Judge Rescinds Fraud Ruling Against Shipyard on Navy Contract

A federal judge has withdrawn a judgment in which he ruled that one of the largest shipyard companies on the West Coast committed mail fraud and acted with fraudulent intent against the U.S. Navy.

In settling a lawsuit between competing shipyards, U.S. District Judge Stanley A. Weigel on Tuesday withdrew an earlier summary judgment against Southwest Marine Inc., according to a court clerk and shipyard attorneys.

The Aug. 8 judgment found that the company acted “with intent to deceive, manipulate and defraud” the Small Business Administration and the Navy in the fall of 1983 to win a contract worth up to $150 million.

The judgment was a precursor to a trial to decide a lawsuit brought by three competing shipyards against Southwest Marine. The lawsuit alleged that Southwest Marine used unfair means to win a contract to fix four Navy ships.

Earlier Finding

Despite Weigel’s latest action, a spokeswoman for the Navy’s Sea Systems Command, which oversees the repair of naval vessels, said Wednesday that Navy officials were still considering sanctions against Southwest Marine in light of the judge’s earlier finding.

Southwest Marine maintained in a statement, however, that the rescinding of the judge’s order eliminates the possibility that the company would be barred from bidding on future government jobs. Repairs on Navy ships provide about 80% of the workload for Southwest Marine’s 2,500 employees, company officials said.

An attorney for Southwest Marine said the judge’s latest decision gives the company a “clean bill of health” in its dealings with the government.

“As far as we’re concerned, it’s (back to) business as usual,” said Lloyd Schwartz, vice president and legal counsel for the San Diego-based ship repairer.

Southwest Marine is one of the largest remaining ship repair businesses remaining in the West, with facilities in San Pedro, San Diego, San Francisco, Portland and American Samoa.

No Comment

Weigel, through his clerk, declined to comment on the decision to rescind his earlier ruling.

The judge issued the first ruling in August in reaction to a finding that the company fired more than 500 employees for a single week in late 1982, only to hire them back a week later. The practice allegedly was a thinly veiled attempt to qualify as a small business under SBA rules. Only businesses with 1,000 employees or fewer were eligible to bid on the lucrative Navy contract.