between the ederal government and boeing and general dynamics. they contend that they violated the corporations constitutional rights by using the state secrets privilege to stop them from effectively arguing their case. this is one hour. >> general dynamics verses united states, consolidated case. mr. phillips? >> thank you, and may it please the court, the proposition we are challenging is one embraced by the federal circuit that says the united states government can declare that certain government contracting partners have operated in default, and under those circumstances can reach into the government contractors pocket, withdrawal at the time 1.3 $5 billion out of moneys -- $1.35 billion, not without being

pursuant to the contract or instructions of the united states contract, and when the contractor 6 to defend against the claim that it is engaged in some kind of default contract that the government can insert the state secrets privilege and, in so doing, tie up their ability to respond to the government's conclusion. it's seems to me the statement in this court's decision, the united states vs. reynolds, which is the government is certainly free to assert the state secrets privilege, but when it does so has to assume certain responsibilities that come from that, at least in the circumstances were the united states is party. >> when the contractors failed to deliver the first aircraft in time specified by the contract, the decision was that its cost

would not out run the contract price. so it sought to reformulate the contract. at that time, correct me if i am wrong, but i think at that time the contractor said nothing at all about the superior knowledge and the government's obligation to share information that it had not shared. >> there was nothing specific to that, justice ginsburg, and the first time they identified the superior knowledge problem arose when the government took the extraordinary step of issuing a cure notice. up until that time they are trying to negotiate a final resolution of the project, as you would hope that a contractor would, to bring this to a happy resolution. >> but you would expect them to say that if that was the impediment going forward with

the contract with least mention it. >> i think you have to put it in context. during this time, there were consistent efforts and requests being made to get access to both the b-2 and a-117 stealth technologies. eventually, the information was forthcoming, but it was too little, too late to effectively allow the contractor to proceed as planned. i agree, in a perfect world, maybe they would have identified this, but in this situation the parties are trying to come to some kind of resolution that allows both sides to be satisfied by the final disposition. the need it --'t why wasn't the need to share that part of the contract?

i thought the contractor had all of it, or enough to fit. i have not found anywhere in the contract that it requires the u.s. to share with you. does that have anything to do with what the process would require? >> no, i think -- >> i will pose a hypothetical. but assume it requires a sharing of state secrets, and the government then invokes its privilege. is that a different case than this one in terms of due process? would not the former situation, where it it has been made a condition of the contract, require different treatment than this situation, where the government should say, if you want to raise the defense that is not part of the contract, then you do what every other that began with a privilege does, whose privileges have been

invoked against. you proceed with whatever evidence you have. that is usually what happens with other privileges. >> right, and we would have been content, but the ultimate decision was it was impossible to ultimately be in position to resolve it. i want to answer the more fundamental question, your honor, the basic point is the background principle of law, this is superior knowledge, is the understanding of the knowledge of the parties as they enter into it. the federal circuit has acknowledged the superior knowledge defense. that is an understood basis on which the parties enter into an agreement. that is the first answer. second, you are asking us to put into a contract something about information we do not know anything about. we have some sense about the b-2 and a-117, but we don't know anything about the other

programs identified. >> where is the obligation of the government to tell you, build it this way using the technology we are to have? i thought the claim was you were promised this information and use structure of the contract based on that promise. >> we have a series of distinct clients. our first claim was that we would nef near -- we would have never entered the contract if it was based on superior knowledge that, for instance, the wheat specifics we were being asked to pruett -- the weight specifics we were being asked to supply were impossible to comply with based with what the government already knew. if we had just been given a warning, we would not be in the situation where we are here. >> there is a factual dispute about that. there is a claim that they told you your weight estimates were not correct. >> that may be a factual dispute, and i would be happy to

litigate that issue if we get to that point where we are in fact allowed to litigate any aspect of our particular defense, but the bottom line is, again, to state the propositionl the as it is, they are saying the government can assert a claim for $1.35 billion against us and tell us we cannot defend against that claim even know the reason why we were not able to comply with the contract is because of the fact the government did not provide us information at the outset. >> first of all, what that suggests is that in this case it is not unfair to hold your client in this case. you just read it two circuit court opinions and you think this is the defense.

