Motion to enforce settlement agreement with Customers Bank — In re KServicing (Bankr. D. Del.)

Record facts

U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 340 · 2022-12-07 · Docket on CourtListener

Full text

RLF1 28328477v.1 
IN THE UNITED STATES BANKRUPTCY COURT 
FOR THE 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: December 21, 2022 at 4:00 p.m. (ET) 
 
: 
Hearing Date: January 6, 2023 at 10:00 a.m. (ET) 
------------------------------------------------------------ x 
  
MOTION OF DEBTORS FOR ENTRY OF AN ORDER ENFORCING THE 
SETTLEMENT ORDER AND THE SETTLEMENT AGREEMENT  
BETWEEN KSERVICING AND CUSTOMERS BANK  
Kabbage, Inc. d/b/a KServicing (“KServicing”) and its debtor affiliates, as debtors 
and debtors in possession in the above-captioned chapter 11 cases (collectively, the “Debtors”), 
hereby submit this motion (the “Motion”) to enforce the Court’s order entered on November 9, 
2022 approving the Settlement and Release Agreement, dated October 27, 2022 (the “Settlement 
Agreement”) between KServicing and Customers Bank (“CB”) [Docket No. 232] (the 
“Settlement Order”) and the Settlement Agreement. Contemporaneously herewith, the Debtors 
submit the declarations of Donna R. Evans (the “Evans Declaration”) and Tamica M. Williams 
(the “Williams Declaration”) and respectfully state as follows in support of the Motion:   
PRELIMINARY STATEMENT 
1. 
CB has failed to pay KServicing the full amount owed under the Settlement 
Agreement in its continued attempt to wrongfully deprive KServicing, and thus its estate and 
 
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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creditors, of amounts owed to it. The Debtors therefore seek to collect the outstanding balance of 
the Settlement Payment2 in the amount of $3,281,103 (the “Unpaid Amount”). 
2. 
The Settlement Agreement resolved, among other things, KServicing’s claims 
against CB for improperly withholding for years over $65 million in fees owed to KServicing. As 
the Court is aware, at the heart of the Settlement Agreement was KServicing’s immediate receipt 
of the approximately $23.2 million cash component of the aggregate Settlement Payment of $58 
million. Nevertheless, CB has failed to pay KServicing the full amount due to it under the 
Settlement Agreement and by its actions has forced the Debtors to continue to expend estate 
resources and limited funds in furtherance of collecting the Unpaid Amount. 
3. 
The cash component of the Settlement Payment under the Settlement Agreement 
was based on a formula. That formula is set forth in Section 1(H) of the Settlement Agreement and 
in related definitions. Essentially, the formula was designed to implement the intention of the 
Parties that CB would pay in cash the difference between the total Settlement Amount of $58 
million less the amounts that KServicing had already collected and withheld from CB. As 
discussed below, there are three amounts that need to be calculated to determine the Settlement 
Payment: (a) the amount received by KServicing on account of cancelled CB loans (where 
KServicing owes that amount to CB); (b) fees owed to CB and held by KServicing; and (c) 
remittances from borrowers owed to CB and held by KServicing. Settlement Agreement §§ 1(C), 
1(E). 
4. 
The Settlement Agreement included approximate amounts that comprised the 
various components of the Settlement Payment, in each instance as contended by CB, and also 
 
