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Application to Retain and Employ Weil, Gotshal & Manges LLP as Debtors' Counsel — In re KServicing

Record facts

Court	U.S. Bankruptcy Court for the District of Delaware
Filed	2022-10-04

U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 15 · 2022-10-04 · Docket on CourtListener

Summary

An application by the debtors for authority to retain and employ Weil, Gotshal & Manges LLP as attorneys effective as of the petition date, filed October 4, 2022 as Doc 15 in In re Kabbage, Inc. d/b/a KServicing, Case No. 22-10951, in the U.S. Bankruptcy Court for the District of Delaware. It seeks relief under sections 327(a) and 328(a) of the Bankruptcy Code, Bankruptcy Rules 2014(a) and 2016, and Local Rules 2014-1 and 2016-1. It sets out the firm's qualifications and prior representations, the scope of services proposed, and the division of work with the debtors' Delaware co-counsel. It states that in the 90 days before the petition date the firm received payments and advances of $6,133,888.13 and holds a remaining credit balance of $490,803.00, which the debtors propose be treated as an evergreen retainer. The 10-page application annexes two declarations and a proposed order.

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RLF1 28018298V.1
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
------------------------------------------------------------ x

In re
:
Chapter 11

KABBAGE, INC. d/b/a KSERVICING, et al., :
Case No. 22-10951 ( )

Debtors.1
:
(Joint Administration Requested)
------------------------------------------------------------ x

APPLICATION OF DEBTORS FOR AUTHORITY
TO RETAIN AND EMPLOY WEIL, GOTSHAL & MANGES LLP
AS ATTORNEYS FOR DEBTORS EFFECTIVE AS OF PETITION DATE
Kabbage, Inc. d/b/a KServicing and its debtor affiliates, as debtors and debtors in
possession in the above-captioned chapter 11 cases (collectively, the “Debtors” and, together with
their non-Debtor affiliates, the “Company”), respectfully move and represent as follows in support
of this application (this “Application”):2
Relief Requested
1.
By this Application, the Debtors request authority, pursuant to sections
327(a) and 328(a) of title 11 of the United States Code (the “Bankruptcy Code”), Rules 2014(a)
and 2016 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rules
2014-1 and 2016-1 of the Local Rules of Bankruptcy Practice and Procedure of the United States
Bankruptcy Court for the District of Delaware (the “Local Rules”), to retain and employ Weil,

