Motion (compel compliance with settlement) — In re KServicing

Record facts

U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 336 · 2022-12-07 · Docket on CourtListener

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IN THE UNITED STATES BANKRUPTCY COURT 
FOR THE DISTRICT OF DELAWARE 
 
In re: 
 
KABBAGE, INC., d/b/a KSERVICING, et al.,1 
Debtors. 
Chapter 11 
Case No. 22-10951 (CTG) 
(Jointly Administered) 
 
Obj. Deadline:  December 21, 2022 at 4:00
   PM EST 
Hearing Date:  January 6, 2023  
   at 10:00 AM EST 
 
 
MOTION OF CUSTOMERS BANK FOR ENTRY OF AN ORDER 
(I) COMPELLING COMPLIANCE WITH COURT APPROVED SETTLEMENT 
AGREEMENT AND ORDER; (II) REQUIRING ADDITIONAL ADEQUATE 
PROTECTION IN FAVOR OF CUSTOMERS BANK;  
AND (III) GRANTING RELATED RELIEF 
 
Customers Bank, an operating subsidiary of Customers Bancorp. Inc. (“Customers Bank”) 
and owner of a portfolio of “PPP” loans (“CB PPP Loans”) serviced by the debtor, Kabbage, Inc., 
d/b/a KServicing (“Kabbage” or the “Debtor”), pursuant to two executory contracts, hereby moves 
pursuant to sections 105, 361 and 363(e) of title 11 of the United States Code (the “Bankruptcy 
Code”), and Rules 4001 and 9013 of the Federal Rules of Bankruptcy Procedure (the “Rules”), 
and Rules 4001-1 and 9013-1 of the Local Rules for the United States Bankruptcy Court, District 
of Delaware (the “Local Rules”), for entry of an order substantially in the form attached hereto as 
Exhibit A (i) compelling the Debtor’s immediate and prospective compliance with its unequivocal 
obligations under the Court approved Settlement Agreement (defined below) to segregate, account 
for, and remit to Customers Bank all funds collected by the Debtor from borrowers on Customers 
Bank’s behalf beginning as of the October 3, 2022 petition date that are required to be held in 
 
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). The Debtors’ mailing and service address is 925B Peachtree Street NE, 
Suite 383, Atlanta, GA 30309. 
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trust for Customers Bank (“Borrower Remittances”); (ii) directing the Debtor to provide 
Customers Bank with additional forms of adequate protection of its ownership interest in the 
Borrower Remittances, including online viewing access to the bank account receiving the 
Borrower Remittances, and requiring that the Debtor segregate and retain all Borrower 
Remittances pertaining to CB PPP Loans with such funds to be disbursed to Customers Bank or 
in accordance with Customers Bank’s instruction; and (iii) granting Customers Bank such other 
related relief as is just and proper.  
The Settlement Agreement agreed to by the Debtor and presented by the Debtor to this 
Court for approval mandates that starting as of the October 3, 2022 Petition Date the Debtor must 
deposit “any and all borrower collections . . . into a segregated account in the name of and for the 
benefit of” Customers Bank, and “transfer all such funds to Customers Bank” on a timely basis. 
See Settlement Agreement, at par. 4(E). There is no ambiguity—Borrower Remittances are 
received, held in trust for Customers Bank pending month end, and then paid to, and only to, 
Customers Bank. When it came time for the Debtor to comply with this obligation in November 
2022 and turn over funds that are indisputably “borrower collections” owned by Customers Bank, 
however, the Debtor issued a short payment in the amount of $376,326.59, substantially less than 
the $1,301,569 in Borrower Remittances reported by the Debtor as having been received, and the 
approximately $1,551,245.91 in deposits detailed in the October 2022 bank statement. The 
Debtor’s assertion that it has “remitted to CUBI postpetition amounts that were collected through 
October 31, 2022,”2 is quite simply, and demonstrably, false. A simple review of the Debtor’s own 
bank statement for the month of October 2022 reveals numerous withdrawals totaling 
approximately $1 million from the Trust Account that the Debtor was not permitted to make by 
 
2 See Letter to Attorney Sternberg dated November 18, 2022, filed as Docket No. 299 (“Debtor’s Reply Letter”). 
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the terms of the Settlement Agreement. The Debtor has since refused to pay Customers Bank the 
approximately $1 million difference between the actual borrower remittances deposited into the 
Trust Account and the amount actually paid by the Debtor to Customers Bank. See Affidavit of 
Alyssa White, discussed below.3 The obligation of the Debtor to remit all borrower payments 
deposited into the Trust Account is clear and absolute, entitling Customers Bank to swift relief to 
enforce both the Settlement Agreement and the Order of the Court approving those terms. 
Because the Debtor has yet again proven itself incapable of performing basic servicing 
obligations despite now having the liquidity and professional expertise to do so, in addition to 
seeking to recover Borrower Remittances for October 2022, Customers Bank requests that the 
Court restrict the Debtor’s access to the Borrower Remittances for all purposes (but for payment 
to Customers Bank) for the duration of the parties’ business relationship as a form of adequate 
protection of Customers Bank’s rights to receive all Borrower Remittances, as discussed below. 
In further support of the requested relief, the Debtor states as follows: 
JURISDICTION AND VENUE 
1. 
This Court has jurisdiction over this Motion pursuant to 28 U.S.C. §§ 157 and 1334. 
This matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). 
2. 
Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409. 
3. 
The statutory predicate for the relief requested herein are sections 105 and 361 and 
363(e) of the Bankruptcy Code, and Rules 4001 and 9013 and Local Rules 4001-1 and 9013-1. 
4. 
Customers Bank consents pursuant to Local Rule 9013-1(f) to the entry of a final 
order by the Court in connection with this Motion to the extent that it is later determined that the 
 
