General Dynamics Argument Sheds Little Light on State Secrets

The Supreme Court yesterday heard oral argument in General Dynamics Corp. v. United States and The Boeing Company v. United States, the consolidated cases arising out of a government contract gone bad and dealing with just a little corner of the state secrets privilege.  We posted on the case here, when the Court agreed to hear it.

Oral argument yesterday did nothing to suggest that the Court intends to say anything about the privilege outside the singular circumstance that gave rise to this case. 

And those circumstances are singular.  The case arose out of a contract for production of the A-12 Avenger, a planned stealth aircraft.  After years of half-starts and failed efforts--the reasons for which are disputed and probably don't matter much here--the Navy finally cancelled the program and terminated the contract for default.  (Under federal contracting rules, a default termination means that the contractors have to pay the government back some of the funds already issued and used under the contract, here $1.35 billion.)  The contractors sued in the Court of Federal Claims (under the Contract Disputes Act) asking that the court change the termination for default to a termination for convenience.  (This would save the contractors from paying back the $1.35 billion and possibly entitle them to an additional $1.2 billion for other costs associated with the termination.)  The contractors based their claim on the argument that the government had "superior knowledge"--here, knowledge of stealth technology that would have helped the contractors produce the A-12 (or would have let the contractors know that the plane was essentially unproduceable).  The government asserted the state secrets privilege, arguing that the contractors couldn't litigate their "superior knowledge" claim without privileged evidence and that the case should be dismissed.  The lower courts ruled in favor of the government.

The contractors argued to the Supreme Court that the government can't both bring a claim (the termination for default) and assert the state secrets privilege.  Such a rule would stack the deck in favor of the government every time.  But this wasn't just a due process and fairness argument; they relied on language in United States v. Reynolds (see pages 34 -36 of General Dynamics's merits brief):

Respondents have cited us to those cases in the criminal field, where it has been held that the Government can invoke its evidentiary privileges only at the price of letting the defendant go free.  The rationale of the criminal cases is that, since the Government which prosecutes an accused also has the duty to see that justice is done, it is unconscionable to allow it to undertake prosecution and then invoke its governmental privileges to deprive the accused of anything which might be material to his defense.  Such rationale has no application in a civil forum, where the Government is not the moving party, but is a defendant only on terms to which it has consented.

Reynolds, 345 U.S. at 12 (emphasis added).  The contractors argued that this language means that the government can't both be a moving party and assert the state secrets privilege in civil litigation.

The oral argument turned mostly on this very narrow issue: Was the government the moving party here?  And this question, in turn, turned on what was the status quo ante--the parties' situations before the courts got involved.  Was the status quo ante no default (in which case the government might more properly be seen as the moving party--"moving" for a termination for default)?  Or was the status quo ante default (in which case the contractors might more properly be seen as the moving party--moving to quash the termination for default)?  (Remember that the government terminated the contract for default before the courts got involved.  The default question went to the Court of Federal Claims under de novo review, however.)

The argument didn't help answer these questions much.  The parties' arguments were predictable and didn't seem to give the Court anything to work with to help it sort the questions out.  This wasn't for the Court's lack of trying: the Justices seemed to ask around these questions in any way they could.  Even when Justice Ginsburg asked Carter Phillips on rebuttal whether there was a "middle way," Phillips only restated his position: go back to the status quo ante, which means before the termination for default.  (Of course, the government argued that the status quo ante was termination for default.  The arguments only restated the questions.)  (Justice Scalia called this the "go away" principle--assume a world where the courts weren't involved, or went away.)

But there were some other concerns that came out.  For example, Justice Breyer pressed the contractors on why their proposed rule wouldn't "not just throw[] a monkey wrench into the gears of government contracting . . . but throw[] the whole monkey."  Justice Breyer was concerned that sophisticated government contractors like these should have foreseen these problems, including the government's state secrets assertion, and should have contracted around them (or avoided the contract altogether).  Adopting their rule would allow contractors terminated for default always to win simply by asserting a "superior knowledge" claim and forcing the government to raise the state secrets privilege (because under their rule this would change the termination for default to a termination for convenience).

But there was a similar concern on the other side.  Thus Justice Kagan asked Acting Solicitor General Neal Katyal whether the government could also assert the state secrets privilege in proving its default claim--a claim in which the government looks more like the movant--and not only on its defense to the contractors' "superior knowledge" claim.  Answer: Yes.  This prompted Justice Kagan to ask for clarification, "because that really does sound like a tails you win, heads you win."  (Justice Scalia similarly observed: "and you are never the moving party.")  Clarification was not satisfying: General Katyal simply argued that the contractors should have contracted around the problem--playing on Justice Breyer's concern.

The extreme results illustrated in these exchanges may have prompted Justice Ginsburg to ask for a "middle way" on rebuttal.  But Phillips's answer only got us back where we started: What was the status quo ante?

Whatever happens in the case, the ruling is likely to be quite narrow--on the application of the state secrets privilege in a civil case where both sides look a little like a moving party. 

SDS