2 Capitalized terms used but not otherwise defined herein shall have the 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 (the “Settlement Motion”) [Docket No. 172]. 
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included a reconciliation mechanism that provided for the Parties to work together to confirm the 
precise amount of the Settlement Payment. The Reconciliation Process was meant to be mutual, 
not unilateral, and should have been straightforward and non-contentious if both Parties were 
working in good faith. Unfortunately, CB attempted to further squeeze the Debtors out of millions 
of dollars they are indisputably owed.  
5. 
Importantly, and to state the obvious, the Settlement Payment formula yields a 
correct and accurate amount that CB is required to pay KServicing. As set forth in the Williams 
Declaration, including supporting data, KServicing has calculated the correct and accurate number 
for the Settlement Payment as $23,780,786.63. The back-up and underlying calculations are set 
forth in the Williams Declaration, and KServicing performed the calculations utilizing reliable 
data and processes and procedures that KServicing uses in the ordinary course to confirm and 
reconcile cancelled loans, fees owed, and borrower remittances. Instead of paying the correct and 
full Settlement Payment amount, CB unilaterally stopped working with KServicing to reconcile 
amounts due, wired $19,469,355 to KServicing on November 14th, and then unilaterally increased 
its payment to $20,499,683 on November 15th. Indeed, neither when it paid KServicing on 
November 15th, nor at any time prior thereto did CB provide KServicing with the underlying basis 
for its payments (other than to assert that it purportedly took the numbers from data KServicing 
provided during the course of the Reconciliation Process). 
6. 
CB knew its calculation was wrong at the time it made its payments. More 
specifically, CB paid KServicing based on a cancelled loan amount of $3,617,304 but, prior to 
using that figure, CB had expressly told KServicing that the right amount of the cancelled loans 
was approximately $1.6 million. Based on statements made by CB, KServicing informed CB that 
it would further reconcile the cancelled loan amount. In fact, prior to the time CB made its initial 
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payment, KServicing used the most reliable data, directly from the SBA’s website, to confirm 
CB’s $1.6 million cancelled loan amount and sent that updated figure to CB. Thus, at the time CB 
paid the $20.5 million, it knew that it owed at least $1.9 million more based on the cancelled loan 
issue alone. CB’s knowledge of the correct amount KServicing retained on account of cancelled 
loans, CB’s access to data confirming that amount before it sent payment, and CB’s intentional 
decision to use a higher cancelled loan amount to pay KServicing less than it is owed clearly shows 
that CB breached its obligations under the Settlement Order and the Settlement Agreement. 
7. 
The amount of the borrower remittances held back by KServicing was also 
overstated by CB in its payment calculation. By looking at actual bank transfer data, KServicing 
determined that the amount of such withheld remittances is $24,022,977, where CB instead 
attributed $25,578,633 to such remittances, and thus failed to account for over $1.5 million in 
payments KServicing already made directly to CB (and thus no longer owes to CB). But CB 
already knew KServicing had passed on to CB the funds making up that over $1.5 million 
difference—KServicing’s former CFO sent CB a spreadsheet detailing the basis for that payment 
at the time the wire transfer was made—on October 21, 2020, further demonstrating CB’s willful 
decision to underpay KServicing and its lack of good faith. 
8. 
The extensive work performed by and detailed calculations of KServicing 
representatives demonstrate that not only has CB paid significantly less than the $23.2 million that 
the Parties contemplated, but the correct Settlement Payment amount owed to KServicing under 
the Settlement Agreement is $23,780,786.63. Allowing CB to pay anything less than the full and 
correct Settlement Payment amount would be tantamount to allowing CB to be paid a second time 
by KServicing for amounts that have already been remitted to CB. 
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9. 
CB’s apparent justification for failing to pay the correct Settlement Amount is 
without any merit whatsoever. According to CB, the Settlement Agreement required the Parties to 
work together in good faith to reconcile amounts through November 9th and it had the ability to 
stop the Reconciliation Process and remit a Settlement Payment that was not correct. Nothing in 
the Settlement Agreement, however, alters the obligation of CB to pay the correct or accurate 
Settlement Payment amount. Moreover, while the Settlement Agreement required the Parties to 
act in good faith to reconcile amounts through November 9th, nothing prevented the Parties from 
continuing to reconcile numbers to avoid disputes after that date. One would expect that even if 
not required, the Parties would continue to act in good faith to avoid disputes even after November 
9th. Indeed, to the extent that CB had calculated an amount of the Settlement Payment during the 
reconciliation efforts, good faith would have required CB to share the basis for its calculation and 
discuss it with KServicing before unilaterally deciding to short pay the Debtors by over $3 million. 
10. 
The Unpaid Amount of the Settlement Payment due to KServicing is an asset of the 
Debtors’ estates. Prior to executing the Settlement Agreement, KServicing had already expended 
a significant amount of its limited resources to resolve its dispute over the CB Receivable (as 
defined below) and reach what it believed was a fair and reasonable compromise. Now it is forced 
to expend further resources. It is time for this matter to be resolved once and for all: CB should 
pay the correct Settlement Payment amount it owes to KServicing under the Settlement Agreement 
and the Settlement Order. 
JURISDICTION AND VENUE 
11. 
This 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 as of February 29, 2012. This is a core proceeding pursuant to 28 
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U.S.C. § 157(b). Venue is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. The 
statutory basis for the relief requested herein is section 105(a) of the Bankruptcy Code.3 
RELEVANT BACKGROUND 
I. 
KServicing and CB Entered into the Settlement Agreement, Which this Court 
Approved Following a Hearing 
12. 
The original underlying dispute between CB and KServicing involved the Parties’ 
obligations related to their respective participation in the SBA’s PPP initiative. KServicing 
contended that CB originated over $2.6 billion in loans through its arrangement with KServicing, 
generating tens of millions of dollars in fees payable to KServicing under the Parties’ agreements, 
including approximately $65.5 million in fees due at loan origination that CB failed to pay after 
repeated demands for payment (the “CB Receivable”).  
13. 
In response to CB’s refusal to pay KServicing the CB Receivable, and to maintain 
a dwindling amount of liquidity, KServicing retained funds that would otherwise be due to CB—
just over $34 million up to the Petition Date. 
14. 
After extensive, good faith, arm’s-length negotiations, on October 27, 2022, the 
Company and CB memorialized the terms of an agreed-upon settlement in the Settlement 
Agreement.4 The Settlement Agreement reflects a bargained-for comprehensive resolution of the 
various Disputes between the Parties and was explicitly intended to result in the Company (i) 
recovering $58 million of the CB Receivable, with an approximately $23.2 million cash infusion 
to the Debtors due shortly after this Court entered of the Settlement Order, (ii) receiving a release 
of potentially significant contingent and unliquidated claims asserted by CB against the Debtors 
 
