Hughes Seeking $400,000 From Whistle-Blower : Aerospace: It may signal a new resolve in the industry to fight cases under the federal False Claims Act.
In a new legal tactic that could chill defense industry whistle-blowers, Hughes Aircraft has asked a federal judge to award $400,000 in attorneys fees from an employee who unsuccessfully sued the firm for allegedly defrauding the government.
The case, the first in which a major contractor has tried to recover large legal fees from its accuser, may signal a new resolve in the industry to fight such cases brought under the federal False Claims Act.
Owing to massive layoffs that have disaffected many former employees, aerospace firms are bracing for an onslaught of such suits. Just last week, a former employee of Bicoastal Corp. of Tampa, Fla., won a record $55.5-million fraud award. The employee will receive $7.5 million of that total.
The high-profile Hughes suit was filed in U.S. District Court in Los Angeles in 1989 by company executive William Schumer, who alleged that Hughes illegally shifted development costs for several jet fighter radars onto the B-2 bomber program. Schumer contends that he was demoted when he refused to go along.
Hughes won the case in May. Now, Hughes asserts that the suit amounted to “vexatious and frivolous litigation,” because Schumer continued even after evidence surfaced last December that undermined the case.
Schumer responds that Hughes’ actions are “calculated not only to crush me and my family but to dissuade others with knowledge of wrongdoing to come forward.” He vowed to continue a legal appeal, saying Hughes “will never break our resolve.”
Hughes spokesman Richard Dore denied the company is trying to intimidate whistle-blowers and said it specifically decided against making public its legal action.
“There is no intent by Hughes to say, ‘Let’s go after Schumer,’ ” Dore added. “But this is costing us a lot of money.”
The case was dealt a blow last December when Pentagon auditors reversed an earlier position backing Schumer and released about $15.5 million in contract money that had been withheld from Hughes.
The auditors said their original finding that Hughes broke the law was based on insufficient information because of the B-2’s secret status. Schumer disputes the new finding, saying the agency’s change of heart came after a secret meeting with the company.
But Dore said, “At that point in time, we felt that the Schumer’s continuation of his suit constituted a frivolous action.”
Justice Department attorneys specializing in false claims matters said they had never heard of another case in which a defense firm has sought large attorney fees from a whistle-blower.
Hughes had 11 attorneys and staff working full time between December and May to prepare a motion seeking dismissal, which accounted for the $400,000 in fees.
“We don’t think the taxpayers should have to pay for this either,” Dore said.
Phillip Benson, Schumer’s attorney, called Hughes’ action “vicious and nasty,” but said it would not deter the law firm or Schumer.
“If he is forced into bankruptcy, he will lose his security clearance, which is cause for termination,” said Benson. “Either they want to destroy him financially, to leave a message for other potential Hughes whistle-blowers, or follow the steps necessary to bill their legal costs back to their government contracts.”
Despite the risks to his career, Schumer vows to pursue his case. His wife, Dawn, recently traveled to Washington to meet with congressional staff and argue that the case should be investigated in public hearings. The couple’s oldest daughter had to postpone plans to attend a major university in favor of a less-expensive local college.
“Anybody who goes into a whistle-blower case to make money is sadly misinformed,” Schumer said. “If you look at the track record of whistle-blowers, you see bankruptcy, broken marriages, drug abuse. There is endless misery that you subject yourself to when you take on these major corporations, because there is nothing they will not do to defend these cases.”
