Judge Rules Justice Dept. Can’t Block Whistle-Blower Awards

In a ruling that may strengthen the hand of whistle-blowers in the defense industry, a federal appeals court has ruled that the Justice Department does not have the right to block civil settlements in cases it has elected not to prosecute.

The defense industry is fighting an estimated 300 whistle-blower suits, brought under the federal False Claims Act, where the Justice Department is not involved. Even when the Justice Department elects not to intervene, it has asserted a right to veto settlements if the government fails to get an adequate share of the damages.

But Judge Myron H. Bright, a federal appeals judge in Pasadena, ruled recently that the Justice Department has no such veto power, though it does have a right to a hearing to object to settlements.

The ruling arose from a case in which Northrop was sued by former company engineer Max Killingsworth, who alleged that the firm defrauded the Air Force on the MX missile guidance system.

The Justice Department elected not to join the case, but Killingsworth pursued it with private attorneys. In 1990, the Justice Department approved a preliminary settlement for $500,000, but the deal fell apart.

After Killingsworth obtained a new attorney and expanded his charges, Northrop agreed to pay $1 million for the false claims, $1.7 million for wrongful termination and $1 million in attorneys’ fees.

Under the False Claims Act, the government would get a portion of $1 million, and the other $2.7 million would go to Killingsworth. That allocation triggered the government objection.

Northrop’s attorneys sided with Killingsworth.

However, Bright also ruled that a lower court judge had erred in not considering Justice Department objections, and he ordered the case back for a hearing.

In its appeal, the department had sought to fully reverse the judge’s rulings.