient detail, as required by Rule 9(c) -- not that the defense was an improper affirmative defense, as plaintiffs argue here); United States v. Center for Diagnostic Imaging, Inc., No. Civ. A-05- 058, 2011 WL 6300174, at *3-4 (W.D. Wash. Dec. 16, 2011) (unlike here, defendants waiver defense was based on the litigation history of [the] case including a previous settlement agreement with the United States, not just the notion that the United States had knowledge of the fraud); United States ex rel. Roby v. Boeing Co., 100 F. Supp. 2d 619, 646 (S.D. Ohio 2000) (case involved a motion for summary judgment, not a motion to strike, and did not discuss whether the defense was properly an affirmative defense or merely negated elements of plaintiffs claims; court merely held that material issues of fact remained). Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 12 of 27 9
Defendants explain that the basis for their estoppel defense is the same as for their waiver-related defenses, i.e., that the Government knew about the teams doping but did not investigate or pursue a breach of contract remedy. Opposition at 13-15. But such facts, even if proved, fail as a matter of law to satisfy the affirmative misconduct element of an estoppel defense. See, e.g., United States ex rel. Robinson-Hill v. Nurses Registry and Home Health Corp., No. 5:08-145-KKC, 2013 WL 1187000, at *2 (E.D. Ky. Mar. 20, 2013) (in FCA case where defendants argued that Government failed to act despite knowledge of misconduct, court struck affirmative defense of estoppel, holding that When a party asserts estoppel against the government, the party also must demonstrate affirmative misconduct by the government. In this case, there is no affirmative conduct; Defendants argue the government did nothing); Honeywell Intl, 841 F. Supp. 2d at 115 (in FCA case, rejecting defendants argument that governments inaction could be characterized as a direct representation or affirmative misconduct and striking affirmative defense of estoppel on that basis). Defendants further assert that they are entitled to additional discovery to determine whether USPS employees condoned, concealed or participated in defendants doping conduct. Opposition at 15. In addition to government misconduct, however, an estoppel defense also requires proof of a definite representation to the party claiming an estoppel and proof that the party relied upon and changed its behavior based on such representation. Honeywell Intl, 841 F. Supp. 2d at 114. As noted in plaintiffs opening brief, these are matters within defendants knowledge, which they do not need discovery in order to ascertain. Notably, defendants did not respond to this argument. Instead, defendants opposition makes clear that they have no basis to allege any definite representation by the Government to them, nor any grounds for asserting that they relied on and changed their positions based on the same. Cf. Chidester v. Camp Douglas Farmers Cooperative, Nos. 13-cv-520-bbc & 13-cv-521-bbc, 2013 WL 6440510 at * 3 (W.D. Wis. Dec. 9, 2013) ([R]egardless whether Twombly and Iqbal apply to affirmative defenses, Rule 11 prohibits a party from listing an affirmative defense Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 13 of 27 10
without any factual basis for doing so.); Paleteria La Michoacan, Inc. v. Productos Lacteos, 905 F. Supp. 2d 189, 193 (D.D.C. 2012) (even absent application of Twombly or Iqbal, challenging party is not left without a remedy because Rule 12(f) motion to strike and Rule 11 serve as a curb on baseless affirmative defenses). As the Honeywell Intl court emphasized in striking an affirmative defense of estoppel, the defense cannot be invoked in any but the most extreme circumstances, 841 F. Supp. 2d at 114, which defendants have utterly failed to plead here. The Court should strike this defense without delay. See Chrysler Corp. v. General Motors Corp., 596 F. Supp. 416, 420 (D.D.C. 1984) (The Court declines to delay in striking the defense . . . permitting discovery and the development of the case under the . . . [baseless affirmative] defense would serve only to divert and protract [the] litigation, with concomitant expense.) (citation omitted). 4. Defenses based on Relator's wrongdoing Plaintiffs explained in detail in their opening brief how defendants lack standing to argue for the dismissal of relator based on relators misconduct. Opening Brief at 19- 21. Defendants fail to cite any authority to the contrary. In fact, defendants have now conceded that most of their affirmative defenses predicated on allegedly wrongful conduct by relator are without merit. 12 But defendant Armstrong continues to argue, without citation to any authority, that Defendants may have a defense premised on 3730(d)(3) or relators illegal conduct based on Landis deferred prosecution agreement with the Government. Opposition at 15-16.
