ContractsProf Blog

Editor: Myanna Dellinger
University of South Dakota School of Law

Wednesday, May 25, 2011

Guest Post from Neil O'Donnell on General Dynamics

O'Donnell Mr. O'Donnell is a shareholder in Rogers Joseph O'Donnell, a San Francisco law firm, and co-author, with his partner, Dennis Callahan, of a recent article on the General Dynamics case.  

Given the oral argument, it was not a surprise that Justice Scalia wrote the opinion in General Dynamics v. United States.  But who would have thought that this vigorous champion of applying what he dubbed the “go away principle of jurisprudence” to this nearly 20 year old case would be the author of a unanimous decision by the Court that created the distinct possibility that this litigation would go on for several more years.

For the most part the decision follows a path that could have been predicted by listening to the oral argument.  Scalia for the Court agreed with the Court of Federal Claims that determining whether the Government had violated its obligation to disclose superior knowledge to the contractors and therefore invalidated its termination of the contractors for default, could not be ascertained without probing several layers of facts, all at great risk to national security.  He posited, fairly enough, that each party to the litigation would have the incentive to go right up to the line of state secrets in trying to prove its case, and that, as a result, witnesses may inadvertently disclose secret information.  And he strongly supported, as a policy matter, the conclusion that these risks made the contractor’s superior knowledge defense nonjusticiable.

Justice Scalia Faced with this situation, Justice Scalia adopted the approach he had suggested at argument.  First, he rejected the analysis on which the parties had devoted much of their energy in briefing and arguing the case.  He was uninterested in trying to determine who was the “moving party” under the rubric of the Supreme Court’s first (and last)  foray into the application of the state secrets privilege to civil litigation, United States v. Reynolds, 345 U.S. 1 (1953). Rather than prolonging this exercise akin to counting angels on the head of a pin, he sensibly observed that it was the “claims and the defenses together that establish the justification, or lack of justification, for judicial relief.”  And from there he concluded that the invocation of the state secrets privilege in this case made it impossible to determine who was right, whichever party was regarded as making the affirmative claim or asserting the defense.

Justice Scalia then invoked courts’ “common law authority to fashion contractual remedies in Government contracts.”  In so doing, he laid out the legal support for that proposition that neither side had been able to provide him at oral argument.  He used that authority to leave the parties in the position that they were in at the time that the dispute began.  That meant that the contractors did not have to pay back the $1.35 billion in progress payments that they had been paid but not yet earned.  And it meant that the Government did not have to pay the contractors another $1.2 billion in costs of performance that they had incurred but for which they had not yet been reimbursed.  Most outside observers would have agreed with the Court that it would have achieved what Scalia called “rough, very rough, equity” if this had been the final result of the case. 

 Unfortunately, it was not.  Instead, astonishingly, Justice Scalia, seemingly the advocate of finally bringing this decades long dispute to an end, added a paragraph late in the opinion which has every prospect of keeping the litigation going for several years more.  In remanding the case to the Federal Circuit, the Court specifically noted that no court had considered the Government’s claim that the well-established rule that the Government has an obligation to disclose superior knowledge to its contractors might not apply if the information was itself highly classified or if the contract had specified what information would be disclosed.  In this high stakes litigation (with interest, the swing between victory and defeat could be as much as $5 billion) this invitation to the Government to keep the litigation going at the Federal Circuit seems sure to be accepted.  So much for go away jurisprudence.

[Posted, on behalf of Neil O'Donnell, by JT]


May 25, 2011 in Commentary, Government Contracting, In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Weekly Top Ten from the Social Science Research Network

SSRN RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of Contracts & Commercial Law eJournal  

March 24, 2011 to May 23, 2011

RankDownloadsPaper Title
1 1151 Keynote Address – Identifying and Managing Systemic Risk: An Assessment of Our Progress 
Steven L. Schwarcz
2 255 FCPA Sanctions: Too Big to Debar? 
Drury D. StevensonNicholas J. Wagoner
3 240 Contract is Not Promise; Contract is Consent 
Randy E. Barnett
4 233 A Random Walk: The Federal Circuit’s 2010 Government Contracts Decisions 
Steven L. Schooner
5 227 Introduction, Rehabilitating Lochner: Defending Individual Rights Against Progressive Reform 
David Bernstein
6 204 Choice of Court Agreements, Coordination of Proceedings and Provisional Measures in the Reform of the Brussels I Regulation 
Christian A. Heinze
7 157 The Morality of Jingle Mail: Moral Myths about Strategic Default 
Curtis Bridgeman
8 146 The Honor of Private Law 
Nathan B. Oman
9 117 Managing Moral Risk in Contract 
Aditi Bagchi
10 116 The Myth of Efficient Breach: New Defenses of the Expectation Interest 
Daniel MarkovitsAlan Schwartz

