Court Reinstates Fraud Claims Against Lockheed

(CN) - The 9th Circuit on Thursday revived a false claims lawsuit accusing Lockheed Martin of fraudulently underbidding a $432.7 million contract with the U.S. Air Force to support space launch operations.

The three-judge panel in Pasadena, Calif., found a "genuine issue of material fact whether Lockheed acted either knowingly, in deliberate ignorance of the truth, or in reckless disregard of the truth when it submitted its bid" for the Air Force contract.

The false claims lawsuit was filed by Nyle Hooper, who was fired from Lockheed in 2002 after investigating and threatening to report the alleged bidding fraud.

Hooper said the government deliberately underbid a contract for the Range Standardization and Automation (RSA) IIA program, which provides software and hardware to support space launches at the Vandenberg Air Force Base and Cape Kennedy.

He claimed Lockheed knowingly underbid the contract, included free open-source software without telling the government and used defective testing procedures.

A federal judge had dismissed his claims for lack of evidence, but the 9th Circuit reinstated some of the allegations, including Hooper's claims that Lockheed wrongfully fired him and knowingly underbid the contract.

Judge Harry Pregerson found sufficient evidence that Lockheed had based its bid on false estimates, which helped it land the contract.

"As a matter of first impression, we hold that false estimates, defined to include fraudulent underbidding in which the bid is not what the defendant actually intends to charge, can be a source of liability under the FCA (False Claims Act), assuming that the other elements of an FCA claim are met," Pregerson wrote for the unanimous panel.

Lockheed employee Mike Allen had testified that after the Air Force rejected Lockheed's first bid as too high, he "was simply asked to change the costs." Allen said the inputs used to calculate the final bid were based on "bad, bad guesses."

The court also revived Hooper's wrongful discharge claim, saying the federal court should have applied Maryland's three-year statute of limitations instead of California's two-year limit. Hooper had originally sued in Maryland Federal Court, but the action was moved to California at Lockheed's request.

The 9th Circuit allowed the two claims to proceed, but affirmed dismissal of the allegations based on Lockheed's use of freeware and its testing procedures.

Because Lockheed had disclosed its testing processes and use of freeware to the Air Force, Hooper cannot argue that the contractor "knowingly" submitted false claims, Pregerson concluded.

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