in other words, it is not unfair. but let me give you another question, and that is, if we accept the supreme rule of law, which was said in reynolds, and apply it to government contracting, where sophisticated contractors are perfectly capable of negotiating their own contracts, we are not just throwing a monkey wrench into the gears of government contracting, we are throwing the whole monkey. that is my second question, one, this is not the case that calls for it, and two, the threat to government contracting by changing from reynolds to here is overwhelming. now, i would like your views on both of those. >> it seems to me this is the precise situation where reynolds is saying if he cannot bring forward a legitimate defense -- part of the problem is we don't know precisely what information. is very difficult to say, how

strong is our defense under the circumstances. what we know is the clear federal claims judge looked at this and said we had made an impressive showing without regard to any of the confidential privileged information of a prime facia defense and the circumstances. art position is we had a good defense. -- our position is we had a good defense. we're not throwing this into force the government to assert the state secrets. that is a contrived approach to litigation and not something i would imagine any circumstance we would do that. second, i don't see how this throws a monkey wrench into this process whatsoever, much less the monkey, because the basic understanding is the government is not entitled to force its contractor down a ruinous course. if the government has information available to it, it has to make that information

available to the contract, either at the outset, which would have been the best of circumstances, or as the golan. >> -- as they go along. >> the petitioners were removing party. >> that is not a self define the concept. the petitioners are the plaintiffs. >> they were the plaintiffs, and review scheme that was announced them was known beforehand. what we need to look at that? >> the review scheme says the 1986 insurance case, before this contract was entered into, the federal circuit said the mere filing of a complaint immediately vacates the contract and officer's rule. our understanding at the time we entered into this was there was a problem with a contract in officer operating, we could file a claim and make be contracting officers rule off the table. under those circumstances, it seems to me we go to the status

quo in that situation, which means there is no contracting officer decision, there is no basis on which the government can make a claim for $1.35 billion. not ahought that was proper payment based on completed work. if government says that money was advanced. you had not complied with what was necessary to get that $135 -- $1.35 billion. it they say you have not fulfilled what you need to do to get that. >> there had not been a final sign off by the contract in officer of proving it, thereby reducing it to a liquidated claim. but that is a vastly different statement, and indeed we have an

argument with respect to half of that that it already had been effectively approved in a mechanism independent. the bottom line is these were services rendered, actually rendered, not some prepayment for services to be rendered in the future. this was work we had done for which we had submitted specific claims and for which the contract in officer had pending -- the contract in officer had pending before him at the time. so what the government says is that it was payment and that they did not ultimately get the airplane seat that were the -- the airplanes that were the ultimate desire of the contract. that is true because they terminated the contract a year before the airplanes were due to be provided. >> you are seeking to emerge as a total winner, get from this contract what you would have gotten if it had been successfully completed, including any profits --

>> that is not true. all we are asking for are the remedies that are fully available if you were to convert this from a termination for default into a termination for convenience. under those circumstances, the government has a wonderful mechanism that protect it against the kind of lost profit damages that might otherwise be available in a situation we have a more traditional breach of contract. all we're asking for is the actual amount of money that we expand it -- expended, which is unchallenged, although at some point it might be litigated, but that these were all reasonable, allowable, and allocable cost to this particular contract. >> why should we not view this as if it was a dispute between private contracting parties? if we did that, perhaps one party would be the moving party

with respect to some of the claims and the other would be the moving party with respect to the remaining claims. >> i think that is precisely how you ought to look at it. we would be very comfortable with that because it is quite clear to me that except in a hypertechnical way, because of the way the contract disputes that, plays out, the government is unquestionably the moving party, the party seeking affirmative relief. >> i think it is questionable, mr. phillips, for this reason you say it is implied term of this contract that the government has a duty to share certain information. and you are seeking to out in force that implied term under the contract. it seems to me, as to that alleged duty, you are the moving party. >> well, that is one way to

