San Diego Shipyard Sold to Bay Area Firm : Commerce: Sale is expected to stiffen competition for Navy repair work on the waterfront.

Continental Maritime, a San Diego shipyard, has been sold to a San Francisco company.

John Delucchi, executive vice president of Service Engineering Co., said his company expects to assume control of Continental on June 1, when escrow is scheduled to close. Continental officials declined to comment on the price, and Delucchi refused to provide further details.

A source familiar with the merger, however, said Continental is expected to become a division of Service Engineering, and the company name will continue to be used in San Diego. Continental, like Service Engineering, relies heavily on Navy repair contracts.

If the merger goes through, Service Engineering is expected to give strong competition to Southwest Marine for Navy repair contracts on the San Diego waterfront. Southwest Marine, which began as a small shipyard in San Diego, has grown into a major ship-repair business, with yards in San Pedro, San Francisco, Portland, Ore., and Samoa.

Service Engineering has about 435 employees at its San Francisco yard. Continental, which has been having financial difficulties in recent years, has a fluctuating employment roll. The number of workers employed by Continental depends largely on the contracts it gets from the Navy, but its employees average from 400 to 500.

The source familiar with the merger said Service Engineering’s assets total about $140 million, while Continental’s are estimated to be $50 million.

Service Engineering was one of several small Northern California shipyards that successfully sued Southwest Marine in 1989 for fraud in a civil lawsuit. In August, 1989, a federal judge in San Francisco ruled that Southwest Marine and owner Art Engel had engaged in a fraudulent scheme to win a $150-million Navy contract.

After the judge’s ruling, the case was scheduled to go to trial, where the shipyards were expecting to collect damages from Engel and Southwest Marine. However, Engel settled one month before the trial was scheduled to begin. As part of the settlement, Engel’s attorneys petitioned successfully to have details of the agreement sealed. The judge also agreed to a request from Engel’s attorneys that his finding of fraud be stricken from the record when the settlement was signed.

That case spawned another lawsuit now being played out in San Diego.

Gerard Frederick Cotter, a former Southwest Marine employee, told the Northern California shipyards of the scheme used by Engel to get the Navy contract. Engel then sued Cotter for revealing “trade secrets.”

However, state and federal courts rejected Engel’s contention. The courts ruled that Engel and Southwest Marine had cheated and engaged in an illegal scheme to defraud the Navy. Engel’s suit against Cotter was thrown out.

Cotter countersued Engel and Southwest Marine for malicious prosecution, and the case is being tried before Superior Court Judge Harrison Hollywood.

Engel is part of the group that last week announced its plans to buy the San Diego Padres .