Motion to Shorten Notice — Customers Bank Settlement — In re KServicing (Bankr. D. Del.)

Record facts

U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 173 · 2022-10-28 · Docket on CourtListener

Full text

RLF1 28165828v.1 
UNITED STATES BANKRUPTCY COURT 
DISTRICT OF DELAWARE 
------------------------------------------------------------ x 
 
 
: 
 
In re 
: 
Chapter 11 
 
: 
 
KABBAGE, INC. d/b/a KSERVICING et al., 
: 
Case No. 22-19051 (CTG) 
 
: 
 
 
: 
(Jointly Administered) 
Debtors.1 
: 
 
 
 
 
: 
Re: Docket No. 172 
------------------------------------------------------------ x 
 
 
 
 
DEBTORS’ MOTION FOR ENTRY  
OF AN ORDER SHORTENING NOTICE AND  
OBJECTION PERIODS FOR DEBTORS’ MOTION  
FOR ENTRY OF AN ORDER AUTHORIZING AND APPROVING THE 
SETTLEMENT AGREEMENT BETWEEN KSERVICING AND CUSTOMERS BANK  
 
Kabbage, Inc. d/b/a KServicing (the “Company”) and its debtor affiliates, as 
debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the 
“Debtors”), respectfully represent as follows in support of this motion (the “Motion”):2 
Relief Requested 
1. 
By this Motion, the Debtors seek entry of an order pursuant to Rule 9006 of 
the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and Rule 9006-1 of the 
Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the 
 
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 
Debtors’ Motion for Entry of an Order (I) Authorizing and Approving the Settlement Agreement Between KServicing 
and Customers Bank and (II) Granting Related Relief filed contemporaneously herewith (the “Settlement Motion”).  
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District of Delaware (the “Local Rules”) shortening the notice and objection periods for the 
Settlement Motion so that such motion may be heard on November 7, 2022 at 1:00 p.m. (Eastern 
Time) (the “Hearing”), with responses, if any, to be filed on or before November 4, 2022 at 4:00 
p.m. (Eastern Time) (the “Objection Deadline”).   
2. 
A proposed form of order granting the relief requested herein is annexed 
hereto as Exhibit A (the “Proposed Order”).  
Jurisdiction 
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, the Debtors consent 
to the entry of a final order by the Court in connection with this Motion to the extent 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.  The statutory predicates for the relief requested herein 
are section 105(a) of title 11 of the United States Code (the “Bankruptcy Code”), Bankruptcy 
Rules 2002(a) and 9006, and Local Rule 9006-1. 
Background 
A. General Background 
4. 
On October 3, 2022 (the “Petition Date”), the Debtors each commenced 
with this Court a voluntary case under chapter 11 of the Bankruptcy Code (the “Chapter 11 
Cases”).  The Debtors are authorized to continue to operate their business as debtors in possession 
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pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.  No trustee, examiner, or statutory 
committee of creditors has been appointed in the Chapter 11 Cases.   
5. 
The Debtors’ cases are being jointly administered for procedural purposes 
only pursuant to Bankruptcy Rule 1015(b).   
6. 
On the Petition Date, the Debtors filed the Joint Chapter 11 Plan of 
Liquidation of Kabbage, Inc. (d/b/a KServicing) and its Affiliated Debtors [Docket No. 14] (the 
“Plan”).   
7. 
On October 5, 2022, the Debtors filed the Disclosure Statement for the Joint 
Chapter 11 Plan of Liquidation of Kabbage, Inc. (d/b/a KServicing) and its Affiliated Debtors 
[Docket No. 63] (the “Disclosure Statement”) in connection with the Plan.  The hearing on the 
adequacy of the Disclosure Statement is scheduled for November 21, 2022. 
8. 
On October 24, 2022, the Debtors filed a motion [Docket No. 143] (the 
“Cash Collateral Motion”) seeking the consensual use of cash collateral (the “Cash Collateral”) 
in which the Federal Reserve Bank of California (the “Federal Reserve Bank”) holds an interest.  
The Cash Collateral Motion is scheduled to be heard at the Hearing.  The Cash Collateral Budget 
(as defined in the Cash Collateral Motion) is premised on approval of the Settlement Motion and 
receipt of the Settlement Payment (as defined below). 
9. 
Additional information regarding the Debtors’ businesses, 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  [Docket No. 13] (the “First Day Declaration”).   
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B. The Settlement Agreement and Settlement Motion 
10. 
On October 27, 2022, the Company and Customers Bank (“CB” and, 
together with the Debtors, the “Parties”) entered into the Settlement Agreement.  
11. 
On October 27, 2022, the Debtors filed the Settlement Motion seeking entry 
of an order approving the Settlement Agreement. 
12. 
As set forth more fully in the Settlement Motion, the Company and CB are 
parties to the CB Agreements3, pursuant to which the Company processed loan applications, 
originated PPP Loans, and now services those PPP Loans, on behalf of, and in partnership with, 
CB.   
13. 
Pursuant to the CB Agreements, the Company earned certain loan referral 
and servicing fees, approximately $65 million of which remain unpaid and outstanding by CB 
(collectively, the “CB Receivable”).   
14. 
For more than 20 months, the Company has attempted to recover the CB 
Receivable and, in response, CB has alleged a number of claims against the Company in 
connection with the Company’s performance of servicing obligations under the CB Agreements 
(collectively, the “Disputes”).  The Settlement Agreement reflects a comprehensive resolution of 
the various Disputes between the Parties and will result in (i) the Company recovering $58 million 
in outstanding fees, with an approximately $23 million cash infusion to the Debtors (the 
“Settlement Payment”) shortly upon approval of the Settlement Motion by the Court, (ii) the 
Debtors receiving a release of potentially significant contingent and unliquidated claims against 
 
