WSJ | Justices Rule for Boeing, General Dynamics

May 24, 2011 § Leave a comment

By BRENT KENDALL

WASHINGTON—The Supreme Court on Monday threw out a ruling that could have forced Boeing Co. and General Dynamics Corp. to repay $3 billion to the federal government in a two-decade-old contract battle.

The court, in a unanimous ruling written by Justice Antonin Scalia, said a key issue in the case couldn’t be litigated because it involved state secrets that can’t be aired in court.

The companies and the Pentagon have been fighting since 1991, when the government cancelled a $4.8 billion contract to build a Navy stealth-fighter jet. The government had demanded that the companies repay roughly $1.35 billion they had already received at the time of the cancellation, plus interest, for a total of about $3 billion. It argued that the companies defaulted on the contract for the A-12 Avenger stealth aircraft.

In response, Boeing and General Dynamics argued the government had superior knowledge of the stealth technology needed to build the fighter jet but refused to share it with them. But the companies weren’t allowed to make this claim in court because the government invoked its “state secrets” privilege to protect against the disclosure of sensitive military information.

The companies argued that it wasn’t fair for the government to assert a multibillion-dollar claim against them while also refusing to disclose information that they said was central to their defense.

The high court agreed. Justice Scalia wrote that when litigation would lead to the disclosure of state secrets, “neither party can obtain judicial relief.” His opinion overturned a 2009 lower-court ruling that found the government was justified in terminating the contract because the companies had failed to meet milestones.

Monday’s ruling wasn’t a total win for the companies. The justices rejected their claim against the government for $1.2 billion, plus interest, for their costs not reimbursed on the project, again saying the matter couldn’t be judicially determined.

“Neither side will be entirely happy with the resolution we reach today,” Justice Scalia said.

Monday’s ruling doesn’t end the case, which will now return to lower courts. The government has said it has other legal arguments that support its determination that the companies defaulted on the contract. In court papers, Justice Department lawyers said the government was never obligated by the contract to share highly classified information with the companies.

The Supreme Court declined to rule on that question, leaving open the possibility that the issue could be litigated without endangering state secrets.

Boeing said it was pleased with the ruling. “It has always been our view that the default termination was improper,” said the company’s general counsel, J. Michael Luttig. General Dynamics had no immediate comment, and a Justice Department spokesman declined to comment.

The original contract was made with General Dynamics and McDonnell Douglas Corp., which merged with Boeing in 1997. The first jet was to be delivered to the Navy in June 1990.

The contractors had problems from the start and couldn’t meet the proposed schedule. They also said the cost of finishing the project would substantially exceed the price of the contract. In 1991, then-Secretary of Defense Dick Cheney cancelled the contract.

No planes were ever delivered.

Justices Rule for Boeing, General Dynamics – WSJ.com

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