Robert M. Gates, Secretary of Defense v. Raytheon Company

United States Court of Appeals
for the Federal Circuit
__________________________
ROBERT M. GATES, SECRETARY OF DEFENSE,
Appellant,
v.
RAYTHEON COMPANY,
Appellee.
__________________________
2008-1543
__________________________
Appeal from the Armed Services Board of Contract
Appeals in no. 54907, Administrative Judge Jack Delman.
ON PETITION FOR REHEARING EN BANC
__________________________
Before RADER , Chief Judge, NEWMAN , M AYER∗, LOURIE,
BRYSON , G AJARSA, LINN , D YK , PROST, M OORE, and
O’M ALLEY, Circuit Judges.
PER C URIAM.
G AJARSA, Circuit Judge, with whom LINN , PROST, and
O’M ALLEY, Circuit Judges, join, dissents from the denial
of the petition for rehearing en banc.
NEWMAN , Circuit Judge, dissents from the denial of
the petition for rehearing en banc.
∗ Judge Mayer participated only in the decision
on panel rehearing.

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DEFENSE v. RAYTHEON COMPANY 2
__________________________
K AREN L. M ANOS , Gibson, Dunn & Crutcher LLP, of
Washington, DC, filed a petition for rehearing en banc for
appellee. With her on the petition were CHRISTYNE K.
BRENNAN and D ACE A. CALDWELL.
C. COLEMAN BIRD , Senior Trial Counsel, Commercial
Litigation Branch, Civil Division, United States Depart-
ment of Justice, of Washington, DC, filed a response to
the petition for appellant. With him on the response were
TONY WEST, Assistant Attorney General, JEANNE E.
D AVIDSON , Director, and K IRK T. M ANHARDT, Assistant
Director.
RICHARD C. JOHNSON , Smith Pachter McWhorter PLC,
of Vienna, Virginia, for amicus curiae National Defense
Industrial Association.
__________________________
O R D E R
A petition for rehearing en banc was filed by Appellee,
and a response thereto was invited by the court and filed
by Appellant. The court granted leave to National De-
fense Industrial Association to file a brief amicus curiae in
support of Appellee’s petition.
The petition for rehearing was referred to the panel
that heard the appeal, and thereafter the petition for
rehearing en banc, response, and brief amicus curiae were
referred to the circuit judges who are authorized to re-
quest a poll whether to rehear the appeal en banc. A poll
was requested, taken, and failed.
Upon consideration thereof,
IT IS O RDERED THAT:

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DEFENSE v. RAYTHEON COMPANY 3
(1) The petition of Appellee for panel rehearing is de-
nied.
(2) The petition of Appellee for rehearing en banc is
denied.
(3) The mandate of the court will issue on March 8,
2011.
FOR THE C OURT
March 1, 2011
Date
/s/ Jan Horbaly
Jan Horbaly
Clerk
cc: C. Coleman Bird, Esq.
Karen L. Manos, Esq.
Richard C. Johnson, Esq.

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United States Court of Appeals
for the Federal Circuit
__________________________
ROBERT M. GATES, SECRETARY OF DEFENSE,
Appellant,
v.
RAYTHEON COMPANY,
Appellee.
__________________________
2008-1543
__________________________
Appeal from the Armed Services Board of Contract
Appeals in no. 54907, Administrative Judge Jack Delman.
G AJARSA, Circuit Judge, with whom LINN , PROST, and
O’M ALLEY, Circuit Judges, join, dissenting from the denial
of the petition for rehearing en banc.
__________________________
I respectfully dissent from the court’s denial of the re-
quest to rehear this case en banc. The refusal to rehear
this case en banc is erroneous because it allows our prece-
dent in Canadian Fur Trappers Corp. v. United States,
884 F.2d 563 (Fed. Cir. 1989), to continue to be the law of
this circuit. As a result, we are required to continue
assessing compounded interest under 26 U.S.C. § 6622
whenever a statute refers to the rate of interest calculated
pursuant to 26 U.S.C. § 6621. This is not the result
Congress intended. Because Canadian Fur was based on
a misreading of the language in 19 U.S.C. § 1677g that