3 CB Agreements” means, collectively, (i) the CB Processing and Servicing Agreement, dated April 27, 2020, as 
amended; (ii) the CB Sale and Servicing Agreement, dated February 2, 2021, as amended; and (iii) the CB SaaS 
Services Agreement, dated April 24, 2020, as amended. 
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the Debtors and their estates, (iii) the Company reaching an agreement with CB with respect to 
servicing obligations under applicable contracts, and (iv) the Debtors ending the costs and 
expended resources attendant in protracted negotiations and litigation.4   
Relief Requested Should Be Granted 
15. 
The Court may grant the relief requested herein pursuant to Bankruptcy 
Rule 9006(c)(1) and Local Rule  9006-1(c).   
16. 
Local Rule 9006-1(c)(i) provides that, unless the Bankruptcy Rules or the 
Local Rules state otherwise, “. . . all motion papers shall be filed and served in accordance with 
Local Rule 2002-1(b) at least fourteen (14) days prior to the hearing date.”  Bankruptcy 
Rule 2002(a)(3) requires twenty-one (21) days’ notice be provided for “the hearing on approval of 
a compromise or settlement of a controversy other than approval of an agreement pursuant to Rule 
4001(d) . . . .”  Fed. R. Bankr. P. 2002(a)(3).  Local Rule 9006-1(e) further provides in relevant 
part that “no motion will be scheduled on less notice than required by these Local Rules or the 
Fed. R. Bankr. P. except by Order of the Court, on written motion . . . specifying the exigencies 
justifying shortened notice.”  Del. Bankr. L.R. 9006-1(e); see also Fed. R. Bankr. P. 9006(c)(1) 
(“[T]he court for cause shown may in its discretion with or without motion or notice order the 
period reduced.”).  Local Rule 9006-1(c)(ii) requires that “the deadline for objection(s) shall be no 
later than seven (7) days before the hearing date.” Del. Bank. L.R. 9006-1(c)(ii).   
17. 
The Debtors submit that good cause exists to expedite consideration of the 
Settlement Motion.  As set forth in the Settlement Motion, the Settlement Agreement resolves 
 
