General Dynamics Corp. v. United States

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General Dynamics Corp. v. United States
Seal of the United States Supreme Court.svg
Argued January 18, 2011
Decided May 23, 2011
Full case nameGeneral Dynamics Corporation, Petitioner v. United States
Docket no. 09–1298
Citations563 U.S. 478 ( more )
73 S.Ct. 528; 97 L. Ed. 727; 2011 U.S. LEXIS 3830
Case history
PriorMcDonnell Douglas Corp. v. United States, 76 Fed. Cl. 385 (2007); affirmed, 567 F.3d 1340 (Fed. Cir. 2009); cert. granted, 561 U.S. 1057(2010).
Court membership
Chief Justice
John Roberts
Associate Justices
Antonin Scalia  · Anthony Kennedy
Clarence Thomas  · Ruth Bader Ginsburg
Stephen Breyer  · Samuel Alito
Sonia Sotomayor  · Elena Kagan
Case opinion
MajorityScalia, joined by unanimous

General Dynamics Corp. v. United States, 563 U.S. 478 (2011), is a U.S. Supreme Court case in which the State Secrets Privilege prevented the plaintiff from using the evidence it needed to protect itself from an expensive judgement. [1]

Contents

Background

In 1988 the U.S. Navy ordered a new stealth aircraft, the A-12 Avenger, to be built by contractors General Dynamics and McDonnell Douglas. The parties agreed to what would be the main problem with the contract: instead of a "cost-reimbursable" contract (which would have limited the contractors' liability to the funding provided by the Government, and is the most commonly used when dealing with new weapons systems, especially with new technology), they agreed to a "fixed-price" contract (which required the contractors to complete the work regardless of final cost) of around US$4.8 billion (the competing industry team, composed of contractors Northrop, Grumman, and Vought, somewhat surprisingly never submitted a final bid and dropped out of the competition, possibly due to the intended contract type).

Not unexpectedly (given the nature of the program) the contract encountered difficulty in meeting the technical requirements, which resulted in huge cost overruns, but in this case the overruns (combined with the contract type) threatened the existence of both companies, two of the largest United States defense contractors. The contractors' requested that the fixed-price contract be converted to a cost-reimbursable contract, agreeing to absorb $150 million in cost overruns as consideration. Instead, in 1991 the Navy gave up and cancelled the contract, saying too little progress had been made. Yet the cancellation would cause another problem: instead of cancelling the contract as a "termination for convenience" (where the Government decides it no longer wants an item; this may require the Government to spend additional funds to make a contractor whole), it instead chose to cancel it as a "termination for default" (where the Government cancels a contract upon belief that the contractor is not performing in accordance with contract terms, and often demands repayment of funds provided), and asked the contractors to return roughly US$1.35 billion of "progress payments" (payments based upon work performed) already made. The contractors refused, saying the government had kept too much information secret under the "state secrets privilege" for there to be adequate progress, and therefore a default termination was not justified. [2]

The manner in which the program was canceled led to years of litigation between the contractors and the Department of Defense over breach of contract:

In September 2010, the U.S. Supreme Court said it would hear the arguments of the two companies that the government canceled the project improperly and that the use of a state secrets claim by the U.S. prevented them from mounting an effective defense. [4]

Opinion of the Court

In May 2011, the Supreme Court set aside the Appeals Court decision and returned the case to it "for proceedings consistent with this opinion". [5] The Court unanimously held that "when litigation would end up disclosing state secrets, courts may not try the claims and may not award relief to either party." [6] Thus it neither granted the contractors the US$1.2 billion awarded in the earlier termination for convenience, nor the Navy the roughly US$1.35 billion in prior payments made.

In January 2014, the case was settled with Boeing and General Dynamics agreeing to pay US$400 million to the Navy, equally divided between them. [7]

See also

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References

  1. General Dynamics Corp. v. United States, 563 U.S. 478 (2011).
  2. General Dynamics Corp. v. United States (09-1298); Boeing Company v. United States (09-1302) at Cornell Law School's Legal Information Institute site
  3. "Court upholds Navy cancellation of A-12 aircraft" [ dead link ]. Associated Press via thefreelibrary.com, 2 June 2009. Retrieved: 26 February 2011.
  4. Liptak, Adam. "Supreme Court Takes Cases on Corporations' Rights". The New York Times , 28 September 2010. Retrieved: 28 September 2010.
  5. Weisgerber, Marcus. "Supreme Court Overturns A-12 Ruling Against Contractors". Defense News, 23 May 2011.
  6. General Dynamics Corp. v. United States at SCOTUSblog
  7. "UPDATE 1-Boeing, General Dynamics reach $400 mln A-12 settlement with U.S. Navy". Reuters, 23 January 2014.