Court filing
Motion — Authority to Employ Ordinary Course Professionals — In re KServicing (Bankr. D. Del.)
Filed October 17, 2022 in Kservicing Bankruptcy; one of 140 filings from this case.
Record facts
| Court | U.S. Bankruptcy Court for the District of Delaware |
|---|---|
| Filed | 2022-10-17 |
U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 110 · 2022-10-17 · Docket on CourtListener
Full text
RLF1 28111662v.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 (CTG)
:
Debtors.1
:
(Jointly Administered)
:
:
Obj. Deadline: October 31, 2022 at 4:00 p.m. (ET)
:
Hearing Date: November 7, 2022 at 1:00 p.m. (ET)
------------------------------------------------------------ x
MOTION OF DEBTORS FOR AUTHORITY TO EMPLOY
PROFESSIONALS USED IN ORDINARY COURSE OF BUSINESS
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 motion (the “Motion”):
Relief Requested
1.
By this Motion, the Debtors request authority, but not direction, pursuant to
sections 105(a), 327, and 330 of title 11 of the United States Code (the “Bankruptcy Code”), to
employ professionals retained in the ordinary course of business (collectively, the “Ordinary
Course Professionals”), effective as of October 3, 2022 (the “Petition Date”), without the
submission of separate employment applications or the issuance of separate retention orders for
each professional.
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.
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2.
A proposed form of order granting the relief requested herein is annexed
hereto as Exhibit A (the “Proposed Order”).
Jurisdiction and Venue
3.
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 Rule 9013-1(f) of the Local Rules of Bankruptcy
Practice and Procedure of the United States Bankruptcy Court for the District of Delaware
(the “Local Rules”), the Debtors consent to the entry of a final order by the Court in connection
with this Motion 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
4.
On the Petition Date, the Debtors commenced with the Court voluntary
cases under the Bankruptcy Code (the “Chapter 11 Cases”). The Debtors are authorized to
continue operating their business and managing their 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.
5.
The Chapter 11 Cases are being jointly administered for procedural
purposes only pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure
(the “Bankruptcy Rules”) and Local Rule 1015-1.
6.
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
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Declaration of Deborah Rieger-Paganis in Support of Debtors’ Chapter 11 Petitions and First
Day Relief [Docket No. 13].
Proposed Procedures for Employment of Ordinary Course Professionals
7.
The Debtors seek authority to continue employing Ordinary Course
Professionals to provide a variety of professional services to the Debtors’ estates in the same
manner and for the same or similar purposes as the Ordinary Course Professionals were retained
prior to the Petition Date. These Ordinary Course Professionals provide the Debtors with a range
of services relating to litigation, regulatory, government investigations, and tax and accounting
issues and matters, as well as other issues and matters that have a direct and significant impact on
the Debtors’ day-to-day operations. Continued employment of these Ordinary Course
Professionals is essential to avoid disruption to the Debtors’ normal business operations and the
cost, expense, and delay of securing replacement professionals.
8.
The proposed employment of the Ordinary Course Professionals and the
payment of
monthly
compensation pursuant
to
the
procedures
set
forth below
(the “OCP Procedures”) are in the best interests of the Debtors’ estates and creditors. The relief
requested will save the Debtors the expense and time associated with applying separately to retain
each Ordinary Course Professional and will avoid the incurrence of additional fees for the
preparation and prosecution of interim and final applications during these Chapter 11 Cases.
9.
Accordingly, the Debtors request that the Court dispense with the
requirement of filing individual retention and fee applications for the Ordinary Course
Professionals and implement the following OCP Procedures:
a.
Pursuant to sections 105(a), 327, and 330 of the Bankruptcy Code, the
Debtors will be authorized to employ the Ordinary Course Professionals
listed on Exhibit 1 annexed to the Proposed Order in accordance with the
OCP Procedures, effective as of the Petition Date.
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b.