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DEFENSE v. RAYTHEON COMPANY 2
appears in many other statutes, this court should have
taken the opportunity to correct our flawed precedent.
Title 26 of the United States Code is the Tax Code.
Section 6621 of title 26 states various rates of interest,
including the rate of interest for amounts overpaid,
amounts underpaid, and the federal short term rate. 26
U.S.C. § 6621. Although § 6621 certainly provides the
rate of interest applicable to amounts underpaid or over-
paid under the Tax Code, its rate of interest does not only
apply to tax matters. See, e.g., 15 U.S.C. § 1117(b) (refer-
ring to the rate of interest under § 6621 for the payment
of prejudgment interest); 19 U.S.C. § 1677g (referring to
the rate of interest under § 6621 for the underpayment of
import duties owed); 29 U.S.C. § 1132(g) (referring to the
rate of interest under § 6621 for unpaid interest on re-
tirement plan contributions); 41 U.S.C. § 422(h)(4) (refer-
ring to the rate of interest under § 6621 for the
underpayment of amounts owed on government con-
tracts).
Section 6621 does not specifically include a require-
ment that any interest calculated pursuant to the rate
provided there must be compounded. Rather, the re-
quirement to compound certain types of interest appears
in § 6622 of title 26, which provides that “[i]n computing
the amount of any interest required to be paid under this
title or sections 1961(c)(1) or 2411 of title 28 . . . or any
other amount determined by reference to such amount of
interest, such interest and such amount shall be com-
pounded daily.” Thus, the statutory language of § 6622
requires that the amount of interest be compounded only
when: (1) the amount of interest is required to be paid
under title 26; (2) the amount of interest is required to be
paid under sections 1961(c)(1) or 2411 of title 28; and (3)
the amount of interest is calculated by reference to

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DEFENSE v. RAYTHEON COMPANY 3
amounts due under title 26 or sections 1961(c)(1) or 2411
of title 28.
In Canadian Fur, an appeal from the Court of Inter-
national Trade (“CIT”), the plaintiffs underpaid the duties
owed on certain imported goods under title 19. 884 F.2d
at 566. Because of this underpayment, the plaintiffs had
to pay the government the difference between the amount
already paid and the amount owed, along with interest on
that difference. Id. To calculate the rate of interest, the
court looked to 19 U.S.C. § 1677g, which provides “[t]he
rate of interest payable . . . is the rate of interest estab-
lished under section 6621 of Title 26 for such period.”
This court concluded that any interest due under 19
U.S.C. § 1677g needed to be compounded. Canadian Fur,
884 F.2d at 568. To reach this result, this court implicitly
assumed that if a statute requires that the rate of interest
be calculated pursuant to § 6621, that interest is “re-
quired” to be paid under title 26. That assumption,
however, is inconsistent with the language of the statutes.
In reality, the interest due in Canadian Fur was “re-
quired” to be paid under title 19, not title 26. Section
1677g(a) of title 19 requires the payment of interest on
the overpayment or underpayment of deposited merchan-
dise. Id. (“Interest shall be payable on overpayments and
underpayments of amounts deposited on merchandise
entered, or withdrawn from warehouse . . . .”) Section
1677g’s reference to the “rate of interest” under § 6621
does not mean that the interest is required to be paid
under title 26. It is due and payable under title 19—the
Tariff Act of 1930—not title 26—the Tax Code. The
Eleventh Circuit recognized this distinction, interpreting
29 U.S.C. § 1132(g)(2)’s requirement that “interest on
unpaid contributions shall be determined by using . . . the
rate prescribed under section 6621 of Title 26” to mean
that “the rate of interest is determined by § 6621, not the

