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Justices review Navy's cancellation of aircraft contract

By Bill Mears, CNN Supreme Court Producer
Some justices have wondered how to decide the case in the face of the government's broad claims of executive power.
Some justices have wondered how to decide the case in the face of the government's broad claims of executive power.
  • A two-decade dispute over a Navy plane has been held up by a "state secrets" claim
  • The government says the canceled plane's technology allows that claim
  • McDonnell-Douglas wants a $1.2 billion ruling in its favor reinstated

Washington (CNN) -- The Pentagon wants two defense contractors to pay up for an almost-forgotten Navy plane the government says did not work as advertised.

Now the Supreme Court could be poised to settle the nearly two-decades-old civil dispute, involving competing claims of national security secrets and the financial assets of a taxpayer-funded project gone sour. But many justices wondered Tuesday just how they could decide the specific issues in the face of the government's sweeping, often ambiguous claims of executive power.

"Why don't we call the whole thing off?" said Chief Justice John Roberts during the one-hour arguments, suggesting the court drop the case since it may be unable to decide which side should prevail.

Justice Antonin Scalia echoed the thought. "'Get out of here,' is what we're saying."

At issue is the nearly $5 billion contract for the defunct A-12 Avenger stealth attack 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 has prevented them from fully arguing their claim they should not have to repay the government.

The justices will decide whether such "state secrets" claims -- normally arising in terrorism and national security matters -- can be applied in a what has essentially become a civil financial dispute. A federal appeals court last year ruled for the U.S. Navy.

Administration officials want Boeing Co. and General Dynamics 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.

During arguments, the court seemed wary of digging into the state-secrets issue. Several justices did offer some support of the government's contention it was owed the money.

"We are not just throwing a monkey wrench into the gears of government contracting; we're throwing the whole monkey," said Justice Stephen Breyer, referring to what could happen if the government was to lose the case.

Boeing's lawyer, Carter Phillips, got in trouble by saying the aerospace supplier was being "a little greedy" in its effort to recoup money from the failed project.

Justice Sonia Sotomayor told Phillips, "You are being greedy. You admitted it." She then said risks are a part of the contracting process.

"Explain to me why it's unfair, given that you're two sophisticated contracting parties, to say you entered a contract knowing the government could invoke state secrets," she said. "It has, and so you bear the risk of that. I mean, you always knew the government could do this."

The government's top lawyer, Neal Katyal, echoed the sentiment. "I don't think anyone held a gun to their back" forcing the companies to sign the contact, he said.

But some sympathy was offered toward the private firms, as well.

Justice Ruth Bader Ginsburg suggested such defense contracts may unfairly hamper companies seeking to meet the government's stringent, sometimes shifting requirements.

"This contract did specify certain information that the government agreed to give" to the companies, she said. "The reason they couldn't specify this information is they didn't know what it was. They didn't know it was secret information. They wouldn't even know what to ask for."

A key sticking point is 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 regulations. If the deal had been terminated "for convenience," the government may have had to pay back some of the company's operating costs, but would be shielded from any claim of breach. The Navy could walk away from the deal under, as Scalia put it, "the 'go-away principle' of jurisprudence."

He and Roberts repeatedly suggested the best way to handle the case may be to let things stand, and give both sides a chance to recover roughly equal amounts of money.

"They claim that you (the government) knew that it was impossible to do what they contracted with you to do," said Scalia to Katyal, the acting solicitor general. "They say that you knew that because of other contracts that you had, and yet didn't tell them about (hurdles to complete the contract). I don't know whether that's true or not, and we're never going to know if it's true, because you came in and blew the whistle and said, 'State-secrets privilege.'"

Although technical, the case could turn on whom the court determines was the "moving" party, driving the competing claims. Scalia suggested the government was the that party, since it canceled the contracts and later withheld key evidence when the companies challenged that decision. That would prevent the government from recovering any money.

Katyal questioned that assertion, but Roberts said the government was trying to have it both ways when invoking the state- secrets privilege.

"This is a pretty convenient rule for you, right?" he said.

Earlier he told the Boeing lawyer, "We've gotten to this point in the dispute because you say they're at fault, they say you're at fault. Under the state-secrets doctrine, we can't resolve that question."

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 Supreme Court in this case is not required to fully articulate the boundaries of the states-secret doctrine, but whatever it says about it will be closely scrutinized for its implications in a larger context.

The justices have in recent years turned aside challenges to the doctrine when it involves executive branch actions in the war on terror. One such appeal is currently being considered for review by the court. It involves the U.S. government clandestinely sending captured suspected terrorists to other nations for interrogation and detention. Binyam Mohammed's appeal will be taken up in coming weeks.

The current cases are General Dynamics v. U.S. (09-1298) and Boeing v. U.S. (09-1302). A ruling is expected by midyear.