3 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 Debtors consent to the entry of a final judgment or order with respect to the 
Motion if it is determined that this Court would lack Article III jurisdiction to enter such final order or judgment absent 
the consent of the Debtors. 
4 Also on October 27, 2022, the Debtors filed the Settlement Motion. 
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and their estates, (iii) reaching an agreement with CB with respect to servicing obligations under 
applicable contracts, and (iv) ending the costs and expended resources attendant in protracted 
negotiations and litigation. 
15. 
The Settlement Agreement was approved by this Court in the Settlement Order on 
November 9, 2022 [Docket No. 232]. The Court authorized KServicing “to enter into, 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…” Id. at ¶ 2. Finally the Settlement Order 
provided that “[t]his Court shall retain jurisdiction to hear and determine all matters arising from 
or related to the implementation, interpretation, or enforcement of this Order.” Id. at ¶ 7. 
II. 
The Relevant Provisions of the Settlement Agreement 
16. 
The Settlement Agreement sets forth a Settlement Amount due to KServicing of 
$58,000,000. Settlement Agreement, § 1(G). 
17. 
The Settlement Agreement defines the “Settlement Payment” to be made by CB as 
“the Settlement Amount [of $58 million] less the amount of the Disputed KServicing Holdbacks 
as of the Petition Date.” Settlement Agreement §1(H). 
18. 
The “Disputed KServicing Holdbacks” in turn is defined to comprise two separate 
types of holdbacks: (1) the Disputed KServicing Fee Holdback and (2) the Disputed KServicing 
Remittance Holdback. Settlement Agreement § 1(D). The “Disputed KServicing Remittance 
Holdback” in turn itself has two components: (i) funds “collected from borrowers that KServicing 
is required to remit to CB[,]” and (ii) funds “held by KServicing on account of cancelled loans.” 
Settlement Agreement § 1(E). These Disputed KServicing Holdbacks consist of amounts that CB 
contended KServicing had received but owed to CB under the terms of the Parties’ prior 
agreements. The calculation of the Settlement Amount can be graphically set forth as follows: 
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The Settlement Amount of $58,000,000 
          LESS 
Disputed KServicing Fee Holdback 
Disputed KServicing Remittance Holdback (Total of A and B 
below) 
A. Funds on Account of Cancelled Loans 
B.  Funds Collected from Borrowers 
         EQUALS 
Settlement Payment 
 
