Dana Herra Oct. 14, 2015, 11:04am

A federal judge has found Northrop Grumman’s “best efforts” were good enough to allow him to ground a lawsuit brought by a former Northrop employee, who claimed the giant aerospace company and defense contractor should be held accountable for allegedly misleading the U.S. government on its achievements in developing a system to defend aircraft against missiles.

On Oct. 8 in Chicago, U.S. District Judge Manish S. Shah found in favor of defendant Northrop Grumman Systems Corporation, granting summary judgment to Northrop, which had asked to bar the testimony of the plaintiff’s expert witness and for summary judgment on the charge that it had violated the False Claims act. Both motions were granted.

The suit was filed on behalf of the United States by Leo Danielides, a former Northrop Grumman employee. After Congress in 2003 directed the Department of Homeland Security to develop a system to defend commercial aircraft from shoulder-launched missiles, Northrop Grumman was one of several companies contracted to work on the project. The agreements with the contractors were of a type known as Other Transaction Agreements, which are exempt from most of the regulations that apply to standard government procurement contracts.

The contract was executed in three phases, with Phases II and III essentially just modifications to the original contract. While Phase II was being negotiated, the government’s contracting consultant asked to have the phrase “fixed price best efforts” included, with payment based on Northrop Grumman completing criteria outlined in the contract’s deliverables section. The phrase was included again in the Phase III agreement.

Neither agreement ever defined “best efforts,” but in his suit, Danielides said Northrop Grumman never did use its “best efforts” to meet the contracts’ criteria. He sued under the False Claims Act, alleging the company lied about its efforts in order to get paid. He offered the testimony of Ronald Flom, an experienced government procurement officer, to bolster his case. In his opinion, Shah wrote that Flom, while certainly knowledgeable and experienced in government procurement contracts, offered little more in his reports than unsubstantiated opinions.

“To offer his expert opinion on a ‘fixed price best efforts’ Other Transaction Agreement, Flom must show how his experience gave him specialized knowledge of industry use of the term,” Shah wrote. “Despite his years of experience … Flom has not established any experience with the term ‘fixed price best efforts in an Other Transaction Agreement to allow him to reliably opine on its purported industry meaning.”

Danielides’ case also required Flom to speculate as to the state of mind of the contracting parties, Shah wrote. He said allowing these expert opinions “would be merely substituting Flom’s judgment for a jury’s.”

As for Danielides’ claim that Northrop Grumman had lied to the government about exerting its “best efforts,” the court found the argument came down to little more than a dispute over contract language, not an outright attempt to mislead. Danielides said he interpreted the agreement to say Northrop Grumman must either complete all of the Phase III tasks and objectives or spend all of its budget – up to a 12 percent profit – attempting to do so.

Northrop Grumman argued this interpretation had never been a feature of the agreement, and that in order to get payment, it was required only to complete the tasks in the deliverables section of the contract. As proof, it pointed to government requests for additional financial disclosures before paying out on Phase III. However, Northrop had said it was not required under contract deliverables to provide that information, and the government ultimately agreed and paid anyway.

“Danielides cannot show that his interpretation of the contract … was either correct or shared by both [Department of Homeland Security] and Northrop Grumman,” the court wrote. “If neither DHS nor Northrop Grumman understood that ‘best efforts’ meant what Danielides said it meant, then Northrop Grumman’s representation was not the objective falsehood he claims it was.”

Danielides was represented in the action by the firms of Behn & Wyetzner, of Evanston and Chicago, and Morgan Verkamp, of Cincinnati. 

Northrop Grumman was represented by Stetler, Duffy & Rotert, of Chicago, and Robbins, Russell, Englert, Orseck, Untereiner & Sauber, of Washington, D.C.

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Organizations in this Story

Behn & Wyetzner
828 Davis Street
Evanston, IL 60201

Robbins, Russell, Englert, Orseck, Untereiner & Sauber
1801 K Street Northwest
Washington, DC 20006

Morgan Verkamp
35 East 7th Street
Cincinnati, OH 45202

Stetler and Duffy, Ltd.
11 S. LaSalle Street, Suite 1200
Chicago, IL 60603

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