4 The summary of the Settlement Agreement herein is qualified in its entirety by the actual terms and provisions 
thereof, which, for the avoidance of doubt, shall control in the event of any inconsistency between this summary and 
the Settlement Agreement. 
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highly contested disputes with one of the Debtors’ most significant stakeholders—disputes that 
have been actively negotiated for nearly two years.  Critically, the Settlement Agreement helps 
pave the way to a consensual resolution of these Chapter 11 Cases by providing the Debtors with 
sufficient liquidity to continue winding down their business.  The Settlement Payment will help to 
ensure that the Debtors avoid an “unfunded transaction” under the Plan, whereby on account of 
insufficient resources, the Debtors must pursue an expedited chapter 11 timeline, reject their 
servicing contracts, and move to transfer servicing obligations as soon as possible.  Although the 
Debtors believe the expedited timeline is a reasonable path forward, the Debtors also acknowledge 
that a “funded transaction” under the Plan where each of the Debtors’ key stakeholders have 
additional servicing time (throughout the duration of the Chapter 11 Cases) and sufficient 
wherewithal to prepare for the orderly transfer of their loan portfolios, is beneficial to all, including 
most importantly the borrowers.  Prompt approval of the Settlement Agreement is necessary to 
facilitate the Debtors’ ability to successfully administer these Chapter 11 Cases on a consensual 
basis, and to allow the Debtors to service the balance of their loan portfolio through the duration 
of these Chapter 11 Cases, and resolve potentially sizeable claims alleged by CB.   
18. 
In addition, as noted above, the Cash Collateral Motion is scheduled to be 
heard at the Hearing.  Pursuant to the Cash Collateral Motion, the Debtors are seeking to use Cash 
Collateral to fund the Chapter 11 Cases.  The Debtors believe that the Cash Collateral, together 
with the Settlement Payment, provide the Debtors with sufficient funding to complete their wind 
down efforts and administer their assets.  However, the Debtors need both the Cash Collateral and 
the Settlement Payment or they may be forced to pursue the “unfunded transaction.”  Accordingly, 
it is critical that the Motion is granted so that both the Cash Collateral Motion and the Settlement 
Motion may be heard together at the Hearing. 
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19. 
Finally, an expedited hearing and approval of the Settlement Agreement is 
mutually beneficial to the Parties, is in the best interests of the Debtors and their stakeholders, and 
serves to maximize the value of the Debtors’ estates.  As noted in the Settlement Motion, the 
Settlement Agreement is the result of extensive good-faith, arm’s-length negotiations between 
sophisticated parties, each advised by competent and experienced counsel and other professionals, 
and resolves the Disputes, which have been a source of contention between the Parties for nearly 
two years.  Resolution will allow the Debtors to avoid litigation of the Disputes, which would 
undoubtedly prove costly, time-consuming, and distract the Debtors from pursuing a consensual 
chapter 11 plan.  Avoidance of protracted litigation of the Disputes will provide certainty to the 
Debtors, and to all of their stakeholders, that the Debtors will no longer be required to use estate 
resources attempting to recover the CB Receivable or defend against the Disputes.   
20. 
Importantly, the shortened notice period requested does not prejudice 
parties in interest.  While the issues underlying the Disputes are certainly complex, the actions to 
be taken by the Debtors and CB are rather straightforward—in exchange for granting mutual 
releases of claims arising prior to the Effective Date, the Company agrees to service the CB PPP 
Loans through March 31, 2022, at the latest, according to an agreed upon servicing plan, and the 
Debtors will receive a much-needed cash payment of approximately $23 million.  Accordingly, 
parties in interest will quickly be able to understand the Settlement Motion and the relief sought 
therein.  In addition, as set forth more fully in the Settlement Motion, the Settlement Agreement 
clearly meets the standard for approval under Bankruptcy Rule 9019. 
21. 
For the foregoing reasons, the Debtors respectfully submit that allowing the 
Settlement Motion to be considered on shortened notice is reasonable and appropriate under the 
circumstances.   
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Compliance with Local Rule 9006-1(e) 
22. 
Prior to filing this Motion, and pursuant to Local Rule 9006-1(e), counsel 
to the Debtors notified the U.S. Trustee of the relief requested in this Motion.  The U.S. Trustee 
takes no position with respect to the relief requested in the Motion.  Counsel to the Debtors has 
also notified counsel to the Federal Reserve Bank and counsel to CB of the relief sought herein, 
and the foregoing parties do not object to the Court granting such relief.   
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 thirty (30) largest unsecured claims 
against the Debtors on a consolidated basis; (c) the Federal Reserve Bank; (d) CB; (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 has requested notice pursuant to Bankruptcy Rule 2002.  The Debtors believe that no further 
notice is required.   
No Prior Request 
24. 
No previous request for relief sought herein has been made by the Debtors 
to this or any other court.   
 
 
 
 
 
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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 27, 2022 
Wilmington, Delaware 
                          
 
/s/ Zachary I. Shapiro 
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 
 
Proposed Attorneys for the Debtors 
and Debtors in Possession  
 
-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 
 
Attorneys for Debtors  
and Debtors in Possession 
 
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