Each Ordinary Course Professional shall provide the Debtors’ attorneys
within 30 days after the later of (i) the date of entry of the Proposed Order
or (ii) the date on which the Ordinary Course Professional commences
rendering services for the Debtors, with a declaration, substantially in the
form
annexed
as
Exhibit
2
to
the
Proposed
Order
(the “OCP Declaration”).
c.
The Debtors’ attorneys shall file the OCP Declaration with the Court and
serve a copy upon (i) Richard L. Schepacarter, Office of the United States
Trustee (Richard.Schepacarter@usdoj.gov), (ii) Rosa Sierra-Fox, Office of
the United States Trustee (Rosa.Sierra-Fox@usdoj.gov), and (iii) counsel
for the Creditors’ Committee, if any (collectively, the “Reviewing
Parties”).
d.
The Reviewing Parties shall have 14 days after service of the OCP
Declaration (the “Objection Deadline”) to serve upon the Debtors, the
other Reviewing Parties, and the relevant Ordinary Course Professional a
written objection to the retention, employment, or compensation of the
Ordinary Course Professional based on the contents of the OCP Declaration
(an “Objection”).
e.
If no Objection is served by the Objection Deadline, the retention,
employment, and compensation of the Ordinary Course Professional shall
be deemed approved pursuant to section 327 of the Bankruptcy Code
without the need for a hearing and without further Order of the Court;
provided, however, that if an Objection is served by the Objection Deadline
and such Objection cannot be resolved within 20 calendar days, the Debtors
shall schedule the matter for a hearing before the Court on the next
regularly-scheduled hearing date or such other date otherwise agreeable to
the Ordinary Course Professional, the Debtors, and the objecting party.
f.
The Debtors may seek to retain additional Ordinary Course Professionals
throughout these cases by (i) including each additional Ordinary Course
Professional on a supplement to Exhibit 1 to the Proposed Order that is
filed with the Court and served on the Reviewing Parties and (ii) having
such additional Ordinary Course Professional comply with the OCP
Procedures. The approved retention of the additional Ordinary Course
Professional(s) will be effective as of the expiration of the Objection
Deadline or, if a timely Objection is filed, upon resolution of such objection.
g.
Once an Ordinary Course Professional is retained in accordance with these
OCP Procedures, the Debtors may pay such Ordinary Course Professional
100% of the fees and 100% of the expenses incurred, upon the submission
to, and approval by, the Debtors of an appropriate invoice setting forth in
reasonable detail the nature of the services rendered and the expenses
actually incurred (without prejudice to the Debtors’ right to dispute any such
invoices); provided, however, that the Ordinary Course Professional’s total
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compensation and reimbursement will not exceed $50,000 per month on
average
over
any
three-month
period
on
a
rolling
basis
(the “Monthly Fee Cap”).
h.
Notwithstanding the foregoing, the Debtors believe that it may be
appropriate in certain instances to allow a monthly cap in excess of the
Monthly Fee Cap for any Ordinary Course Professional that may exceed
such cap amount but that should not otherwise be required to follow the
payment procedure applicable to the formally retained professionals. If the
Debtors are able to obtain the agreement of the Reviewing Parties to a
higher cap for any Ordinary Course Professional, the agreement would be
evidenced by the filing of a notice of increased Monthly Fee Cap
(the “Cap Increase Notice”), and the increased Monthly Fee Cap will be
deemed approved upon the filing of such Cap Increase Notice, without
further action by the Court. Absent such an agreement of the Reviewing
Parties, if the Monthly Fee Cap is exceeded, such Ordinary Course
Professional must file a fee application (a “Fee Application”) and apply for
allowance of the full amount of its compensation and reimbursement for the
applicable time period in compliance with sections 330 and 331 of the
Bankruptcy Code and the applicable provisions of the Bankruptcy Rules,
the Local Rules, and, subject to the OCP Procedures, any other procedures
and orders of the Court. The U.S. Trustee reserves the right to request that
any Ordinary Course Professional that is regularly exceeding the Monthly
Fee Cap be the subject of a retention application pursuant to section 327 of
the Bankruptcy Code. Any such Ordinary Course Professional that is an
attorney will make a reasonable effort to comply with the U.S. Trustee’s
requests for information and disclosures as set forth in the 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 as of November 1, 2013) in connection with such Fee Application
and/or retention application.
i.