3 See also Letter to the Honorable Craig Goldblatt dated November 28, 2022, Docket No. 289 (“CB Letter”), and 
November 28, 2022 Hearing Transcript, attached hereto as Exhibit B.  
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Court, absent consent of the parties, cannot enter final orders or judgments in connection herewith 
consistent with Article III of the United States Constitution. 
THE UNDISPUTED FACTS 
A. 
The Parties’ Contracts and Business Relationship. 
5. 
The Debtor was founded in 2008 as an online financial technology company, but 
after the sale of most of its assets to American Express in 2020 is now basically an online loan 
servicer, with a business that consists of servicing a loan portfolio comprised of loans that it funded 
under the Paycheck Protection Program or “PPP” (“PPP Loans”), as well as loans funded by third-
party lenders, that are awaiting forgiveness or guarantee by the Small Business Administration or 
“SBA,” collectively with an aggregate outstanding principal balance of approximately $1.3 
billion.4 As the Debtor has indicated in several pleadings filed to date, it is in the process of winding 
down its PPP Loan servicing business on account of the sale of substantially all of its assets to 
affiliates of American Express in October 2020, it is not generating significant cash on a go-
forward basis, and it filed the Chapter 11 Cases to implement that winding-down process pursuant 
to a chapter 11 plan and the Bankruptcy Code. 
6. 
Customers Bank is a Pennsylvania state-chartered bank and approved SBA Lender 
that agreed, through the Processing and Servicing Agreement Pursuant to Division A, Title I of the 
CARES Act entered into with the Debtor on April 27, 2020 (the “PSA”), to fund PPP Loans 
approved for issuance to third-party borrowers, selecting the Debtor as loan processor and servicer. 
In turn, the Debtor agreed to originate PPP Loans according to all pertinent SBA requirements and 
guidelines on Customers Bank’s behalf by qualifying borrowers’ loan applications, and thereafter, 
 
4 A more complete description of the Debtor’s servicing business and the PPP Loan Program is set forth in the 
previously filed Motion of Debtors for Interim and Final Orders Authorizing Debtors to (I) Continue Servicing and 
Subservicing Activities and (II) Perform Related Obligations [Dkt. No. 11] (“Servicing Motion”). 
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servicing those PPP Loans once funded by Customers Bank. Separately, through Sale & Servicing 
Agreement dated February 20, 2021 (the “S&S Agreement” and, collectively with the PSA and the 
S&S Agreement, as amended, the “Contracts”), Customers Bank acquired a portfolio of PPP Loans 
that the Debtor had originated and funded, which loans the Debtor also agreed to service on 
Customers Bank’s behalf. 
7. 
As of the Petition Date, the Debtor was servicing a portfolio of approximately 7,000 
outstanding PPP Loans owned by Customers Bank, constituting loans for which Customers Bank 
remains the lender of record pending a Guaranty Purchase or Loan Forgiveness (the Customers 
Bank PPP Loans, and defined in the Settlement Agreement, discussed below, as the “Remaining 
Loan Population”), with a principal balance of approximately $181 million. See Declaration of 
Deborah Rieger-Paganis in Support of the Chapter 11 Petitions and First-Day Pleadings [Dkt. 
No. 13](“First-Day Declaration”) at par. 25.  
B. 
The Original Disputes and Resulting Settlement. 
8. 
The parties’ business relationship led to numerous disputes, primarily on account 
of the Debtor’s failure to properly originate loans according to the SBA rules and then properly 
service the Remaining Loan Population. These failures led to investigations of the Debtor by the 
SBA, the United States Department of Justice, and others, and resulted in the refusal of the SBA 
to approve a portfolio of PPP Loans for either forgiveness or guaranty purchase, thereby greatly 
increasing the risk of loss to Customers Bank. 
9. 
Indeed, the Debtor admitted that its operations were “overburdened” and that 
“processing the remaining PPP Loans has presented a number of challenges for the Company” 
since the Debtor is “embroiled in government investigations, litigations, and stakeholder disputes 
related to the PPP program.” See First-Day Declaration, at pars. 14, 17, 42. As detailed in the 
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First-Day Declaration, other challenges have included investigations by the U.S. Department of 
Justice offices in the District of Massachusetts and the Eastern District of Texas regarding the 
Company’s Borrower Diligence practices, as well as a class action lawsuit brought by certain PPP 
Loan borrowers in the United States District Court for the Northern District of Georgia, Atlanta 
Division alleging that the Company failed to timely and competently process loan forgiveness 
applications on behalf of borrowers. The Debtor also was in dispute with the SBA regarding, for 
instance, the processing of over $100 million of loans originated in amounts exceeding (and 
violation of) the SBA guidelines and which the SBA is refusing to process for guaranty. Id. at par. 
47. 
10. 
As those concerns of Customers Bank escalated, prior to the Petition Date, 
Customers Bank withheld payment to the Debtor of origination and servicing fees that had accrued 
under the Contracts, asserting its right to setoff or recoup those fees, referred to in pleadings as the 
“CUBI Receivable” and defined in the Settlement Agreement as the “Disputed CB Holdback,” 
against the claims held by Customers Bank against the Debtor. In response, the Debtor began 
withholding sums due to Customers Bank, including remittances of borrower payments (primarily, 
principal and interest) on PPP Loans owned by Customers Bank estimated to be “approximately 
$34 million” as of the Petition Date that were received by the Debtor on behalf of Customers Bank 
(“Petition Date Remittances”). See First-Day Declaration, at par. 30.  
11. 
While efforts to resolve these and other disputes initially failed, settlement 
discussions were renewed after the Petition Date in an effort to address the Debtor’s liquidity issues 
and avoid the sudden interruption in the Debtor’s servicing operations to the detriment of lenders 
and borrowers alike. This time, the negotiations were successful in that the Debtor and Customers 
Bank reached agreement on the terms for payment towards the balance of the “CUBI Receivable” 
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following reconciliation of amounts owed to Customers Bank for, among other categories, the 
Petition Date Remittances and other amounts owed to Customers Bank or due to be paid under the 
Contracts. When those negotiations concluded, the Debtor and Customers Bank entered into a 
Settlement and Release Agreement on October 27, 2022 (the “Settlement Agreement”).5 
Generally, the Settlement Agreement was intended to resolve the (i) claim of the Debtor asserted 
against Customers Bank to recover the “CUBI Receivable” and its defenses to payment of the 
Petition Date Remittances; and (ii) claims of Customers Bank against the Debtor to recover the 
Petition Date Remittances as well as those liabilities that Customers Bank asserted were owing on 
account of failures in processing loan applications and servicing PPP Loans prior to the Petition 
Date, as more fully described and defined in the Settlement Agreement as the “Disputes”. As will 
be discussed more fully below, Customers Bank agreed to pay $58 million towards the CUBI 
Receivable, less various offsets agreed to by the Debtor and defined in the Settlement Agreement, 
including the Prepetition Remittances. The Settlement Agreement was conditioned on approval of 
the Bankruptcy Court and explicitly required a reconciliation of the amounts that the Debtor had 
been holding back from Customers Bank. 
12. 
Following the Settlement Agreement’s execution, the Debtor filed the Motion for 
Entry of an Order (I) Authorizing and Approving Settlement Agreement Between KServicing and 
Customers Bank and (II) Granting Related Relief on October 27, 2022 [Dkt. No. 172] (the 
“Settlement Motion”),6 urging the Court to approve the Settlement Agreement pursuant to Federal 
 