12 See Opposition at 1 n.1. Defendant Armstrong has conceded that his following affirmative defenses to the U.S. Complaint related to relators wrongdoing should be stricken: Seventh (Relators unclean hands) and Eighth (In pari delicto as applied to Relator). He has also conceded the following affirmative defense to relators Second Amended Complaint should be stricken: Sixth (Unclean Hands/In pari delicto). The CSE Defendants have conceded that the following affirmative defenses should be stricken: Eighth (Relators unclean hands), Eleventh (In pari delicto as applied to Relator), and Twenty-second (unjust enrichment of Relator). Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 14 of 27 11
Armstrongs reliance on 3730(d)(3) is misplaced. The plain language of 3730(d)(3) provides for dismissal of the relator as its only remedy, and does not provide any basis for a defendant to avoid liability. Armstrong cites no statutory language or other authority in support of his position. Moreover, he distorts the notion that the FCA qui tam provisions are based upon the idea of setting a rogue to catch a rogue. Mortgages, Inc. v. U.S. District Court for the District of Nevada (Las Vegas), 934 F.2d 209, 213 (9th Cir. 1991)). Armstrongs argument that the conviction of one rogue absolves another rogue turns this principle on its head, and finds no support in the FCA. See United States ex rel. Miller v. Bill Harbert Intl, 505 F. Supp. 2d 20, 26 (D.D.C. 2007) (The FCA is in no way intended to ameliorate the liability of wrongdoers by providing defendants with a remedy against a qui tam plaintiff with unclean hands.)(quoting Mortgages, Inc., 934 F.2d at 213). Therefore, Armstrongs affirmative defense under 3730(d)(3) should be dismissed. More fundamentally, Armstrong concedes that the factual predicate for relators dismissal under 3730(d)(3) does not exist. That is, Landis has not been convicted of criminal conduct, as required by 3730(d)(3). See Opposition at 16 (noting only that under Deferred Prosecution Agreement the United States may pursue charges against Landis in the event of a breach, and conjecturing that such events might lead to a conviction). Armstrongs insistence on asserting this non-existent defense, which he knows lacks a factual basis, is no more than pretext for discovery into whether Landis is subject to conviction. Opposition at 16. It is improper, and this Court should reject it. The CSE Defendants join in Armstrongs argument based on their affirmative defense that relator engaged in Illegal Activities. That defense reads as follows: On information and belief, this lawsuit arose as a result of illegal activity engaged in by Relator, which illegality bars Relator from recovering on any cause of action in the Complaint. Thus, the CSE Defendants twenty-sixth affirmative defense does not even reference section 3730(d)(3), nor does it allege facts that would provide a basis for dismissal under that section. For these reasons, in addition to the CSE Defendants lack Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 15 of 27 12
of standing to assert this defense, the CSE Defendants twenty-sixth affirmative defense lacks any legal or factual basis and should be stricken, just like their other affirmative defenses focused on relators wrongdoing, which they have already acknowledged should be stricken. 5. Public disclosure Defendant Armstrong contends that he should be able to argue for dismissal of the FCA case based on the fact that the existence of the qui tam action was leaked during the seal period. 13 The Court has already ruled in this case that: The rationale behind sealing FCA cases is to allow the United States ample time to investigate the allegations, not to provide protection to defendants. ECF No. 227, Opinion & Order on Armstrong Motion to Compel, at 14-15 (quoting United States ex rel. Durham v. Prospect Waterproofing, Inc., 818 F. Supp. 2d 64, 67 (D.D.C. 2011)). There is thus no basis in law for an affirmative defense in this case predicated on violations of the seal. 6. Government's failure to mitigate Defendants further claim that the USPS failed to mitigate its damages by not fully taking advantage of opportunities allegedly presented by the Sponsorship Agreements. As explained in the plaintiffs opening brief, the United States has no duty to mitigate damages in a fraud action, including a False Claims Act action. Opening Brief at 25-26 (citing cases). In any event, Armstrongs argument misconstrues the duty to mitigate. Where it applies, a duty to mitigate arises only after a known breach of contract. See, e.g., U.S. Bank Natl Assoc. v. Ables & Hall Bldrs., 696 F. Supp.2d 428,
13 Armstrong argues that [l]ogic suggests that the leaking party can only be Landis or government personnel, Opposition at 14, but he neglects to inform the Court that the first public reports about the qui tam matter appeared only eleven days after the Government informed Armstrong and other defendants about the existence of the qui tam action. See ECF No. 205, United States Opposition to Tailwinds Motion to Dismiss at 11-12; and ECF Nos. 105-2 through 105-5, Exhibits 2-6 (August 23, 2010 letters from United States to counsels for defendants informing defendants of the qui tam complaint and the allegations).