Each Fee Application will be served upon the Reviewing Parties. The
Reviewing Parties will then have 15 days to object to the Fee Application.
If, after 15 days, no Objection is filed, the fees and expenses requested in
the Fee Application will be deemed approved, and the Ordinary Course
Professional may be paid 100% of its fees and expenses without the need
for further action from such Ordinary Course Professional.
j.
At three-month intervals during the pendency of these Chapter 11 Cases
(each, a “Quarter”), beginning with the Quarter ending December 31,
2022, the Debtors will file with the Court and serve on the Reviewing
Parties, no later than 30 days after the last day of such Quarter, a statement
that will include the following information for each Ordinary Course
Professional: (i) the name of the Ordinary Course Professional, (ii) the
amounts invoiced and paid as compensation for services rendered and
reimbursement of expenses incurred by that Ordinary Course Professional
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during the reported Quarter broken down by month, (iii) the aggregate
amount of postpetition payments made to that Ordinary Course Professional
to date, and (iv) a general description of the services rendered by that
Ordinary Course Professional.
Relief Requested Should Be Granted
10.
A debtor is required to obtain bankruptcy court approval before it is
permitted to hire certain professionals and compensate them with funds that are property of the
estate. As explained below, however, the Bankruptcy Code does not prohibit a debtor from
retaining or compensating professionals in the ordinary course of business when such professionals
are not representing or assisting the debtor in carrying out its duties under the Bankruptcy Code.
See 11 U.S.C. § 327. To provide the Court and parties in interest an opportunity to object, and to
provide assurance to the Ordinary Course Professionals of the Debtors’ authority to compensate
them for postpetition work, however, the Debtors seek approval of the Procedures set forth herein.
11.
Section 327(a) of the Bankruptcy Code requires a debtor to obtain court
approval to retain and employ a “professional” to assist the debtor in the conduct of its chapter 11
case. See 11 U.S.C. § 327(a). According to the case law in this District, the following factors are
used to determine whether an entity is a “professional” within the meaning of section 327(a):
a.
whether the entity controls, manages, administers, invests, purchases, or
sells assets that are significant to the debtor’s reorganization;
b.
whether the entity is involved in negotiating the terms of a plan of
reorganization;
c.
whether the entity is directly related to the type of work carried out by the
debtor or to the routine maintenance of the debtor’s business operations;
d.
whether the entity is given discretion or autonomy to exercise his or her own
professional judgment in some part of the administration of the debtor’s
estate;
e.
the extent of the entity’s involvement in the administration of the estate; and
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f.
whether the entity’s services involve some degree of special knowledge or
skill, such that it can be considered a “professional” within the ordinary
meaning of the term.
12.
Section 327(e) of the Bankruptcy Code further provides that “with the
court’s approval” a debtor may employ:
for a specified special purpose, other than to represent the trustee in
conducting the case, an attorney that has represented the debtor, if
in the best interest of the estate, and if such attorney does not
represent or hold any interest adverse to the debtor or to the estate
with respect to the matter on which such attorney is to be employed.
See, e.g., In re Am. Tissue, Inc., 331 B.R. 169, 173 (Bankr. D. Del. 2005); In re First Merchants
Acceptance Corp., 1997 WL 873551, at *2 (D. Del. Dec. 15, 1997) (defining “professionals”
within the meaning of section 327 as those whose “occupations . . . play a central role in the
administration of the debtor proceeding, and not those occupations which are involved in the day-
to-day mechanics of the debtor’s business . . . [or those who are] given discretion or autonomy in
some part of the administration of the debtor’s estate.”). These factors must be considered in the
totality of the circumstances; no factor alone is dispositive. See In re First Merchants, 1997 WL
873551, at *3.
13.
Further, Section 330 of the Bankruptcy Code authorizes the Court to award
reasonable compensation for actual and necessary services rendered by retained professionals.
