Case CSS Doc 531 Filed 06/25/15 Page 1 of 7 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE JUDGE CHRISTOPHER S.

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1 Case CSS Doc 531 Filed 06/25/15 Page 1 of 7 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE IN RE: CASE NO BAXANO SURGICAL, INC., CHAPTER 11 DEBTOR JUDGE CHRISTOPHER S. SONTCHI Hearing: August 12, 11:00 a.m. TEXAS COMPTROLLER OF PUBLIC ACCOUNTS' RESPONSE TO FIRST OMNIBUS OBJECTION OF THE DEBTOR The Texas Comptroller of Public Accounts ("Texas Comptroller"), through the Texas Attorney General's Office, responds to the First Omnibus Objection of the Debtor Pursuant to 11 U.S.C. 502 and 507, Fed. R. Bankr. P. 3007, and Del. Bankr. LR (Substantive Objection Reclassification of Claims and Reduction and/or Disallowance of Claims) ( Objection )[Docket No. 523], and would show: 1. The Texas Comptroller timely filed a 503(b) administrative expense claim for Texas franchise tax accrued post-petition in the amount of $5, ( FT Claim )[Rust/Omni Claim No. 151]. 1 The FT Claim is based on an estimate of the 2015 franchise tax period due to Debtor's failure to timely file and pay the requisite franchise return. 2. The Texas Comptroller timely filed a 503(b) administrative expense claim for sales and use tax accrued post-petition in the amount of $7, ( ST Claim, together Texas Comptroller s Claims )[Rust/Omni Claim No. 152]. The ST Claim is based on estimates of the February 2015 and March 2015 sales tax periods due to Debtor's failure to timely file and pay the requisite sales tax returns. 2 1 The Objection identifies the Texas Comptroller s Claims as Nos. 138 and 139. The Rust Consulting/Omni Bankruptcy claims register, however, indicates the Texas Comptroller s Claims were assigned Nos. 151 and On June 22, 2015, after numerous attempts to obtain information from John Demmy, Debtor s counsel, Mr.

2 Case CSS Doc 531 Filed 06/25/15 Page 2 of 7 3. The Texas Comptroller was required to estimate the franchise and sales tax liability upon which its claims are based due to Debtor s failure to file returns as required by state law. Where a taxpayer fails to file requisite returns, as Debtor failed to do, Texas law authorizes the Texas Comptroller to estimate tax liability. See TEX. TAX CODE (a) and The Texas Comptroller s Claims were identified on Exhibit C to the Objection. The Objection should be overruled as to the Texas Comptroller s Claims because it fails to state any grounds upon which the relief requested may be granted. In the Objection, Debtor simply concludes that the Texas Comptroller's Claims do not agree with the Debtor's books and records. Debtor did not allege any substantive grounds for disallowance, Debtor did not offer any evidence, and Debtor cited no authority in support of its conclusion. 5. The Texas Comptroller s Claims and Bankruptcy Claim Worksheets attached thereto identify the last 4 digits of Debtor s Texas taxpayer identification number, the type of tax claimed, the Chapter of the Texas Tax Code under which the tax liability is asserted, the dates the debt was incurred, the applicable tax periods, and the basis (e.g. E = Estimated Return) of the claims. Because the claims are based on a statutory obligation, the documentation requirement of Federal Rule of Bankruptcy Procedure 3001(c) for claims based on a "writing" does not apply. Additional documentation to support the Texas Comptroller's Claims is not required. See, e.g., In re Los Angeles Int=l Airport Hotel Assocs., 106 F.3d 1479 (9th Cir. 1997) (no documents need to be attached to a tax proof of claim); Spiers v. Ohio Department of Natural Resources, (In re Jenny Lynn Mining Co.), 780 F.2d 585, 587 (6th Cir. 1986)("Attaching a copy of the statute would have added nothing to the proof of claim") cert. denied, 477 U.S. 905, 105 S.Ct. 3276, 91 L.Ed. Demmy advised this office that Debtor s last day of operations in Texas was January 29, Had this information been provided by Mr. Demmy before the Objection was filed, the Comptroller would have withdrawn the ST Claim.