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441 (S.D.N.Y. 2010) (The duty to mitigate damages comes into play once there has been a breach of a contract.) (emphasis original); Cambridge Plating Co., Inc. v. Napco, Inc., 85 F.3d 752, 772 (1st Cir. 1996) (failure to mitigate calculated from date breach became known to plaintiff). Here, defendants campaign of lies, intimidation and deception prevented their doping from being discovered until long after the Sponsorship Agreements ended. But even if defendants fraud had been discovered earlier, whether or not the Postal Service maximized the benefit of its bargain under the Sponsorship Agreements plainly has no bearing on whether it did or did not mitigate damages. Defendants duty to mitigate affirmative defenses thus fail as a matter of law. 14
7. Failure to State a Claim/Failure to Plead Fraud with Particularity Defendants have failed to refute plaintiffs argument that they have waived their defense based on Rule 9(b). The Court already ruled that this defense was waived, and even if the Court had not so ruled (as defendants contend), the defense has been waived as a matter of law. Similarly, the Court has already ruled on defendants failure to state a claim defense. Accordingly, these defenses may not be raised again as affirmative defenses and should be stricken. a. Defendants Have Waived Any Defense Under Rule 9(b). Defendants initially attempt to argue that the Court did not rule that Defendants waived their defense of failure to plead fraud with particularity. Opposition at 21-22.
14 In the course of their argument, defendants state that [t]he proper measure of damages in an FCA case is a plaintiffs expectation damages. Opposition at 19 (citing United States v. Sci. Applications Intl Corp., 626 F.3d 1257, 1278 (D.C. Cir. 2010) (SAIC)). There is no reference to expectation damages, however, in SAIC. The court in SAIC stated that the proper measure of damages is the difference between the value of the goods or services actually provided by the contractor and the value the goods or services would have had to the government had they been delivered as promised. 626 F.3d at 1278. The expectation damages cases cited by defendants, see Opposition at 19, involve breach of contract causes of action, not fraud or FCA causes of action in which, as explained above, the duty to mitigate does not apply.
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The record demonstrates otherwise. Both Armstrong and the CSE Defendants cited Federal Rule of Civil Procedure 9(b) as a basis for their motions to dismiss the United States and relators complaints, respectively. 15 However, in contrast to defendant Weisel, who also raised Rule 9(b) and argued the defense extensively, Armstrong and the CSE Defendants (as well as the Tailwind Defendants and Bruyneel) failed to develop their Rule 9(b) arguments in their briefs. As plaintiffs pointed out in their opening brief on the instant motion to strike, the Court therefore ruled that these defendants had waived their Rule 9(b) defenses. 16
Despite this record, defendants assert that they did not already move to dismiss based on failure to plead fraud with particularity or uncertainty, and thus are free to raise the defense now. Opposition at 22. Whether the defendants raised Rule 9(b) but waived it by failing to argue it, or whether they failed altogether to raise the defense, is a distinction without a difference either way the defense has been waived. Consistent with the Courts prior ruling, it is well-established that Rule 9(b) arguments are waived if
15 See ECF No. 93, Armstrong Motion to Dismiss US Complaint, Motion at 1 (Pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6), Defendant Lance Armstrong hereby moves this Court to dismiss the United States Complaint because it fails to state and plead with particularity a claim upon which relief may be granted); ECF No. 94, CSE Defendants Motion to Dismiss Relators Second Amended Complaint, Motion at 1-2 (Pursuant to Rule 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, . . . [the CSE Defendants] hereby move this Court, . . . for an Order dismissing Relator Floyd Landis Second Amended Complaint).
