Northrop Grumman pays $111 million to settle qui tam case against recent acquisition, TRW

TRW cheated government through its space and technology contracts

June 9, 2003 – Northrop Grumman has agreed to pay $111.2 million to the federal government to settle a whistleblower lawsuit alleging that TRW Inc., which it recently acquired, padded bills submitted to the government under space and technology contracts.

The "qui tam" lawsuit, which the federal government joined, charged that TRW defrauded the government through deceitful accounting practices from 1990 to 1997, including billing the government for work done on non-government contracts.

At the time, Daniel S. Goldin, the former NASA administrator, was general manager of TRW's space and technology group, which was at the center of the fraudulent scheme. The lawsuit said that Goldin approved mischaracterizing at least some of the charges to the government. He was deposed for three days during the litigation.

The settlement comes just months before the trial date for the case, which was set for November. As part of the litigation, the whistleblower and the government won a series of rulings, known as "summary judgments," in which the court essentially said the undisputed evidence showed that TRW had overcharged the government.

Phillips & Cohen joined with the Los Angeles office of the law firm Luce, Forward, Hamilton & Scripps LLP in representing the whistleblower, Richard Bagley. The government intervened in part of the case in 1998, but initially declined to join other parts of the lawsuit. After Phillips & Cohen and Luce Forward litigated on their own for two years and turned up additional evidence of the fraud, the government joined the rest of the case in 2000. At times during the protracted legal fight, there were as many as 20 attorneys from the two private law firms and the government working on the case.

"From the beginning, it was a pure team effort between the government attorneys and Mr. Bagley's lawyers," said attorney Michael Bierman of Luce Forward. Because of that close collaboration, the government agreed to pay Bagley $27.2 million, which is 24.5% of the settlement. Under the False Claims Act, whistleblowers who bring qui tam cases that the government joins are entitled to 15 percent to 25 percent of the government's recoveries.

Bagley, a former senior financial executive with TRW's space division, filed the False Claims Act lawsuit against TRW in 1994 under seal in federal district court in Los Angeles. The seal was lifted in 1998, making the lawsuit public.

"TRW tried to intimidate our client by suing him in response to his false claims lawsuit against the company,". A judge ruled that TRW's claims were meritless and dismissed them.

Bagley and the government said TRW defrauded the government in several ways, including:

  • Charging to government contracts in 1995 virtually all of the $11 million in costs to develop a proposal to build and operate a satellite-based telephone system called "Odyssey," a purely commercial project that TRW later abandoned.
  • Inflating overhead costs charged to the government to recoup certain nonreimburseable costs to develop its "Universal Spacecraft Bus," the part of a spacecraft that delivers satellites into space, a project that also was abandoned.
  • Allocating certain research and development costs of its Center for Automotive Technology to unrelated contracts the government had with TRW's Space and Technology Group.

Northrop purchased TRW, an Ohio company, in December 2002. TRW now does business as Northrop Grumman Space & Mission Systems Corp.

The False Claims Act allows private individuals to sue companies that are defrauding the government and recover damages and penalties on the government's behalf. Those found liable can be required to pay as much as three times damages plus a penalty for each false claim.

Phillips & Cohen is the nation's leading law firm in bringing qui tam cases on behalf of whistleblowers.

For more information about Phillips & Cohen's record, see P&C's Successful Whistleblower Cases.

Case referred to above is: U.S. ex.rel. Richard D. Bagley v. TRW Inc., No. CV-95-4153-AHM (AKWx)

For more information, please see the following news stories:

  • "Northrop to settle federal lawsuit; firm to pay $111.2 million to resolve overcharge claim," Andy Pasztor and Anne Marie Squeo, The Wall Street Journal, 6/9/03.
  • "Northrop to pay $111 million to settle suit; subsidiary TRW allegedly overcharged U.S. on 1990s space project work," Anitha Reddy, The Washington Post, 6/10/03.
  • "Northrop to pay $111 million in TRW suit," Peter Pae, Los Angeles Times, 6/10/03.
  • "Whistleblower gets $27 million from company," James Bernstein, Newsday, 6/10/03.
  • "Northrop settles federal TRW case; will pay $111m to end suit vs. unit," Associated Press, Boston Globe, 6/10/03.