‘Whistle-Blower’ Suit Against Hughes Abandoned : Defense: A former engineer with the contractor had accused the Fullerton firm of installing defective microchips.

A former Hughes Aircraft Co. engineer in Fullerton has dropped his $9.6-billion “whistle-blower” lawsuit that had accused the defense contractor of installing defective microchips in several weapons systems.

The suit was abandoned by Michael C. Denlinger, a former engineer at Hughes’ Ground Systems Group, who had alleged that Hughes took shortcuts in manufacturing microchips during five years in the 1980s.

The suit, originally filed in June, 1989, was formally dismissed by a federal judge in Santa Ana on Dec. 7. Hughes announced the dismissal Wednesday.

“There was a settlement, but I can’t disclose the terms,” said William O. Humphreys, an attorney for Denlinger. “It was not dismissed on the merits of the case. It was impossible for my client to continue.”

Humphreys said Denlinger believes that the suit had merit but decided to drop it because of the emotional and financial strain of the legal battle.

Humphreys said Denlinger is unemployed and had accumulated more than $30,000 in legal bills.

Richard Dore, a Hughes spokesman, said that the Denlinger suit had been “frivolous” and that the problem “had been resolved to the point that even our customers recognized it.” Dore said the dismissal accord did not involve a cash settlement.

Denlinger had filed the suit under the federal False Claims Act, accusing Hughes of covering up flaws in more than 4 million microchips installed in defense systems since 1984. The suit claimed damages of $3.2 billion, an amount that is automatically trebled under federal law.

After a nine-month investigation, the Justice Department in February declined to join in the lawsuit, but Denlinger pursued it on his own. The suit was dismissed on a procedural matter in April and refiled in June.

In November, Hughes filed a motion to dismiss the case, citing evidence that the problem cited by Denlinger had been solved with the cooperation of the Department of Defense and other companies years before the suit was filed, Dore said.

Hughes officials said the company and its suppliers discovered in 1985 that a part--a dual in-line package integrated circuit--would sometimes crack when subjected to certain manufacturing processes.

The company said it then corrected the manufacturing problem and inspected all inventories to remove any potentially defective circuits. Hughes provided extended warranties on its equipment sold to the government, Dore said.

Denlinger had claimed that the defective microchips had been used in varied weapons, including Navy submarine torpedoes and shipboard electronics systems. Humphreys contended Wednesday that some faulty chips manufactured before 1985 are still being used by the U.S. military.

Hughes earlier had acknowledged that defective microchips caused the failure of a least one test torpedo.