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DEFENSE v. RAYTHEON COMPANY 4
method, formula, or procedure of the interest calculation.”
Carriers Container Council, Inc. v. Mobile S.S. Ass’n, 948
F.2d 1219, 1225 (11th Cir. 1991). The court concluded
that “the compounding method or formula of § 6622 was
inapplicable.” Id.
This interpretation is consistent with how courts con-
strue the reference to § 6621 in the Lanham Act. Section
1117(b) of title 15 provides that the “the court [in counter-
feit trademark actions] award[s] prejudgment interest . . .
at an annual interest rate established under section
6621(a)(1) of Title 26.” When assessing interest under
§ 1117(b), courts have applied only the rate of interest
under § 6621, not the compounding requirement of §
6622. See, e.g., Philip Morris USA, Inc. v. U.S. Sun Star
Trading, Inc., Case No. 08-CV-0068, 2010 WL 2133937
(E.D.N.Y Mar. 11, 2010); Sherwood Brands of R. I., Inc. v.
Smith Enters., Inc., Case No. 00-CV-287T, 2003 WL
22061871 (D.R.I. Mar. 23, 2003). Properly construed, a
statute’s reference to the rate of interest under § 6621
means only that § 6621 must be used to calculate the rate
of interest, not that the interest is due under title 26.
Furthermore, the court in Canadian Fur violated the
basic tenet that “[a] statute should be construed so that
effect is given to all its provisions, so that no part will be
inoperative or superfluous, void or insignificant . . . .”
Corley v. United States, 129 S.Ct. 1558, 1556 (2009)
(citation and internal quotation marks omitted). The
statutory text of both §§ 1961(c)(1) and 2411 of title 28
require that the rate of interest be calculated pursuant to
§ 6621. Yet they are additionally referenced in § 6622 to
require compounded interest. 26 U.S.C. § 6622 (“[T]he
amount of any interest required to be paid under. . .
sections 1961(c)(1) or 2411 of title 28, United States Code”
must be compounded). By interpreting a statute’s refer-
ence to the rate of interest under § 6621 to make that

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DEFENSE v. RAYTHEON COMPANY 5
interest due under title 26, the court in Canadian Fur
rendered the reference in § 6622 to §§ 1961(c)(1) and 2411
of title 28 superfluous.
Even though Canadian Fur was erroneously decided,
it was a precedential opinion and bound the panel in
Raytheon to follow Canadian Fur. Section 422(h)(4) of
title 41—the relevant statute in Raytheon—states that
“[t]he interest rate applicable to any contract price ad-
justment shall be the annual rate of interest established
under section 6621 of Title 26 for such period.” This
language is nearly identical to the relevant language in 19
U.S.C. § 1677g. Furthermore, title 41, like title 19, cre-
ates the requirement that interest be paid. 41 U.S.C. §
422(h)(4) (“Such regulations . . . shall require contractors .
. . to agree to a contract price adjustment, with interest,
for any increased costs paid to such contractor or subcon-
tractor by the United States . . . .”). Correctly interpreted,
both 19 U.S.C. § 1677g and 41 U.S.C. § 422(h)(4) require
that the rate of interest is the “rate of interest established
under section 6621 under Title 26”—nothing more, noth-
ing less.
This erroneous statutory construction could have been
corrected by rehearing this case en banc, the only method
available to this court to correct its erroneous precedent.
Thus, by failing to grant the petition for rehearing en
banc, the court chooses to allow a plainly erroneous
precedent to propagate itself, subjecting parties to pay
compounded interest despite the fact that Congress did
not intend that result. For these reasons, I dissent.

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United States Court of Appeals
for the Federal Circuit
__________________________
ROBERT M. GATES, SECRETARY OF DEFENSE,
Appellant,
v.
RAYTHEON COMPANY,
Appellee.
__________________________
2008-1543
__________________________
Appeal from the Armed Services Board of Contract
Appeals in no. 54907, Administrative Judge Jack Delman.
NEWMAN , Circuit Judge, dissenting from the denial of
the petition for rehearing en banc.
__________________________
I would have preferred to hear argument, with further
briefing, to settle this question of statutory interpretation
by the en banc court. The answer to the question does not
appear to be as clear as suggested by my colleagues on
both sides.
As pointed out in the panel decision, our decision in
Canadian Fur Trappers Corp. v. United States, 884 F.2d
563 (Fed. Cir. 1989), did not explicitly reference 26 U.S.C.
§6622, but can be read as binding the court as to the
interpretation of that statute. The panel now suggests
that Canadian Fur was wrongly decided, and cites the
Eleventh Circuit’s contrary interpretation in Carriers

