Court Resurrects Big Defense Fraud Case : Whistle-blowing: Appellate decision reverses dismissal of a 1980s suit against Northrop.

When leading whistle-blower attorney Herbert Hafif accused the U.S. attorney’s office in Los Angeles of lying in a defense fraud lawsuit, he was fined $24,000 by federal Judge David V. Kenyon.

But an appeals court in Pasadena has ruled that federal prosecutors knowingly filed a “factually inaccurate” declaration in the case, and it threw out the sanctions Kenyon imposed on Hafif two years ago.

The appellate court ruling, along with another recent decision that reversed a dismissal of the suit, has resurrected one of the biggest defense fraud cases of the 1980s, involving allegations that a guidance system for a nuclear-armed cruise missile was both defective and improperly tested.

Northrop Grumman Corp., which built the system, has already paid a $10-million civil fine on charges that it improperly tested the guidance devices, known as flight data transmitters. It also pleaded guilty to federal felony charges and paid a $17-million criminal fine. And it agreed to make $11 million in repairs to the transmitters.

But the prior court settlements involved only the issue that Northrop’s tests were rigged, not the defect itself.

Leo Brajas, a former Northrop test technician at its western services department in Pomona, charges in his suit, filed in 1987, that Northrop used a hydraulic damping fluid in the gyroscopes that would freeze at temperatures typically experienced by the cruise missiles at high altitudes.

The damping fluid used by Northrop, known as DC-200, would freeze at 40 degrees below zero, far warmer than the 65 degrees required under the contract, according to federal prosecutors.

Bill Fahey, a former assistant U.S. attorney, asserted in a declaration that the government learned about the low-temperature problem through its own investigation, not from Brajas. That point was crucial to Kenyon’s initial dismissal of the suit.

Hafif lambasted Fahey in legal filings at the time as “putrid,” “despicable,” a “cheat” and a “fraud.” The U.S. attorney’s office in Los Angeles wanted to teach Hafif a lesson and successfully sought the sanctions.

But the Pasadena appeals court ruled late last week that since Fahey’s statements were inaccurate, Hafif was merely engaging in “harmless hyperbole.”

Fahey, however, still insists the declaration was correct. “This is crazy,” said Fahey, now in private practice in Los Angeles. “Brajas was never the source of the cold-temperature allegations.”

Northrop spokesman Tony Cantafio indicated that the company will continue to fight the case on the grounds that Brajas has no right to bring suit, because he was not the original source of the allegation.

Phillip Benson, an attorney who now represents Brajas, said the two appeals court rulings “clear the way for the issue to be finally litigated after seven years.”