articulate it. at the other way to articulate it which is much more consistent with reality of what is going on is the government is making a claim for $1.35 billion, for which we did not act in a timely fashion. that is the only basis that exists in this is just the time of the actions we took. our answer to that claim is to say, no, we are not at fault for the delays because you did not provide us the information or you could not spare us the burden of having to go down this path. >> but then you say, give us the payment for the additional money beyond the $1.35 billion that you have already given us. >> right, that just goes to the question, is there some way to evaluate those claims separately? the answer rias, yes, they should be. >> why shouldn't they? it seems to me if indeed the

government has come up with a defense that makes it impossible to decide who is in the right here, i think the usual course taken by courts would be to leave the parties where they are. the matter cannot be litigated. that would be you keep the $1.35 billion, but you would not be entitled to sue for the additional amount. if you were that were read, you should have more frequent progress. why not just leave it where you are, both you and the government? >> well, to be sure, we would be much more comfortable in a world that just articulate, justice scalia. with interest. [laughter] and certainly we think that is the minimum that we should be entitled to, and maybe to some

extent you could say we're being a little greedy, but the reality is the standard rule is that if the contract and say you cannot make a determination that the contractor has been guilty of default, then that contract should be in basic contract law and this agreement that he would converted to a termination for convenience. >> you mentioned that you get to keep the $1.35 billion. but there was also another figure. 1.2 billion you would get on top of that. >> no, but the $1.2 billion was with the additional amounts of money actually expended by the contractors that were reasonable, allocable, and allowable for their claims on

this agreement. and it would be the standard operating procedure. if you have a termination for convenience where the government says, look, we decided we don't want these airplanes any more, let's call it off, which they have the right to do, then the question is what are the reasonable costs that are reallocated as a consequence? >> but the government did not do that. you are making that up. they did not terminate for convenience, they claim you are in default. why should we force that down the government's throat when we can no more say they are wrong been you are wrong? >> it seems to me -- and the question is if you call off the game, what flows from that? it seems to me if you say, let's let the government call that default or you could just as easily say, the decision we would take, the government cannot call it a default, because in order to do that,

somebody has to make a judgment that is not an honest assessment of the facts of this case. if you say it is not a default termination, then at there are certain consequences that flow from converting it and it automatically converts at that point to a termination for convenience. in a termination for convenience situation, you reallocate the cost in precisely the court of federal claims has done this. >> but we are assuming we agree with you on the rest. we're not seeing it as a default termination. we're saying we don't know. we don't know what the state secrets thing is. the government is entitled to make that determination. we don't know who was in the right. why force the government to go to a termination for convenience? >> i would think more appropriately to proceed under those circumstances, it carries

a lot of collateral consequences. it exposes you to subsequent problems in the contracting process and creates the possibility of future proceedings that rather than allow a fighting that no one can comfortably conclude is the right fighting to stay in place and have those collateral consequences flow from it, the more appropriate way to proceed would be say, look, i cannot make a determination this case there should be a deterrent -- a termination for default. therefore, under government contract in principles, it automatically convert over to a termination for convenience and then you go down the road of evaluating those costs. the government has arguments about those costs and we can debate those out, although i would commend the court -- >> it is just a reasoned way to reach the result justice scalea is suggesting.

because you are being greedy, you admitted it. the termination for convenience carries its own automatic consequences that appear unfair and light of the fact the litigation of the default termination has been invoked because there is a risk to the united states. so is there a reason to wait to do it? to not impose that and fairness on the government? and if there are is not, explain to me why it is unfair, given that you are two sophisticated contracting parties, knowing that you entered a contract with the government that you knew they could invoke state secrets, it has, and you bear the risk of that. you know the government could have done this. that is my original question. >> right, and so could the

government. the background principle is the united states forces ronald. that case says it if somebody is the moving party is seeking affirmative relief, that is the party that bears the burden. >> can i ask you what of that principle makes any sense in this contract situation? both parties have argued it as though they're trying to determine the moving party. but in this situation, it is very often arbitrary or fortuitous. if you think about it in a private setting, you have one contractor who fails to perform deficiente some bes product, the other decides not to pay, and the question of who the plaintiff is is often just a matter of who gets to the courthouse first.