16 See Opening Brief at 26-27; ECF No. 174, Courts Memorandum Opinion on Motions to Dismiss at 51-61, section III.B (addressing Rule 9(b) arguments regarding presenting false claims, presenting false records or statements, and conspiracy to commit FCA violations); id. at 52 n.31 (Defendant Armstrong did not make any Rule 9(b) arguments in opposing the plaintiffs' FCA claims.), id. at 59 (In moving to dismiss the plaintiffs' complaints, Defendant Bruyneel joined and incorporated Mr. Armstrong's motions to dismiss the plaintiffs' complaints. . . . As stated previously, Armstrong did not even raise a Rule 9(b) objection. Thus, Defendant Bruyneel has also waived this argument.); id. at 59 n.33 (To the extent any of the other remaining non-intervened defendants have also attempted to raise Rule 9(b) arguments without briefing them, these arguments were also waived.).
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not raised in the defendants first response to the complaint, i.e., either in the answer, or in a motion to dismiss if filed in lieu of an answer. See United States v. MWI Corp., 824 F.Supp.2d 12, 25 (D.D.C. Nov. 14, 2011) (If a party fails to raise a Rule 9(b) objection in the first responsive pleading or in an early motion . . . the issue will be deemed waived) (citing, inter alia, 2 JAMES WM. MOORE et al., MOORE'S FEDERAL PRACTICE 9.03[5] (2009)). 17
In support of their contrary position, defendants cite a single unpublished district court case from outside this jurisdiction, Knit With v. Knitting Fever, Inc., Nos. 08-4221, 08-4775, 2009 WL 973492, at *7-8 (E.D. Pa. Apr. 8, 2009). The Knit With court, however, ruled that a Rule 9(b) defense could be raised at any time up through trial and is thus plainly inconsistent with the above-cited cases regarding waiver of Rule 9(b), none of which were cited or distinguished by the Knit With court. The well-established approach of requiring defendants to raise Rule 9(b) at the earliest opportunity or risk waiver furthers the underlying policy that Rule 9(b)'s specificity requirements are imposed to ensure that a defendant is apprised of the fraud claimed in a manner sufficient to permit the framing of an adequate responsive pleading. Henneberry v. Sumitomo Corp., 415 F. Supp.2d at 454 n.19; see also United National Records, Inc. v. MCA, Inc., 609 F. Supp. 33, 38-39 (N.D. Ill. 1984) (The specificity requirements of Fed. R. Civ. P. 9(b) have been imposed to ensure that a defendant is apprised of the fraud claimed in a
17 See also Henneberry v. Sumitomo Corp., 415 F. Supp.2d 423, 454 n.19 (S.D.N.Y. 2006) (It is well-settled law that a defendant must raise [a Rule 9(b)] objection in its answer, or in a motion to dismiss if filed in lieu of an answer.) (citations and internal quotation marks omitted); Davsko v. Golden Harvest Prods., Inc., 965 F. Supp. 1467, 1474 (D. Kan. 1997) ([A] rule 9(b) objection is waived unless made as a separate motion prior to or concurrent with the filing of a responsive pleading.) (citations omitted); Todaro v. Orbit Intl Travel, Ltd., 755 F. Supp. 1229, 1234 (S.D.N.Y. 1991) (A party who fails to raise a Rule 9(b) objection normally waives the requirement.) (quoting United Natl Records v. MCA, Inc., 609 F. Supp. 33, 39 (N.D. Ill. 1984)); HMBI v. Schwartz, No. 1:06-CV-24-TS, 2009 WL 3390865, at *6 (N.D. Ind. Oct. 19, 2009) (defendant waived Rule 9(b) argument by failing to raise it by motion prior to filing answer). Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 19 of 27 16
manner sufficient to permit the framing of an adequate responsive pleading. A party who fails to raise a 9(b) objection normally waives the requirement.). The Knit Withs courts approach, by contrast, ignores the difference between Rule 9(b) and other potential bases for a failure to state a claim defense, and thus should not be followed. Where, as here, defendants have already filed a motion to dismiss (without raising Rule 9(b), they say), have answered the complaint, and have been actively engaging in discovery for months, there is no justification to allow them to hold open the possibility of raising a Rule 9(b) argument at some future, unspecified date. Cf. Avant-Garde, LLC v. Mountain Spa Properties, LLC, No. CV 10-01499-PHX-NVW, 2011 WL 6223936 at * 1 (D. Ariz. Oct. 25, 2011) ([A] defendant may not . . . answer the complaint and go forward with discovery, all the while holding a pleading objection in reserve in case the going gets rough. Such late-game procedural dismissals are precisely what the Federal Rules are designed to avoid.). The Court should strike defendants Rule 9(b) affirmative defense on the ground that it has been waived.
