Rolls-Royce Must Face Whistle-Blowers’ Contract Suit

Rolls-Royce Corp. must face a whistle-blower lawsuit brought by two former quality-control officers claiming the company cheated the U.S. by failing to report defense-contract product defects, a judge said.

U.S. District Judge William T. Lawrence in Indianapolis yesterday ruled plaintiffs Thomas McArtor and Keith Ramsey could proceed on two of their four theories of liability.

McArtor and Ramsey claim Rolls-Royce induced the U.S. to enter into about 180 aircraft engine contracts from 2003 to 2006 by hiding its failure to comply with a required quality assurance plan, failing to disclose defects and concealing those practices to maintain a third-party certification needed to keep existing contracts and obtain new ones.

“As a result of RRC’s concealment efforts,” Lawrence said, citing the McArtor-Ramsey allegations, “the recertification auditor did not discover most of the violations.”

The suit was filed in 2008 and unsealed after the U.S. declined to intervene in 2010.

Lawrence rejected the plaintiffs’ theory the company could be liable for reverse false claims for allegedly failing to tell the U.S. of defects to avoid having to pay refunds or issue replacement parts. The men hadn’t shown such claims were anything more than conjectural, he said.

Government’s Choice

“RRC is required to pay the government or otherwise make concessions if and only if the government so chooses,” the judge said.

Joel Reuter, a spokesman for the Indianapolis-based unit of Rolls-Royce Holdings Plc (RR/), said yesterday he couldn’t immediately comment on the court’s decision. The parent company is based in London.

“Thousand of engines in military aircraft are potentially affected,” according to a revised complaint filed in November 2011, including the F-35 joint-strike fighter plane, C-130 Hercules transports and the V-22 Osprey, a plane capable of vertical lift-off.

The men, who are suing on behalf of the U.S., seek an $11,000 penalty for each false claim and each false statement the company made to the Defense Department, plus three times the amount of payments received or costs avoided. McArtor and Ramsey are seeking 30 percent of any such recovery for themselves.

Forced Out

McArtor, who filed the initial complaint, worked for the company from 1994 to 2006, serving as a senior quality assurance manager and airworthiness coordinator when he was allegedly forced out for reporting fraudulent conduct.

Ramsey, who joined the case after it was unsealed, served as a quality engineer from August 2002 to March 2006 when, he said, he was fired for refusing to cooperate with quality control plan deviations.

The men said in an amended complaint filed in November that they didn’t know each other before to the litigation.

“Rolls-Royce is finally out of options for avoiding these serious, safety-related allegations,” plaintiffs’ lawyer Michael Kanovitz of Chicago-based Loevy & Loevy said in a statement issued after Lawrence released his ruling.

The case is U.S. ex rel. McArtor v. Rolls-Royce Corp., 08- cv-00133, U.S. District Court, Southern District of Indiana (Indianapolis).

To contact the reporter on this story: Andrew Harris in Chicago at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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