Northrop Loses Fraud Case Ruling

In a decision that could bolster prosecution of defense fraud cases, a federal district judge in Los Angeles ruled that the Northrop Corp. cannot prevent Justice Department lawyers from interviewing company workers outside the presence of Northrop lawyers.

U.S. Circuit Judge Pamela A. Rymer said in a decision released Friday that Northrop had failed to show that its constitutional rights would be violated by such interviews.

The decision also said Northrop had not proved that the interviews would violate a California State Bar ethics rule that appears to prohibit such interviews.

“The court’s ruling is significant because if the judge ruled the other way it would have enjoined the government from conducting a proper investigation of a criminal matter,” said Assistant U.S. Atty. William F. Fahey, the lead prosecutor in two criminal fraud cases against Northrop.

Northrop’s lawyer, Brad D. Brian, said the company is considering an appeal.

Rymer’s decision stemmed from a motion filed by Northrop last month seeking to prohibit the U.S. attorney’s office from interviewing four Northrop employees and one former employee in connection with a major criminal trial scheduled to begin later this month.

She noted that all but one of the employees had agreed to be interviewed by the government outside the presence of Northrop lawyers. The government had argued that it would be easier for the workers to talk freely without a company lawyer present.

Last April, a federal grand jury indicted Northrop and five current and former employees on fraud charges for allegedly falsifying tests on components for nuclear-armed Cruise missiles and for supplying equipment that they knew failed to meet government specifications.

The indictment also alleges that the company defrauded the government by improperly testing components for the AV-8B Harrier jet, used by the Marine Corps. In November, Rymer severed the massive criminal case into two parts, and the Harrier phase is scheduled to begin on Feb. 20.

Rymer’s ruling this week was the second victory on the tricky legal issue for Atty. Gen. Dick Thornburgh in recent months. Last June, Thornburgh issued a directive to all Justice Department lawyers saying they were not bound by state Bar rules, such as California’s, prohibiting such interviews.

Thornburgh’s directive provoked a major controversy in the legal community. Just last month, a wing of the American Bar Assn. adopted a resolution stating that it believed that Justice Department lawyers are not exempt from such rules.

The Justice Department contends that the U.S. Constitution exempts its attorneys from the state rules.

Northrop’s lawyers argued that the government’s plans to interview the workers outside their presence violated a state Bar rule of professional conduct. The rule generally prohibits an attorney in a lawsuit from talking with an individual who is represented by an opposing lawyer unless that lawyer is present. An exception to the rule occurs when the two attorneys agree to the conversation.

Brian asserted that the purpose of the interviews was to seek information from the employees about possible criminal conduct by Northrop. He contended that as Northrop employees, they are represented by the corporation’s lawyers, who would have to give their consent for such interviews. He also contended that the practice would violate the company’s 6th Amendment rights to be represented by counsel. The judge disagreed with both contentions.

Rymer noted that all but one of the employees had agreed to be interviewed without a Northrop lawyer present and had their own lawyers.