1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification
number, as applicable are: Kabbage, Inc. d/b/a KServicing (3937); Kabbage Canada Holdings, LLC (N/A); Kabbage
Asset Securitization LLC (N/A); Kabbage Asset Funding 2017-A LLC (4803); Kabbage Asset Funding 2019-A
LLC (8973); and Kabbage Diameter, LLC (N/A). Kabbage is a trademark of American Express used under license;
Kabbage, Inc. d/b/a KServicing is not affiliated with American Express. The Debtors’ mailing and service address
is 925B Peachtree Street NE, Suite 383, Atlanta, GA 30309.
2 Capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the Rieger-
Paganis Declaration (as defined below).
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Gotshal & Manges LLP (“Weil” or the “Firm”) as attorneys for the Debtors effective as of the
Petition Date.
2.
The Debtors further request that the Court approve the retention of Weil as
their attorneys to perform the extensive legal services that will be required during these chapter 11
cases in accordance with Weil’s normal hourly rates in effect when services are rendered and
Weil’s normal reimbursement policies. In support of this Application, the Debtors submit the
declaration of Ray C. Schrock, P.C., a partner of Weil, which is annexed hereto as Exhibit A
(the “Schrock Declaration”) and the declaration of Holly Loiseau, the Debtors’ General Counsel
and Secretary, which is annexed hereto as Exhibit B (the “Loiseau Declaration”).
3.
A proposed form of order granting the relief requested herein is annexed
hereto as Exhibit C (the “Proposed Order”).
Jurisdiction and Venue
4.
The Court has jurisdiction to consider this matter pursuant to
28 U.S.C. §§ 157 and 1334, and the Amended Standing Order of Reference from the United States
District Court for the District of Delaware, dated February 29, 2012. This is a core proceeding
pursuant to 28 U.S.C. § 157(b). Pursuant to Local Rule 9013-1(f), the Debtors consent to the entry
of a final order by the Court in connection with this Application if it is later determined that the
Court, absent consent of the parties, cannot enter final orders or judgments consistent with Article
III of the United States Constitution. Venue is proper before the Court pursuant to 28 U.S.C.
§§ 1408 and 1409.
Background
5.
On the date hereof (the “Petition Date”), the Debtors commenced with the
Court voluntary cases under chapter 11 of title 11 of the Bankruptcy Code (the “Chapter 11
Cases”). The Debtors are authorized to continue operating their business and managing their
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properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.
No trustee, examiner, or statutory committee has been appointed in these Chapter 11 Cases.
6.
Contemporaneously herewith, the Debtors have filed a motion requesting
joint administration of their Chapter 11 Cases pursuant to Bankruptcy Rule 1015(b).
7.
Additional information regarding the Debtors’ business, capital structure,
and the circumstances leading to the commencement of these Chapter 11 Cases is set forth in the
Declaration of Deborah Rieger-Paganis in Support of Debtors’ Chapter 11 Petitions and First
Day Relief (the “Rieger-Paganis Declaration”), filed contemporaneously herewith.
Weil’s Qualifications
8.
Since April 2022, Weil has advised the Debtors in connection with
exploring various strategic alternatives to address concerns with the Debtors’ operations, pending
litigations, and disputes with key stakeholders while simultaneously effectuating a value
maximizing winddown for the benefit of its stakeholders. Weil was extensively involved in
prepetition negotiations with the Debtors’ key stakeholders in connection with exploring such
strategic alternatives, including the commencement of these Chapter 11 Cases. As a result of
Weil’s prepetition representation of the Debtors, Weil possesses an in-depth knowledge of the
Debtors’ capital structure and has gained additional insight into the current condition of the
Debtors’ businesses, management, operations, corporate governance and restructuring.
Accordingly, Weil possesses the necessary background and knowledge to address the potential
legal issues that may arise in the context of these Chapter 11 Cases.
9.
The Debtors have also selected Weil as their attorneys because of the Firm’s
extensive general experience and expertise, including Weil’s recognized expertise in the field of
debtors’ protections, creditors’ rights, and the administration of cases under the Bankruptcy Code.
For example, Weil currently represents or has represented, among others, the following debtors
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and their affiliates: Ditech Holding Corporation; Walter Inv. Mgmt. Corp.; Talen Energy Supply,
LLC; SAS AB; All Year Holdings Ltd.; Evergreen Gardens Mezz LLC; CBL & Associates
Properties, Inc., Fieldwood Energy LLC; Brooks Brothers Group, Inc.; VIVUS, Inc.; CEC
Entertainment, Inc.; ORG GC Midco, LLC; NPC International, Inc.; Chisholm Oil and
GasOperating, LLC; Exide Technologies, LLC; Gavilan Resources, LLC; 24 Hour Fitness
Worldwide; SpeedCast International Limited; Skillsoft Corp.; Chinos Holdings, Inc.; Kingfisher
Midstream LLC; EP Energy Corporation; Halcon Resources Corporation; Fusion Connect, Inc.;
Insys Therapeutics, Inc.; CTI Foods, LLC; PG&E Corporation and Pacific Gas and Electric
Company; Checkout Holding Corp.; Waypoint Leasing Holdings Ltd.; LBI Media, Inc.; Sears
Holdings Corporation; Tops Holding Company LLC; Southeastern Grocers, LLC; Claire’s Inc.;
Westinghouse Electric Company LLC; TK Holdings Inc.; Angelica Corp.; Azure Midstream
Partners, LP; Memorial Production Partners LP; CHC Group Ltd.; Breitburn Energy Partners LP;
American Gilsonite Company; Aéropostale, Inc.; Fairway Group Holdings Corp.; Paragon
Offshore plc; Vantage Drilling International (f/k/a Offshore Group Investment Limited); and The
Great Atlantic and Pacific Tea Co.
10.
The Debtors have been informed that Ray C. Schrock, P.C., Candace M.
Arthur, and Natasha S. Hwangpo, partners of Weil, as well as other partners of, counsel to, and