whether somebody is demanding their money back or simply refusing to pay at all. so white in his contract situation it is a question of who is the plaintiff or the moving party -- so why in this contract in situation is a question of who was the plaintiff or the moving party? >> i think in reynolds, the court used the language moving party precisely for that reason. i think what the court had in mind was seeking affirmative relief. >> speaking of a port. -- speaking of tort. >> that is a specific context. >> if i have page you already and i find your product sufficient, i will go to court and demand my money back. if i find your project efficient before i pay you, your gone to court and say you have to pay me

-- if i find your product position, before a pay you, you go to court and say you have to pay me. >> in one situation i have $1.35 billion in my pocket for services that were unquestionably rendered in which satisfied our portion of the obligation under the contract -- that of both parties have claims. one says you are obligated to pay me. the question of who has the claim and the affirmative defense, it could be structured either way. >> i don't disagree, but the bottom line is, what did the principles of fundamental fairness tell you to do with this? >> that is exactly my problem, because when i look at reynolds, reynolds does not hold anything in your favor. it holds the opposite way. it says it is unconscionable

for the government both to prosecute and not to tell them the secrets, ok? and it says such a rationale has no application in a civil forum where the government is not the moving party. it does not say anything about where the government is the moving party. it consists of the two opinions of the federal circuit. now, what do you want me to read to get over that impression? >> the very fact the court says and limits its ruling -- >> it did not do that, it said the rationale is unconscionable. i don't even have to go that far. i can go to fundamentally unfair. what should i read to get under my unfortunate impression, which i got from the two opinions, that there was nothing unfair?

what do you want me to read to get over that impression? >> you should clearly read it the court of federal claims opinion that gave rise to this in the first place, where the judge said we have made an impressive prime facia showing of a defense, and the federal circuit appeal was we don't care, which will not let you go down that path, period. we're setting where we have made that shelling, the default rule should be the government cannot -- >> that showing was based on the court's review of already confidential information, correct? >> and the non privileged information. >> so it made it this judgment on a great deal of information, yet cannot conclude that you were right as a matter of law, correct? >> it recognized that it terminated discovery very early,

and there are whole programs we know nothing about. we know about the b-2 and a-117, but we do not know about the other programs. >> thank you, mr. phillips. general? you, mr. chief justice. at first, the government does not affirm invoking the power of the court, only that it was mr. phillips client who 20 years ago walked into the federal court and ask that court to set aside the decision of the contract in officer and to award them over a billion dollars of damages. the government by contract ask them to dismiss the federal lawsuit. second, reynolds makes clear the state secrets privilege will be used to bar a claim at most only when the party that is relying on secret information is trying to use the federal court to alter the legal status quo.

>> we have gotten to this point in the dispute. you say they are at fault, they say you are at fault. under the state secrets doctor and, we cannot resolve that question. what we call the whole thing off, nobody is at fault? that means it is terminated not for fault but for convenience. >> several reasons. one is that is the affirmative use of the federal courts to alter the legal status quo. i think the principle of reynolds is out -- but only because you alter the legal status quo. you altered it by holding them in default. >> i disagree, mr. chief justice. i think the contract itself specifies the contract officer will decide there is default termination. once they do that, then date though the on liquidated payment. >> would that not be an

affirmative step? >> it is an affirmative step under the terms of the contract, but not the federal courts. >> he works for you, and he is the one changing the status quo. >> that is undoubtedly the case, and that is the terms of the contract which they agreed. our central proposition is in a world where the federal court does not know who is right and who is wrong on a particular claim, it should stay its hand entirely and get out of the business altogether. that follows the credit principle of doing no harm -- that follows the socratic principal of doing no harm. >> the party that seeks relief from the court is the party that bears the burden involved in the invitation of the state secrets privilege.