11 U.S.C. § 330. The Court may exercise its broad discretion under section 105(a) of the
Bankruptcy Code in connection with the foregoing. 11 U.S.C. § 105(a).
14.
Considering all of these factors, the Debtors believe that the Ordinary
Course Professionals are not “professionals” whose retention must be approved by the Court,
within the meaning of section 327(a) of the Bankruptcy Code. In particular, the Ordinary Course
Professionals will not be involved in the administration of the Debtors’ estates, but instead will
provide services in connection with the Debtors’ ongoing business operations that are ordinarily
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provided by non-bankruptcy professionals. Out of an abundance of caution, the Debtors seek the
relief requested in this Motion to avoid any controversy as to the Debtors’ employment and
payment of the Ordinary Course Professionals during the pendency of these Chapter 11 Cases.
The Debtors will seek specific authority from the Court under section 327 of the Bankruptcy Code
to retain any professionals involved in the conduct of these Chapter 11 Cases. Those professionals
will be compensated in accordance with the applicable provisions of the Bankruptcy Code, the
Bankruptcy Rules, the Local Rules, and other orders of the Court.
15.
Although certain of the Ordinary Course Professionals may hold unsecured
claims against the Debtors for prepetition services rendered to the Debtors, the Debtors do not
believe that any of the Ordinary Course Professionals have an interest that is materially adverse to
any Debtor, its creditors, or other parties in interest with respect to the matters for which such
Ordinary Course Professional is to be employed that would preclude such professional from
continuing to represent the Debtors. Further, section 328(c) excludes attorneys retained pursuant
to section 327(e) from the requirement that such professional be a “disinterested” person. See 11
U.S.C. § 328(c). See, e.g., In re Congoleum Corp., 426 F.3d 675, 683 (3d Cir. 2005) (noting that
“the requirement of disinterestedness of section 327(a) was not pertinent” because “the standards
set in section 327(e) of the Bankruptcy Code, rather than those in section 327(a), applied”); In re
Argus Group 1700, Inc., 199 B.R. 525, 529 (Bankr. E.D. Pa. 1996) (distinguishing the
disinterestedness requirement in subsection 327(a) from the adverse interest requirement of
subsection 327(e)); In re Neuman, 138 B.R. 683, 686 (S.D.N.Y. 1992) (stating that “Congress
intended, and courts have allowed, considerable latitude in assessing conflict-of-interest
qualifications for § 327(e) purposes”); In re Licking River Mining, LLC, 562 B.R. 351, 355 (Bankr.
E.D. Ky. 2016) (“Employment under section 327(e) eliminates the disinterestedness
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requirement.”); In re Polaroid Corp., 424 B.R. 446, 453 (Bankr. D. Minn. 2010) (holding that
section 327(e) only disqualifies counsel when they have conflicts related to the matter on which
the attorney is to be employed); In re J.S. II, LLC, 371 B.R. 311, 317 (Bankr. N.D. Ill. 2007)
(stating that the “conflict of interest standard in section 327(e) is more relaxed than the standard
embodied in section 327(a)”); In re EBW Laser, Inc., 333 B.R. 351, 359 (Bankr. M.D.N.C. 2005)
(holding that counsel was not disqualified under section 327(e) because it held a prepetition claim);
In re Albert, 206 B.R. 636, 644 (Bankr. D. Mass. 1997) (distinguishing the disinterestedness
requirement in subsection 327(a) from the adverse interest requirement of subsections 327(c) and
(e)). Accordingly, the Court may authorize the retention of the Ordinary Course Professionals.
16.
In addition, the Court has the authority, pursuant to its equitable powers
under section 105(a) of the Bankruptcy Code, to authorize the relief requested herein, because such
relief is necessary for the Debtors to carry out their fiduciary duties under section 1107(a) of the
Bankruptcy Code. Section 105(a) of the Bankruptcy Code empowers bankruptcy courts to “issue
any order, process, or judgment that is necessary or appropriate to carry out the provisions of this
title.” 11 U.S.C. § 105(a). Section 1107(a) of the Bankruptcy Code “contains an implied duty of
the debtor-in-possession” to “protect and preserve the estate, including an operating business’
going-concern value,” on behalf of a debtor’s creditors and other parties in interest. In re CEI
Roofing, Inc., 315 B.R. 50, 59 (Bankr. N.D. Tex. 2004) (citations omitted); see also Zazzali v.
