TWO STRONG--WILLED ADVERSARIES SQUARE OFF OVER THE MX

When Northrop decided in the 1970s that it could apply weapons technology to build a better computer system for doctors, it discovered that expanding a military aircraft contractor into commercial electronics had some unexpected pitfalls.

The venture was shut down after several years when physicians all over the United States began filing lawsuits, claiming that their Northrop computers had failed to perform adequately and had lost patients’ medical records.

In a confidential multimillion-dollar agreement earlier this year, Northrop settled two dozen of those lawsuits in Los Angeles Superior Court. Just one of the lesser cases cost the company $1.3 million, recently obtained court records show.

The settlement was won by Herbert Hafif, a powerful and combative Claremont attorney who has become no pal to Northrop Chairman Thomas V. Jones. Hafif once said of Jones: “I’m going to make him chopped liver.”

Now Hafif has sunk his teeth into one of Northrop’s key defense programs, the MX missile, playing an important role in embarrassing the Los Angeles-based aerospace firm in front of Congress and the Pentagon in four days of hearings on the MX held last month by the House Armed Services Committee.

The two men are formidable adversaries. Both are politically well-connected, adamant in their opposing ideologies, and financially powerful. They are nonconformists in their fields but are so successful that nobody is likely to rein them in. Above all, Hafif and Jones have proven through the years that they have staying power in tough times.

In the current battle, Hafif (pronounced like the word half ) represents more than a half-dozen current and former Northrop employees who have alleged, among many other things, that Northrop’s electronics division sold the Air Force defective guidance equipment for the MX missile system. Northrop calls the charge “unadulterated nonsense” and says that “there have been 17 out of 17 successful test flights and all the operational reliability data has been better than predicted.”

So far, however, two cases have been filed by engineers on behalf of the federal government under a law known as the False Claims Act, which allows the employees to share in any recovery of government funds. The law’s ramifications only now are being fully explored, but they could ultimately play havoc with the defense industry.

The first suit, filed last October, alleges that Northrop’s guidance system contains a number of technical flaws. The second, filed in May, claims that the firm set up fictitious businesses to buy MX parts when its own purchasing department could not supply them and then threw away MX parts into a garbage dumpster to hide its management problems from the Air Force.

A Northrop spokesman said the fictitious businesses were legal but were “unnecessary, and that when the corporation learned about them, it shut them down and changed the management that instituted them and improved the division’s basic procurement procedures.”

The allegations against Northrop represent exactly the sort of legal challenge upon which Hafif has built his success. And only an attorney with Hafif’s financial resources could take on the case.

Hafif, at 57 the sole owner of a practice that employs 15 attorneys around California, has already spent a half-million dollars on the Northrop cases, according to Robert S. Kilborne, one of Hafif’s attorneys in charge of the Northrop cases.

A private investigating firm working for Hafif has obtained hundreds of internal Northrop documents leaked through an elaborate network of unidentified Northrop employees, Kilborne said, adding that the investigative and legal costs “ultimately will be in the millions.”

Although he declines to say how much money he has made in recent years, Hafif works only for contingency fees that can amount to 40% of court awards. The large awards he has won, some of which are still subject to appeal, indicate that his gross fees in recent years approach $100 million. In some years, the Law Offices of Herbert Hafif, as they are known, have been more profitable than Northrop--a major defense contractor.

Hafif won a $541-million verdict in 1985 in a dispute over the ownership of the Computerland retail chain. He won $45 million in 1987 for residents of West Covina from the BKK toxic waste dump. He won $6.2 million from the city of Newport Beach when a swimmer broke his neck on a sand bar and became a quadriplegic.

In what may be his most bizarre case, he won a jury award of $1.1 million for a woman who was struck by a falling tree during a gale-force windstorm. Hafif sued the city of Ontario, alleging that the tree was unsafe.

Litigation involving defense contracts under the False Claims Act is a new area of law, but Hafif believes that a private trial lawyer can do better than the Justice Department has done in pressing cases against defense contractors.