19. 
The Settlement Agreement contains a “Reconciliation” provision that requires the 
Parties to act in good faith (the “Reconciliation Process”) to jointly attempt to confirm the correct 
amount of the Settlement Payment. Settlement Agreement, § 3(A). Importantly, nothing in this 
reconciliation provision alters the obligation of CB to pay the correct and accurate amount of the 
Settlement Amount. In addition, while the reconciliation provision requires the Parties to act in 
good faith to reconcile the amounts through November 9, 2022, nothing prevents the Parties from 
acting in good faith to continue reconciling the amounts past November 9, 2022. 
III. 
The Reconciliation Process and KServicing’s Calculation of the Settlement 
Payment 
A. 
Despite KServicing Engaging in the Reconciliation Process in Good 
Faith, CB Prematurely and Unilaterally Ended it and Paid an Amount 
it Knew Was Incorrect 
20. 
In connection with the Reconciliation Process, starting on Monday, October 31, 
2022, CB and KServicing typically met three times a day for hours at a time. Evans Decl., ¶ 13. 
Donna Evans acted as the lead person at KServicing responsible for interfacing with CB in 
connection with the Reconciliation Process and worked closely with her colleague Tamica 
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Williams, Controller at KServicing, as well as others, to obtain the information necessary to 
calculate the Settlement Payment. Id. at ¶ 12.  
21. 
During the Reconciliation Process, KServicing worked diligently to gather and 
send to CB voluminous data sets and lengthy deliverables from a variety of sources, primarily at 
CB’s request, including data sets CB requested from multiple sources, reports generated by AmEx, 
banking records dating back from loan origination, and extensive loan reports. Williams Decl., 
¶¶ 8–9. KServicing cross-referenced data sources and sought information from the SBA and from 
former KServicing employees who had been involved in accounting for borrower remittances, 
SBA fees, and the number and amount of cancelled loans. See generally Williams Decl. By 
contrast, CB treated the Reconciliation Process as a one-sided endeavor; it consistently demanded 
that KServicing provide information, but not once during the Reconciliation Process did CB 
provide KServicing with any copies of its own data or any documentation of the amounts it 
believed the KServicing Disputed Holdbacks to be. See Evans Decl., ¶ 23. 
22. 
Importantly, CB did inform KServicing by phone on November 7th that CB 
believed KServicing’s preliminary calculation of amounts attributable to cancelled loans of 
$3,617,304, which KServicing had transmitted to CB on November 4th, was a mistake and too 
high. Evans Decl., ¶ 15. Specifically, CB stated that it had calculated the cancelled loans amount 
to be approximately $1.6 million, explaining in substance that the discrepancy resulted from the 
fact that some of the loans that were listed in KServicing’s November 4th spreadsheet were 
actually in forgiveness or had otherwise been disbursed (and not returned), and therefore they were 
not cancelled. Id. Accordingly, the correct amount to deduct from the Settlement Amount on 
account of cancelled loans should be approximately $1.6 million, not $3.6 million. Id. Ms. Evans 
followed up with CB by email that day (November 7th) to notify CB that KServicing would 
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“review the discrepancy in the cancelled loan amounts to confirm CB’s figure and provide an 
updated number,” and CB responded the next day that they were “looking forward to that 
information.” Id. at ¶ 16.  
23. 
In addition to knowingly paying less than the correct Settlement Payment amount, 
CB conducted itself as if the Parties were continuing to reconcile the Disputed KServicing 
Holdbacks beyond November 9th. On Wednesday November 9th (the Effective Date under the 
Settlement Agreement), KServicing representatives including Ms. Evans and Deputy General 
Counsel, Salim Kafiti, spoke by phone with CB’s General Counsel, Andrew Sachs. Evans Decl., 
¶ 18. On this telephone call, Mr. Sachs stated that because this Court had just issued its Order 
approving the Settlement Agreement, and CB accordingly had three business days to make 
payment by the terms of the Settlement Agreement, the Parties would have the weekend to 
continue the Reconciliation Process together to jointly attempt to agree on the Settlement Payment 
amount. Id. KServicing did not object to Mr. Sachs’ statement because it was similarly of the 
position that the Settlement Agreement did not prevent the Parties from continuing to work in good 
faith to jointly confirm the correct Settlement Payment after November 9, 2022 in an effort to 
avoid disputes. Id. 
24. 
That evening, KServicing and CB continued to communicate by email concerning 
information that had been exchanged; a CB representative emailed stating “that CB would ‘provide 
feedback’ on one of KServicing’s data files ‘by the end of the day tomorrow,’ November 10th.” 
Evans Decl., ¶ 19. Thus, both orally and in emails, CB recognized that the Parties could, and 
would, continue reconciling the amount of the Settlement Payment owed by CB after November 