5 The Settlement Agreement is attached as Exhibit A to the Settlement Order, discussed below, as Docket No. 232-1. 
6 The Debtor also filed the Debtors’ Reply in Support of Debtors’ Motion for Entry of an Order (I) Authorizing and 
Approving Settlement Agreement Between KServicing and Customers Bank and (II) Granting Related Relief [Dkt. No. 
213] and the Declaration of Laquisha Milner in Support of Debtors’ Motion for Entry of an Order (I) Authorizing and 
Approving the Settlement Agreement Between KServicing and Customers Bank and (II) Granting Related Relief [Dkt. 
No. 211] in support of the Settlement Motion.  
 
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Rule 9019 as a comprehensive resolution of the Disputes that represented a key step forward in 
the chapter 11 cases and a reasonable exercise of the Debtor’s business judgment. Following a 
hearing held on November 7, 2022, and in overruling a limited objection to the Settlement Motion 
filed by another PPP Loan lender, Cross River Bank (“Cross River”), the Court granted the 
Settlement Motion and approved the terms of the Settlement Agreement through the Order (I) 
Authorizing and Approving the Settlement Agreement Between KServicing and Customers Bank 
and (II) Granting Related Relief [Dkt. No. 232] (the “Settlement Order”). Pursuant to the 
Settlement Order, the Court authorized the Debtor to enter into the Settlement Agreement and 
“perform, execute, and deliver all documents, and take all actions, necessary to immediately 
continue and fully implement the Settlement Agreement in accordance with the terms, conditions, 
and agreements set forth in the Settlement Agreement . . . .” Settlement Order, at par. 3. The 
Effective Date of the Settlement Agreement was November 9, 2022, the date the Settlement Order 
entered. 
13. 
The Settlement Agreement obligates Customers Bank to make payment to the 
Debtor in the amount of $58 million “less the amount of the Disputed KServicing Holdbacks as of 
the Petition Date” within 3 business days from the Effective Date. In turn, “Disputed KServicing 
Holdbacks” is defined as: “collectively, the Disputed KServicing Fee Holdback and the Disputed 
KServicing Remittance Holdback.” “Disputed KServicing Fee Holdback” means “the amount that 
constitutes SBA loan origination fees due to [Customers Bank] under the S&S Agreement,” 
estimated at approximately $8.3 million. The “Disputed KServicing Remittance Holdback” is “the 
amount that constitutes funds (i) collected from borrowers that KServicing is required to remit to 
[Customers Bank] under the Original PSA and S&S Agreement, and (ii) held by KServicing on 
account of cancelled loans” otherwise due to Customers Bank, or the Petition Date Remittances. 
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Excluded from this amount, though, were “Borrower Overpayments” or amounts collected from a 
borrower on account of a Customers Bank PPP Loan payable by KServicing to the SBA, or in 
appropriate circumstances, due to a borrower. See Settlement Agreement, at par. 2. 
14. 
The parties were obligated in Paragraph 3 of the Settlement Agreement, prior to the 
Effective Date, to “work together in good faith to promptly reconcile the amounts of the Disputed 
KServicing Fee Holdback and the Disputed KServicing Remittance Holdback as of the Petition 
Date to determine the appropriate amount of the Settlement Payment.” 
15. 
In the meantime, the Debtor agreed to continue as loan servicer for the Remaining 
Loan Population, on terms described in Paragraph 4 of the Settlement Agreement, and continued 
to receive Borrower Remittances on Customers Bank’s behalf. The Settlement Agreement required 
those funds, though, to be held by the Debtor in a segregated account in trust for Customers Bank, 
with Paragraph 4(E) providing that: 
beginning as of the Petition Date, KServicing has and shall continue to deposit any 
and all borrower collections received on or after the Petition Date into a segregated 
account in the name of and for the benefit of [Customers Bank] (separate and apart 
from any other funds or assets) and shall provide [Customers Bank] with the 
account information regarding the segregated account, shall hold such funds in 
trust for the benefit of [Customers Bank], and shall promptly, but in any event 
within ten (10) Business Days of the end of each month, or such other timing as 
mutually agreed upon in writing by the Parties, transfer all such funds to 