“The Justice Department is full of average lawyers waiting to get out (of government service) so they can represent the people they have been suing,” Hafif said in an interview. “They don’t start with a hypothesis and they don’t end up with one. They end up with boxes of stuff they don’t understand. The idea that government is going to know how to try these cases is something I don’t have faith in.”

Arrogance Claimed

If nothing else, Hafif is likely to put on a spirited fight. “Northrop is like somebody holding a hose, pouring taxpayers’ money into the ground,” Hafif said. “These guys act so superior--as though if you aren’t a member of the Jonathan Club then you don’t have any brains. Northrop makes it easy. Arrogance is the forerunner of stupidity.”

Despite Hafif’s harsh portrayal of Northrop, Jones ranks among the most admired aerospace executives in the country.

His achievements are considerable. He won the multibillion-dollar Stealth bomber program, the Air Force’s advanced tactical fighter program for the United States’ next supersonic jet fighter, an award to develop a revolutionary new missile that will attack enemy radar and a highly classified Navy program for a new attack jet. In short, Northrop in recent years has won a piece of everything big in combat aircraft.

With such large awards for military aircraft development, Northrop has the potential to run away with leadership of the U.S. aerospace industry by the turn of the century, a dramatic reshuffling of rank in the industry.

But the growth is creating stresses more serious than the company has ever had to deal with before, and the company’s handling of the MX program shows that it is vulnerable to the kind of mismanagement that often results from fast growth.

Despite the growth, Jones does not appear to be relaxing any of his authority. At 66, he continues to exercise tight control over his company.

“I think he exerts a lot of control over the board,” said Ross F. Miller, a retired Northrop executive who variously headed up Northrop’s aircraft, electronics and foreign service businesses during his long career at the company. “He lives and breathes Northrop. He wouldn’t have anything else to do if he wasn’t there.”

Donald A. Hicks, a Washington consultant who once was a Northrop senior vice president and later an under secretary of defense, agreed, saying that Jones enjoys the “total support of the board.”

Military leaders are also witness to the strong influence Jones exerts on his company.

“In all of the key decisions, he would be the one his negotiators would have to get back to for approval,” said Thomas H. McMullen, a recently retired three-star general who was head of Air Force aircraft development and procurement. “Tom Jones gets right down to the nuts and bolts.”

For years, the F-20--the unsuccessful, private-venture jet fighter that devoured $1.2 billion of Northrop funds before the company aborted the program last year--captured Jones’ attention. “He was so wrapped up in the F-20 that it did affect the attention he paid to the rest of the company,” McMullen said.

Jones expected his executives to back him on the F-20 project, a former executive said.

“Even though Jones knew people were loyal, he wanted to know that their hearts were in the F-20,” the former executive said. “Everything was going into the F-20.”

A number of other former Northrop managers and executives say that Jones pays the greatest amount of attention to the company’s aircraft business, leaving the electronics end of the operation to others to manage closely.

“Tom is an airplane man,” Miller said. “He keeps very, very close control of the aircraft side of the business, but not nearly as much control over the rest of the company.”

Possibly it was that lack of attention that allowed a number of unusual practices to flourish at Northrop Electronics Division in Hawthorne, where the company conducts its MX missile guidance work.

Northrop repeatedly failed or was rated poorly in government audits that had warned of management deficiencies at the electronics division for years before the current controversy exploded into public view.

In a highly irregular scheme to cope with its problems, the division set up fictitious businesses that tapped more than $300,000 of so-called petty cash to buy missile system parts when the official purchasing system became bogged down.

As a result of its inability to establish an efficient manufacturing organization, Northrop missed the very first delivery date in October, 1985, for the MX guidance device, called an inertial measurement unit (IMU). By the end of June, it had delivered 45 IMUs, putting it 18 IMUs behind schedule.

Lack of deliveries has left one-third of the nation’s MX missile force without guidance systems. Obviously displeased, the Air Force is withholding about $90 million in contract payments to the firm for its tardiness.

