U.S. Supreme Court

Supreme Court Dispenses ‘Rough Equity’ in Ruling on State Secrets and a Jet Contract

The U.S. Supreme Court has ruled that neither the government nor two defense contractors can pursue billion-dollar claims in a contract dispute because of the possibility that state secrets will be revealed.

Justice Antonin Scalia wrote the unanimous opinion (PDF) in the dispute over a stealth-fighter contract. The ruling, he acknowledged, “produces rough, very rough, equity.”

The United States had paid $2.7 billion for work on the A-12 Avenger attack plane when it canceled its contract with the Boeing Co. and General Dynamics Corp., citing the companies’ failure to meet important milestones. The companies had spent $3.88 billion trying to develop the jet.

As a defense, the companies claimed the Pentagon had failed to share its stealth fighter technology. The government, in turn, protested when discovery on the defense claim inadvertently revealed state secrets.

The government had sought return of $1.35 billion in progress payments made to the companies; The companies had sought reinstatement of a $1.2 billion damages award under the contract. Neither will likely be successful.

“Suit on the contract, or for performance rendered or funds paid under the contract, will not lie, and the parties will be left where they are,” Scalia said. “Both parties—the government no less than petitioners—must have assumed the risk that state secrets would prevent the adjudication of claims of inadequate performance.”

The litigation may continue, he said in a footnote, if the government asserts contract claims that can be defended without invocation of the state-secrets privilege.

“Neither side will be entirely happy with the resolution,” Scalia wrote.

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