RECENT HITS (for all papers announced in the last 60 days) 
TOP 10 Papers for Journal of LSN: Contracts (Topic)  

March 24, 2011 to May 23, 2011

RankDownloadsPaper Title
1 240 Contract is Not Promise; Contract is Consent 
Randy E. Barnett
2 116 The Myth of Efficient Breach: New Defenses of the Expectation Interest 
Daniel MarkovitsAlan Schwartz
3 105 Digital Evolution in Law School Course Books: Trade-Offs, Opportunities, and Vigilance 
Lawrence A. Cunningham
4 63 Delaware Dissolves the Glue of Capitalism: Exonerating from Claims of Incompetence Those Who Manage Other People’s Money 
Daniel S. Kleinberger
5 60 Gambling by Another Name? The Challenge of Purely Speculative Derivatives 
Timothy E. Lynch
6 50 Off Contract Harms: The Real Effect of Liberal Rescission Rights on Contract Price 
Michael Aikins
7 49 The Promise Principle and Contract Interpretation 
Juliet P. Kostritsky
8 48 The Sacred and the Profane Contracts Machine: The Complex Morality of Contract Law in Action 
Jean Braucher
9 40 Equal Opportunity for Arbitration 
Hiro N. Aragaki
10 40 Fixing Unfair Contracts 
Omri Ben-Shahar


May 25, 2011 in Recent Scholarship | Permalink | TrackBack (0)

Tuesday, May 24, 2011

Bobby Bonilla's Contract

Mets Fascinating!  As reported here in the Wall Street Journal blog, the Mets are about to start paying Bobby Bonilla for doing nothing!  They are obligated to do so under the terms of their agreement with Bonilla from 2000 when they bought out the final year of his contract.  Beginning July 1st and continuing for another 25 years, the Mets will pay Mr. Bonilla $1.2 million/year.  

Although Bonilla had been a highly productive player for much of his career, he never lived up to the tough New York standards, and neither party seemed happy with the relationship.  In his last season with the Mets, Bonilla hit .160 in 60 games.  He then notoriously showed his disdain for the team and its prospects by playing cards with Rickey Henderson during the National League championship series.  The Mets thus agreed to defer his $5.9 million salary for the last season just in order to be rid of him.  

The deal was not unprecedented and seemed to be in the best interest of both parties at the time.  The Mets freed up enough room under the salary cap to lure some good players and become contenders in 2000.  However, long-term the deferred salary is a drain on the Mets' resources.  Because of the agreed-upon 8% interest, Bonilla will eventually collect $30 million from the Mets. Still, Adam Meshell of provides an intelligent defense of the agreement here.  

All hail the power of contracts!


May 24, 2011 in Celebrity Contracts, Sports, True Contracts | Permalink | Comments (2) | TrackBack (0)

Monday, May 23, 2011

Unanimous Decision in General Dynamics: Heads We Win; Tails You Lose!

Back in January, we hosted a roundtable discussion on the General Dynamics v. United States/Boeing v. United States case that was decided today by the U.S. Supreme Court.  The last post from our roundtable, which includes links to all the previous posts can be found here.  


Bobby Chesney provides an able synopsis of the case on the Lawfare blog here.  He also ventures a paragraph about the limited scope of the opinion, which is also highly persuasive.  

The issue in the case is what remedy is available to a government contractor when a court dismisses its prima facie valid affirmative defense on the ground that the issue cannot be litigated without posing a reasonable danger of the disclosure of national security secrets.  During oral argument, Justice Kagan noted that the government's position seemed to be that, when it comes to the invocation of the state secrets privilege, it can't lose.  It can rely on the state secrets privilege to withhold documents and thus prevent a party from making out a prima facie case or an affirmative defense, and it can also assert that the same privilege prevents it from asserting its own claims or affirmative defenses, all of which should result in the dismissal of the suit.  At the time, Justice Kagan seemed to be expressing incredulity at the government's position, but that is the position that the court has adopted -- unanimously -- in an opinion written by Justice Scalia.  Apparently, government contractors are like highwaymen.  The courts leave the parties in the state that it found them.  General Dynamics and Boeing are lucky they weren't hanged.

In upholding the lower courts' rulings on the application of the state secrets privilege, Justice Scalia invoked the Court's earlier rejection, in United States v. Reynolds of a proffered analogy to the criminal context in which the government must abandon any claims that it cannot make without recourse to secret evidence.  In the civil context, "the Government is not the moving party, but is a defendant only on terms to which it has consented."  And the government has not consented to civil trials that threaten the disclosure of national security secrets.  