3 Case CSS Doc 531 Filed 06/25/15 Page 3 of (1986). 6. The Texas Comptroller s Claims are prima facie valid because they were executed and filed in accordance with the Federal Rules of Bankruptcy and they allege facts sufficient to support a legal liability to the [Comptroller]. See Allegheny Int l, Inc., 954 F.2d. 167 (3 rd Cir. 1992), and FED. R. BANKR. P. 3001(f). Debtor has the burden to prove that the Texas Comptroller's Claims are incorrect. Raleigh v. Illinois, 530 U.S. 15, 120 S.Ct. 1951, 147 L. Ed. 2d 13 (2000) (burden of proof is on party objecting to tax claim in bankruptcy). And the burden of going forward with evidence to rebut the presumed correctness of the Texas Comptroller s Claims is on the Debtor, not the Comptroller. In re Tran, 351 B.R. 440, 445 (Bankr. S.D. Tex. 2006)(objecting party must present enough evidence to overcome prima facie effect of claim); In re White, 168 B.R. 825, 829 (Bankr. D. Conn. 1994) (mere allegation that full amount of claim is not owed is insufficient to rebut prima facie validity of claim); In re Hollars, 198 B.R. 270 (Bankr. S.D. Ohio 1996) (conclusory statements are insufficient to rebut assumption of validity of claim); In re all American Ashburn, Inc., 156 B.R. 696, 703 (Bankr. N.D. Ga. 1993)(general statement that an amount is not owed is insufficient to defeat prima facie validity of a claim). 7. The burden has not shifted to the Texas Comptroller simply because Debtor objected to the claims; Debtor must first meet its evidentiary burden. McGee v. O Connor (In re O Connor), 153 F.3d 258 (5 th Cir. 1998)(burden is on the objecting party to produce enough evidence to overcome the prima facie nature of the claim); Lundell v. Anchor Const. Specialists, Inc., 223 F.3 rd 1035 (9 th Cir. 2000)(same). Because Debtor offered no evidence and cited no authority in support of its conclusions, Debtor has not overcome the prima facie validity of the Texas Comptroller s Claims and the Objection should be overruled.

4 Case CSS Doc 531 Filed 06/25/15 Page 4 of 7 CERTIFICATE OF CONSULTATION 8. Numerous attempts were made on the Texas Comptroller s behalf to determine the liabilities upon which the Texas Comptroller s Claims are based so that estimated claims could be avoided. On May 8, 2015, an was sent to John Demmy, Debtor s counsel, inquiring as to whether Debtor was still operating in Texas, requesting the specific date Debtor ceased operating in Texas, and advising that the 2015 franchise tax return needed to be filed when due. 9. On May 11, 2015, Mr. Demmy responded via stating that [t]he Debtor is no longer doing business in Texas and has not done business in Texas since prior to February A response was sent to Mr. Demmy asking for the specific date Debtor ceased operating in Texas and again addressing the need for the 2015 franchise tax return to be filed when due. 10. On June 2, 2015, a follow-up was sent to Mr. Demmy, stressing the importance of providing the exact date Debtor ceased operating in Texas so that the estimated administrative claims, filed ahead of the administrative claims bar date in order to preserve the Texas Comptroller s rights, could be reconciled with actual returns. 11. On June 10, 2015, another follow-up was sent to Mr. Demmy. 12. Not until June 22, 2015, five days after filing the Objection, did Mr. Demmy respond to a portion of the above inquiries. Mr. Demmy simply provided January 29, 2015 as the date Debtor last operated in Texas. He did not address the 2015 franchise tax liability and/or whether Debtor intended to file the requisite franchise tax return. 13. Efforts to obtain vital information have not been completely successful. Debtor waited until after the Objection was filed to provide the out-of-business date. Had that date been provided when first requested, the ST Claim would not have been filed. Debtor has neither addressed nor filed the requisite, delinquent franchise tax return for the 2015 tax period. Thus the

