Salt Lake City, Utah, April 23, 2012 -- The whistleblower whose False Claims Act case against a wholly owned subsidiary of Alliant Techsystems (NYSE: ATK) settled for about $37 million said he was pleased with the outcome announced today.
The settlement requires ATK Launch Systems (ATK) not only to pay $21 million to the federal government to settle the qui tam case but also requires ATK to retrofit the 76,000 defective flares that remain in the government's inventory. The repairs are valued at approximately $16 million, bringing the total settlement to $37 million.
The flares are three-foot long tubes filled with propellant that burns at more than 3,600 degrees Fahrenheit, creating enough heat to easily melt iron and steel. The flares are attached to parachutes and used to provide illumination during nighttime, covert and search-and-rescue operations.
The whistleblower, Kendall Dye, alerted the government that ATK had been aware for years that it was selling the U.S. Air Force military flares with dangerous defects. He is represented in his "qui tam" (whistleblower) case by Phillips & Cohen LLP, which filed the whistleblower lawsuit in 2006 in federal district court in Salt Lake City, Utah.
KENDALL DYE, THE WHISTLEBLOWER: "I am glad that the company, rather than taxpayers, is bearing the cost of fixing the problem with the flares. There were simple, inexpensive tests that would have revealed the defect."
"ATK's own calculations found that the flares could ignite if dropped from a height as low as 11.5 inches. This put military personnel at serious risk of death or injury if the flares were accidentally dropped while being handled or in transit. No military contractor should put profits ahead of the lives of military personnel."
CLAIRE M. SYLVIA, SAN FRANCISCO ATTORNEY WITH PHILLIPS & COHEN: "ATK did not test the flares before delivering them to the government, despite ATK's awareness of a potential dangerous defect. When ATK did not take responsibility for fixing or replacing the defective flares, Kendall Dye stepped forward so that the company, not the taxpayers, would pay to fix the problem it had created."
ABOUT THE "QUI TAM" (WHISTLEBLOWER) CASE
The whistleblower, Kendall Dye, became the flare program manager for ATK Thiokol Inc. - now known as ATK Launch Systems -- in 2005. A short while later he discovered that ATK had been aware since 2000, when the flares were redesigned, that the flares might accidentally ignite if dropped from a height of 10 feet or less. But ATK didn't conduct the tests that would have ensured the flares conformed to the safety requirements of its contracts with the Air Force.
It was only in 2005, after the Navy, a potential new flare customer, declined to purchase the flares until they could pass the Navy's more stringent drop tests that ATK finally tested the flares. Those tests resulted in a flare igniting at 10 feet and one igniting at 5 feet - demonstrating that they did not conform to the safety requirements for the flares. Because of the obvious danger, ATK immediately shut down its production line and the military discontinued using the flares. But ATK didn't inform its military customers that it had been aware since 2000 of the potential problem and had decided not to test the flares. Dye complained about this and advocated for full disclosure but was told by his supervisors to keep quiet.
Dye then contacted Phillips & Cohen. The whistleblower law firm filed the qui tam case, which triggered a government investigation into the matter. Lieff Cabraser Heimann & Bernstein joined as co-counsel. Mathew Howell of Fillmore Spencer LLC served as local counsel.
"Congress envisioned the False Claims Act would have great success in stopping fraud because it allows whistleblowers and their attorneys to work closely with the government to stop fraud - and that's exactly what happened in this case," attorney Sylvia said. "Taxpayers are very fortunate to have working for them such talented and dedicated attorneys as Department of Justice Trial Attorneys Paul Wogaman, Allison Cendali."
The False Claims Act allows whistleblowers to file qui tam lawsuits against companies that are defrauding the government to recover funds on behalf of the government. Under the law, whistleblowers are rewarded with 15 percent to 25 percent of the amount recovered as a result of their lawsuits when the government joins the case.
For more information about Phillips & Cohen's record, see P&C's Successful Whistleblower Cases.