if that test is applicable in the contract? >> i think there are special arguments available in this case because it is a contract with sophisticated parties and will decide who bears the burden of coming into court and so on. i think this is a simple principle, and a world where the court does not know who is right or wrong, that is the answer to the question but that justice sotomayor asked about the court a federal planeclaims. they said, we cannot know one way or another. >> i am interrupting justice alito because you need to his question quickly. it is your position that if we determine your the moving party, you lose? >> no --

>> he asked whether we apply reynolds. he did not say which part of reynolds. are you conceding that if we apply reynolds and we find you what the moving party that you lose? >> absolutely not. i don't think it says if the government is the moving party is an automatic loss. i think there is no reason whatsoever for the court -- >> i don't know that moving party means who comes into court first. in the context of a contract dispute, i would say the moving party is the party who is trying to use the principles of law to change the contract. and that is the government here. the government is blowing the whistle. the government is saying you are in default, and under the laws of default, we could walk away,

and indeed we can claim the money we have already paid. that seems to me the moving party in the context of the contract. >> i think it is important to add, using legal principles in a federal court. that is what reynolds is talking about. >> reynolds was talking about that because that was the situation in reynolds. but i am saying the logic of the matter, the logic of the matter when applied to a contract situation such as this, what to be the party that is blowing the whistle, who is trying to use the law, the one who was asserting that the law requires this result. then we say, well, we cannot tell if it requires this result are not. >> i don't think, justice, that is what reynolds is getting at or what the court tossed subsequent decisions are about and the role of federal courts. i think with the decision say

together is if you do not know one way or another, you should want the clock back to the status quo ante before the suit was filed. at that, there was a right for the government to have $1.35 billion. i understand maybe you should cut it even, you are saying, and they keep the money and we don't have to pay the $1.2 billion. i suggest there is no principled way to do that, without think is what mr. phillips -- >> it was the hon doubt it right of the lawsuit only if the contract in officer was correct there had been the fault. if he was wrong about that, it was not the right of the government. >> justice scalia, but be read the contract. if the contract is terminated under the default clause, the contractor shall on demand repaid to the government the amount of progress payments.

and then what happened as a result of that demand letter that we sent right after the termination for default was they came to was, at an hand, and said, please don't take this money from us right now, our bank is one complaint and so on. so we entered into deferment agreement. >> could to give the site? >> joint appendix, page 342. it seems an odd motion of due process to say somehow we agree to their deferment create some entitlement for them to keep the $1.35 billion. >> i have this question about due process. the component of the due process analysis, it seems to me, but what is reasonable and necessary in the case, what is unconscionable. it that seems to me just an extrapolation of what reynolds said, and i don't know why we don't just have that as a federal common law contract. doon't know why we need to

the due process analysis. one is assuming that we apply reynolds. >> if you were to look to that background, all principal, you look to reynolds and todden which makes clear at the time they signed their contract, they were on notice that highly classified information that is the subject of litigation is something that generally cannot be litigated in the federal court. then if you wanted to think about due process and the overlay of unconscionable liddy or whatever with respect to federal contracts, you ordinarily assume the contract itself of highly sophisticated parties would work that out ahead of time. if they were concerned about the situation unfolding, they could have written into the contract they should get certain information and that if the government invoked the state secrets. like it would automatically terminate -- if the government

and of the state secrets privilege it would automatically terminate that and convert into eight termination of convenience. >> then you would restate what would happen and the reynolds with this case. i think it is almost a wash. >> i think the contract is undoubtedly clear that in order to challenge the decision of the contract officer about the default termination, they have to come to federal court and invoke affirmatively, seek affirmative judicial relief from the federal court to change the world. >> am i right that this contract did specify certain information that the government agreed to give the petitioner? >> that is correct. that is in the joint appendix. >> it says the reason they cannot specify this information is because they did not know what it was. they didn't know what was secret

information or what to ask for. >> is a very odd thing to bid on a multibillion-dollar contract on the assumption they will get some technology they have not even specified. they are bidding for their research and development. they brought in lockheed, which had built low observer ability planes precisely for the reason -- low observe ability planes precisely for the reason they had the technology. i don't think anybody held a gun to their back. >> they claim that you knew it was impossible to do with a contract with you to do, to have the weight of airplane that he contacted them to come across with. they say you knew that because of other contracts you had but did not tell them about it. >> two things, first -- >> we will never know if that is true because you came in and blew the whistle and said, state