[Customers Bank]. 
Settlement Agreement, at par. 4(E). 
C. 
The Current Disputes Involving the Settlement Agreement. 
16. 
Using information provided by the Debtor, which as the servicer was the only 
available source, Customers Bank did work diligently to reconcile all data and determine the 
appropriate amount of the Settlement Payment in accordance with the Settlement Agreement and 
made a payment to the Debtor of $20,499,683 based on that reconciliation. 
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17. 
As discussed at a status hearing held on November 28, 2022, and as outlined in 
correspondence to the Court docketed as numbers 287 and 289, and separate, earlier 
communication between the parties (through counsel) filed as docket number 299, the Debtor has 
disputed Customers Bank’s calculation of the Settlement Payment, claiming to be owed instead, 
$23,780,786.63. That dispute is not the subject of this Motion, however. 
18. 
Rather, as October 2022 came to an end, Customers Bank’s employees began 
communicating with their contacts at the Debtor regarding the required Monthly Borrowing 
Remittance Report due to Customers Bank, see Settlement Agreement at Ex. A, and the anticipated 
funding of the Borrower Remittances collected on Customers Bank’s behalf from October 3, 2022 
through October 31, 2022 (“October Remittances”). Even though the Debtor’s remittance report 
showed Borrower Remittances of $1,276,569 for the month of October 2022, and the bank 
statement for the Synovus Bank account set up to hold Borrower Remittances in trust (“Trust 
Account”) reflects deposits of approximately $1,551,245.91, the payment actually received by 
Customers Bank from the Debtor was only $376,326.59 (“October Payment”). 
19. 
Customers Bank brings this Motion to compel compliance with the Debtor’s clear, 
express obligation in the Settlement Agreement to remit payment to Customers Bank of all 
Remittances to Customers Bank and properly account for and deliver Borrower Remittances 
going-forward. Since it has become clear that the Debtor is continuing its pre-petition practice of 
using Borrower Remittances held in the Trust Account for purposes other than as expressly 
authorized, negotiated, and approved by this Court, in clear violation of the Settlement Agreement, 
Customers Bank also requests that this Court provide Customers Bank various forms of adequate 
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protection of its interest in funds in the possession of the Debtor, pending transition of the servicing 
obligations to a third-party at a later point in this case.7 
RELIEF REQUESTED 
20. 
By this Motion, Customers Bank seeks entry of an order (i) compelling the Debtor’s 
immediate and prospective compliance with its unequivocal obligations under the Court approved 
Settlement Agreement to segregate, account for, and remit to Customers Bank all Borrower 
Remittances, and funding the balance of the October Remittances presently due; (ii) directing the 
Debtor to provide Customers Bank with additional forms of adequate protection of its interest in 
the Borrower Remittances, such as timely and fulsome servicing reporting, online access to the 
bank account receiving the Borrower Remittances, and requiring that the Debtor segregate and 
hold all Borrower Remittances with Debtor’s ability to make withdrawals or disbursements of such 
funds being limited solely to monthly delivery to Customers Bank or for such uses directed or 
 
7 Adequate protection is appropriate based solely on the Debtor’s breach of its trust obligations in the Settlement 
Agreement. However, the need for it is even more acute given that this is not the first time that the Debtor has breached 
its trust obligations to Customers Bank. Paragraph 31 of the First-Day Declaration [Dkt No. 13] refers to an agreement 
between the parties called the Sale and Servicing Agreement. It has trust obligations at section 10. KServicing admits 
that it breached them (at least with the monies it collected under that agreement) by stating at paragraph 52 of that 
same declaration that it withheld those monies “to offset the CUBI Receivable . . . .” While those breaches have been 
resolved by the Settlement Agreement, it is apparent that the Debtor is continuing to disregard its trust obligations in 
the Settlement Agreement and simply cannot be relied upon to adhere to them absent adequate protection. 
 
