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In re Netal, Inc.

United States Bankruptcy Appellate Panel of the Eighth Circuit

September 13, 2013

In re NETAL, INC., Debtor.
v.
Rick D. Lange, Chapter 7 Trustee; Contractors, Laborers, Teamsters and Engineers Pension Plan; Contractors, Laborers, Teamsters and Engineers Health and Welfare Plan; International Union of Operating Engineers, Local No. 571, Objectors-Appellees. United States of America, Internal Revenue Service, Movant-Appellant

Submitted: July 25, 2013.

Rehearing Denied Sept. 16, 2013.

Page 226

Mark Milton, argued and on the brief, Washington, DC, for appellant.

M.H. Weinberg, argued and on the brief, Omaha, NE, Brian S. Kruse, on the brief, Lincoln, NE, for appellee Rick D. Lange.

Before KRESSEL, SCHERMER and SHODEEN, Bankruptcy Judges.

SCHERMER, Bankruptcy Judge.

The United States of America (the " Government" ) appeals from orders of the bankruptcy court denying: (1) the Government's motion to approve its superpriority administrative expense claim under § 507(b) of Title 11 of the United States Code (the " Bankruptcy Code" ); (2) the Government's Motion for Evidentiary Hearing (the " Evidentiary Hearing Motion" ); and (3) the motion of the Government to alter or amend the bankruptcy court's denial of its motion for a § 507(b) administrative expense claim. We have jurisdiction over this appeal from the final orders of the bankruptcy court. See 28 U.S.C. § 158(b). For the reasons set forth below, we reverse the bankruptcy court's denial of the Government's Evidentiary Hearing Motion, and remand this case to the bankruptcy court for determination of the amount, if any, of the Government's claim under § 507(b).

ISSUE

The issue in this appeal is whether the bankruptcy court abused its discretion when it denied the Government the opportunity to conduct discovery and produce evidence.

BACKGROUND

On November 5, 2009, Netal, Inc. (the " Debtor" ) filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On the petition date, the Government held a federal tax lien, and claimed that it held a first priority security interest in the Debtor's cash collateral.

Page 227

The Debtor and the Government agreed that the Debtor could continue to use the Government's cash collateral, and that the Government would be granted a replacement lien in the Debtor's post-petition cash collateral to the same extent as its lien on the pre-petition cash collateral. The Debtor and the Government also agreed that, to the extent that the adequate protection provided under their agreement was inadequate to protect the Government against post-petition diminution in the value of the collateral, the Government would be entitled to a superpriority administrative expense claim under § 507(b). The bankruptcy court approved cash collateral agreements of the Debtor and the Government.

Unfortunately, the Debtor's Chapter 11 reorganization attempt was unsuccessful. In 2011, the Debtor's Chapter 11 case was converted to Chapter 7. There ...


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