09-1298 General Dynamics Corp. v. U.S.

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Federal Claims
State secrets

When, to protect state secrets, a court dismisses a Government contractor’s prima facie valid affirmative defense to the Government’s allegations of contractual breach, the proper remedy is to leave the parties where they were on the day they filed suit.

Where liability depends on the validity of a plausible superior-knowledge defense, and when full litigation of that defense “would inevitably lead to the disclosure of” state secrets, Totten , supra , at 107, neither party can obtain judicial relief. It seems unrealistic to separate the claim from the defense, allowing the former to proceed while barring the latter. Claims and defenses together establish the justification, or lack of justification, for judicial relief; and when public policy precludes judicial intervention for the one it should also preclude judicial intervention for the other. Suit on the contract, or for performance rendered or funds paid under the contract, will not lie, and courts should leave the parties to the agreement where they stood on the day they filed suit. The Government suggests that at the time of suit, petitioners had been held in default by the contracting officer and were liable for the ensuing consequences. But that was merely one step in the parties’ contractual regime. The “position of the parties” at the time of suit is not their position with regard to legal burdens and the legal consequences of contract-related determinations, but their position with regard to possession of funds and property.

567 F. 3d 1340, vacated and remanded.

09-1298 General Dynamics Corp. v. U.S.

Scalia, J.

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