b. The Courts Prior Ruling Forecloses Defendants Ability to Assert a Defense That Plaintiffs Failed To State a Claim. The Court should also strike the affirmative defense of failure to state a claim as having been previously decided on the motion to dismiss. See United States ex rel. Spay v. CVS Caremark Corp., 2013 WL 1755214 at *3 (Where . . . a court has previously made a legal determination that a Plaintiffs complaint stated a claim for relief, a subsequent affirmative defense claiming failure to state a claim or to properly plead should be stricken.). Notably, defendants concede that they may not raise a failure to state a claim defense as to plaintiffs reverse false claim counts, but they apparently contend that they may raise it as to plaintiffs other claims. See Opposition at 22 (Because Defendants did not argue that Plaintiffs' complaints failed to state a claim in their motions to dismiss (with the exception of the reverse false claim counts), they may assert this defense now.) (emphasis added). At a minimum therefore, the Court should Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 20 of 27 17
strike the defense as applied to the reverse false claims counts. Cf. Gates v. District of Columbia, 825 F. Supp. 2d 168, 170 (D.D.C. 2011) (To give fair notice of the defense, . . . a party should identify the claim to which the defense applies.) (citation omitted). Moreover, a fair reading of the Courts ruling denying defendants motion to dismiss the United States Complaint makes clear that any argument challenging the viability of the governments claim under 31 U.S.C. 3729(a)(1) would be futile. At the appropriate time, the defendants can file a motion for summary judgment if they believe the factual record fails to permit a reasonable factfinder to decide the case in the governments favor, but there should be no question that the United States Complaint, viewed in the light most favorable to the Government, adequately states a claim for relief under Section 3729(a)(1). 18
B. Affirmative Defenses Raised Only by Armstrong 1. "Government's Lack of Diligence" Armstrong argues that the Governments alleged lack of diligence in intervening in this case gives rise to an affirmative defense against the Governments claim for pre-
18 Plaintiffs also argued in the opening brief that defendants Rule 9(b) and failure to state a claim affirmative defenses should be stricken because they are not proper affirmative defenses. Opening Brief at 26-27 (citing cases). Defendants do not challenge (or even mention) the cases cited by plaintiffs on this point, but instead cite several other district court cases outside this jurisdiction. Opposition at 21. Notably, however, the cases cited by defendants primarily relate to failure to state a claim generally and do not hold that Rule 9(b) constitutes a proper affirmative defense. See Cintron Beverage Grp., LLC v. Depersia, No. 07-3043, 2008 WL 1776430, at *2 (E.D. Pa. Apr. 15, 2008) (court ruled that defendant could assert failure to state a claim as an affirmative defense; however, the case did not involve Rule 9(b)); United States ex rel. Spay v. CVS Caremark Corp., 2013 WL 1755214 at **3-4 (court held that failure to state a claim could be raised as an affirmative defense but did not specifically address whether Rule 9(b) is an affirmative defense, instead finding that the court had already ruled on the defendants Rule 9(b) arguments in its motion to dismiss). The ruling in FDIC v. Modular Corp., 859 F. Supp. 117, 122 (D.N.J. 1994), is entirely inapposite as it held only that failure to state a claim is a defense that does not require administrative exhaustion under FIRREA in order to be raised; the case did not involve Rule 9(b) and did not address whether failure to state a claim is a proper affirmative defense.
