Northrop Settles Lawsuit Over Defective Parts

Company agreed to pay $325 million to resolve allegations it provided and billed the National Reconnaissance Office for defective military satellite parts.

WASHINGTON (AP) -- Northrop Grumman Corp. agreed to pay $325 million to resolve allegations it provided and billed the National Reconnaissance Office for defective military satellite parts.

The Justice Department said Thursday its investigation found that Los Angeles-based Northrop and TRW Inc., which Northrop acquired in 2002, failed to properly test certain parts, known as heterojunction bipolar transistors, made by TRW between 1992 and 2002.

As a result, the companies placed certain defective parts into U.S. military satellite equipment. The government also found that the companies misrepresented and hid certain facts about the parts' reliability.

The settlement also resolves a whistleblower lawsuit filed by Robert Ferro, an employee of research firm Aerospace Corp. and former tester of TRW parts, in U.S. District Court in the Central District of California in 2002. The government intervened in the lawsuit against Northrop in November 2008. Ferro will receive $48.75 million as his share of the settlement.

"TRW deliberately suppressed Robert Ferro's findings and sold the components to the government knowing that those parts were likely to fail," said Eric R. Havian, an attorney for Phillips & Cohen LLP, which represents Ferro.

"Even after a satellite in space experienced serious anomalies, TRW still refused to reveal the problems found earlier with the components and had the gall to charge the government millions to investigate what went wrong with the satellite," Havian said.

"Today's settlement demonstrates that defense contractors will be held accountable and that the government will aggressively pursue all allegations of misconduct in the procurement process," said Michael F. Hertz, acting assistant attorney general for the Justice Department's civil division.

Meanwhile, prosecutors said they also settled a contract dispute brought by Northrop concerning its contract with the Air Force to develop and produce the Tri-Service Standoff Attack Missile (TSSAM), a low-cost tactical cruise missile.

That suit, filed by Northrop in 1996, concerned the government's decision to terminate the missile contract due to cost and schedule overruns. The TSSAM Action settled for $325 million and resolved Northrop's claims of more than $1 billion, bringing this 12-year litigation to a close.

In a statement, Northrop noted that the two settlements offset each other.

"While the company believes it acted properly under its contracts and had substantive defenses to the claims, it also believes that settlement is in the best interest of all parties as it releases the company from the government's claims, avoids litigation, and preserves a valued customer relationship," Northrop said.

Northrop said it booked a charge for legal expenses in the 2006 third quarter related to the satellite parts claim, and will record a net gain on this settlement in its 2009 second quarter.

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