secrets. >> that was litigated before the court of federal claims along with 18 other claims and defense to the up $1.640261632. -- and defense to about $1.35 billion. much of that has taken place in a highly classified environment. >>. you sang that was not impossible to do? >> i am saying that we warned them of such and those are the citation in the government's brief. >> at the weight contracted for. >> we had warned them it was not, and we later relaxed at wheat specification. i am not sure that is prevalent one way or another. a central position is if you are not sure, if you don't know who is right or wrong, then the

federal court should not be completed in the process of siding and picking winners and losers in that circumstance. >> are you ever the moving party in the court of claims? >> sure, i imagine we could be on a counterclaim. >> but then that means somebody else is the moving party. >> that is correct. that if somebody wants to get money from the federal government, they have to go out to the court of claims. >> that is correct. >> this is a convenient role for you. bennett is a convenient ruled that they agreed to when they signed contract. they knew the deal going in, which was if it wanted to challenge the decision of the contracting officer, they would have to come in. they could have structured it differently. the could have said if there was termination for default, it could have been changed. >> you have the burden of proof on the issue of the fall. >> we have the burden of proof

on the fault, but not superior knowledge. if you follow their rule, they're asking the court to proceed against the facts and say they are entitled to not just $1.35 billion, about 1.2 billion on top, as if they had proved their superior knowledge claim. >> i think justice scalia was asking, why can't we just said all bets off, everybody go home with what they have. but mr. phillips said it is either default termination or termination for convenience, nothing in between. the u agree those are the two choices, nothing else? >> i agree that is the with the contract is written. distinguish between those two, distinguish between liquidated payments, which we are not

seeking, and on liquidated payments at which the government has the absolute right at the moment the contract officer decides there has been in default. >> i don't care how the contract has been written. if we're going to say there has been a broken play, which cannot apply the contract because we cannot decide who is in the right or wrong. it is totally irrelevant but the contract says. you just leave the parties were they are. >> i am saying the the parties were they are, under the terms of the contract. >> no. >> we don't think the federal courts should be in the business of micromanaging and contractual situation with parties that can protect themselves very easily. >> we can do it as a matter of the lot of contracts -- the law of contracts. reynolds' talks about the moving party, and i am not sure that

phrase had or has really definable content in our law. it seems to me this is a question of burden of persuasion. if the contractor has to proceed, in the case certain shelling and the government has to go back and forth. if at some point the burden of persuasion invokes the privilege, then we have to ask if it is fundamentally fair as a matter of federal law of contract. >> even if you follow that reasoning, and i don't think you should, they would still lose because they still bear the burden of proof of persuasion on superior knowledge. i don't think that would be the rule that is appropriate, justice kennedy, because i think underlying reynolds is the central proposition that the court should not be involved, should not be picking winners and losers either way wednesday. knowledge is involved.

-- either way when secret knowledge is involved. >> so you were not able to make that showing because of state secrets. what would happen then? >> unable to make a showing in federal court? >> that is right, that the secrets you wanted to protect or actually the key to your proving a year was the fault -- proving there was the fault. >> in that case, i think the case would be dismissed because they would be coming in and seeking affirmative judicial relief to break the contract officer's decision and get whatever damages they want. >> let me understand, because that sounds like you win both ways. you were saying that if state secrets. the u from making your affirmative case -- if the state secrets. did you from making affirmative

case -- >> the general proposition is if the federal courts cannot know one way or another who is right or wrong, it should not grant affirmative relief to a party. >> to a moving party, and you are never the moving party. >> again, justice scalia, that is the contract they signed. that could have cited for a contract with different results. >> did the contract contained the term "moving party"? >> it did not say that, but it did say who had come to court to challenge the decision of the contract officer and puts that burden on them. >> that is what i don't understand. yes, that the fault provision -- the default provision is decided by the contract officer, but you cannot collect on that judgment of the have filed a complaint.

