Stealth Evidence - Supreme Court Rules on State Secret Privilege

"Charles Dickens' Bleak House had Jarndyce and Jarndyce, the interminable chancery court case in which legal fees finally consumed the entire estate in dispute.  Aerospace has the case of the canceled Avenger."

 That's how a reporter of Aviation Week and Space Technology summed up a controversy that arose as far back as 1991 and was recently resolved by the Supreme Court of the United States—but only after eating up as much as 29 percent of the cash reserves of one of the companies involved.

The long story made short:

In 1988, the Navy awarded aerospace contractors General Dynamics and McDonnell Douglas (subsequently acquired by Boeing) a $4.8 billion fixed-price contract to research and develop the A-12 Avenger carrier-based, stealth aircraft.  After two years of delay, the A-12 proved unexpectedly difficult to design and manufacture, and then-Defense Secretary Dick Cheney terminated the project, finding the contractors had defaulted. 

The government sought the return of $1.3 billion in progress payments from the contractors.  The aerospace contractors defended themselves on the basis that the government has an obligation not to mislead contractors about, or silently withhold, its "superior knowledge" or difficult-to-discover information "vital" to contractual performance. 

But, uncovering the extent of the government's prior experience with stealth technology—including the design and manufacturing processes of the B-2 and F-117A—involved some of the government's most closely guarded secrets.  In fact, the government invoked the "state secrets' evidentiary privilege to prevent the disclosure of secret national security information about the production of stealth technologies.  This effectively created a staring contest in court, according to General Dynamics: By raising the state secrets privilege, the federal government had not simply taken some of the evidence out of the case, but had entirely prevented the contractors from raising a critical defense.

Justice Antonin Scalia, writing for a unanimous court, ruled that the government cannot find companies in contractual default by withholding secret information that the contractors themselves require for their defense.  This is not a victory for the contractors, necessarily, as the Supreme Court effectively left the parties where it found them, financially-speaking:

Judicial refusal to enforce promises contrary to public policy (here, the Government's alleged promise to provide superior knowledge, which we could not determine was breached without penetrating several layers of state secrets) is not unknown to the common law, and the traditional course is to leave the parties where they stood when they knocked on the courthouse door.

Indeed, "[w]here liability depends upon the validity of a 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."

As an interesting concluding point, the Supreme Court did not buy the argument that contractors might now raise frivolous superior-knowledge defenses designed to goad the government into asserting the state secrets privilege.  Just Scalia noted: "To begin with, the rule we announce today applies only when the superior-knowledge defense is supported by enough evidence to make out a prima facie case.  Moreover, Government contractors—especially cutting-edge defense contracts of the sort likely to operate in the state-secrets field—are repeat players ... they have strong incentive to behave rather than risk missing out on the next multibillion dollar defense contract."