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Saga over a Pentagon contract goes on

Ordering the two-decades-long court battle over a hefty defense contract to go on, the Supreme Court ruled unanimously Monday that the sensitivity of national secrets means that the contractors and the Pentagon essentially have to start over with their fight.  Putting the two sides back where they were when the contractors sued in June 1991, the Court’s somewhat convoluted ruling made only one thing clear immediately: from here on, the lawyers and the courts must be very careful not to risk exposure of highly classified data about the war machine that was involved — a “stealth” fighter plane to operate off of an aircraft carrier.

Justice Antonin Scalia, writing for the Court in a pair of combined cases (General Dynamics Corp. v. U.S., 09-1298, and Boeing Co. v. U.S., 09-1302), suggested that the outcome was more important to those companies and the Pentagon than it was to those looking for a broad new ruling on contract law.  Even so, the opinion did speak more generally by cautioning contractors seeking defense work to protect themselves from potential cancellation of their contracts because state secrets get mixed in to negotiate in advance for some guarantees of what they will get if that should happen.

For General Dynamics and Boeing, the likelihood is that they will get to keep $1.35 billion that they were paid along the way (payments that the Pentagon does not dispute), but they have at most a diminished chance of holding on to another $1.35 billion paid for work that was not completed as they struggled, ultimately without success, to develop the so-called “A-12 Avenger,” a carrier-based plane that would have many of the enemy-evading detection characteristics of land-based “stealth” fighters.   Moreover, they may have next to no chance to collect another $1.2 billion they seek in damages for the Navy’s cutoff of the contract.

For the Pentagon, the decision gives it a new opportunity, in lower courts, to show that it never promised the contractors full access to highly classified data about “stealth” technology, so they cannot blame the Navy for the fact that they could not develop the know-how to complete the Avenger project on time.   If the Pentagon succeeds on that point, it could open the contractors to a new finding that they defaulted, and that cannot be excused.  Whether that would mean they must pay back the extra $1.35 billion is not clear at this point.

Both sides had urged the Court to rule their way in the case, to bring it to a close in their favor.  But the Court, after accepting that the case was steeped in defense secrets that should never be put at risk of public disclosure, said that neither side should be declared the winner just yet.   If the contractors needed more access to such secrets in order to defend themselves against a claim that they defaulted, the Court ruled, they cannot get such access.  If the Pentagon short-circuited the companies’ legal defense by invoking the shield of “state secrets,” the Court said, it cannot benefit right now from shutting down the court case.

Justice Scalia declared that, when assigning legal blame depends upon a defense that, if fully pursued, might expose national secrets, “neither party can obtain judicial relief….That is the situation here….Every document request or question to a witness would risk further disclosure, since both sides have an incentive to probe up to the boundaries of state secrets.  Each assertion of the privilege can provide another clue about the Government’s  covert programs or capabilities.”

Scalia’s opinion added: “When public policy precludes judicial intervention for the one it should preclude judicial intervention for the other as well.”   The remedy in that circumstance, the ruling said, is to “simply leave both parties as it finds them” — that is, where they stood on the day the court case began.  In essence, all that remains in dispute, Scalia wrote, is “possession of funds and property,” not legal questions over blame for a contract’s failure.

The opinion went on to counsel lower courts to adopt only as “the option of last resort” the complete scuttling of a government contract as the result of the government’s claim of “state secrets.”  That, it said, should occur only in “a very narrow set of circumstances” — that is, a contract should be terminated for that reason only when a denial of access to secrets makes it legally impossible for a contractor to defend itself against a claim of default, and the exclusion of evidence about secrets means that a court could not reach “a reliable judgment.”

Recommended Citation: Lyle Denniston, Saga over a Pentagon contract goes on, SCOTUSblog (May. 23, 2011, 12:25 PM),