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Judge Rules Against Electronics Firm in Whistleblower Case

July 28, 1992

LOS ANGELES (AP) _ A federal judge ruled a Litton Industries Inc. subsidiary illegally shifted computer costs to military accounts, handing the company a major setback in its effort to fend off a $500 million whistleblower lawsuit.

In a ruling to define issues in the case, U.S. District Judge Mariana R. Pfaelzer found that the cost accounting system used by Litton Systems Inc. of Woodland Hills was illegal under federal procurement laws.

Pfaelzer found that Litton Systems overcharged the Pentagon by $50 million by shifting costs at its computer-service business from commercial to military accounts.

But in order to collect damages the federal government and whistleblower James Carton still must prove that Litton knowingly violated the law, said Carton’s attorney, Carl H. Moor.

Litton spokesman Robert Knapp declined to comment on the ruling, except to say it was under study by the company’s legal counsel.

Both Litton and attorneys for Carton asked Pfaelzer to rule on whether the accounting system was legal before deciding whether the case should go to trial.

″We’re certainly proceeding to prepare for trial,″ Moor said.

The lawsuit was filed under the False Claims Act, the federal statute that allows private citizens to sue contractors on behalf of the government.

The act allows treble damages plus a fine of up to $10,000 for each false claim. The lawsuit contends there are thousands of false claims, making the case one of the largest government-supported actions currently in litigation, said Moor.

The lawsuit alleges that Litton deliberately shifted costs to the Pentagon by under-recording commercial usage and providing discounts to commercial customers.

Carlton, former technical director for the Litton Computer Services division of Litton Systems, left Litton in 1987 after reporting the problem to the company. He filed the lawsuit in April 1988 and now is a manager for Northrop Corp.

Under the False Claims Act, whistleblowers may collect 15 percent to 25 percent of any damages recovered by the government.

The suit is one of several large whistleblower actions of recent months. Last week Hughes Aircraft Co. filed a court motion seeking $479,000 in attorney fees from an employee who lost a whistleblower action against the defense contractor.

William Schumer had sued Hughes in 1989, accusing the company of overcharging the government $50 million by illegally spreading the cost of developing a radar system among four aircraft programs. Hughes won the case in May.

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