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approved by Customers Bank in writing; and (iii) granting Customers Bank such other related 
relief as is just and proper.  
ARGUMENT IN SUPPORT 
A. 
Enforcement of the Settlement Agreement and Order Requires the Payment of ALL 
of the Borrower Remittances From and After the Petition Date. 
21. 
The relief that Customers Bank seeks is, quite simply, enforcement of the terms of 
a Court approved Settlement Agreement and the related order, well within the Court’s powers, and 
the result compelled by the unambiguous terms of that contract. 
22. 
It is axiomatic that “a court possesses the inherent authority to enforce its own 
orders.” In re Cont’l Airlines, Inc., 236 B.R. 318, 325-26 (Bankr. D. Del. 1999) (citing Kokkonen 
v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 379-80 (1994)); In re Essar Steel Minn., LLC, 47 
F.4th 193, 197 (3d Cir. 2022) (citing Travelers Indem. Co. v. Bailey, 557 U.S. 137, 151 (2009)) (a 
bankruptcy court “plainly ha[s] jurisdiction to interpret and enforce its own prior orders.”); In re 
SemCrude L.P., No. 08-115352011, WL 4711891, at *8, (Bankr. D. Del. Oct. 7, 2011) (noting 
court has authority to enforce existing Confirmation Order, Settlement Agreement, and confirmed 
Chapter 11 Plan).  
23. 
Section 105(a) of the Bankruptcy Code expressly provides a bankruptcy court with 
broad authority to exercise its equitable powers to ensure compliance with its own orders. See 11 
U.S.C. § 105(a); In re Nosek, 544 F.3d 34 (1st Cir, 2008); NWL Holdings, Inc. v. Eden Ctr., Inc. 
(In re Ames Dep’t Stores), 317 B.R. 260, 274 (Bankr. S.D.N.Y. 2004) (section 105(a) plainly may 
be used “to enforce and implement” earlier orders). Indeed, it is a court’s “burden and province” 
to interpret and enforce its own orders, particularly when the court has retained jurisdiction to 
“hear and determine all matters” relating to the implementation, interpretation, or enforcement of 
that order to the presiding bankruptcy court, as the Settlement Order so provides. See In re 
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Caribbean Petroleum Corp, 512 B.R. 774, 777 (Bankr. D. Del. 2014) (noting it a court’s 
“responsibility to litigants and another court to decide a dispute over language [the court] 
approved.”). 
24. 
Similarly, a bankruptcy court, as a court of equity, possesses the power to 
summarily enforce settlements. See In re Springpark Assocs., 623 F.2d 1377, 1380-81 (9th Cir.), 
cert. denied, 449 U.S. 956 (1980) (bankruptcy court has inherent power to enforce settlement 
providing for termination of automatic stay to permit foreclosure); In re River Ctr. Holdings, LLC, 
394 B.R. 704, 711 (Bankr. S.D.N.Y. 2008) (using Section 105(a) to enforce and implement an 
earlier Settlement Agreement that provided for the court to retain jurisdiction for all disputes 
arising out of the aforementioned Settlement Agreement).  
25. 
In interpreting and enforcing the terms of a settlement agreement, general contract 
rules of interpretation should apply. See Blunt v. Lower Merion Sch. Dist., 767 F.3d 247, 282 n.50 
(3d Cir. 2014); In re Cendant Corp. Prides Litig., 233 F.3d 188, 192-93 (3d Cir. 2000) (holding 
“basic contract principles do indeed apply to settlement agreements”); Amgen Inc. v Amneal 
Pharms. LLC, No. 16-853, 2019 WL 4538135, at *6 (D. Del. Sept. 19, 2019); In re Essar Steel 
Minn. LLC, 590 B.R. 109, 115 (Bankr. D. Del. 2018) (interpreting Settlement Agreement approved 
by court according to contract interpretation principles under corresponding state law). If the 
parties’ meaning is clear and unambiguous from the language of the Settlement Agreement, courts 
must interpret the Agreement according to the plain meaning of the words used. See Blunt, 767 
F.3d at 282, n.50; In re Zohar II, Corp., No. 18-105122020, WL 3960820, at *4 (D. Del. July 13, 
2020) (upholding bankruptcy court’s interpretation of Settlement Agreement, despite parties’ 
disagreement as to meaning, as the Agreement’s wording was unmistakable); In re Dominao, 442 
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B.R. 97, 104 (Bankr. M.D. Pa. 2010) (finding explicit language of Settlement Agreement did not 
preclude a party from bringing certain motions not specifically prohibited in the Agreement). 
26. 
Here, the Settlement Agreement is explicit and supports the relief requested by 
Customers Bank. First, through the Settlement Agreement, all Borrower Remittances received 
after the Petition Date must be held by the Debtor in trust for the benefit of Customers Bank. 
Settlement Agreement, at par. 4(E). The Borrower Remittances, therefore, are not property of the 
estate available for sources other than as agreed to by Customers Bank, or ordered otherwise. See 
11 U.S.C. § 541(d) (emphasis added); Begier v. I.R.S., 496 U.S. 53, 59-60 (1990) (trust-fund tax 
payments from its general accounts were transfers of property held in trust, not property of the 
estate); see also In re Magna Entm’t Corp., 438 B.R. 380, 387 (Bankr. D. Del. 2010) (“Funds that 
a debtor holds in trust are not property of the debtor’s bankruptcy estate whether the trust is 
statutory or constructive.”); In re Edison Bros., Inc., 243 B.R. 231, 231 (Bankr. D. Del. 
2000) (“[C]ourts have concluded that property which debtor holds in trust (express or constructive) 
for another does not become property of the estate when the debtor files for bankruptcy.”); In re 
Reagor-Dykes Motors, LP, No. 18-50214, 2022 WL 2046144, at *9 (“Funds held in trust for 
another are not property of the bankruptcy estate.”) (citing Begier v. I.R.S., 496 U.S. 53, 59 (1990)). 
27. 
Through the Settlement Agreement, Customers Bank has not authorized the Debtor 
to expend the Borrower Remittances on any expense, whether relating to the servicing of PPP 
Loans or otherwise, and instead, the Debtor is obligated to “promptly, but in any event within ten 
(10) Business Days of the end of each month, or such other timing as mutually agreed upon in 
writing by the Parties, transfer all such funds to [Customers Bank].” Settlement Agreement, at par. 
4(E). 
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28. 
Based on the remittance reporting provided by the Debtor to Customers Bank, 
however, it appears as though the Debtor used approximately $925,243.00 of the October 
Remittances to make payment to the SBA, thereby reducing the actual payment to Customers Bank 
dollar for dollar. An excerpt of that Report regarding the October Payment sets forth the following: 
 
