On April 30, 2008, the National Defense Industrial Association — a trade association whose membership includes 1300 defense contractors, many of whom are small businesses — filed an amicus curiae brief in support of a petition for a writ of certiorari at the U.S. Supreme Court. The amicus brief encouraged the Supreme Court to reverse a September 2007 decision by the U.S. Court of Appeals for the Federal Circuit vacating a $436 million verdict in favor of a victim thrift in a Winstar-related case because the thrift’s agreement with the government was tainted from the inception by fraud and misrepresentation. Long Island Savings Bank, FSB v. United States, 503 F.3d 1234. The Federal Circuit held that any agreement with the federal government that is tainted by fraud or misrepresentation or conflict of interest at the outset — even when the wrongful acts were committed by a rogue employee engaged in illegal acts of self-dealing — automatically renders the agreement void in its entirety and absolves the government from any responsibility to perform (even though the contractor may have already fully performed under the agreement, and the government may have already received the benefit of the bargain).
While the case at issue was, technically, a Winstar case arising out the federal government’s breach of contract with private banks and thrifts that agreed to bail out failed savings and loans in the 1980s, NDIA recognized that the poorly reasoned Federal Circuit decision had a potential impact on all agreements with the government, including defense contracts. Presenting a new policy argument that had never before been raised in nearly seven years of litigation, NDIA’s amicus brief highlighted the administrative procedures in place under statute and executive order, emphasizing that the Federal Circuit’s decision is wholly inconsistent with the carefully crafted statutory and regulatory scheme put in place in response to the Dixon-Yates scandal of the 1950s. This regulatory scheme provides that tainted contracts are voidable, but that, subject to equitable and practical criteria set out in statute and regulation, the government has discretion as to whether the contract is to be declared actually void. Many hope that the U.S. Supreme Court will do as the amicus brief and petition for certiorari request and reverse the Federal Circuit.
Click here to view a PDF copy of the brief.