Northrop OKs Whistle-Blower Settlement : Defense: The Justice Department is trying to block the deal. It says the payments are designed to shortchange government.

Northrop has agreed to settle for $4.2 million a civil lawsuit filed by whistle-blower Max Killingsworth, a former employee who alleged that Northrop padded its Air Force contracts on the MX missile guidance system, it was learned Wednesday.

It is the second major settlement of allegations that arose during the 1980s involving Northrop’s electronics business, which triggered more than half a dozen congressional hearings and a number of federal probes. Several other suits are pending.

U.S. District Judge Terry J. Hatter Jr. approved the settlement between Northrop and Killingsworth last week, though the Justice Department has since filed a notice of appeal seeking to block the settlement.

Killingsworth brought the suit under the federal False Claims Act, which allows individuals to sue contractors on behalf of the government and share in any awards. Under the law, the Justice Department can join in the prosecution, though it declined to do so in the Killingsworth case.

But Killingsworth, who is now unemployed, pressed the case on his own, attempting to show that Northrop artificially inflated its billings on MX missile guidance system contracts. Los Angeles-based Northrop agreed to settle the allegations by paying $1.5 million for the false claims portion of the case, $1 million in related attorneys fees and $1.7 million for wrongfully terminating Killingsworth--a total of $4.2 million.

The Justice Department appeal asserts that the government is not getting its fair share of the settlement, according to court filings and attorneys in the case.

The Justice Department contends that too much went to Killingsworth’s claim of wrongful termination, a portion of the award that is not shared with the government. The Justice Department wants more money put in the false claims part of the settlement, of which Killingsworth gets only 25% to 30%.

In addition, the Justice Department argues that it has a right to veto settlements in such cases, even when it does not join in the prosecution. Hatter ruled that Northrop and Killingsworth do not need explicit approval from the Justice Department to settle the case.

Herbert Hafif, Killingsworth’s attorney, said the Justice Department is “extorting” Killingsworth by threatening to delay the settlement for several years in a legal appeal.

“It is simply a club to bludgeon Killingsworth to give up his personal claims,” Hafif said.

But in its appeal, the Justice Department asserts that by shifting money into the wrongful termination settlement, Hafif and Northrop both agreed to cheat the government.

Under federal procurement law, Northrop can recover the wrongful termination settlement by billing the cost to the government in future overhead charges, the Justice Department asserts. Federal procurement law would forbid Northrop from billing the government for settlements of false claims allegations, however.

Northrop officials declined to be interviewed. They have denied the original allegations.

Hafif argued that it is too late for the government to be expressing those concerns after electing not to support the case. Hafif noted that the government was ready to settle the entire case in 1989 for $500,000, including attorney fees, when Killingsworth was represented by another attorney. Now, the Justice Department is complaining about an award that is five times higher.

If the settlement goes through, it will be the largest in history involving a case in which the Justice Department did not intervene. Hafif said the total damages collected by the government in such cases to date amount to $224,000.

But government attorneys said that prior settlements are irrelevant to the merits of this case, which involves the legal issue of the government’s right to approve settlements made on its behalf.

Killingsworth said the large wrongful termination award is justified because the allegations he raised have destroyed his career. “The government has done nothing in this case,” he said.

“They fought us all the way. Now, they smell money and see an embarrassment to themselves. My position is that they can take a hike.”