Western Graphtec Told to Pay $1.6 Million in Fraud
A Los Angeles federal court jury ruled that a small Irvine defense contractor committed fraud by falsely telling the Navy that its electronic sensor product was made in the United States. It ordered the firm to pay $1.6 million in damages to a competitor.
The jury on Thursday ordered Western Graphtec, the U.S. subsidiary of Tokyo-based Graphtec Corp., to pay $95,660 in actual damages and $1.5 million in punitive damages to Astro-Med Inc., a West Warwick, R.I., manufacturer. In 1987, Astro-Med lost out to Western Graphtec in a competition for a Pentagon contract to supply sensors used by surface ships to detect submarines.
“We are delighted at the outcome,” said Albert W. Ondis, chief executive of Astro-Med. “We undertook the protracted and costly venture to restore fairness to the government bidding process.”
Astro-Med sued Western Graphtec in June, 1988, in federal court in Los Angeles, alleging that the Irvine firm knowingly misrepresented the sensors as made in the United States when, in fact, the devices were manufactured by the Japanese parent company, Ondis said.
If the Navy had known the eight sensors were made overseas, the contract would likely have been awarded to Astro-Med, Ondis said. The jury found that Western Graphtec concealed material facts from the government and engaged in deliberate fraud.
Under the federal Buy American Act, government agencies are required to add a penalty of 50% to certain bids from foreign companies, Ondis said.
Steve Krause, president of Western Graphtec, declined to comment on the verdict. During the trial, which began Nov. 1, attorneys for Western Graphtec contended that the company did not intentionally deceive the government.
Western Graphtec claimed that at the time the bid was made, the firm had expected to win a related contract that would have enabled it to manufacture the sensors in the United States. But the other contract did not materialize, the company said.
“Fortunately, the jury did not believe them,” Ondis said. “We are a small industry, and we knew that they did not have the capabilities to manufacture this product in Irvine.”
Western Graphtec is a manufacturer of electronic recording devices with about $20 million in sales this year.
The verdict settles only a part of the 2 1/2-year legal dispute between the two companies.
“They’re going to try to put the best face on it that they can, but it’s not over yet,” Krause said.
Still pending is a separate lawsuit, filed in the same court in 1988, in which Astro-Med has accused Western Graphtec of infringing its patents for a high-speed recording device.
But the Irvine firm countersued, alleging that it was actually Astro-Med that infringed Western Graphtec patents. Ondis said the case is expected to go to trial in March.