9th to confirm the correct Settlement Payment amount. Id. CB sent one more email to KServicing 
on November 10th asking for certain additional information, which KServicing provided that same 
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day, but thereafter KServicing did not hear from CB except for when CB reached out to 
communicate about logistics of making a wire transfer to KServicing. Id. at ¶¶ 19–21. 
25. 
In an effort to further the Reconciliation Process and avoid unnecessary disputes, 
on November 14th, Ms. Evans emailed CB confirming, based on the most reliable source data—
the SBA’s data from its web site—that CB’s earlier cancelled loan amount of approximately $1.6 
million was accurate. Ms. Evans informed CB that the funds due to CB on account of cancelled 
loans was therefore significantly less than KServicing had initially estimated. Id. at ¶ 21. In that 
same email, Ms. Evans offered to have a call with CB to discuss the updated amount for the 
cancelled loan population. Evans Decl., ¶ 21. 
26. 
Despite KServicing having followed up by email with CB on November 14th 
confirming the correct amount of the cancelled loans, CB simply ignored that confirmation when 
making its payment. Instead, within an hour CB’s counsel forwarded to counsel for KServicing a 
wire transfer notice of $19,469,355 and admitted that it used KServicing’s older $3.6 million 
figure, which CB knew was wrong and knew that KServicing had since reconciled with data 
directly from the SBA to the approximately $1.6 million amount CB had previously provided. 
Evans Decl., ¶ 22. Thereafter, CB and its counsel failed to respond to repeated outreach from 
KServicing for over 24 hours. See Evans Decl., ¶ 22, Ex. 7. These facts confirm that CB was not 
interested in reaching an accurate Settlement Payment amount, and was not interested in acting in 
good faith as required by the Settlement Agreement. 
27. 
The next day, on November 15th, CB initiated a wire transfer of an additional 
$1,030,328 to KServicing, yielding a total payment of $20,499,683, with CB’s counsel noting by 
email that CB had been mistaken in its accounting of the Settlement Payment. Evans Decl., ¶ 23. 
The fact that CB itself separately increased the amount of payment underscores that CB believed 
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the Reconciliation Process had not concluded and was intended to yield the correct number, but 
CB chose to continue that reconciliation unilaterally, instead of jointly with KServicing. CB’s 
calculation also exposes the fact that CB simply cherry-picked figures out of preliminary data 
provided by KServicing—which KServicing provided in the spirit of working jointly and in good 
faith to reach an accurate number—and ignored data that CB knows is correct but which results in 
CB owing more to KServicing. Indeed, CB’s counsel stated that CB knew the data it used to 
calculate this amount “was incomplete,” but that CB “used it to calculate the Settlement Payment” 
anyway. See Evans Decl., Ex. 7. In that same email, counsel for CB transmitted a half-page PDF 
document listing certain line items it used to calculate its payment. See id. Importantly, CB’s PDF 
does not provide detailed information about the calculation or how each line item was derived. 
Indeed, prior to making its inaccurate and insufficient payment, CB had never shared these 
calculations with KServicing in any format for review or discussion and therefore never gave the 
Parties an opportunity to discuss them to avoid a dispute. Regardless, the calculation provided by 
CB is wrong. 
B. 
KServicing Calculated the Accurate Amount of the Settlement 
Payment 
28. 
The amount of the Settlement Payment did not depend on the Reconciliation 
Process, but rather on deriving the correct number. At all times during the Reconciliation Process, 
KServicing proceeded in good faith. As set forth in the Williams Declaration, Ms. Williams 
“worked with the KServicing team to reconcile various data sources related to the cancelled loans 
and borrower remittance holdback amounts, including trial balance files, remittance reports, source 
material data maintained by the SBA, wire transfer records, and bank account statements, to 
determine the proper amount of the Settlement Payment” during the Reconciliation Process, with 
certain confirmatory work continuing just after that period. Id. 
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29. 
As described in the Williams Declaration, KServicing has determined that the 
correct amount owed by CB to KServicing under the Settlement Agreement is $23,780,786.63, 
and a spreadsheet setting forth that calculation is attached as Exhibit 1 thereto. Williams Decl., ¶ 
14, Ex. 1. A summary of KServicing’s calculation of the KServicing Disputed Holdback Amounts 
and resulting Settlement Payment is shown in the below chart: 
Total Settlement Amount  
$58,000,000 
LESS 
Disputed KServicing Fee 
Holdback 
($8,317,023.23) 
Disputed KServicing Remittance 
Holdback (Total of A and B 
below) 
($25,902,190.14) 
A. Funds on Account of 
Cancelled Loans 
($1,677,192.00) 
B.  Funds Collected from 
Borrowers 
($24,224,998.14) 
EQUALS 
Settlement Payment 
$23,780,786.63 
 