Air Force General Lawrence A. Skantze testified in Congress that he viewed some of Northrop’s practices on the MX program as “dumb.” The Justice Department is conducting a number of criminal and civil investigations into that and related issues.

The current controversy puts an obvious blemish on the public image of Jones, who is proud of his company for its timely deliveries and innovative approach to management.

Indeed, Jones has frequently chided his own industry for lack of vision and reluctance to adopt a commercial approach to defense contracting. His maverick ways have alienated some in the aerospace industry, who view him with suspicion.

“In the airplane industry, Jones is not really part of the fraternity,” a Los Angeles aerospace executive said. “But I admire the guy. I have seen him at social gatherings. I like him. My wife likes him. He’s a very charming man.”

Exerts Tight Control

Northrop works hard to charm the Pentagon, investors and the press, yet manages to remain aloof. Jones exerts iron control on who may speak for the company and it is seldom that anyone does other than Jones himself or Les Daly, the company’s vice president for public relations and a close Jones associate. Jones refused to be interviewed for this story.

Jones was tough enough to survive a guilty plea to a federal felony charge during the Watergate affair, during which he admitted to falsifying documents and lying to a grand jury and the FBI about a $150,000 political contribution to President Richard M. Nixon’s reelection campaign. The contribution violated a federal law banning donations by government contractors.

He and Northrop were each fined $5,000 but he remained at the company. He also survived the efforts of reformers who would have thrown him out of Northrop in the 1970s during a company scandal involving $2 million in foreign payoffs.

Hafif is tough, too. He was a championship boxer in the Army where he served as a paratrooper in the late 1940s. He has been president of the state trial lawyers’ association. And in 1974 he ran unsuccessfully for the Democratic nomination for governor of California.

He has been an ally of consumer advocate Ralph Nader and prides himself on his consumer work. In one case, for example, Hafif won $10 million from Hilton Hotels in the early 1970s when he found that 600 Hilton locations were adding a 3% charge to hotel bills for a tax that did not exist. The judgment was paid out in refunds to customers.

“I have met all the lawyers, from F. Lee Bailey to Melvin Belli, and Herb is without peer,” said Wylie Aitken, former president of the California Trial Lawyers Assn. “He concentrates on those cases that can make a difference to society as a whole, rather than those that will make him a lot of money.”

Hafif often takes his own profession to task, however. “It is very difficult for me to be impressed by an attorney,” he said. In fact, he insists upon calling himself a “trial lawyer,” because he considers the term attorney pretentious.

“The last thing I want (working) in my office is a pompous ass who went to all the right schools and did all the right things,” Hafif said. “I want people who aren’t on the social ladder. This is a firm of street smarts.”

Hafif was born in Philadelphia and raised in Newark, N.J. He attended Chaffey College in Alta Loma and was graduated from Pomona College as an economics major in 1953. His law degree is from USC.

The Pomona-born Jones is a 1942 graduate of Stanford University with a degree in engineering. And he is definitely on the social ladder. He has hosted President Reagan. He has held receptions for royalty. And he was such a good friend of the late Shah of Iran that the Shah gave Jones a spectacular Persian carpet that today graces the company’s headquarters in Century City.

“Tom was as close as any foreigner was going to get to the Shah,” Miller, the retired Northrop executive, said. “He had open access to the Shah. He was once even accused of having his own ‘State Department.’ ”

Besides running his aerospace company, Jones relishes collecting wine. “He had the best wine cellar in Los Angeles,” a former associate said. “It would kill him if he had the second-best.” Hafif’s idea of a good time is to don a work shirt and spend his day directing construction of a 12,500-square-foot entertainment center adjacent to his Claremont home. With a portable telephone in hand, he conducts his legal business from the construction site.

Hafif insists that he does not spend a lot of time thinking about Jones. “I don’t wake up mornings thinking of Northrop. To me, Northrop is just another opportunity to take this damn military industrial complex and show them they don’t run this country.”

For its part, Northrop simply dismisses Hafif. “We are not in the business of lawyers,” Daly, the Northrop vice president, said. “We are in the business of airplanes.”