Northrop Will Pay $8 Million in Suit Alleging Test Fraud

Northrop has agreed to pay $8 million to settle civil fraud charges originally brought by two former hourly employees who alleged that the aerospace firm falsified tests on guidance devices for nuclear-armed cruise missiles, according to attorneys in the case.

The suit, which was filed under the federal False Claims Act, became one of the most celebrated scandals involving a major defense contractor in the 1980s, owing to the gravity of the allegations and the attention that it drew from Congress.

The Department of Justice joined the civil case against Northrop and filed criminal charges against the corporation and three of its officials. The criminal case was settled last year when Northrop pleaded guilty to 34 counts of fraud and paid fines of $17 million.

The whistle-blowers who alerted authorities to the alleged fraud, employees Leocadia Brajas and Patricia Meyer, will receive between 15% and 25% of the $8-million settlement--with the balance going to the federal Treasury, according to Herbert Hafif, the Claremont attorney representing the two workers.

Under the False Claims Act, which allows individuals to sue contractors on behalf of the government and share in any awards, a judge must decide the amount of the whistle-blowers’ shares. Northrop signed the settlement agreement Thursday. Justice Department attorneys are expected to sign it in the next few weeks.

In addition to the $8-million civil fraud settlement, Northrop separately agreed to pay the workers a total of $750,000 in damages for wrongful termination. The two were fired after they complained internally and then reported their allegations to federal agents.

Northrop admitted in its guilty plea that flight data transmitters were improperly tested and that false data was reported to the Air Force to show that the guidance devices passed various tests. The devices were produced at a small Northrop operation in Pomona called the Western Services Department.

Northrop is negotiating a separate agreement with the Air Force to replace the suspect guidance components at a cost to the firm of $10 million, the Air Force said last month.

The total tab for the affair will reach nearly $36 million, which will make it one of the most costly defense industry fraud cases ever, Hafif said. He indicated that he will seek attorneys’ fees of $700,000 from Northrop.

After the wrongdoing became public in 1987, Northrop voluntarily shut down the Western Services Department plant in Pomona and fired the employees involved in the improper testing.

The former plant manager, Clarence Gonsalves, pleaded guilty to criminal charges. He was sentenced to 3 years in prison and fined $10,000 in May, 1990.

Northrop has steadfastly asserted that the flight data transmitters for the cruise missiles are “operating effectively,” according to Les Daly, a Northrop senior vice president. But in acrimonious congressional hearings last year, current and former Air Force officials testified that the devices do not meet specification and have experienced operation problems.

Northrop attorney Joseph Costello said in an interview that the $8-million figure was agreed upon after a settlement conference last December in which the Justice Department indicated that $8 million was the lowest amount it would accept.

Costello declined to characterize his feelings about the award. But many company officials have privately taken strong exception to the legal tactics of Hafif, who is representing workers suing the company on at least three other matters, including the B-2 bomber, the MX missile and the F-18 fighter.

“It feels nice to have taken both Northrop and the government all the way to the mat,” Hafif said.

The civil settlement is not the end of the case.

When the Department of Justice joined the civil suit, it elected to exclude allegations that Northrop knowingly used a defective type of gyroscope fluid that would freeze at temperatures higher than minus 65 degrees. The contract required the system to operate down to minus 65.

Those allegations were broken out into a separate suit, which was lodged in federal court this year. A Justice Department filing in that case asserts that whistle-blowers Brajas and Meyer are not the original source of the information on the cold-temperature allegations.

Nonetheless, Northrop agreed in its civil settlement to withdraw its motion to dismiss that case so that the workers can pursue it if the judge permits it to go forward. The whistle-blowers assert that the $10 million that must be paid to fix the missile should be part of their settlement, subject to the sharing provisions of the False Claims Act.

Hafif has asserted that the $10-million deal was negotiated in secret in an effort to cheat the whistle-blowers, an allegation the Justice Department has denied. Hafif said his office has spent $5 million investigating allegations about Northrop, including those associated with three other suits against the firm.

Meyer, who is now living in Florida, said in an interview that she is happy about the monetary settlement but said the past five years have imposed financial hardship on her family. She lived with her two children, including an epileptic son, in the San Bernardino National Forest when she ran out of money, she said.

“Even if I wasn’t getting anything, I would do it over,” she said. “When I heard that Northrop and Gonsalves pleaded guilty, I started to cry I was so happy. They got their just dues.”