30. 
The categories within the Disputed KServicing Holdbacks, to be deducted from the 
$58 million Settlement Amount, correspond with three different buckets of funds KServicing 
received, from borrowers and the SBA, to be remitted to CB under the terms of the Parties’ 
Agreements, but that KServicing instead held to offset CB’s failure to pay the $65.5 million in 
fees CB owed to KServicing.  
31. 
Bucket one, the “Disputed KServicing Fee Holdbacks,” corresponds with fees 
KServicing received from the SBA on account of loans issued by CB. Settlement Agreement § 
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1(C). There is no material dispute as to the “Disputed KServicing Fee Holdback” amount; both 
CB and KServicing have calculated that number as $8,317,023. Williams Decl., ¶ 15. 
32. 
Bucket two is the funds “held by KServicing on account of cancelled loans” and is 
the first component of the “Disputed KServicing Remittance Holdback” category. Williams Decl., 
¶ 16; Settlement Agreement § 1(E). The cancelled loan remittance amount consists of funds that 
were disbursed by CB to KServicing for loans that borrowers applied and were approved for, but 
were either later cancelled and the funds were therefore not disbursed to those borrowers, or where 
the funds were disbursed to the borrower but then returned to KServicing. Williams Decl., ¶¶ 14, 
16. For purposes of the Settlement Payment, “the larger the amount of funds held on account of 
cancelled loans, the less CB would owe KServicing; conversely, the smaller the amount of funds 
held on account of cancelled loans, the more CB would owe KServicing under the Settlement 
Agreement.” Williams Decl., ¶ 16. 
33. 
As described above, Ms. Williams and her colleagues worked to reconcile the 
cancelled loan amount. Williams Decl., ¶ 18. Specifically, KServicing utilized the most reliable 
source of information—recent data posted by the SBA on a loan-by-loan basis showing the status 
of each loan. Id. This work involved Ms. Williams and her colleagues looking up each loan 
KServicing had previously counted as cancelled and “cross referencing the list of loans in the 
spreadsheet that led to the November 4th approximate $3.6 million figure, using the SBA Loan ID 
number, with the SBA’s source data obtained from the SBA website.” Id. After doing this detailed 
analysis, KServicing determined that a number of the loans on the spreadsheet provided by its 
former CFO to CB had not been cancelled, and that the funds due to CB on account of cancelled 
loans was therefore significantly less than KServicing had initially estimated. Id. Through that 
analysis, Ms. Williams and her colleagues determined that the accurate amount KServicing held 
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on account of cancelled loans was $1,677,192.00 – a number entirely consistent with what CB 
indicated to KServicing on November 7th was the accurate amount of the cancelled loans, and 
which results in an increase in the Settlement Payment in an amount of $1,940,112. Id.  
34. 
Bucket three is the second of the two components in the “Disputed KServicing 
Remittance Holdback” category and consists of a certain of funds collected from borrowers. 
Williams Decl., ¶ 13. Ms. Williams and her team determined, based on a review and cross 
reference of a number of data sources including actual bank statements, customer payment 
receipts, and KServicing’s finalized cancelled loan list that the amount held on account of 
Borrower Remittances is $24,224,998.14. Id. at ¶ 19. 
35. 
Here, KServicing knew that the Company’s former CFO Mr. Eidson had been 
involved in creating a spreadsheet reflecting preliminary borrower repayment account analysis, 
which KServicing sent to CB on November 4, 2022, and CB stated they used this file to calculate 
the corresponding figure included in their settlement payment. Id. at ¶ 21. As a result, Ms. Williams 
and her colleagues worked to determine whether the data in that spreadsheet was up to date. As 
part of that work, KServicing spoke with Mr. Eidson, and learned that there was a data file that 
reflected payments already made to CB that were not reflected in the Repayment File sent to CB 
on November 4, 2022. Id. KServicing had previously remitted additional borrower payments to 
CB, and those payments were therefore no longer due to CB. Id. at ¶ 22. 
36. 
Ms. Williams reviewed the file referenced by Mr. Eidson and all of the bank 
statements and wire transfer records, and confirmed that KServicing had already paid $1,556,656 
to CB in borrower payments not reflected in the data CB used to calculate its payment. Id., Exs. 2, 
3, 4. As a result, KServicing removed those amounts from the Borrower Remittance amount to 
arrive at the correct Settlement Payment; in fact, the exact amount of the difference between CB’s 
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November 15th $25,578,633 figure on account of borrower payments and KServicing’s calculation 
of that amount is the $1,556,656 KServicing already remitted to CB. Id. ¶ 24. Significantly, in 
reviewing Mr. Eidson’s email, KServicing confirmed that Mr. Eidson sent this file to CB in 
October 2020 (at the same time KServicing paid CB these amounts). Id. at ¶ 22. Thus, CB had, 
but nonetheless ignored, information that amounts it included in its payment calculation had 
already been paid by KServicing. CB instead chose to use what it knew was outdated information, 
resulting in CB short-paying KServicing by over $1.5 million. Williams Decl., ¶¶ 22–23. 
37. 
Along with the other elements of KServicing’s calculation of the Borrower 
Remittance amounts, “KServicing’s calculation of $24,224,998 in Borrower Remittance due to 
CB is $1,340,991 less than CB’s calculation of $25,565,989 for that category, with the majority of 
the net difference due to payments the Company already remitted to CB and are therefore no longer 
owed by KServicing.” Williams Decl., ¶ 26; Ex. 1. 
38. 
In total, the Settlement Payment KServicing calculated through the labor-intensive 
and detailed work completed by Ms. Williams and her team is $23,780,786.63, which is 
$3,281,103 more than what CB paid to KServicing on November 15th. 
RELIEF REQUESTED 
39. 
By this Motion, the Debtors request the entry of an order, substantially in the form 
of the Proposed Order attached hereto as Exhibit A, pursuant to section 105(a) of the Bankruptcy 
Code, (i) enforcing the Settlement Order and Settlement Agreement against CB and ordering CB 
to pay the Unpaid Amount to the Debtors not later than five (5) business days following entry of 
the Proposed Order, and (ii) preserving the Debtors’ rights to seek sanctions, including attorneys’ 
fees, for CB’s intentional failure to comply with the Settlement Order and Settlement Agreement. 
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RLF1 28328477v.1 
BASIS FOR RELIEF REQUESTED 
I. 
The Court Should Compel Payment of the Balance of the Correct Settlement 
Payment Amount by Enforcing the Settlement Order and Finding that CB 
Breached the Settlement Agreement 
40. 
It is well settled that bankruptcy courts have jurisdiction to interpret and enforce 
their own orders,5 and that Bankruptcy Code Section 105(a) allows bankruptcy courts to issue any 
order necessary to carry out the provisions of the Bankruptcy Code, including to enforce their 
previously entered orders.6 
41. 
It is also well settled that a court may enforce a settlement agreement entered into 
by parties in a proceeding pending before it.7 Indeed, the obligation of parties to perform under a 
valid settlement agreement is a bedrock principle of law.8 In this regard, both the Settlement Order 
and the Settlement Agreement explicitly provide that the Court will retain jurisdiction with respect 
to all matters arising with respect to the Settlement Order and the Settlement Agreement, including 
the enforcement thereof.9 
 
