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The Explainer: Questions about Postal money and Floyd Landis’ whistleblower lawsuit

  • By Charles Pelkey
  • Published May. 26, 2011
  • Updated Jun. 13, 2012 at 5:56 PM EDT
Mr. Zip was hired in 1964. Is he still a federal employee?

Q.Dear Explainer,
I keep running across a number of things in recent coverage of the whole Armstrong mess and I end up with more questions than answers.

First, you and others keep mentioning Floyd Landis’ “whistleblower” lawsuit. How is he a whistleblower and how is Lance Armstrong a defendant in a case like that?

Second, over the past few months, I’ve seen writers – especially you – use the terms “public money” and “federally funded” when referring to the Postal Service’s sponsorship of the cycling team. But the Postal Service isn’t a federal agency. It’s a business. It’s been that way since the `70s, when they got rid of the old Post Office Department, which was a federal agency. The new USPS doesn’t get taxpayer funds, so why do you keep saying those are public funds?

I see that someone called you on that in the comments following your interview with Chris Manderson and it just raised the question in my mind again.
– Ted

A.Dear Ted,
You’re right. That “federally funded” issue popped up in yesterday’s comment section following that Manderson interview. Let’s touch on that first, since it has bearing on the question of Landis’ “whistleblower” suit as well.

Mr. Zip was hired in 1964. Is he still a federal employee?

I had a pleasant back-and-forth e-mail exchange with an attorney in Michigan, who also questioned my use of the term “federally funded” when referring to the Postal sponsorship of the team. He has a lot more years under his belt as a lawyer than I do, so I am tempted to concede the point, however, we may have simply gotten mired in a semantic, rather than a legal argument.

First off, it’s largely true that the U.S. Postal Service, after the reorganization of the old Post Office Department in 1971, is run as a business and is intended to be largely self-supporting, receiving no direct Congressionally appropriated funds to support its operations. That’s true to a point, because Congress does appropriate about $90 to $100 million a year to offset the cost of the Congressional “franking privilege,” (that’s the practice of allowing a member of Congress to mail a letter by merely signing an envelope in the upper right-hand corner instead of placing a stamp there) and other services that are mandated by law, including free mailing privileges for the blind.

But there are several distinctions that set the Postal Service apart from an ordinary business. First, it remains a part of the federal government, now operating as an independent agency under the executive branch, as defined by Title 39 of the U.S. Code, §201. It is also enjoys a constitutionally protected right of monopoly when it comes to the delivery of mail and operates with an obligation to provide universal service to every American household, no matter how remotely located.

The USPS’ status as a public agency, means that whatever funds it generates – including the 44 cents you slapped down for a first-class stamp – are considered to be public funds when they come into the Postal Service’s possession. In 2010, for example, the Postal Service generated about $67 billion in revenues, all of which are public dollars.

Does that mean that the money the Postal Service spent on its cycling team are “public funds?” Yes, without a doubt. Does that mean the team was “federally funded?” In my book, yes. The emailed discussion with the attorney I had yesterday seemed to revolve around whether or not the funds were appropriated by Congress. In his eyes, “federally funded” means just that; funds approved through the Congressional budget process and distributed by the executive branch. I think that definition is too narrow and feel comfortable with referring to Postal sponsorship as federal funding. No matter what, though, that money falls firmly within even the narrowest definition of “public funding.”

The whistleblower’s suit

Indeed, it is that distinction that opened the door to Floyd Landis’ decision to sue Lance Armstrong on behalf of the USPS under the provisions of the federal False Claims Act (Title 31 of the United States Code §§ 3729–3733). Without commenting on the relative merits of the Landis claim itself, the law is intended to allow persons not part of the government to sue on behalf of the government when they raise an issue of the fraudulent receipt of government money.

There have been a number of FCA cases involving alleged fraud against the Postal Service, including a $6 million settlement paid by Providian Financial in 2005 after “whistleblowers” sued the company on behalf of the USPS because the credit card company had claimed it was eligible for discounted postal rates when it was not. Filing suit under the FCA wouldn’t have been an option were USPS funds regarded as anything but federal funds.

