General Dynamics Corp. v. United States (09-1298); Boeing Company v. United States (09-1302)

Oral argument: Jan. 18, 2011

Appealed from: United States Court of Appeals for the Federal Circuit (June 2, 2009)

GOVERNMENT CONTRACTS, STATE SECRETS PRIVILEGE, DUE PROCESS, NATIONAL SECURITY

In 1988, the United States Navy contracted with McDonnell Douglas and General Dynamics Corporation to build stealth aircraft. In 1991, the Navy discontinued the stealth aircraft program and terminated the contract. McDonnell Douglas and General Dynamics sued in the Court of Federal Claims, alleging that delays in the building of the aircraft were due to the government's failure to share information. The United States asserted the state secrets privilege, claiming that disclosure of this information would harm national security. The Federal Circuit ruled in favor of the United States, holding that the government could assert its termination claim against the contractors and invoke the state secrets privilege to preclude the contractors' defense. The Boeing Company (which merged with McDonnell Douglas during the litigation) and General Dynamics appealed, arguing that the government cannot maintain a claim against a party when it invokes the state secrets privilege to preclude that party from raising a defense in a civil case where the government is the moving party. The contractors also claimed the invocation of the privilege violates the Due Process Clause of the Fifth Amendment. The Supreme Court's decision will affect the use of the state secrets privilege to protect national security and the right of private litigants to assert defenses against government claims.

Questions presented

General Dynamics Corp.

Whether the government can maintain its claim against a party when it invokes the state-secrets privilege to completely deny that party a defense to the claim.

Boeing Company

Whether the Due Process Clause of the Fifth Amendment permits the government to maintain a claim while simultaneously asserting the state secrets privilege to bar presentation of a prima facie valid defense to that claim.

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Issue

Can the government maintain a suit against a party while simultaneously seeking to prohibit that party from raising a defense that could lead to the disclosure of state secrets that might harm national security?

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Facts

In 1988, the United States government contracted with McDonnell Douglas Corporation (“McDonnell Douglas”) and General Dynamics Corporation (“General Dynamics”), two defense contractors. See McDonnell Douglas Corp. v. United States, 567 F.3d 1340, 1342 (Fed. Cir. 2009). Under the contract, McDonnell Douglas and General Dynamics agreed to develop a new stealth aircraft for the United States Navy. See id. The contract gave the United States the right to terminate the contract if the two contractors failed to “[p]rosecute the work so as to endanger performance” of the contract. See id. at 1342–43.

The aircraft project soon encountered a series of delays. See McDonnell Douglas Corp., 567 F.3d at 1343. McDonnell Douglas and General Dynamics informed the United States that they would not be able to deliver the new aircraft according to the contract's timeline. See id. The defense contractors formally requested a restructuring of the fixed-price contract to an ongoing cost-reimbursement agreement, arguing that the cost of developing the aircraft was much higher than originally anticipated. See id. at 1343–44. The United States modified some of the contract's deadlines, but the parties could not reach an agreement regarding the contract's fixed-price structure. See id. at 1343–45. McDonnell Douglas and General Dynamics were unable to develop the aircraft by even the revised deadlines, which they claimed was a result of the federal government's unwillingness to agree to a cost-reimbursement scheme. See id. at 1344–45. Finally the United States, having grown dissatisfied with the defense contractors' lack of progress, terminated the contract in 1991. See id. at 1345.

McDonnell Douglas and General Dynamics sued the United States in the Court of Federal Claims, claiming that the government’s termination of the contract was invalid. See McDonnell Douglas Corp., 567 F.3d at 1345. The court agreed with the defense contractors and in 1996 awarded them roughly $1.2 billion in damages and other costs. See id. However, the Court of Appeals for the Federal Circuit reversed the lower court’s decision in 1998, holding that the United States had discretion to terminate the contract based on the defense contractors’ failure to perform. See id. at 1346. Meanwhile, McDonnell Douglas merged with The Boeing Company (“Boeing”) in 1997, and Boeing assumed McDonnell Douglas’s place in the litigation.

The Court of Federal Claims ruled for the United States in 2001. See McDonnell Douglas Corp. v. United States, 567 F.3d at 1346. But in 2003, the Federal Circuit again reversed the Court of Federal Claims. See id. The Federal Circuit held that the trial court misapplied the correct standard of whether the United States was justified in terminating the contract. See id. The Federal Circuit did, however, agree that the United States could use the state secrets privilege to foreclose a defense by Boeing and General Dynamics, because their defense could lead to the disclosure of sensitive information that might compromise national security. See id. Finally, after heeding the Federal Circuit's instructions, the Court of Federal Claims again found in favor of the United States in 2007. The Federal Circuit affirmed this most recent judgment in 2009. See id. The Supreme Court of the United States granted certiorari on September 28, 2010. See General Dynamics Corp. v. United States, 131 S. Ct. 62 (2010); Boeing Company v. United States, 131 S. Ct. 62 (2010).

