Corporate Crime Reporter

General Dynamics, Northrop, Lockheed Hit with False Claims Act Lawsuit

June 22, 2005

A False Claims Act lawsuit has been filed against a group of defense contractors alleging that they defrauded the Pentagon by falsely certifying that valves used on Navy submarines and at uranium enrichment facilities met contract requirements, when they did not.

The lawsuit was filed in federal district court in Cleveland by Tina and Charles Gonter, two former employees of the manufacturer of the valves – Hunt Valve Company of Salem, Ohio.

Federal officials in Cleveland are in the midst of a criminal investigation of the allegations contained in the complaint.

The criminal investigation is being run out of the United States Attorney’s office in Cleveland and is being spearheaded by Assistant U.S. Attorney Richard Blake.

For much of 2001, at the request of federal investigators, Tina Gonter went undercover and wore a wire, while she was working at Hunt Valve.

As a result, two former Hunt Valve executives have been convicted of crimes in the case.

Earlier this month, Wayne Aldrich, a quality assurance manager at the facility, was sentenced to 33 months in prison.

In April, Lawrence Kelly, a vice president of military sales for Hunt Valve pled guilty to felony fraud in the case.

Kelly has yet to be sentenced.

At his sentencing on June 2 in Cleveland, Aldrich read a statement saying that there was no way to know for sure whether the valves posed a threat to the submarines.

"There will always be the uncertainty that there could someday be a problem with this material," Aldrich said in an apology to U.S. District Court Judge Lesley Wells in Cleveland.

"A sample product has been re-tested and found to be acceptable," Aldrich said. "But in the environment that these materials are used in, sampling will never replace a hundred percent assurance of acceptability. This product assurance was entrusted to myself and the management of Hunt Valve. I/we failed to provide that assurance. Quality documents were altered, had false statements made on them, and in particular, testing functions were not carried out to contract and specification requirements."

In addition to Hunt Valve, the False Claims Act lawsuit names as defendants General Dynamics, Northrop, Lockheed Martin, Morpac Industries of Pacific, Washington, All-Stainless Inc. of Whitman, Massachusetts and Kelly.

The Justice Department intervened in the False Claims Act case against Hunt Valve, but has not intervened in the case against the other defendants.

Sources close the investigation say that federal prosecutors in Cleveland are not happy with main Justice’s decision not to intervene in the False Claims Act case against the large defense contractors.

Hunt Valves customers included Electric Boat of Groton, Connecticut, a unit of General Dynamics, Newport News Shipbuilding, a unit of Northrop, and Lockheed Martin.

The Gonter lawsuit alleges that General Dynamics and Northrop, “knew or were recklessly indifferent to the fact that Hunt valves sold or delivered to the United States were not properly manufactured and assembled, and that Hunt failed in myriad ways to utilize and enforce the quality-system requirements which are mandated by all contracts pursuant to which these valves are made.”

The lawsuit alleges, for example, that Electric Boat had a quality assurance inspector, identified as Harry Arnold, physically posted at Hunt’s plant to ensure that “Hunt delivered conforming product.”

The lawsuit alleges that on January 13, 2001, Arnold told Gonter that he had “lost all confidence” in Hunt Valves and felt he had been lied to by Hunt personnel.

Gonter alleges that on March 17, she asked Arnold why, when he rejected Hunt product, “your people don’t back you up?”

Arnold replied by saying:

“Nothing I can do. I can’t go and raise a big stink and rage and holler and scream. I have to live by it. That’s all. What else can you do? You don’t have to like it. You just have to do it and accept it. I told my boss. I don’t have to like what you tell me to do, but I gotta do it.”

On March 20, 2001, Arnold allegedly told Gonter that he had encountered “nowhere near” the level of problems at any other supplier as at Hunt.

On the same day, he told Gonter “I’m not going to jail” for Hunt.

On March 22, Arnold told Gonter: “I don’t know how you’re ever going to straighten this mess out, I just don’t even know where to begin.”

When Gonter asked for suggestions, Arnold replied: “Yeah, stick of dynamite, blow this freaking place up.”

The lawsuit also alleges that General Dynamics and Northrop set up a sham transaction with All-Stainless to meet federal demands that it buy from small contractors.

"The sham relationship between All-Stainless and Hunt was a conspiracy orchestrated by and participated in by defendant General Dynamics Electric Boat so that it could falsely represent to the United States Navy that it was making progress in connection with its use of small, disadvantaged businesses as subcontractors," the lawsuit alleged.

The Gonter lawsuit also charges Lockheed Martin with failing to comply with contractual requirements governing valves delivered to Oak Ridge National Labs, and uranium enrichment plants at Paducah, Kentucky and Portsmouth, Ohio.

Northrop is being represented by Richard Stauber of Fried Frank in Washington, D.C.

General Dynamics is being represented by Charles Sklarsky of Jenner & Block in Chicago.

The Gonters are being represented by Frederick Morgan of Volkema, Thomas in Cincinnati.

Corporate Crime Reporter
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