you cannot do anything until you get the court to affirm your default. you are asking for a legal declaration of being right, that they defaulted. you are the ones seeking that. >> this is a very important question, and that is the impression left by their brief, and it is wrong. the filing of their claim and the court of federal claims, that is wrong under the statute, 605b, which says that a clause can be put into the contract to continue and require performance even if there is an appeal to the court of federal claims, and that provision exists in this very contract. >> i am sorry, you are going to fast, and i don't think i remember this in your reply brief. >> it is in the reply brief, and

our claim is that provision requires -- right now, we have an absolute and comment to the $1.35 billion. that is what the contract says, that is what the deferment agreement says that we have entered into. so we're not asking, justice sotomayor, for any judicial decision at all. we know what the court doesn't state secrets cases, to say out entirely, to deny the case on the merits. if you do what mr. phillips said it or if you do with justice scalia suggested, the compromise option, that is using the power of the federal court, granting him relief on a claim that he has not proven. that is something i see zero precedent for. >> we're leaving you where you are, we're saying get out of here. we don't know what the answer risk. the view where you war.

b>> we have no problem with a go away rule. if he returned to the status quo, we would have the $1.35 billion. that is what the contract says, that is their own filing. before the court of federal claims called the up $1.35 billion money presently due and owing. >> that assumes that the termination for default was valid, and we don't know what was that, and we don't want to have to require whether it was valid. to say go away means everybody keeps the money he has at. >> justice scalia, that is using the power of the court to set aside the contract in officer's decision, which i think is forbidden by reynolds, it would be and not rule because it is happenstance. if we had insisted on the $1.35

billion that was owed to us, we cannot even be having this conversation. the only reason we are having it is because we acceded to the run request to not take the $1.35 billion right away. >> what with the contractual terms look like that would avoid this problem? -- what with the contractual terms look like that would avoid this problem? >> you would say the government invokes the state secret privilege and it becomes a termination for convenience. >> with the client ever agree to that? >> the government? i think that underscores the problem with their argument. they are saying, read the contract this way to convert this all into termination for convenience, when the state secrets privilege is invoked. i agree, that would be a very unusual contract for the government to get into. >> so how do they write the

contract? your answer cannot be, the only way they write it is a way you would never accept. >> i think there are other ways. there is the possibility they would demand extra money in exchange for greater risk. there may be some alternative dispute resolution mechanism. >> would there be a problem with that? >> it would depend, you might have it in the military, the equivalent might be panels. i am not sure what the precise contractual arrangements would be. i think the need for this court to be involved is a lot lower than in the criminal context of reynolds, because the government is a repeat player with the contractors. they're not in the business of trying to willy-nilly advanced the state secrets privilege to undermine and take money away. i think the 2003 federal circuit

decision, there have only been a couple of instances in which i am aware of in which the government has invoked the state secrets privilege in any contract in action, and nothing and that superior knowledge. since 2009, the government has invoked the state secrets privilege a whopping two times. >> it is not a big practical problem. would you go back to justice kennedy's question for a minute? i don't quite see, if you would discuss it a little bit, how you do this as a matter of constitutional law. because the due process clause is tied to fundamental on fairness, and i think the answer has to be in this circumstance secret or not, it depends. it depends on many things. would you write this as constitutional law? would it not be written as federal common law contract?

should it not be written as an exposition of the superior knowledge doctrine, which seems totally open to it? or should it not be written as a matter of discovery law, which is what the district judge ended up thinking, gee, i got no? -- i don't know? how would you do that? >> i think that is an ill fitting concept in this contractual dispute for a couple of reasons, not just in that sophisticated parties agreed ahead of time to other things, but also the whole notion of due process and contracts it is off because the government has waived its sovereign immunity. they did not have any free andnding right to commene in claimed fundamental unfairness and contracts. so the question becomes, is there some extra benefit they