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Discussion

The issue before the Supreme Court is whether the government can continue to pursue a claim for damages against a private party, while simultaneously using the state secrets privilege to forbid that party from offering a potentially valid defense. The defense contractors argue that, when a party cannot litigate an entire issue because it would jeopardize national security, fairness demands that the precluded party prevails. See Brief for Petitioner, General Dynamics Corp. at 23. The United States believes, on the other hand, that the preservation of national security is a sacrosanct concern, and it makes little sense to penalize the government for attempting to safeguard state secrets. See Brief for Respondent, United States of America at 18.

The United States Chamber of Commerce echoes the concerns of Boeing and General Dynamics. See Brief of Amicus Curiae The Chamber of Commerce of the United States of America in Support of Petitioners at 5. The Chamber emphasizes that "courts cannot order relief against a party that is precluded from defending itself." See id. The Constitution Project takes a similar position, arguing for a limited application of the state secrets privilege. See Brief of Amicus Curiae The Constitution Project in Support of Petitioners at 28. It argues that the privilege is merely "a narrow rule of evidence—not a justiciability doctrine or a vehicle for scuttling a litigant’s entire claim or defense." See id. However, the Chamber's principal objection to the lower courts' decisions is based on policy. See Brief of Chamber of Commerce at 13. The Chamber argues that if the government can invoke the state secrets privilege to nullify a defense whenever it wishes to escape an undesirable agreement, government contracts will become more uncertain. See id. It contends that the result of this uncertainty will be manufacturers’ unwillingness to initially enter into contracts with the government. See id. at 13–14.

Similarly, the National Defense Industrial Association (“NDIA”) notes that these problems are of particular concern in the defense industry. See Brief of Amicus Curiae National Defense Industrial Association in Support of Petitioners at 15–16. The NDIA asserts that the inherent uncertainties of high-tech research and development often lead to unforeseen costs and delays. See id. The NDIA argues that the federal government's use of the state secrets privilege in this case sets a dangerous precedent; defense contractors may decide that the risk of losing huge research and development investments is too great to justify entering into future fixed-price contracts with the government. See id. at 17.

The United States dismisses these fears as speculative and unfounded. See Brief for Respondent, United States of America at 50. The government argues that the incentive to maintain a strong relationship with defense contractors naturally prevents the government from unnecessarily using its state secrets privilege. See id. The United States also believes that defense contractors can avoid future litigation like this by drafting contracts more carefully. See id. at 51–52.

The United States claims that a decision for the defense contractors will hinder its ability to protect national security. See Brief for Respondent at 22–23. It further worries that other litigants “would be encouraged to raise marginal or meritless claims that potentially implicate secret information” if Boeing and General Dynamics prevail. See id. at 26–27.

The Supreme Court's decision could therefore affect the government's future ability to ward off litigation by arguing that certain facts ought not come to light for reasons of national security.

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Analysis

This case considers whether the government can maintain a claim against a contractor for breaching a government contract if the government’s use of the state secrets privilege bars the contractor’s defense to that claim. The contractors argue that the government cannot use the state secrets privilege in this context. See Brief for Petitioner, The Boeing Company, at 35, 40; Brief for Petitioner, General Dynamics Corp., at 27, 30. The United States responds that courts should not dismiss its claim against the contractors because the government is not the moving party. See Brief for Respondent, United States of America at 28. The United States further argues that even if it was the moving party, courts should not penalize the government for invoking the state secrets privilege to protect national security. See id. at 45.

Can the Government Maintain a Claim Against a Party if It Invokes the State Secrets Privilege to Deny a Defense to That Claim?

Boeing and General Dynamics argue that the United States cannot maintain a claim against a private party and then use the state secrets privilege to preclude a defense to that claim. See Brief for Petitioner Boeing at 33; Brief for Petitioner General Dynamics at 22–23. Boeing explains that the state secrets privilege prevents the government from disclosing “military, intelligence, and diplomatic secrets” if disclosure would “harm national security.” See Brief for Petitioner Boeing at 31. In United States v. Reynolds, the Supreme Court held that the government could not use the state secrets privilege to prevent the other party from asserting a defense where the government was the moving party. See 345 U.S. 1, 12 (1953). General Dynamics and Boeing argue that Reynolds should apply here. See Brief for Petitioner Boeing at 38–39; Brief for Petitioner General Dynamics at 44. Boeing explains that the United States is the moving party because it raised the underlying claim for relief under the contract. See Brief for Petitioner Boeing at 39. It adds that the United States has the burden of proof to show that Boeing defaulted on the contract. See id.

