Oct 23 (Reuters) - A Chicago federal judge on Thursday rejected Northrop Grumman Corp's bid to dismiss a lawsuit by a former employee who accused the defense contractor of defrauding the U.S. government in performing a contract to develop a missile defense system for commercial aircraft.
U.S. District Judge Manish Shah said the employee, Illinois resident Leo Danielides, plausibly alleged that Northrop induced the government in 2006 to award it the third phase of the "Counter-MANPADS" project through false statements, and lied about its performance when seeking periodic payments.
The contract ended in 2008, and federal funding for the Counter-MANPADS project was later canceled. Danielides sued under the federal False Claims Act, which lets whistleblowers to sue on the government's behalf and share in recoveries.
Northrop spokesman Randy Belote said the Falls Church, Virginia-based company does not discuss litigation.
The Counter-MANPADS project overseen by the U.S. Department of Homeland Security was designed to protect civilian airliners from shoulder-fired missiles after a failed attack in 2002 against an Israeli aircraft taking off from Mombasa, Kenya.
According to the complaint, Northrop's performance in the project's first two phases was a key factor in its winning the third phase, where it was expected to use its "best efforts" to test the defense system and fix problems.
However, according to Danielides, who said he worked on the project for "many years," despite being paid more than $62 million in the third phase, Northrop did "virtually nothing" to improve the design and reliability of the system.
In letting most of the case go forward, Shah said Danielides alleged Northrop and the government agreed on a "specific, shared definition" of what "best efforts" meant: completing a task, or spending money in a legitimate effort to complete it.
To prevail, Danielides will need to show Northrop knew what "best efforts" meant, and as a result lied when seeking payments, Shah said.
The judge dismissed one claim concerning a $3 million addition to the Counter-MANPADS project, known as Mod 8.
"Our client is very pleased by the decision, and looks forward to pursuing the case," Danielides' lawyer Michael Behn said in a telephone interview.
The case is U.S. ex rel. Danielides v. Northrop Grumman Systems Corp, U.S. District Court, Northern District of Illinois, No. 09-07306. (Reporting by Jonathan Stempel in New York. Editing by Andre Grenon)