See Affidavit of Alyssa White, contemporaneously filed (“White Affidavit”), at Ex. A. 
29. 
This calculation was disputed by Customers Bank. See White Affidavit, at Ex. B. In 
responding to that challenge to the amount of the October Payment by Customers Bank, at the 
November 28, 2022 Status Conference, counsel to the Debtor explained: 
Now I know the Court doesn't know what that means. But briefly, what that means 
is that the deviation from the payment from prior months is because, in October, 
the SBA agreed to guarantee a whole chunk of loans. And when that happened, 
payments that were made by borrowers were owed to the SBA. That's at least the 
SBA's position, since they were guaranteeing those loans. 
See November 28, 2022 Hearing Transcript, Exhibit B hereto, p. 10. 
30. 
That statement, though, is an undeniable admission of breach as there is nothing in 
the Settlement Agreement that provides any discretion for the Debtor to deviate from its obligation 
to pay all funds to Customers Bank. There is an obvious and straightforward reason for that, 
namely that the referenced obligations to the SBA were already contemplated by and addressed in 
the reconciliation process relating to the Settlement Payment.  
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31. 
As Debtor was aware at least by the time the Status Hearing commenced, the Debtor 
had already accounted for payments due to the SBA, calculated by the Debtor’s Senior Operations 
Officer to be in the amount of $1,150,513, and that amount was used by Customers Bank in 
calculating the “Settlement Payment”. See White Affidavit, at Ex. C. Pursuant to the Settlement 
Agreement, the amount of Borrower Overpayments, whether due to borrowers or the SBA as of 
the Petition Date, are expressly carved out from the amount of the “KServicing Remittance 
Holdback.” That amount is, as defined, essentially all Prepetition Remittances due to Customers 
Bank net of the Borrower Overpayments. The net result was that the Settlement Payment was not 
reduced by Borrower Overpayments otherwise comprising Prepetition Remittances received by 
borrowers that are due to the SBA, because the Debtor has or will fund those payments from the 
substantial amount of Prepetition Remittances it withheld from Customers Bank prior to the 
Petition Date.8 Those payments due to the SBA though, already accounted for and reducing the 
offset available to Customers Bank in calculating the Settlement Payment, do not under any 
reading of the Settlement Agreement also serve to enable the Debtor to withhold transfer to 
Customers Bank of all of the post-petition October Remittances on the CB PPP Loans held in 
trust.9  
32. 
To the contrary, no matter how many withdrawals were made from the Trust 
Account prior to the Effective Date, Customers Bank is still entitled to all of the deposits into that 
account for Borrower Remittances. The Settlement Agreement does not provide for any exceptions 
 
8 Even if relevant to the instant matter, however, and Customers Bank asserts that it is not, the payments alleged to 
have become due to the SBA in October for Guaranty Purchases appear to only total (as reported by the Debtor, 
summarized above) $107,271.00 of the $925,243.00 withheld.   
9 Customers Bank reserves all rights to challenge the amount of payments calculated as due to the SBA whether before 
or after the Settlement Agreement’s Effective Date, in connection with any dispute by the Debtor of the calculation 
of the Settlement Payment raised in separate motion. 
 
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on the Debtor’s segregation of the trust, and prompt and full payment to Customers Bank of 
Customers Bank’s own property and the Court should not countenance the Debtor’s efforts to 
unilaterally amend the Settlement Agreement or to engage in improper breach of trust in 
derogation of its clear obligations.  
33. 
The amount that should have been remitted to Customers Bank under the 
Settlement Agreement, constituting the entirety of the October Remittances held in trust, is at least 
$1,551,245.91 based on records provided by the Debtor to date. That is the amount that reflects all 
borrower payments received in the Trust Account on Customers Bank PPP Loans from the Petition 
Date through October 31, 2022, as reflected on the Synovus bank statement provided by the Debtor 
to Customers Bank. See White Affidavit, at Ex. A.10 That is at least the amount that the Settlement 
Agreement requires to be paid to Customers Bank, for the month of October and the same 
methodology must apply going-forward. Through this Motion, therefore, Customers Bank requests 
entry of an Order compelling the Debtor to remit payment of an additional $1,174,919.32 to 
Customers Bank, as well as all overdue servicing and remittance reports required under the 
Contracts and the Settlement Agreement. 
B. 
Adequate Protection of Customers Bank’s Ownership Interest in the 
Borrower Remittances Is Necessary. 
 