1031 Exchange Group LLC (In re DBSI, Inc.), 467 B.R. 309, 316-17 (Bankr. D. Del. 2012) (“A
paramount duty of a trustee or debtor in possession in a bankruptcy case is to act on behalf of the
bankruptcy estate, that is, for the benefit of the creditors.”); Unofficial Comm. of Equity Holders
v. McManigle (In re Penick Pharm., Inc.), 227 B.R. 229, 232-33 (Bankr. S.D.N.Y. 1998) (“[U]pon
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filing its petition, the Debtor became debtor in possession and, through its management . . . was
burdened with the duties and responsibilities of a bankruptcy trustee.”).
17.
The Debtors and their estates will be well served by the continued retention
of the Ordinary Course Professionals because of their prior relationships with the Debtors and their
knowledge of facts relevant to the services they are providing, as well as a deep understanding of
the Debtors’ operations. Moreover, in light of the significant costs associated with the preparation
of separate employment applications for professionals who will receive relatively modest fees
compared to the Debtors’ professionals that are being retained pursuant to sections 327(a) and
327(e) of the Bankruptcy Code, it would be impractical and inefficient for the Debtors and their
counsel to prepare and submit individual retention applications and proposed retention orders for
each Ordinary Course Professional. The delay attendant to such a process would also be
potentially disruptive to the professional services that are required for the day-to-day operation of
the Debtors’ businesses.
18.
For the foregoing reasons, the relief requested is necessary, appropriate, and
in the best interests of the Debtors, their estates, and all other parties in interest in these cases.
Accordingly, the Court should authorize the Debtors to employ the Ordinary Course Professionals
in accordance with the OCP Procedures.
Reservation of Rights
19.
Nothing contained herein is intended or shall be construed as (a) an
admission as to the validity of any claim against the Debtors; (b) a waiver of the Debtors’ or any
appropriate party in interest’s rights to dispute the amount of, basis for, or validity of any claim
against the Debtors; (c) a waiver of any claim or cause of action which may exist against any
creditor or interest holder; or (d) an approval, assumption, adoption, or rejection of any agreement,
contract, lease, program, or policy between the Debtors and any third party under section 365 of
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RLF1 28111662v.1
the Bankruptcy Code. Likewise, if the Court grants the relief sought herein, any payment made
pursuant to the Court’s order is not intended to be and should not be construed as an admission to
the validity of any claim or a waiver of the Debtors’ rights to dispute such claim subsequently.
Notice
20.
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.
No Prior Request
21.
No previous request for the relief sought herein has been made by the
Debtors to this or any other court.
[Remainder of page intentionally left blank]
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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 17, 2022
Wilmington, Delaware
/s/ Matthew P. Milana
RICHARDS, LAYTON & FINGER, P.A.
Daniel J. DeFranceschi (No. 2732)
Amanda R. Steele (No. 5530)
Zachary I. Shapiro (No. 5103)
Matthew P. Milana (No. 6681)
One Rodney Square
920 North King Street
Wilmington, Delaware 19801
Telephone: (302) 651-7700
E-mail: defranceschi@rlf.com
steele@rlf.com
shapiro@rlf.com
milana@rlf.com
-and-
WEIL, GOTSHAL & MANGES LLP
Ray C. Schrock, P.C. (admitted pro hac vice)
Candace M. Arthur (admitted pro hac vice)
Natasha S. Hwangpo (admitted pro hac vice)
Chase A. Bentley (admitted pro hac vice)
767 Fifth Avenue
New York, New York 10153
Telephone:
(212) 310-8000
E-mail:
ray.schrock@weil.com
candace.arthur@weil.com
natasha.hwangpo@weil.com
chase.bentley@weil.com
Proposed Attorneys for Debtors
and Debtors in Possession
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