Lockheed Ordered to Pay $45 Million in Firing of 3

In what is believed to be the largest legal award ever involving a defense firm, a Los Angeles jury imposed a $45.3-million judgment against Lockheed Corp. on Thursday for firing three employees who tried to warn management that the firm’s C-5B aircraft was defective and unsafe.

The employees--two internal auditors and a quality assurance representative--were fired in 1985 by then-Lockheed Chairman Lawrence O. Kitchen after they had attempted to convince Kitchen that the giant Air Force transport was gravely flawed. They sued for wrongful termination.

Lockheed general counsel Joseph Twomey said the size of the punitive damages was “just outrageous.” He vowed to attempt to overturn the verdict--if necessary, appealing “all the way to the U.S. Supreme Court.”

Jurors in the Superior Court case said in interviews that they returned such a large penalty to send a message not only to Lockheed but also to the entire U.S. defense industry about improper practices in weapons programs.

Herbert Hafif, the Claremont attorney who represented two of the plaintiffs, asserted that the award is a measure of public dissatisfaction with defense industry waste. Hafif called for a congressional investigation into the safety of the C-5B.

The Air Force has said the aircraft is not defective.

Lockheed can handle the award financially, analysts said. After taxes, it would amount to $30 million. The Calabasas-based aerospace firm has an estimated $100 million cash on hand and is expected to generate profits this year of $315 million, according to securities analyst Lawrence M. Harris of Bateman Eichler, Hill Richards.

Nonetheless, Lockheed has had a difficult year. The Navy cancelled Lockheed’s P-7A aircraft program for non-performance. McDonnell Douglas fired Lockheed as a subcontractor on the C-17 aircraft program. And Texas financier Harold Simmons has attempted to wrest control of the company from current management.

In several weeks, Lockheed is scheduled to begin a trial before the Armed Services Board of Contract Appeals involving allegations that the firm overcharged the Air Force for the C-5B. The government’s original claim was for $495 million, but it has been reduced substantially.

In Thursday’s case, the three Lockheed employees alleged that improper heat treating of the main frames of the C-5B at Lockheed’s plant in Burbank resulted in cracking, warping and other deformities starting in 1983.

The auditors, Clyde W. Jones Jr. and Terrence F. Schielke, said they were instructed by audit department executives to not undertake a formal investigation or write a report about the allegations, but they continued to attempt to sound warnings of the problems.

In September, 1985, the two auditors and plaintiff Thomas R. Benecke, a quality assurance expert, met with Kitchen and disclosed that they had hired an outside metallurgist at their own expense and had found that samples of the structural parts were defective.

Kitchen testified Oct. 18 that he personally fired Schielke and Benecke becaused they acted unprofessionally, failed to conduct a formal audit of their own allegations and took property off company premises when they went to the outside metallurgist. Jones retired after he was threatened with firing, according to an internal Lockheed memorandum introduced as evidence in the seven-week trial.

Though the case was brought on grounds of wrongful termination of the employees, the trial revolved around the key question of whether C-5B jets contain flawed parts.

Hafif attempted to show--and, according to jurors, succeeded--that Lockheed did not perform certain tests to certify that a heat-treating oven was operating at the correct temperature.

The employees alleged that the ovens operated at too high a temperature and caused “eutectic melting,” in which certain metals inside the aluminum alloy melted, causing voids or cracks.

The voids allegedly occurred in the C-5B’s main frames--the most important of a series of structures that form the fuselage of the aircraft and bear enormous loads while it flies. The frames were built and heat-treated by the Lockheed California Co. for the Lockheed Georgia Co., the prime contractor for the aircraft.

“The frames were cracked, warped, twisted,” Schielke said Thursday. “And instead of scrapping them, they went ahead and used them, because it would have put them so far behind schedule to scrap them that the Defense Department would not have bought the planes.”

Kitchen testified that the employees “lied” about the problem and “claimed there was a management cover-up, and there was not.” Kitchen said he did not learn about the auditors’ concerns until the September, 1985, meeting. Schielke said, however, he told Kitchen in a 1984 meeting that a cover-up was going on.

Twomey, the Lockheed attorney, said he believed the plaintiffs were successful because Hafif had diverted the attention of the jury from the issue of wrongful termination to a question of whether the aircraft are unsafe. Twomey said the aircraft is not defective.

“The amount of the punitive damages awarded is grossly disproportionate to the actual damages found by the jury and is insupportable factually and legally,” he said, noting that only $376,514 of the verdict was for compensatory damages. “The company is confident that the verdict will not stand.”

Jurors said they distrusted Kitchen’s testimony and were shocked by Lockheed’s practices.

“I will never fly on another Lockheed plane again--and I fly a lot,” said juror Jackey Grundman. “I just wonder what else is wrong with the rest of their airplanes.”

Juror Julio Barrious, an oil exploration geographer at Unocal Corp., said: “We felt that if taxpayers pay for a product, that we should get what we ask for and not something less. We felt that if we gave Lockheed a large (penalty), we would send out a message, not only to Lockheed but the defense industry.”