The claim, however, is still subject to review by the Justice Department. There are a number of hurdles it will have to overcome, however, if it ever makes its way into court. Of course, since plaintiffs can recover between 15- and 25-percent of a judgment awarded under the FCA, it’s sometimes worth trying to clear those hurdles. It is tough to weigh the arguments being used by Landis’ attorneys since all FCA claims are sealed until the Department of Justice reviews the charges and determines whether it will pursue the case.

First, the FCA includes a six-year statute of limitations. In other words, an FCA claim has to be filed within six years of the alleged violation.

Landis filed his claim in September of last year, just about six years after the Postal Service’s sponsorship of the team was winding down at the end of 2004. It’s unclear what arguments might be used to extend that claim to the entirety of the agency’s $30.6 million expenditure in support of the team, which ran from 1996 to the end of 2004.

One exception to that statute of limitations rule would be “discovery.” In other words, the time in which to file a claim could be extended by another three years after someone first learned of the alleged fraud. An ordinary citizen might be able to employ that strategy, claiming that it was only after revelations of doping allegations did he or she discover that those federal funds had allegedly been used for fraudulent purposes, like buying performance-enhancing drugs or paying really smart and sneaky doctors, or I dunno, allegedly paying off UCI officials. Obviously, that wouldn’t be an option for Landis, since the whole basis of his case against Armstrong is that he had first-hand knowledge of those acts at the time they allegedly occurred.

So, what’s the damage?

Finally, if his attorneys are able to get past the statute of limitations question, they still have to show that the government suffered actual damages as a result of the alleged fraud. Now in the aforementioned Providian case, that’s easy. Providian falsely claimed – which it later acknowledged – that it was eligible for discounted postage. There it’s easy to do the math. Just figure out how much of a discount was given and then send a bill for the difference.

But in the case of the USPS Cycling Team, what was the Postal Service buying for its $30.6 million? Well, the short answer is publicity. They certainly got that. Six of the seven Tours won by Armstrong were won while wearing a USPS jersey. The global audience is immense. Lots of people got a chance to see the Postal Service’s eagle logo as it rocketed up L’Alpe d’Huez, through time trials at the Tour and atop the podium in Paris.

Now you may or may not necessarily agree that it was an effective marketing strategy for the American postal system to advertise its services in Europe, but the agency knew what it was buying when it first signed its sponsorship deal at the end of 1995. Indeed, at the time, they probably got more than they had bargained for, given the attention the team got when Armstrong returned from cancer treatment, joined the team in 1998 and went on to win the Tour again and again and again.

It was a great story and one that garnered a lot of attention, even if it was being viewed by a degree of skepticism in some quarters. It wasn’t until Landis publicly leveled charges against Armstrong in 2010 that the skeptical rumblings gained enough traction to warrant the attention of the Department of Justice, which was already involved in an investigation of doping in sport. Now that Tyler Hamilton – and possibly others – have backed up Landis’ story that federal case is gaining even more momentum. But does that mean that the Postal Service has suffered damages? That’d be a stretch, but it doesn’t rule out a host of potential criminal charges that could arise from the current investigation.

Questionable civil damages, but is there a criminal case?

In earlier columns, we’ve touched on the question of precisely what charges – if any – Armstrong and others might face when and if federal indictments result from the current grand jury proceedings. Again, the lapse of time will pose a problem with some of the potential criminal charges.

There are a number of charges that could conceivably be part of this case, including money laundering, tax evasion and fraud, but at this point it’s largely speculative. Despite public pronouncements by Landis and Hamilton alleging the use of performance-enhancing drugs by Armstrong and others, no one in a position of authority is publicly discussing how any of that evidence will be used to assemble a criminal case.

I am eagerly awaiting anything that comes out of the grand jury. If and when indictments are handed down in the case, the charging documents will make for some interesting reading and, undoubtedly, trigger a whole new round of debate.

Let’s wait and see.

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