should give the can to reynolds about criminal defendants using state secrets? the answer to that i think it is, no, because the parties work that out themselves. my answer to you is to use the contract as the contractual interpretation as the basic rule for decision. the contract specified, done under the shadow of reynolds and under the shadow of todden, that they would have to be the moving party and challenge the decision of the contract officer. >> you could say the parties couldn't put this down, anticipatory breach. that could have been negotiated. that is not the way that contract law works. >> what this thousands of pages of contract, this could have been worked out in advance, and i think it was. they knew going in they bore the

burden of walking into court, paying attorneys and everything else, to challenge the decision of the contract officer, and they also knew at that moment that the government had an undoubted right to the un liquidated progress. the contract they signed it distinguished between liquidity progress payments as to which the government has no right andun-liquidate met payment automatically gave that to the government. the argument they are advancing is, let's collapse those, but keep the $1.35 billion because the government has not given it to us yet. >> why is it not liquidated? >> because the contract specified two payments streams. one is the work they had reviewed and understood and the government said this is good, we will pay for it, and other works with her claims to have made, but they have not gotten paid by the government.

i don't think there is any sort of evidence, certainly nothing the court below found, that said because they have eight right to be not-liquidate it. >> what is the other at 2.5 billion? >> there seeking on top of keeping the $1.35 billion. that is the extra costs incurred under the contract, above and beyond the $4.8 billion in the initial contract. >> general, the you have the citation to that footnote you refer to? i could find it later, but -- >> it is page 32, allen also referred the court to appendix -- and i would also refer the court to appendix 157, which incorporates the provision.

it says it mandates performance compliance with the contract, even when the contract officer decision is under appeal. it is not the case whatsoever that there filing of this claim somehow vacated the contract officer's decision. the only way that would happen is if this federal court reverses the federal circuit. >> so your view is the complete did not state their obligation to pay you? that required them to pay you? >> that is right, at that moment, they knew that. in fact they sent a bank letter saying please don't do that. then we entered into a deferment agreement. but we have an absolute right to that money right now, regardless. we don't need an affirmative decision forum this court to get that money. we're asking them to follow the

high credit principle th --e hippocratic principle of doing no wrong or harm. >> if you are right, out with this follow with other contracts? >> that is right, it provides an offset. we don't actually have to seek the $1.35 billion dollars, we would just get that. >> you get the extra money without having to go to court. because they have to go to court to challenge the offset. >> and again, that is the contract which they signed. >> thank you. >> thank you, general. mr. phillips, you have three minutes. >> justice kennedy, i think this can be properly decided on

federal common law principles and i would ask the court to apply this contract principles. join appendix, page 209. the general focuses on what happens when the contract officer take some action. what he leaves out is, "the contractor shall have the right of appeal under the disputes calls from any determination by the contract officer." he talks about what you do with the article 3 context, it specifically allows us to go to the contract appeals. i guarantee the government will make the exact same argument if we had taken that route. it seems to me the case ought not be decided on the basis of this technical assessment. it ought to be decided on the basis of where the rights are and what are the fund but the change and who is making the shift in one direction or another. if you do that, and justice ginsburg you ask, am i asking for nothing? no, there is no question you

can't come up with a principal basis. you could come up with the principal basis to stay our hand, we will not uphold the contract officer's decision, and we will not say there is default, we will not go the extra mile and say it is a termination for convenience. >> you are sitting there is a middle way. >> no question. all i was saying in response to justice scalea's question -- >> on what principle? >> if you do not have a principal for default, we cannot decide who is right and who was wrong, and therefore we cannot enforce the contract officer's decision and we don't do anything more. we leave the status quo ante, which means before they declared a default under the circumstances. >> it could go away under the principle of jurisprudence, right?

[laughter] >> mr. phillips, i understood your paper that it was making only a constitutional claim. >> i don't read that. we certainly had a due process argument embedded in there, but there are a number of references to federal common law principles as nine constitutional basis on which to rule in our favor. i think the court ought to be informed in making its determination about the contract in arrangement about whether this is unfair and unconscionable. you could do that as a matter of federal common law principles. at the end of the day, your honors, we ask for the court to reverse. >> you are watching c-span,