34. 
As should not be disputed based on the language of the Settlement Agreement, the 
Debtor is in custody and control of cash remittances that are property of Customers Bank, not the 
Debtor, held in express trust.11 As a result, Customers Bank holds a statutory right through Section 
 
10 To the extent that the Debtor is collecting payments on the Customers Bank portfolio in other accounts it must 
also account for those and pay those amounts over to Customers Bank.   
11 The words “trust” and “trustee” carry a “‘precise and well-settled legal meaning [that] must be interpreted’ 
accordingly. ” Pa. Envtl. Def. Found. v. Commonwealth (PEDF), 161 A.3d 911, 932 (Pa. 2017) (quoting Appeal of 
Ryder, 74 A.2d 123, 124 (1950)). 
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363(e) to “at any time” seek an order of the Court prohibiting the use of property in which it has 
an interest “to the extent necessary to provide adequate projection of such interest.” In turn, section 
361 of the Bankruptcy Code provides that when adequate protection is required under section 362, 
36312, or 364, such adequate protection may be provided by: 
(1) requiring the trustee to make a cash payment or periodic cash payments to such 
entity, to the extent that the stay under section 362 of this title, use, sale, or lease 
under section 363 of this title, or any grant of a lien under section 364 of this title 
results in a decrease in the value of such entity’s interest in such property; . . . (2) 
providing to such entity an additional or replacement lien to the extent that such 
stay, use, sale, lease, or grant results in a decrease in the value of such entity’s 
interest in such property; or (3) granting such other relief, other than entitling such 
entity to compensation allowable under section 503(b)(1) of this title as an 
administrative expense, as will result in the realization by such entity of the 
indubitable equivalent of such entity’s interest in such property. 
See 11 U.S.C. § 361. 
35. 
The means by which that adequate protection may be afforded are flexible. Section 
361 of the Bankruptcy Code provides various examples of forms of adequate protection, such as 
granting replacement liens and administrative claims, leaving courts to decide what constitutes 
sufficient adequate protection on a case-by-case basis. See In re Swedeland Dev. Grp., Inc., 16 
F.3d 552, 564 (3d Cir. 1994) (“[A] determination of whether there is adequate protection is made 
on a case by case basis.”); In re Columbia Gas Sys., Inc., Nos. 91-803, 91-804, 1992 WL 79323, 
at *2 (Bankr. D. Del. Feb. 18, 1992); see also In re Braniff Airways, Inc., 783 F.2d 1283, 1286 
(5th Cir. 1986); In re Mosello, 195 B.R. 277, 289 (Bankr. S.D.N.Y. 1996) (“the determination of 
adequate protection is a fact-specific inquiry . . . left to the vagaries of each case”). The nuances 
 
12 Pursuant to section 363(c)(2) of the Bankruptcy Code, a debtor may not use cash collateral unless “(A) each entity 
that has an interest in such cash collateral consents; or (B) the court, after notice and a hearing, authorizes such use, 
sale, or lease in accordance with the provisions of this section.” 11 U.S.C. § 363(c)(2). Section 363(e) further provides 
that “on request of an entity that has an interest in property . . . to be used, sold or leased, by the trustee, the 
court . . . shall prohibit or condition such use, sale or lease as is necessary to provide adequate protection of such 
interest.” 
 
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of this case mandate that Customers Bank receive adequate protection in various forms, in 
particular, measures aimed at providing it transparency as to, and control over, the Trust Account 
to protect its interest in Borrower Remittances. 
36. 
As is revealed from the face of the Synovus Bank Statement of Account for the 
month of October 2022 (“October Bank Statement”), the Debtor is not only receiving Borrower 
Remittances in the Trust Account, but is also actively authorizing various withdrawals for purposes 
not authorized by the Settlement Agreement. The very first transaction initiated by the Debtor on 
the Petition Date was to transfer $3 million of funds held in the Trust Account named “PPP 
Payments CUBI” to an account maintained for another lender, Cross River Bank. See White 
Affidavit, at Ex. A. As indicated in the Motion of Debtors for Entry of Interim and Final Orders 
(I) Authorizing Debtors to (A) Continue Using Existing Cash Management System, Bank Accounts, 
and Business Forms, (B) Implement Changes to Cash Management in the Ordinary Course of 
Business; and (II) Granting Related Relief [Dkt. No. 12], the Synovus account ending in 5268 is 
one maintained by the Debtor to collect borrower payments on loans serviced by the Debtor for 
Cross River Bank (and not Customers Bank): 
 
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37. 
Then, throughout the month of October 2022, Debtor debits served to reduce the 
balance in the Trust Account by an additional approximately $1,072,898.91. Those debits (other 
than the Cross River Bank transfer) to the extent relating to Borrower Overpayments (as described 
in the Servicing Motion) received by the Debtor on the Remaining Loan Population prior to 
execution of the Settlement Agreement, may have been a proper use of the Prepetition 
Remittances, but there is no authority for those payments to continue to be funded from and after 
the Petition Date from the Trust Account without the prior authorization of Customers Bank.13 The 
Settlement Agreement is governed by Pennsylvania law. See Settlement Agreement, at par. 20. 
Under Pennsylvania law, a trustee has an obligation to administer a trust as any “prudent person 
would, by considering the purposes, provisions and distributional requirements and other 
circumstances of the trust . . . .” 20 Pa. Cons. Stat. Ann. § 7774 (West 2006). Along those lines, it 
is well established that a trustee may use the assets of the trust only for purposes authorized by the 
trust . . . other uses are beyond the scope of the discretion conferred . . . .” Robin Twp. v. 
Commonwealth, 83 A.3d 901, 690-91 (Pa. 2013) (citing Metzger v. Lehigh Valley Trust & Safe 
Deposit Co., 69 A. 1037, 1038 (1908)); see also PEDF, 161 A.3d at 933 (“The duty of loyalty 
imposes an obligation to manage the corpus of the trust so as to accomplish the trust’s purposes 
for the benefit of the trust’s beneficiaries.”); In re Hartje’s Estate, 28 A.2d 908, 910 (Pa. 1942) 
(“[T]he trustee can properly exercise such powers and only such powers as (a) are conferred upon 
him in specific words by the words by the terms of the trust, or (b) are necessary or appropriate to 
carry out purposes of the trust and are not forbidden by the terms of the trust.”) (quoting 
Restatement (First) of Trusts § 186 (Am. L. Inst. 1935)). The Debtor, serving as “trustee” of the 
Trust Account, is in breach of its obligations as fiduciary to Customers Bank.    
 