5 Case CSS Doc 531 Filed 06/25/15 Page 5 of 7 Texas Comptroller was required to estimate the tax upon which the FT Claim is based. 14. It is disingenuous for Debtor to object now, asserting the Texas Comptroller s Claims do not agree with Debtor s records when Debtor, to date, has failed to file the requisite tax returns and failed to provide specific information requested numerous times on the Texas Comptroller s behalf. The Texas Comptroller reserves its right to object to any and all fees of Debtor s counsel associated with the Objection as it relates to the Texas Comptroller s Claims. Accordingly, the Texas Comptroller requests the Court enter an order: (1) withdrawing the administrative expense claim for sales and use tax accrued postpetition in the amount of $7, ( ST Claim )[Rust/Omni Claim No. 152]; (2) overruling the Objection to the administrative expense claim for Texas franchise tax accrued post-petition in the amount of $5, ( FT Claim )[Rust/Omni Claim No. 151]; (3) allowing the administrative expense claim for Texas franchise tax accrued post-petition in the amount of $5, ( FT Claim )[Rust/Omni Claim No. 151]; and (4) granting such further relief to which it is entitled. Respectfully submitted, KEN PAXTON Attorney General of Texas CHARLES E. ROY First Assistant Attorney General JAMES E. DAVIS Deputy Attorney General for Civil Litigation RONALD R. DEL VENTO Assistant Attorney General Chief, Bankruptcy & Collections Division /s/ Kimberly A. Walsh Kimberly A. Walsh Assistant Attorney General Texas State Bar No Attorney General's Office

6 Case CSS Doc 531 Filed 06/25/15 Page 6 of 7 Bankruptcy & Collections Division P. O. Box Austin, Texas tel. (512) fax (512) COUNSEL FOR TEXAS COMPTROLLER OF PUBLIC ACCOUNTS CERTIFICATE OF SERVICE I certify that on the 25th day of June, 2015, a true copy of the foregoing was served by the method and to the following parties as indicated: By Regular First Class Mail: Baxano Surgical, Inc. 110 Horizon Drive, Suite 230 Raleigh, NC Leo T. Crowley Pillsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY Robert J. Dehney Morris, Nichols, Arsht & Tunnell P O. Box 1347 Wilmington, DE Delta Pacific Products, Inc Central Avenue Union City, CA Alan Emdin NYC Finance - Office of Legal Affairs 345 Adams St, 3rd Floor Brooklyn, NY Holmes P Harden Williams Mullen 301 Fayetteville Street, Suite 1700 Raleigh, NC 27602

7 Case CSS Doc 531 Filed 06/25/15 Page 7 of 7 William S. McMahon Downes McMahon LLP 215 Lewis Wharf Boston, MA Williams Mullen 301 Fayetteville Street Mall, Suite 1700 Raleigh, NC Rust Consulting/Omni Bankruptcy 5955 De Soto Avenue, Suite 100 Woodland Hills, CA By Electronic Means as listed on the Court's ECF Noticing System: Nicholas J. Brannick nbrannick@coleschotz.com, bankruptcy@coleschotz.com;pratkowiak@coleschotz.com;kkarstetter@coleschotz.com;j whitworth@coleschotz.com Ann C. Cordo acordo@mnat.com John D. Demmy jdd@stevenslee.com Steven A. Ginther deecf@dor.mo.gov R. Karl Hill khill@svglaw.com, cday@svglaw.com Joseph H. Huston jhh@stevenslee.com John C. Kilgannon jck@stevenslee.com, jck@stevenslee.com Matthew Ryan Koch mkoch@mnat.com, aconway@mnat.com;mmaddox@mnat.com;rfusco@mnat.com Stuart Komrower skomrower@coleschotz.com Robert Lapowsky rl@stevenslee.com Andrew J. Nazar, tbackus@polsinelli.com;store@mail.noticevault.com Matthew Oliver matthew.oliver@pillsburylaw.com Ricardo Palacio rpalacio@ashby-geddes.com Rust Consulting/Omni Bankruptcy bosborne@omnimgt.com Juliet M. Sarkessian juliet.m.sarkessian@usdoj.gov Magdalena Schardt mschardt@frof.com J Jackson Shrum jshrum@werbsullivan.com United States Trustee USTPREGION03.WL.ECF@USDOJ.GOV Ilana Volkov ivolkov@coleschotz.com, fpisano@coleschotz.com Kimberly A. Walsh bk-kwalsh@texasattorneygeneral.gov, sherri.simpson@texasattorneygeneral.gov Duane David Werb maustria@werbsullivan.com;riorii@werbsullivan.com /s/ Sherri K. Simpson Sherri K. Simpson