Ex-Pentagon Official Drops Hughes Whistle-Blower Suit
A former Pentagon contracts officer has withdrawn a $360-million whistle-blower lawsuit accusing Hughes Aircraft Co. of inflating labor costs by $70 million on certain defense contracts, Hughes said Friday.
Patrick M. Kelley, a former chief of the contracts division for the Defense Contract Administration Service at Hughes Ground Systems Group in Fullerton, filed a motion in U.S. District Court in Los Angeles to drop his lawsuit on April 27.
The Justice Department agreed to the dismissal on Monday, said Ray Silvius, a Hughes spokesman.
Kelley charged in his suit that Hughes had inflated labor costs by $70 million in its domestic government defense contracts between 1983 and 1989. The suit was filed last August, and a court seal was temporarily lifted for the company to respond on Jan. 16.
In a separate development, a $9.6-billion whistle-blower suit filed against the company last December by a former Hughes employee was dismissed April 9 for lack of evidence, said David Zucker, senior staff counsel for Hughes. But William Humphreys, a Santa Ana attorney representing former Hughes engineer Michael D. Denlinger, said his client plans to pursue the case and that an amended suit will be filed Wednesday.
“The court only asked for a more specific complaint,” Humphreys said. “We have the documentation. On Monday, we will file a motion asking (Hughes) to hand over more evidence.”
In that case, Denlinger claimed that the company covered up flaws in 4.75 million microchips installed in defense systems. Hughes has denied the charges.
In March, the Justice Department decided not to join in the suit after conducting its own investigation.
Kelley’s suit had sought treble damages of $210 million and a $150-million penalty under the federal False Claims Act, which allows individuals to sue on behalf of the government and share from 15% to 30% of an award. Kelley was believed to be the highest-ranking government official to file such a lawsuit.
Kelley alleged that Hughes improperly used a labor pricing rate on its Fullerton contracts that had been specifically disapproved, adding about $20 million annually to its government billings.
The labor rate was designed to compensate a contractor for labor involved in producing scrapped, lost or surplus goods. The company said it was allowed by other government officials to use the labor attrition rate, but it never used it in contracts administered by Kelley.
Hughes has denied all of Kelley’s allegations. Kelley couldn’t be reached, and Justice Department officials did not return calls for comment.
Dean Frances Pace, an attorney for Kelley, said he could not comment on the dismissal because the federal prosecutors told him that the case was still under court seal, even though the suit was dropped.
Kelley filed suit Aug. 10, five months after he retired and two months after a federal judge in Los Angeles upheld the constitutionality of the whistle-blower law in a different case involving Hughes Helicopter Co.
Since the law was amended in 1986, 240 whistle-blower lawsuits have been filed, and the Justice Department has joined 34 of them. So far, the suits have recovered $40 million in awards, of which 10% has gone to private plaintiffs.
Two other whistle-blower cases involving Hughes employees are pending, Zucker said. In suits filed by former employees William Schumer and John Perron, the cases are awaiting a Justice Department investigation.
BACKGROUND In August, 1989, Patrick M. Kelley, former chief of the contracts division of the Pentagon agency that oversees Hughes defense contracts, sued Hughes Aircraft’s Ground Systems Group in Fullerton for $360 million, alleging that the aerospace company charged improper labor rates. Kelley was believed to be the highest-ranking government official to file under the Federal False Claims Act of 1986, which allows whistle-blowers to share in any award. About 240 suits have been filed under the act.