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judgment interest. Opposition at 23. This is not what he pled in his answer, however. Rather, his answer seeks to bar all of the Governments claims, in whole or in part. Moreover, Armstrongs answer is not supported by any allegations of fact relating to the Governments supposed lack of diligence. And even if Armstrong is correct that the Governments diligence is relevant to its ability to obtain an award of pre-judgment interest, this does not give Armstrong an affirmative defense to liability, and Armstrong does not cite any authority supporting his contention that it does. Armstrongs defenses based on Government lack of diligence should therefore be dismissed.
2. Recoupment/Setoff Armstrongs opposition confirms that his recoupment or setoff affirmative defense fails as a matter of law. [R]ecoupment is [t]he right of a defendant to have the plaintiff's claim reduced or eliminated because of the plaintiff's breach of contract or duty in the same transaction. U.S. v. Intrados/Int'l Mgmt. Group, 277 F. Supp. 2d 55, 57 n. 1 (D.D.C. 2003) (quoting Blacks Law Dictionary (7 th ed. 1999) and citing Reiter v. Cooper, 507 U.S. 258, 264 (1993)) (emphasis added); see also Hispanic Indep. Television Sales, LLC v. Kaza Azteca Am. Inc., No. 10-CIV-932, 2012 WL 1079959, at * 6 (S.D.N.Y. Mar. 30, 2012) (in order to assert the defense of recoupment, a party must have a legally subsisting cause of action upon which it could maintain an independent claim) (internal quotations and citation omitted). According to Armstrong, this affirmative defense is based on his contention that the USPS received tangible economic benefits three times in excess of what it paid under the sponsorship agreement--the same contract that is the subject of the Government's complaint. Opposition at 24. Even if such excess benefit was received, which plaintiffs dispute, Armstrong does not and cannot contend that the USPS had any dutycontractual or otherwiseto pay any such amounts to Armstrong. 19 Because Armstrong could not maintain an independent claim
19 Indeed, defendant Armstrong was not even a party to the Sponsorship Agreements, which were between the USPS and the Tailwind defendants.
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to recover these amounts, his recoupment defense fails as a matter of law. 20
Instead, Armstrongs contention regarding excess benefit is relevant, if at all, to the measure of damages on plaintiffs False Claims Act causes of action, as he essentially concedes. See Opposition at 24 (contending that Armstrong may be entitled to reduce his liability by the amount that the Government received from the sponsorship and citing measure of FCA damages as set forth in United States v. Sci. Applications Intl Corp., 626 F.3d 1257 (D.C. Cir. 2010)). This defense is merely another attempt to negate the element of damages. As an affirmative defense, it thus fails as a matter of law and should be stricken. 21
3. Election of Remedies In his Twenty-Fifth Affirmative Defense to the United States Complaint in Intervention, and in his Twenty-Third Affirmative Defense to the Relators Second Amended Complaint, defendant Armstrong asserts that the United States and Relators claims are barred for failing to choose between inconsistent remedies based upon the same set of alleged facts. Based upon Armstrongs defenses that the claims are barred by law, the United States and Relator moved to strike the defense as baseless and spurious because the Federal Rules liberal pleading policy and the case law allow the raising of inconsistent claims. Opening Brief at 31-32. In response, it appears that defendant Armstrong concedes that the affirmative defense, as worded and raised in his Answer, is baseless. Opposition at 24. Instead of
20 Armstrong also makes no claim that he is entitled to any offset related to any transaction other than the Sponsorship Agreements, and thus concedes that his setoff defense is not viable. See Opening Brief at 30 (recoupment involves offsetting obligation under same transaction while setoff involves different transactions) (citing Nashville Lodging Co. v. Resolution Trust Corp., 59 F.3d 236, 246 (D.C. Cir. 1995)).
