Northrop Grumman 2014 Annual Report Download - page 69

NORTHROP GRUMMAN CORPORATION
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of the contract price, and approximately $115 million based on the company's assertions that, through various acts
and omissions over the life of the contract, the USPS adversely affected the cost and schedule of performance and
materially altered the company's obligations under the contract. The United States responded to the company's
complaint with an answer, denying most of the company's claims, and counterclaims, seeking approximately $410
million, less certain amounts outstanding under the contract. The principal counterclaim alleges that the company
delayed its performance and caused damages to the USPS because USPS did not realize certain costs savings as
early as it had expected. On April 2, 2013, the U.S. Department of Justice informed the company of a False Claims
Act complaint relating to the FSS contract that was filed under seal by a relator in June 2011, in the U.S. District
Court for the Eastern District of Virginia. On June 3, 2013, the United States filed a Notice informing the Court that
the United States had decided not to intervene in this case. The relator alleged that the company violated the False
Claims Act in a number of ways with respect to the FSS contract, alleged damage to the USPS in an amount of at
least approximately $179 million annually, alleged that he was improperly discharged in retaliation, and sought an
unspecified partial refund of the contract purchase price, penalties, attorney's fees and other costs of suit. The relator
later voluntarily dismissed his retaliation claim and reasserted it in a separate arbitration, which he also ultimately
voluntarily dismissed. On September 5, 2014, the court granted the company's motion for summary judgment and
ordered the relator's False Claims Act case be dismissed with prejudice. On December 19, 2014, the company filed a
motion for partial summary judgment asking the court to dismiss the principal counterclaim referenced above.
Although the ultimate outcome of these matters ("the FSS matters," collectively), including any possible loss, cannot
be predicted or estimated at this time, the company intends vigorously to pursue and defend the FSS matters.
On August 8, 2013, the company received a court-appointed expert's report in litigation pending in the Second
Federal Court of the Federal District in Brazil brought by the Brazilian Post and Telegraph Corporation (ECT) a
Brazilian state-owned entity, against Solystic SAS (Solystic), a French subsidiary of the company, and two of its
consortium partners. In this suit, commenced on December 17, 2004, and relatively inactive for some period of time,
ECT alleges the consortium breached its contract with ECT and seeks damages of approximately R$111 million (the
equivalent of approximately $42 million as of December 31, 2014), plus interest, inflation adjustments and
attorneys’ fees, as authorized by Brazilian law, which amounts could be significant over time. The original suit
sought R$89 million (the equivalent of approximately $34 million as of December 31, 2014) in damages. In October
2013, ECT asserted an additional damage claim of R$22 million (the equivalent of approximately $8 million as of
December 31, 2014). In its counterclaim, Solystic alleges ECT breached the contract by wrongfully refusing to
accept the equipment Solystic had designed and built and seeks damages of approximately €31 million (the
equivalent of approximately $38 million as of December 31, 2014), plus interest, inflation adjustments and
attorneys’ fees, as authorized by Brazilian law. The Brazilian court retained an expert to consider certain issues
pending before it. On August 8, 2013 and September 10, 2014, the company received reports from the expert, which
contain some recommended findings relating to liability and the damages calculations put forth by ECT. Some of the
expert's recommended findings were favorable to the company and others were favorable to ECT. In November
2014, the parties submitted comments on the expert's most recent report. At yet to be specified future dates, the court
is expected to hear testimony from witnesses and to issue a decision on the parties' claims and counterclaims that
could accept or reject, in whole or in part, the expert’s recommended findings.
The company is one of several defendants in litigation brought by the Orange County Water District in Orange
County Superior Court in California on December 17, 2004, for alleged contribution to volatile organic chemical
contamination of the County's shallow groundwater. The lawsuit includes counts against the defendants for violation
of the Orange County Water District Act, the California Super Fund Act, negligence, nuisance, trespass and
declaratory relief. Among other things, the lawsuit seeks unspecified damages for the cost of remediation, payment
of attorney fees and costs, and punitive damages. Trial on the statutory claims (those based on the Orange County
Water District Act, the California Super Fund Act and declaratory relief) concluded on September 25, 2012. On
October 29, 2013, the court issued its decision in favor of the defendants on the statutory claims. On May 9, 2014,
the court granted defendants' dispositive motions on the remaining tort causes of action. Notice of entry of judgment
was filed on July 1, 2014. The Orange County Water District filed a notice of appeal on August 28, 2014. Pursuant
to the court's rules, Orange County Water District's opening brief will be due in early March, unless the court directs
otherwise.
The company is a party to various investigations, lawsuits, claims and other legal proceedings, including
government investigations and claims, that arise in the ordinary course of our business. The nature of legal
proceedings is such that we cannot assure the outcome of any particular matter. However, based on information
available to the company to date, and other than with respect to the FSS matters discussed separately above, the
company does not believe that the outcome of any matter pending against the company is likely to have a material