In Re Cascade Roads, Inc., Debtor. United States of America v. Peter H. Arkison, Trustee

The United States appeals the district court’s decision (1) affirming a bankruptcy court order directing payment of an outstanding Claims Court judgment owed to chapter 7 debtor Cascade Roads, Inc.; (2) upholding a bankruptcy court award of sanctions against the government for willful violation of the automatic stay; and (3) granting attorneys’ fees and costs to Cascade for its appeal from the bankruptcy court.

After examining the equitable nature of bankruptcy setoff rights and their interaction vidth nonbankruptey statutory provisions, we conclude that the bankruptcy court did not abuse its discretion by ordering the United States to disgorge the Claims Court judgment without deducting Cascade’s tax liabilities. We hold, however, that the bankruptcy and district courts relied on inapplicable statutes in sanctioning the government. Accordingly, we affirm in part, reverse in part, and remand.

I.

In 1980, Brazier Forest Products, Inc. hired Cascade Roads, Inc. to construct thirteen miles of logging road pursuant to Brazier’s timber contract with the United States Forest Service. In the course of its performance, Cascade encountered a large volume of solid rock and incurred…