13 As detailed above, there is also no authority for the Debtor to net those debits out from the October Remittances. 
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38. 
Just as importantly, Customers Bank cannot reconcile the entries on the October 
Bank Statement to the remittance reports provided by the Debtor, raising great concern about the 
reliability of the servicing reports and data provided by the Debtor and ability of the Debtor to 
properly account for activity in the Trust Account for the duration of this case. In attempting to 
determine how the Debtor calculated the October Payment and also accounted for activity on the 
Remaining Loan Population, it is apparent that the Debtor’s staff is not prepared to handle the 
Trust Account in the manner required of the Settlement Agreement. 
39. 
These servicing, accounting, and payment failures impose great risk of loss of value 
of the Trust Account, rendering Customers Bank entitled to various forms of adequate protection 
by virtue of Section 361. In order to protect Customers Bank’s interest in the Trust Account, based 
on the circumstances of this case, Customers Bank requests that the Court order that:  
i) 
the Debtor cause Synovus Bank to add Customers Bank as an authorized user of, 
and owner of, the Trust Account; 
ii) 
the Debtor cause Synovus Bank to provide Customers Bank with unrestricted 
online access to the Trust Account; and 
iii) 
the Debtor be prohibited from authorizing disbursements, withdrawals (debits) or 
transfers from the Trust Account other than to Customers Bank without the express, 
written instruction of Customers Bank’s authorized representatives.  
 
40. 
While already provided for in the Settlement Agreement, the Debtor should also be 
compelled to timely and accurately prepare and distribute to Customers Bank the Servicing Plan 
Reports described in Exhibit A to the Settlement Agreement.  
41. 
Without further restrictions on the Debtor’s ability to control the funds held in the 
Trust Account as requested, the disputes regarding the proper calculation of the month-end transfer 
to Customers Bank from the Trust Account for subsequent months will likely continue, to the 
detriment of Customers Bank and at further time and expense to the Court and the estate. 
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42. 
Through entry of the Proposed Order, Customers Bank is confident that these 
disputes can be narrowed significantly or resolved, for the interest of all involved. 
CONCLUSION 
43. 
 Based on the foregoing support, Customers Bank submits that the relief requested 
herein is necessary and appropriate, and requests that the Court enter the Proposed Order. 
NOTICE 
Notice of this Motion will be provided to (a) counsel to the Debtor (i) Weil, Gotshal & 
Manges LLP, Attn: Ray C. Schrock, P.C. (ray.schrock@weil.com), Candace M. Arthur 
(candace.arthur@weil.com), Natasha S. Hwangpo (natasha.hwangpo@weil.com), Chase A. 
Bentley (chase.bentley@weil.com), Richard Slack (richard.slack@weil.com); and (ii) Richards, 
Layton & Finger, P.A., Attn: Daniel DeFranceschi (defranceschi@rlf.com), Amanda R. Steele 
(steele@rlf.com), 
Zachary 
I. 
Shapiro 
(shapiro@rlf.com), 
and 
Matthew 
P. 
Milana 
(milana@rlf.com); (b) the office of the United States Trustee for the District of Delaware; (c) the 
holders of the thirty (30) largest unsecured claims against the Debtors on a consolidated basis; (d) 
the Federal Reserve Bank; (e) Cross River Bank; (f) Synovus Bank; (g) the United States 
Department of Justice, Office of the U.S. Trustee for the District of Delaware; (h) the Federal 
Trade Commission; (i) the Small Business Administration; (j) the Internal Revenue Service; (k) 
the Securities and Exchange Commission; (l) the United States Attorney’s Office for the District 
of Delaware; and (m) any party that is entitled to notice pursuant to Bankruptcy Rule 2002. 
Customers Bank respectfully submits that no further notice is required.  
NO PRIOR REQUEST 
This is Customers Bank’s first request for relief regarding this matter. 
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WHEREFORE, Customers Bank requests entry of an order substantially in the form 
attached hereto as Exhibit A granting this Motion, and directing such other and further relief as is 
just and proper. 
Dated:  December 7, 2022 
Wilmington, Delaware 
SULLIVAN ∙ HAZELTINE ∙ ALLINSON LLC  
/s/ William A. Hazeltine  
 
 
 
William A. Hazeltine (Del. Bar No. 3294) 
919 North Market Street, Suite 420 
Wilmington, Delaware 19801 
Telephone: 302-428-8191 
Facsimile: 302-428-8195 
whazeltine@sha-llc.com 
 
-and- 
 
HOLLAND & KNIGHT LLP 
John J. Monaghan (admitted pro hac vice) 
Jeremy M. Sternberg (admitted pro hac vice) 
Lynne B. Xerras (pro hac vice forthcoming) 
10 St. James Avenue 
Boston, MA 02116 
Telephone: 617-523-2700 
Facsimile: 617-523-685 
john.monaghan@hklaw.com 
jeremy.sternberg@hkaw.com 
lynne.xerras@hklaw.com 
  
Counsel to Customers Bank 
 
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