21 In addition, the defense also fails because: 1) the U.S. has not waived sovereign immunity as to any such claims; 2) this Court lacks jurisdiction over any such claims and Armstrong has not exhausted administrative remedies; and 3) such claims are barred to the extent the amount sought exceeds plaintiffs claim for damages. Opening Brief at 30- 31 & n.6. Armstrong has not responded to these arguments. Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 23 of 27 20
amending or voluntarily deleting this meritless defense, however, Armstrong now argues that he meant that damages are barred. Id. at 24-25. This Court should reject Defendant Armstrongs attempt to recast his argument and should strike this affirmative defense. Because defendant Armstrong failed to address the United States and Relators contentions regarding their ability to assert inconsistent or alternative claims, the Court may treat the point as conceded. Gates v. District of Columbia, 825 F. Supp. 2d at 170 (defendants failure to respond to plaintiffs argument regarding misapplication of an affirmative defense implicitly concede[s] that argument by their silence); see also Bancoult v. McNamara, 227 F.Supp.2d 144, 149 (D.D.C. 2002) ([I]f the opposing party files a responsive memorandum, but fails to address certain arguments made by the moving party, the court may treat those arguments as conceded, even when the result is dismissal of the entire case.). Defendants affirmative defenses alleging that inconsistent claims are barred should therefore be struck on that ground alone. Moreover, the recast defense raised by defendant Armstrong in his Opposition is not an affirmative defense. As set forth by the United States and Relator in the initial Joint Motion to Strike, an affirmative defense is a matter as to which the defendant bears the burden of proof, and precludes liability even if all of the elements of the plaintiffs claim are proven. Gates v. District of Columbia, 825 F. Supp. 2d at 171-72; see also Lane v. Page, 272 F.R.D. 581, 598 (D.N.M. 2011) (same). Here, the fact that the United States and Relator cannot recover twice for the conduct arising from FCA claims and a common law claim based upon the same set of facts does not bar or preclude liability. It is simply an axiomatic rule applied after trial in an FCA case, which no party bears the burden of proving. U.S. ex rel. Miller v. Bill Harbert Intern. Const., Inc., 505 F. Supp. 2d 20, 24 (D.D.C. 2007); see also U.S. ex rel. Purcell v. MWI Corp., 254 F. Supp. 2d 69, 79 (D.D.C. 2003) (although an FCA plaintiff may not recover damages from theories of liability that are inconsistent because one theory precludes the other or the theories are mutually exclusive, this rule does not bar inconsistent claims and cannot be Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 24 of 27 21
applied at the motion-to-dismiss stage). Armstrongs Twenty-Fifth Affirmative Defense to the United States Complaint in Intervention and Twenty-Third Affirmative Defense to Relators Second Amended Complaint therefore both fail and should be stricken. 4. Retroactivity In their Opposition, defendants have clarified that this defense does not seek to re- litigate the Courts ruling as to which version of the False Claims Act will apply to this case, but only seeks to preserve Armstrongs right to argue that applying the FERA amendments retroactively violates the Ex Post Facto Clause of the United States Constitution. Opposition at 25. In light of defendants clarification, and subject to the retroactivity defense being limited as clarified by Armstrong, plaintiffs will withdraw their motion to strike this defense. C. Affirmative Defenses Raised Only by the CSE Defendants 1. Acts of Third Parties/No Vicarious Liability By their response, the CSE Defendants do not appear to contest that their affirmative defenses relating to the acts of third parties are intended to negate the causation element of relators case. 22 Their argument is simply that the issues are relevant and necessitate discovery. Opposition at 26. The authority they cite in support of their position holds, like Gates, 825 F. Supp. 2d at 170-171, that their affirmative defenses should just be treated as denials. This would appear to be an immaterial distinction but for the fact that having numerous redundant and immaterial affirmative defenses in the pleadings in this case can only serve to confuse matters during the course of discovery and litigating the case, without any redeeming benefit, especially in a case that will be tried to a jury. Contrast Sweeney v. Am. Registry of Pathology, 287 F. Supp. 2d at 5 (in declining to strike defense court noted that "since any trial against the United States will be a bench trial, the Court can consider and decide the merits of the United
