A [TEXT ILLEGIBLE] the Navy of $37 million in shipbuilding charges.

Bryan had ruled that the prosecutors had "retaliated" against Litton by seeking the indictment after negotiations over the company's shipbuilding claims collapsed.

The prosecutors, who had been stung by Bryan's charges, said the appeals court ruling vindicated their handling of the case. "It's a fantastic decision . . . We're vindicated," said U.S. Attorney William B. Cummings.

A Litton spokesman at the conglomerate's Beverly Hills headquarters said yesterday that Litton was "disappointed and disagreed with" the ruling. "There is a possibility that we will appeal, but I am reluctant to say what action we will take until we have time to consider the decision in detail," the spokesman said.

In its 15-page ruling the appeals court rejected the company's arguments that the government's decision to prosecute was "vindictive or retailiative." In fact, the appeals court held that the prosecutor who was heading a grand jury investigation into the claims was so candid with Litton's lawyers that his behavior "dispels any notion of vindictiveness."

The ruling seems to broaden the powers of government prosecutors to conduct plea-bargaining negotiations before criminal indictments.

Because of the huge volume of disputed Navy shipbuilding claims - $2.7 billion in all - and recurrent charges heard from Admiral H.G. Rickover of them, the Litton case has taken on that fraud may be involved in amny major importance to the shipbuilding industry. Since the Litton case was prepared, the Navy has turned over claims from two other shipbuilding firms to the Justice Department for study.

Litton had charged that a proposal offered by Assistant U.S. Attorney Frank W. Dunham Jr. constituted "an implied threat of indictment." The proposal would have required Litton to give up a $17.3 million award it had won on the shipbuilding claims from a Pentagon review board, and allow the grand jury's findings to be turned over to the review board for use in a new round of negotiations.

Bryan agreed that the prosecutors cannot use the threat of an indictment to force Litton to give up the award, which it had won through legal means.

"But this is precisely what" a 1978 Supreme Court decision allows, the appeals court said. It cited the high court ruling which allowed a prosecutor to threaten a defendant with indictment on a more serious crime if he would not plead guilty to a lesser crime.

"This is not to say, however, that a prosecutor can employ deceptive tactics about the strength of his case to induce a bargain," the appeals court said. It also held that, contrary to Litton's charges, the prosecutors "did not engage in any deception" in the shipbuilding case.