General Dynamics adds that although the contractors are the plaintiffs, a claim to terminate a government contract on the grounds of default is essentially a government claim. See Brief for Petitioner General Dynamics at 41–42. General Dynamics also asserts that if the Court holds that the contractor was the moving party, it would create unfair results; contractors would be subject to severe monetary penalties if they were unable to defend against government claims. See id. at 44–45. General Dynamics argues that if the United States was allowed to terminate the contract, General Dynamics and Boeing would owe the government monetary damages and could even be prevented from receiving future government contracts because they would be considered irresponsible. See id. at 45. General Dynamics contends that since the United States is the moving party, and its use of the state secrets privilege precludes the contractors’ defense, the court must enter judgment for the contractors. See id. at 27.

The United States responds that “the government is not the ‘moving party.’” See Brief for Respondent at 27. It argues that under Reynolds, the moving party is a party that is seeking affirmative judicial relief against the other party. See id. at 27–28. The government asserts that Boeing and General Dynamics are the only parties seeking judicial relief because they are requesting money damages. See id. at 28–29. In contrast, United States argues that it is only requesting termination of the contract. See id. The United States refutes General Dynamics and Boeing’s arguments that an action to terminate a government contract on the grounds of default is a government claim. See id. at 31. It argues that only the contractor can commence an action in the Court of Federal Claims. See id. The United States argues that the contractors are the moving parties because the information for which the government raised the state secrets privilege was relevant to the contractors’ claims that they defaulted on the contracts due to the government’s failure to share information. See id. at 33. The United States responds that even if it were the moving party, it should not be penalized for invoking the privilege because courts have never dismissed a civil case in response to the government’s use of the state secrets privilege. See id. at 41–42.

Does it Violate Due Process Clause of the Fifth Amendment to Permit the Government to Maintain a Claim if it Uses the State Secrets Privilege to Bar a Party’s Defense to that Claim?

Boeing and General Dynamics contend that allowing the government to maintain its claim after evoking the state secrets privilege violates the Due Process Clause of the Fifth Amendment. See Brief for Petitioner Boeing at 43; Brief for Petitioner General Dynamics at 41. General Dynamics contends that an opportunity to defend against liability is part of the “fairness” of the judicial system. See Brief for Petitioner General Dynamics at 30. General Dynamics also argues that allowing the government to proceed with its claim is inequitable because the government used the state secrets privilege to prevent General Dynamics and Boeing’s defense when they could support their defense without using classified information. See id. at 53–55. Boeing cites cases where courts dismissed claims where the invocation of other privileges, such as the privilege against self-incrimination and the attorney-client privilege, violated the Due Process Clause. See Brief for Petitioner Boeing at 50–52.

The United States counters that courts cannot penalize a party by dismissing a claim when the party properly invokes a privilege. See Brief for Respondent at 43. The government argues that the cases Boeing cites involving other privileges do not apply because courts rarely dismiss claims even when the invocation of these privileges preclude defenses. See id. at 43–45. The United States further asserts that it should not be penalized for invoking the privilege because it cannot waive the privilege and disclose information that would harm national security. See id. at 45–46. The United States argues that it would not be inequitable to allow the government to proceed with its claim because it does not seek harsh penalties from the contractors. See id. at 37.

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Conclusion

The Supreme Court will decide whether the government can maintain a claim after it invokes the state secrets privilege to preclude an opposing party’s defense. General Dynamics and Boeing argue that the government cannot maintain a claim against a party after it invokes the state secrets privilege when the government is the moving party. They claim that allowing the government to do so violates the Due Process Clause of the Fifth Amendment. The United States contends that it can maintain a claim after raising the state secrets privilege because it is not the moving party. The government argues that even if it was the moving party, the Court should not penalize the government for invoking the state secrets privilege to protect national security. The Supreme Court's decision will affect not only defense contracting, but also the state secrets privilege in general and the right of private litigants to assert defenses against government claims.

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Authors

Prepared by: Natanya DeWeese and James Rumpf

Edited by: Kate Hajjar

Additional Sources

· Bloomberg, Greg Stohr: Boeing, General Dynamics Get High Court Hearing in Stealth-Fighter Dispute (Sep. 28, 2010)

· Constitutional Law Prof Blog, Steven D. Schwinn: Court to Consider a More Ordinary State Secrets Privilege (Sep. 29, 2010)

· Lewis & Clark Law Review, Carrie Newton Lyons: The State Secrets Privilege: Expanding its Scope Through Government Misuse

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