Judge Allows Northrop Fraud Suit to Continue
A judge in Los Angeles has rejected a plea by Northrop to throw out a civil fraud case filed by a group of current and former employees who allege that the aerospace firm overcharged the government by at least $2 billion on the B-2 Stealth bomber project.
U.S. District Judge Mariana R. Pfaelzer upheld the constitutionality of a section of the False Claims Act that permits private citizens with knowledge of a fraud against the government to sue on behalf of the United States. Pfaelzer filed a written opinion late Friday and her court clerk made it public Monday.
The judge’s decision is the third ruling by a federal district judge in California this year upholding the constitutionality of 1986 amendments to the False Claims Act that greatly enhanced incentives for whistle-blowers to come forward and disclose fraudulent schemes. The other two rulings were issued in a Los Angeles case involving McDonnell Douglas and in a San Jose case involving Lockheed. There also are constitutional challenges to the law pending in other Los Angeles cases involving Northrop and Litton Industries.
One current and three former Northrop employees filed suit early last year in U.S. District Court in Los Angeles asserting that the company overcharged the government by at least $2 billion for expenses incurred in the development and building of the Stealth bomber.
The False Claims Act was originally enacted during the Civil War when President Abraham Lincoln was attempting to curb fraud against the government by contractors who were selling the United States inferior products, such as gunpowder adulterated with sawdust. The law was substantially amended in 1986 and there are now about 200 cases pending in federal courts around the country brought under it, most of them involving alleged defense fraud.
The False Claims Act, as amended, provides that the Justice Department may elect to take over a case filed by a whistle-blower if it decides that the case has merit. The government then shares any damages it wins with the original plaintiffs.
The government has declined to join this case against Northrop. However, in July, the Justice Department announced that it is conducting an investigation into possible fraud by Northrop on the Stealth bomber program. At the time, Justice Department sources said the investigation concerned possible overbilling on the project, which thus far has cost the government $23 billion. Government officials specifically said that the inquiry did not involve any questionable parts or the operational ability of the plane.
In June, Northrop’s attorneys asserted that the so-called whistle-blower provisions added to the False Claims Act in 1986 were unconstitutional because they violated Article III of the Constitution on what is necessary to have standing to sue, the separation of powers doctrine and the appointments clause of the Constitution.
In the ruling filed Friday, Pfaelzer rejected all three arguments.
First, she said Congress has the authority to give a private citizen the power to file a fraud case on behalf of the government.
Next, she said the whistle-blower provisions do not violate the separation of powers clause. They do not undermine executive branch power, she said, because the U.S. attorney general can take over such cases. Pfaelzer also noted that if the attorney general decides not to enter the case, he retains the power to monitor the proceedings and can intervene with good cause and can block a settlement the government finds unacceptable.
Finally, she said the statute does not violate the appointments clause because the private citizen plaintiff in such cases is given limited prosecutorial authority in a specific case, not any permanent power.
Herbert Hafif, the Claremont attorney who represents the plaintiffs in the Stealth bomber case, said he was pleased by Pfaelzer’s ruling and that he hopes the Justice Department will reconsider its decision not to join the private plaintiffs in prosecuting the case.
Northrop attorneys declined to comment on the ruling.
