McCarty

ORDER

The opinion filed June 26, 1998, slip op. 6633 and appearing at 146 F.3d 739 (9th Cir.1998) is amended as follows:

With these amendments, the petition for rehearing is DENIED.

OPINION

This appeal arises out of an adversary proceeding in the United Marine Shipbuilding Inc.’s (“UMSI”) bankruptcy case. Three parties are making competing claims to a tax refund that the Internal Revenue Service (“IRS”) paid by mistake to Michael B. McCarty, the Trustee for UMSI (the “Trustee”).

On cross-motions for summary judgment, the bankruptcy court held that the United States Department of Transportation acting by and through the Maritime Administration (“MARAD”) could apply its prior court-approved setoff against this tax refund even though the IRS had already disbursed the tax refund to the Trustee. The district court affirmed.

The Trustee and the National Bank of Alaska (“NBA”) now appeal. The Trustee argues that MARAD effectively waived its setoff rights when possession of the tax refund moved to the Trustee and that the tax refund has always belonged to the bankruptcy estate and has not been abandoned or vested in any third parties. NBA, which held a security interest in UMSI’s…