5 In re Allegheny Health, Education and Research Foundation, 383 F.3d 169, 175-76 (3d Cir. 2004) (holding that a 
bankruptcy court had jurisdiction to interpret and give effect to its previous sale order); In re Worldcorp., Inc., 252 
B.R. 890, 897 (Bankr. D. Del. 2000) (enforcing order and settlement agreement); see In re Texaco, Inc., 182 B.R. 937, 
944 (Bankr. S.D.N.Y. 1995) (recognizing that “it is essential for a bankruptcy court to have jurisdiction to adjudicate 
controversies respecting, and to enforce, its own orders”). 
6 In re Marcus Hook Development Park, Inc., 943 F.2d 261, 266 (3d Cir. 1991) (noting that Bankruptcy Code Section 
105 “gives the bankruptcy court the power and the jurisdiction to enforce its valid orders.”) (quoting In re Radco 
Merchandising Services, Inc., 111 B.R. 684, 688-89 (N.D. Ill. 1990)). 
7 See Hobbs & Co. v. Am. Investors Mgmt., Inc., 576 F.2d 29, 33 n.7 (3d Cir. 1978); see Fox v. Consolidated Rail 
Corp., 739 F.2d 929, 932 (3d Cir. 1984) (“It is well settled that a federal court has the inherent power to enforce and 
to consider challenges to settlements entered into in cases originally filed therein.”); Rosso v. Foodsales, Inc., 500 F. 
Supp. 274, 276 (E.D. Pa. 1980) (noting that it was “well settled that a district court has jurisdiction to enforce a 
settlement agreement entered into by litigants in a case pending before it.”). 
8 Good v. Pennsylvania Railroad Co., 384 F.2d 989, 990 (3d Cir. 1967) (“The obligation to remain bound by a valid 
agreement of settlement duly entered into by counsel with the authority of his client is one which pervades the law.”). 
9 Settlement Order at 3, ¶ 7; Settlement Agreement at 10, § 21. 
Case 22-10951-CTG    Doc 340    Filed 12/07/22    Page 17 of 20

