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Justices say invoking state secrets means government can't collect $3B

By Bill Mears, CNN Supreme Court Producer
  • High court rebuffs a case in which the government seeks money back for canceled jet
  • The government held back details, claiming national security secrets
  • Boeing Co. and General Dynamics are fighting an order to repay the Navy

Washington (CNN) -- After a ruling the Supreme Court admits "will please neither side," the fight between the Pentagon and two defense contractors over a controversial Navy jet will simply have to continue.

The unanimous decision Monday puts on hold an order for Boeing Co. and General Dynamics to repay more than $3 billion to the federal government after the cancellation of the A-12 Avenger carrier-based stealth aircraft.

The justices tossed the case back to the lower courts, saying the Navy could not collect while relying on its claim of state secrets stemming from the plane's sophisticated technology.

"We therefore leave the parties with the funds and property in their possession when they knocked on the courthouse door," wrote Justice Antonin Scalia.

At issue in the nearly two-decades-old civil dispute are competing claims of national security secrets and the financial assets of a taxpayer-funded project gone sour. The justices clearly felt hamstrung deciding the specific issues in the face of the government's sweeping, often ambiguous claims of executive power. The nine-member bench essentially said that in the face of a state-secrets claim, the lawsuit goes back to square one. Neither party has to pay up, for now.

The lawsuits involved the nearly $5 billion contract for the defunct A-12 fixed-wing plane, which the Defense Department canceled in 1991. The government had argued the sensitive technology on the aircraft allowed it to invoke the "state secrets" privilege, which has kept the case from going to trial. The contractors countered that this has prevented them from fully arguing their claim they should not have to repay the government.

The justices said the "state secrets" claims -- normally arising in terrorism and national security matters -- was in this case a "valid assertion." But the court also said "the government generally has an obligation to share its superior knowledge," which the contractors claimed was refused them.

With the state secrets argument no longer at its disposal, the Justice Department says it has other legal ammunition with which to assert the contract should be repaid in full.

Administration officials want the companies each to repay at least $1.35 billion in government payments, including accumulated interest, saying the companies violated the terms of the contract by developing a substandard and overly expensive aircraft. The companies in turn want to reinstate a $1.2 billion award they won at an earlier stage in the litigation.

Then-Defense Secretary Dick Cheney canceled delivery of the planes after costs for each one had grown to $165 million, according to court records. About 850 A-12s were initially planned for purchase by the Pentagon. But the project

was 18 months behind and $1 billion over budget when it was terminated.

McDonnell-Douglas, which merged with Boeing in 1997, teamed with General Dynamics in the initial design and development of the A-12 Avenger Advanced Technology Aircraft. The all-weather, carrier-based stealth bomber had a unique "triangle" design, earning it the nickname the "Flying Dorito," after a brand of flavored corn chips. It was supposed to have special on-board radar-eluding technology.

The A-12's demise led the Navy to purchase F/A-18E/F Super Hornets, which replaced the aging fleet of A-7, A-6, and F-14 attack aircraft.

A key sticking point was the Navy's cancellation of the contract for "default," or material breach of the terms of the agreement. It is the harshest category in the arcane world of federal contracting sanctions. If the deal had been terminated "for convenience," the government might have had to pay back some of the company's operating costs, but would have been shielded from any claim of breach. The Navy could have walked away from the deal under, as Scalia put it in January, "the 'go-away principle' of jurisprudence."

The high court has not fully examined the state-secrets privilege since 1953, when it affirmed the government's ability to limit disclosure of certain types of evidence.

The justices have in recent years turned aside challenges to the doctrine when it involved executive branch actions in the war on terror. One such appeal was rejected last week by the high court. It involved the U.S. government clandestinely sending captured suspected terrorists to other nations for interrogation and detention, a program known as "extraordinary rendition."

The cases decided Monday are General Dynamics v. U.S. (09-1298) and Boeing v. U.S. (09-1302).