But then Scalia proceeds to point out that Reynolds is not relevant in this context.  Reynolds simply involved an evidentiary ruling that allowed the government to refuse to produce certain documents.  In fact, Scalia acknowledged, the language he relied on in the preceding paragraphs was dicta -- and dicta from a case that is not really on point.  

The cases that are on point are the devastating one-two punch of Totten and Tenet v. Doe.  This case, like those, is simply non-justiciable to the extent that the resolution of any issues necessarily threatens the disclosure of national security secrets.  Justice Scalia acknowledges that this case is distinguishable from those others, which involved agreements that were secret by their very nature and ab initio, while secrecy only became an issue with respect to the set of agreements at issue in these cases when the government asserted the state secrets privilege.  Six of one, half-a-dozen of the other, says Justice Scalia.  

The Court of Federal Claims made a mess of things by allowing some claims to proceed while barring others.  The cleanest solution, the Court unanimously held, "is to leave the parties where they stood when they knocked on the courthouse door."  The petitioners take nothing on their claims and the government takes nothing on its claims.  Justice Scalia pronounces this "rough, very rough, equity."  

It's not really "heads I win; tails you lose" because the government's claims are also dismissed.  And now that the rule is clear, Justice Scalia contends that contractors can better protect themselves by demanding progress payments.  That may be true, and Justice Scalia and others may also be right that cases like this one are so unusual that the consequences of this decision may be limited to the parties to the case.  Still, given that the government alone has the power to invoke the state secrets privilege and bring an end to litigation, there is every reason for concern that it will do so opportunistically.

Thus ends[?] about twenty years of litigation.

Lyle Denniston provides a very different take on the case over at the SCOTUSblog.  He reads the opinion as leaving many questions undecided and remanding to the trial court to work out what parts of the case can proceed without involving state secrets.  

He suggests the following unresolved issues remain:

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.

I read Scalia's "go away" message a bit more strongly and in any case hope that the parties are now so exhausted that they will walk away without throwing more good money after bad.  



May 23, 2011 in Commentary, Government Contracting, In the News, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Hottest Download Ever!

Charles_Fried The proceedings of the symposium held on March 25, 2011 at Suffolk University Law School, Contract as Promise at 30:  The Future of Contract Theory, are now available for free download from iTunes.

If you click on the link below, the Suffolk page will open in iTunesU.  Click on the icon for Continuing Legal Education, and you'll get a list of interesting podcasts for download, including the four panels, introduction, and closing session of the symposium.

The twelve minute segment contains Prof. Fried's opening remarks.

The other segments are:

How Moral Can a Contract Be?

Barbara Fried (Stanford), "What's Morality Got to Do With It?  The Limits of Non-consequentialism in Contract Theory"
Randy Barnett (Georgetown), "Contract is Not Promise; Contract is Consent"

Jean Braucher (Arizona), "The Sacred and the Profane Contract Machine:  The Complex Morality of Contract Law in Action"

Gregory Klass (Georgetown), “Promises, Etc.”

Commenter:  T.M. Scanlon (Harvard)  

Suffolk Ethics and Economics of Promising

Richard Craswell (Stanford), "Promises, Prices, and Pluralism"
Avery W. Katz (Columbia), "Virtue Ethics and Efficient Breach"

Daniel Markovits/Alan Schwartz (Yale), "The Expectation Remedy and the Promissory Basis of Contract"

George Triantis (Harvard), "Promissory Autonomy, Imperfect Courts, and the Immorality of the Expectation Damages Default" 

Commenter:  Seana Shiffrin (UCLA)

Promise Theory, Extended, Applied, and Critiqued
Juliet Kostritsky (Case Western), "The Promise Principle and Contract Interpretation"

Lisa Bernstein (Chicago), "Merchant Contract as Promise"

John C.P. Goldberg (Harvard)/CurtisBridgeman (Florida State), "Contract, Tort, and Promise"

Rachel Arnow-Richman (Denver) "A Contract Theory of Employment"

Commenter:  Carol Chomsky (Minnesota)

The Future of Contract Theory

Henry E. Smith (Harvard), "The Equitable Dimension of Contract"

Roy Kreitner (Tel Aviv), "On the New Pluralism in Contract Theory"

Nathan Oman (William & Mary), "Promise and Private Law"

Commenter:  Robert Scott (Columbia)

The remaining segment is Prof. Fried's response/reaction at the end of the day.

[JT, w/ hat tip to Jeff Lipshaw]

May 23, 2011 in Conferences, Contract Profs | Permalink | Comments (0) | TrackBack (0)