Boeing, GD Win A-12 Round In Supreme Court

The Supreme Court yesterday rejected a 2007 decision by a federal appeals court that upheld an another federal court’s decision that the Navy was justified in terminating for default a contract with Boeing [BA] and General Dynamics [GD] for the development of the A-12 stealth bomber.

For now, the decision means that the federal government can’t collect about $2.9 billion in damages it is seeking from the two companies—split evenly between Boeing and GD–and that the contractors can’t collect any damages either.

Writing for all the justices in a unanimous decision, Justice Antonin Scalia said that the Supreme Court can’t address whether the A-12 contract is in default because of the state secret privilege.

In making their case to the Supreme Court earlier this year, the companies said that they couldn’t adequately defend themselves against the default termination without access to classified information that the government possessed regarding the A-12 program. 

Earlier efforts by the contractors at depositions of government officials in 1993 led to unauthorized disclosures of military secrets, leading the Air Force to warn the Court of Federal Claims that further attempts to gain information about the stealth program would risk further disclosures of secrets. That court agreed.

“Where liability depends on the validity of plausible superior knowledge defense, and when full litigation of that defense ‘would inevitably lead to the disclosure’ of state secrets…neither party can obtain judicial relief,” Scalia says in referencing an earlier Supreme Court decision.

The Supreme Court remanded the case to the appeals court saying that court did not previously address whether the government should have shared its superior knowledge around “highly classified information,” which the government said it does not. The Supreme Court also said that the appeals court did not address the government’s assertion that it doesn’t have to share that information when the contract had “specifically” identified the information to be shared.

“Those issues (and whether they can safely be litigated without endangering state secrets) therefore remain for the Court of Appeals to address on remand,” Scalia writes.

The Navy terminated the A-12 contract for default in 1991. Since then, the federal courts of flip-flopped a number of times on whether the contract should have been terminated for default, or for convenience, in which case the contractors would not be liable.

In June 2009, the federal appeals court upheld the original default determination (Defense Daily, June 3, 2009). Boeing and GD appealed that decision, which resulted in the Supreme Court taking up the case.

In the decision yesterday, the court said that its decision puts the contractors and the government back in the position they were before the initiation of legal proceedings.

Jefferies and Co. aerospace and defense analyst Howard Rubel in a note to clients yesterday said the court’s decision suggests “There’s room for a settlement in the A-12 case.”