A New York federal judge recently revived a $2.3 billion whistleblower lawsuit against Hawker Beechcraft after fines and penalty charges were discharged by a bankruptcy court. The suit alleged the company used defective plane parts in military trainers that were sold to the US government. The case was filed under the federal False Claims Act in 2007 by former employees of the parts maker TECT Aerospace.
Specifically, allegations in the suit claim that fracture critical wing spars made by TECT for Hawker Beechcraft special mission King Air and T-6A trainers did not comply with contractual requirements and procedures. The company is accused of manipulating parts in ways that could lead to malfunction when in use.
When Hawker Beechcraft filed for Chapter 11 bankruptcy in May 2012, the bankruptcy court determined the penalties and damages related to the original lawsuit would be discharged. However, the NY federal judge later ruled this was a mistake by the bankruptcy court and the trial could indeed move forward. The bankruptcy court had also ruled the plaintiffs had not filed their claim in a timely manner, which the federal judge also determined was not accurate. Beechcraft has the option of appealing the decision to the Second Circuit Court of Appeals. At the moment, the case returns to the bankruptcy court which will now be required to proceed based on this new opinion.
The company emerged from bankruptcy in February 2013 and reorganized as Beechcraft Corp., a smaller company than the original Hawker Beechcraft. It was then sold to Textron, which is Cessna’s parent company.
The case is being closely monitored by those in the legal industry because it is so unusual for a case like this to be involved in bankruptcy proceedings. The judge’s ruling is important because it made clear what can be discharged in a bankruptcy and whether or not there is a deadline for this to occur.
The decision establishes that the whistleblowers in the case did not miss any deadline for filing their claim or for asking that the claim override the bankruptcy filing. Beechcraft will now have the option of pursuing other defenses to the issue of whether the claims are non-dischargeable. Some experts agree it is unlikely the penalties will be discharged again.
In addition to the bankruptcy case, the whistleblower claims could now be argued in US District Court in Kansas. Allegations in the case assert the wing spars, which are the main structure in the wing designed to provide the wing strength, were hot formed. This process can trigger wrinkling in the metal. Additionally, the allegations state hammers were used to remove these wrinkles and that hammers, grinders, and pry bars were used to force parts into place, even it they were not the right shape or size. Obviously, this could pose a threat to those using the planes, while also violating regulations and laws related to fraud.
The suit seeks to recover triple the damages sustained by the government of about $2.3 billion and a civil penalty of $11,000 for each violation, totaling about $3.8 million plus attorney’s fees and costs.