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DEFENSE v. RAYTHEON COMPANY 2
Container Council, Inc. v. Mobile S.S. Association, Inc.,
948 F.2d 1219 (11th Cir. 1991). In my view, these circum-
stances warrant review by the en banc court to either
bring our precedent in line with our sister circuit or
defend its correctness.
The issue is whether the requirement to pay interest
under any statute that specifies a rate of interest by
reference to 26 U.S.C. §6621 necessarily includes the
requirement in §6622 that such interest be compounded
daily. Section 6622 of the Internal Revenue Code pro-
vides:
(a) General rule.--In computing the amount of
any interest required to be paid under this title or
sections 1961(c)(1) or 2411 of title 28, United
States Code, by the Secretary or by the taxpayer,
or any other amount determined by reference to
such amount of interest, such interest and such
amount shall be compounded daily.
26 U.S.C. §6622(a). My colleagues, in proposing en banc
review, argue that §6622 governs only the computation of
interest due or required to be paid under Title 26 or 28
U.S.C. 1961(c)(1) or 2411. The Eleventh Circuit reasoned
in Carriers Container that §6622 governed only “the
method, formula, or procedure of the interest calculation,”
948 F.2d at 1225, and thus a statute’s reference to the
rate of §6621 did not implicate the “method or formula” of
§6622. However, neither position gives weight to §6622’s
requirement that “any other amount determined by
reference to such amount of interest” must also be com-
pounded daily.
The statute under which Raytheon was required to
pay interest, 41 U.S.C. §422(h)(4), provides: “The interest
rate applicable to any contract price adjustment shall be
the annual rate of interest established under section 6621

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DEFENSE v. RAYTHEON COMPANY 3
of Title 26 for such period.” There is no question that
§422(h)(4) sets a “rate” of interest by reference to 26
U.S.C. §6621, which provides interest rates for overpaid
or underpaid taxes. The question is whether determining
the amount of interest in this way constitutes determin-
ing an amount of interest by reference to “the amount of
any interest required to be paid under [title 26] or sec-
tions 1961(c)(1) or 2411 of title 28, United States Code,”
the antecedent basis for “such amount of interest” in the
“any other amount” clause of §6622. Should “amount”
here be interpreted to mean only a specific sum calculated
under one of these provisions in specific circumstances, or
does it refer to the overpaid or underpaid taxes referenced
in §6621, which are required to be paid under Title 26?
The legislative history of §6622 goes a long way in re-
solving ambiguity. The Senate Report states that
“[u]nder present law, interest payable to or by the United
States under the internal revenue laws is not com-
pounded.” S. Rep. No. 97-494, vol. 1, at 305 (1982). The
change in law is explained:
Under the Committee bill, all interest payable
under the internal revenue laws will be com-
pounded daily. This adjustment will conform
computation of interest under the internal reve-
nue laws to commercial practice. The change will
also offset any other amounts computed by refer-
ence to the interest rate provided for in the code.
Id. (emphasis added). Though the meaning of the word
“offset” is unclear in this context, the Conference Report
makes the point more clearly:
All interest payable under the internal revenue
laws would be compounded daily. The change
would also affect any other amounts computed by

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DEFENSE v. RAYTHEON COMPANY 4
reference to the interest rate provided for in the
Code.
H.R. Rep. No. 97-760, at 595 (1982) (Conf. Rep.). Both
reports state that §6622 is meant to affect any other
amounts of interest computed in accordance with the rate
in the Internal Revenue Code, including the rates pro-
vided in §6621. The concerns expressed in the Senate
Report about failure to compensate the government and
taxpayers for the value of money owed to them would
apply to other contexts where the government is deter-
mined to owe interest to citizens or vice versa. Thus it is
at least likely that reference to the interest rates provided
in §6621 are intended to be computed as set forth in
§6622.
Raytheon’s argument, pressed by my fellow colleagues
in dissent, is that this interpretation cannot be correct
because it could be considered to render §6622’s reference
to 28 U.S.C. §§1961(c)(1) & 2411 unnecessary. Superflu-
ous language serves no purpose, but I can envision a
legislative purpose in specifically referencing §§1961(c)(1)
and 2411 in §6622 rather than relying on the catch-all
provision alone to necessitate compounding. It would be
permissible, for example, to require that interest under
§§1961(c)(1) and 2411 be compounded whether or not
those statutes continue to reference the rates provided in
§6621. To resolve the uncertainties raised by litigants,
the government, and my colleagues in dissent, en banc
consideration is warranted.
From the court’s determination not to examine this is-
sue, I respectfully dissent.

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