associates of Weil who will be employed in these Chapter 11 Cases, are members in good standing
of, among others, the Bar of the State of New York and the United States District Court for the
Southern District of New York. Applications for admission pro hac vice for Ray C. Schrock, P.C.,
Candace M. Arthur, Natasha S. Hwangpo, and certain other Weil attorneys to practice before the
Court are pending.
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11.
Accordingly, Weil is both well qualified and uniquely able to represent the
Debtors in these Chapter 11 Cases in an efficient and timely manner.
Scope of Services
12.
The services to be performed by Weil are appropriate and necessary to
enable the Debtors to execute faithfully their duties as debtors and debtors in possession and to
prosecute these Chapter 11 Cases. Subject to further order of the Court, it is proposed that Weil
be employed to render the following professional services:
a. take all necessary actions to protect and preserve the Debtors’ estates,
including the prosecution of actions on the Debtors’ behalves, the defense
of any actions commenced against the Debtors, the negotiation of disputes
in which the Debtors are involved, and the preparation of objections to
claims filed against the Debtors’ estates;
b. prepare on behalf of the Debtors, as debtors in possession, all necessary
motions, applications, answers, orders, reports, and other papers in
connection with the administration of the Debtors’ estates;
c. take all necessary actions in connection with any chapter 11 plan and related
disclosure statement and all related documents, and such further actions as
may be required in connection with the administration of the Debtors’
estates;
d. take all necessary actions to protect and preserve the value of the Debtors’
estates; and
e. perform all other necessary legal services in connection with the
prosecution of these Chapter 11 Cases; provided, however, that to the extent
Weil determines that such services fall outside the scope of services
historically or generally performed by Weil as lead debtor’s counsel in a
bankruptcy case, Weil will file a supplemental declaration.
13.
It is necessary for the Debtors to employ attorneys to render the foregoing
professional services. Weil has stated its desire and willingness to act in these Chapter 11 Cases
and render the necessary professional services as attorneys for the Debtors.
14.
In addition to this Application, the Debtors have filed, or expect to file
shortly, applications to employ (i) Richards, Layton & Finger, P.A. (“RLF”) as co-counsel,
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(ii) Omni Agent Solutions, Inc. as claims and noticing agent and, separately, as voting agent, and
(iii) AlixPartners LLP, as financial advisor. The Debtors may also file applications to employ
additional professionals. It is anticipated that the efficient coordination of efforts of the Debtors’
attorneys and other professionals will greatly add to the progress and effective administration of
these Chapter 11 Cases.
No Duplication of Services
15.
As described in the Schrock Declaration, Weil will work with RLF and the
Debtors’ other professionals to ensure a clear delineation of each firm’s respective roles in
connection with representation of the Debtors in these Chapter 11 Cases to prevent duplication of
services and ensure these Chapter 11 Cases are administered in the most efficient fashion possible.
In that regard, Weil and RLF have informed the Debtors that Weil will take the lead on the services
set forth in paragraph 12 above. RLF’s duties will include, among other tasks: (i) providing
Delaware law expertise, including advising the Debtors and Weil on issues of local practice and
the Local Rules; (ii) communicating with the Court and the Office of the United States Trustee for
the District of Delaware (the “U.S. Trustee”) with respect to the Debtors’ filings and these Chapter
11 Cases; (iii) reviewing, commenting on, and coordinating the filing of various pleadings;
(iv) appearing in court on behalf of the Debtors; and (v) serving as lead counsel to the Debtors
with respect to matters or parties as to which Weil has a conflict and determines that it cannot (or
should not) represent the Debtors (where RLF does not similarly have a conflict).
Weil’s Disinterestedness
16.
To the best of the Debtors’ knowledge, the partners of, counsel to, and
associates of Weil do not have any connection with or any interest adverse to the Debtors, their
creditors, or any other party in interest, or their respective attorneys and accountants, except as
may be set forth herein and in the Schrock Declaration.
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17.
Based upon the Schrock Declaration, Weil is a “disinterested person” as that
term is defined in section 101(14) of the Bankruptcy Code as modified by section 1107(b) of the
Bankruptcy Code. The Debtors have been informed that Weil will conduct an ongoing review of
its files to ensure that no disqualifying circumstances arise. If any new material relevant facts or
relationships are discovered, Weil will supplement its disclosure to the Court accordingly.
Professional Compensation
18.
Weil is not a creditor of the Debtors’ estates. As set forth in the Schrock
Declaration, during the 90 days prior to the Petition Date, Weil received payments and advances
in the aggregate amount of $6,133,888.13 for professional services performed and to be performed,
including in preparation for the commencement and prosecution of these Chapter 11 Cases. Weil
has a remaining credit balance in favor of the Debtors for future professional services to be
performed, and expenses to be incurred, in connection with these Chapter 11 Cases in the amount
of $490,803.00 (the “Fee Advance”). Weil intends to apply the Fee Advance to any outstanding
amounts relating to the period before the Petition Date that were not processed through Weil’s
billing system as of the Petition Date. An accounting summary of payments invoiced or to be
