An otherwise boring contract dispute between the government and two defense contractors gets a lot more interesting when you throw in the words “state secrets privilege.”

The privilege, created by the U.S. Supreme Court nearly 60 years ago, allows the government to put an end to lawsuits on the grounds that they could expose information vital to national security. But in arguments at the high court on Tuesday, the focus was  on corporate greed and overall fairness in government contracting.

Since the attacks of Sept. 11, 2001, the Bush and Obama administrations have used the state secrets privilege to block lawsuits brought by those claiming civil liberties violations — among them people who claim they are the victims of illegal detention, torture and warrantless surveillance.

Use Of State Secrets Privilege

While use of the privilege has mushroomed in the past decade, it dates back to 1953 when the widows of three civilian engineers killed on a military flight sued the government for damages. The Supreme Court relied on military assertions that the crash report would expose top secret information about electronics being tested onboard; therefore, the court ruled, the widows’ “need for evidence must yield … to national security.”

Decades later, when the report was declassified, it turned out that it  exposed no secret information but did reveal the fact that the officials had known the aircraft was unsafe.

The state secrets privilege nonetheless has remained intact and been used by every administration since then to shield information and block litigation.

Reluctant Court

Enter the case before the Supreme Court on Tuesday: a multibillion contract dispute between the government and two corporate giants, General Dynamics and Boeing. In 1988, the two won a $4.8 billion contract to build a new carrier-based stealth fighter airplane. But the companies fell behind schedule and did not meet contract specifications. In 1991, then-Defense Secretary Dick Cheney canceled the project, finding the contractors in default — a serious sanction that required the corporations to pay back $1.35 billion in money received from the government. With interest, the amount to be paid back would eventually rise to nearly $2.9 billion.

The companies fought back, contending that the government had failed to share classified information that would have shown the contract specifications were impossible to meet. When the case went to court, the government invoked the state secrets privilege, and the companies appealed all the way to the Supreme Court.

At the high court on Tuesday, however, nobody seemed to dispute the legality of the state secrets privilege. General Dynamics lawyer Paul Smith, speaking afterward, put the question this way: “What the case is about … is sorting out who bears the burden of the fact that the case couldn’t be fully litigated.”

Inside the courtroom, lawyer Carter Phillips, representing both companies, faced questions from some justices who seemed loath to intervene in the contracting process.

“I haven’t found anywhere in the contract that requires the U.S. government to share information with you,” said Justice Sonia Sotomayor.

Justice Stephen Breyer added that “sophisticated contractors are perfectly capable of negotiating their own contract.” If we get into the act, Breyer said, we are “not just throwing a monkey wrench into the gears of government contracting; we’re throwing [in] the whole monkey.”

Justice Antonin Scalia observed that the lower courts found it impossible to figure out who was right in this contracting dispute. So why not just leave the status quo intact, he said. The companies would get to keep the $1.35 billion the government had already paid them, but would not get reimbursed for the additional money they had expended.

‘Being A Little Greedy’

The companies, however, wanted more.

“Maybe to some extent you could say we’re sort of being a little greedy,” said lawyer Phillips, but if the contractor is not in default, then the Defense Department is terminating the contract for its own convenience, and it owes the contractor the money for all the expenses already incurred.

But arguing the other side of the case, Acting Solicitor General Neal Katyal contended the government should get back the money that it paid in advance for a contract never fulfilled.

Chief Justice John Roberts didn’t seem to buy that argument. “You say they’re at fault. They say you’re at fault. Under the state secrets doctrine, we can’t resolve that question. Why don’t we call the whole thing off? Nobody’s at fault.”

Katyal replied that when the court cannot determine who is right and who is wrong, “it should stay its hand entirely … you should wind the clock back to the status quo ante before the lawsuit was filed.” That status quo, he added, was the undoubted right of the government to get back that $1.35 billion. Indeed, said Katyal, the companies themselves came to the government “hat in hand” after the default, asking to defer the repayment, and the government executed a formal agreement to that effect.

Justice Elena Kagan tested the government’s theory with a reverse hypothetical. “Suppose that the state secrets the government wanted to protect were … the key to proving” the government’s claim that there was a default. “What would happen then?”

Katyal’s answer: The case would be dismissed, thrown out of court, which would mean the government’s default judgment against the companies would still stand.

The answer provoked incredulity from Kagan. “That really does sound like tails you win; heads you win,” she said.

A decision in the case is expected later this year. Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.