22 The CSE Defendants Answer to Relators SAC includes the following affirmative defenses: Seventeenth (Acts of third parties causation), Twentieth (Acts of third parties no vicarious liability). Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 25 of 27 22
States' defense as a matter of law at the time of trial"). Armstrong has already agreed that this affirmative defense should be stricken. Opposition at 1, n.1 (withdrawing Armstrongs Vicarious Liability defenses to United States and relators complaints). Plaintiffs thus request that the Court simply strike the same negative affirmative defense raised by the CSE Defendants, without prejudice to their ability to make whatever arguments they would otherwise have been entitled to make in this case regarding causation. See Fed. R. Civ. P. 12(f) (The court may strike from a pleading . . . any redundant . . . matter.). 2. Relators Bad Faith The CSE Defendants Twenty-Fifth Affirmative Defense entitled Bad Faith alleges On information and belief, this lawsuit was filed in bad faith, thereby barring Relator from recovering on any cause of action in the Complaint, and entitling the CSE Defendants to recover their costs of suit incurred herein, including reasonable attorneys fees. Plaintiffs have already provided ample briefing for the Court demonstrating that alleged wrongdoing by relator is not a proper predicate for an affirmative defense against an FCA case. Opening Brief at 34-35. In apparent recognition of this authority, the CSE Defendants attempt to convert their affirmative defense of Bad Faith into a claim for attorneys fees under 31 U.S.C. 3730(d)(4). The problem with this argument, however, is that an affirmative defense is supposed to be a defense to liability in a case. See, e.g., Lane v. Page, 272 F.R.D. at 598 (An affirmative defense, under the meaning of Fed. R. Civ. P. 8(c), is a defense that does not negate the elements of the plaintiffs claim, but instead precludes liability even if all of the elements of the plaintiffs claim are proven.). A claim for attorneys fees under the False Claims Act is plainly not a defense to liability in any way shape or form. Moreover, the CSE Defendants Twenty-Fifth affirmative defense does not refer to any of the conduct that is specified in 3730(d)(4) as potential bases for the award of attorneys fees to a defendant in an FCA case (or even to 3730(d)(4) itself). The Case 1:10-cv-00976-CRC Document 233 Filed 10/17/14 Page 26 of 27 23
defense should thus be stricken and if defendants wish to move for an opportunity to amend their answer properly, they can seek court relief to do so. VI. CONCLUSION Based on the foregoing, plaintiffs respectfully request that the defendants affirmative defenses be stricken as described in plaintiffs motion.
Respectfully submitted,
JOYCE R. BRANDA Acting Assistant Attorney General
RONALD C. MACHEN JR., D.C. Bar # 447889 United States Attorney
DANIEL F. VAN HORN, D.C. Bar # 924092 Assistant United States Attorney
/s/ Darrell C. Valdez Darrell C. Valdez (D.C. Bar No. 420232) U.S. ATTORNEYS OFFICE Judiciary Center Building 555 Fourth Street, NW Washington, DC 20530 (202) 252-2507 darrell.valdez@usdoj.gov
Michael D. Granston Tracy L. Hilmer, D.C. Bar # 421219 Robert E. Chandler David M. Finkelstein UNITED STATES DEPARTMENT OF JUSTICE Civil Division, Fraud Section 601 D Street, NW, Suite 900 Washington, DC 20530 (202) 514-4678 Telephone (202) 514-0280 Facsimile Robert.chandler@usdoj.gov
Attorneys for the United States of America __________ /s/________________ Paul D. Scott pdscott@lopds.com California State Bar No. 145975 Admitted Pro Hac Vice
___________/s/________________ Lani Anne Remick laremick@lopds.com California State Bar No. 189889 U.S.D.C. No. PA0045 Jon L. Praed U.S.D.C. No. 450764 D.C. Bar No. 51665 LAW OFFICES OF PAUL D. SCOTT, P.C. Pier 9, Suite 100 San Francisco, California 94111 Tel: (415) 981-1212 Fax: (415) 981-1215
Attorneys for Relator Floyd Landis
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