invoiced and received by Weil in the 90 days before the Petition Date is set forth in Exhibit 3 to
the Schrock Declaration. As of the Petition Date, the Debtors did not owe Weil any fees for
professional services performed or expenses incurred.
19.
The Debtors understand and have agreed that Weil hereafter will apply to
the Court for allowances of compensation and reimbursement of expenses in accordance with the
applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, the Local Rules, the U.S.
Trustee Guidelines for Reviewing Applications for Compensation and Reimbursement of Expenses
Filed Under 11 U.S.C. § 330 by Attorneys in Larger Chapter 11 Cases, effective November 1,
2013 (the “Fee Guidelines”), and any further orders of the Court (the “Orders”) for all
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professional services performed and expenses incurred after the Petition Date. Subject to the
provisions of the Bankruptcy Code, the Bankruptcy Rules, the Local Rules, the Fee Guidelines,
and the Orders, the Debtors propose to compensate Weil for services rendered at Weil’s customary
hourly rates that are in effect from time to time, as set forth in Schrock Declaration, and to
reimburse Weil according to its customary reimbursement policies. The Debtors respectfully
submit that Weil’s rates and policies, as set forth in the Schrock Declaration, are reasonable.
Evergreen Retainer
20.
The Debtors propose that the remainder of the Fee Advance, after
application of any fees and expenses mentioned in paragraph 18 above, paid to Weil and not
expended for prepetition services and disbursements be treated as an evergreen retainer to be held
by Weil as security throughout these Chapter 11 Cases until Weil’s fees and expenses are awarded
by final order of the Court and payable to Weil.
21.
In this district, evergreen retainers are routinely used by professionals and
are normal business practice. See, e.g., In re Insilco Tech., Inc., 291 B.R. 628, 634 (Bankr. D. Del.
2003) (noting that “it is not disputed that the taking of evergreen retainers is a practice now
common in the market place” and that such fee arrangements have been used in this district since
the early 1990s.). Section 328(a) of the Bankruptcy Code expressly permits the employment of
attorneys on a retainer. In addition, the approval of an evergreen retainer in these Chapter 11 Cases
satisfies the five-part test articulated by the court in Insilco. In particular, the Insilco court
evaluated the reasonableness of an evergreen retainer by examining:
(1) whether terms of an engagement agreement reflect normal business terms in the
marketplace; (2) the relationship between the Debtor and the professionals, i.e.,
whether the parties involved are sophisticated business entities with equal
bargaining power who engaged in an arms-length negotiation; (3) whether the
retention, as proposed, is in the best interests of the estate; (4) whether there is
creditor opposition to the retention and retainer provisions; and (5) whether, given
the size, circumstances and posture of the case, the amount of the retainer is itself
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reasonable, including whether the retainer provides the appropriate level of “risk
minimization,” especially in light of the existence of any other “risk-minimizing”
devices, such as an administrative order or a carve-out.
Id. at 634.
22.
First, the proposed terms of Weil’s engagement reflect normal business
terms in the marketplace. Second, both Weil and the Debtors are sophisticated business entities
that have negotiated Weil’s advance as part of an arm’s length agreement. Third, it is in the best
interest of the Debtors’ estates to provide Weil with an evergreen retainer because it ensures that
the Debtors have immediate and uninterrupted access to highly skilled and experienced counsel to
prosecute the Debtors’ Chapter 11 Cases. Fourth, the Debtors are not aware of any creditor
opposition to approval of the remainder of Weil’s advance as an evergreen retainer. Finally, in
light of the size, scope, and posture of the Debtors’ Chapter 11 Cases, approval of the remainder
of Weil’s advance as an evergreen retainer provides Weil with an appropriate level of risk
minimization in connection with the payment of its prospective fees and costs in these Chapter 11
Cases and allows Weil to focus its efforts on providing the best possible advice without concern
over payment of fees, which is in the best interest of the Debtors and all parties-in-interest.
Notice
23.
Notice of this Motion will be provided to (a) the Office of the United States
Trustee for the District of Delaware; (b) the holders of the 30 largest unsecured claims against the
Debtors on a consolidated basis; (c) the Federal Reserve Bank; (d) Customers Bank; (e) Cross
River Bank; (f) the United States Department of Justice; (g) the Federal Trade Commission; (h) the
Small Business Administration; (i) the Internal Revenue Service; (j) the Securities and Exchange
Commission; (k) the United States Attorney’s Office for the District of Delaware; and (l) any party
that is entitled to notice pursuant to Bankruptcy Rule 2002 (collectively, the “Notice Parties”).
The Debtors believe that no further notice is required.
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No Prior Request
24.
No previous request for the relief sought herein has been made by the
Debtors to this or any other court.
WHEREFORE the Debtors respectfully request entry of the Proposed Order
granting the relief requested herein and such other and further relief as the Court may deem just
and appropriate.
Dated: October 4, 2022
Atlanta, Georgia

KABBAGE, INC. d/b/a KSERVICING, et al.
(on behalf of itself and each of its affiliated
Debtors)

/s/ Holly Loiseau

Name: Holly Loiseau
Title: General Counsel and Secretary

Case 22-10951-CTG Doc 15 Filed 10/04/22 Page 10 of 10

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Application to Retain and Employ Weil, Gotshal & Manges LLP as Debtors' Counsel — In re KServicing

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