 
 
RLF1 28328477v.1 
42. 
Where, as here, a party refuses to perform under a valid settlement agreement, the 
appropriate remedy is for the Court to enforce the agreement by its terms.10 Importantly, the Court 
may compel the payment of amounts owed under a previously approved settlement agreement by 
way of a contested matter, rather than an adversary proceeding.11 Indeed, this Court stated during 
the November 29, 2022 Status Conference regarding this matter that if the Parties agreed to resolve 
this matter through motion practice rather than through an adversary proceeding, they may do so, 
and both Parties agreed to those procedures. See Tr. of Status Conference, dated November 29, 
2022, at 7:25-8:21. Thus, the relief requested by this Motion is procedurally proper. 
43. 
CB’s refusal to remit the balance of the Settlement Payment is also a breach of the 
terms of the Settlement Agreement. The Settlement Agreement provides that it shall be “enforced 
and governed by and under the laws of the State of Pennsylvania.” Settlement Agreement, § 20. 
Under Pennsylvania law, a claim for breach of a contract requires three elements: (1) the existence 
of a contract, including its material terms; (2) breach of a duty imposed by the contract; and (3) 
resultant damages. Gladstone Tech., Partners, LLC v. Dahl, 222 F. Supp. 3d 432, 440 (E.D. Pa. 
2016). All three elements are satisfied. The Settlement Agreement is a valid contract that includes 
material terms, CB has an unambiguous duty to pay KServicing the Settlement Payment and it 
breached its duty by failing to do so, and KServicing has been damaged in the amount of 
$3,281,103. 
 
10 Pugh v. Super Fresh Food Markets, Inc., 640 F. Supp. 1306, 1307-08 (E.D. Pa. 1986) (enforcing settlement 
agreement according to terms). 
11 In re Worldcorp, 252 B.R. at 895 (“While it is true as a general proposition that a claim to recover money or property 
or to obtain an injunction or other equitable relief must be brought as an adversary proceeding, that general rule is not 
applicable to this case. In this case, the Debtors are merely seeking to enforce an order already in place. The case was 
originally brought by the Debtors as an adversary proceeding. The adversary proceeding was resolved by a Settlement 
Agreement pursuant to which we issued the order the Debtors now seek to enforce. Thus, we conclude that an 
adversary proceeding is not necessary where the relief sought is the enforcement of an order previously obtained.”). 
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RLF1 28328477v.1 
NO PRIOR REQUEST 
44. 
No prior request for the relief requested herein has been made to this or any other 
court.  
NOTICE 
45. 
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 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”). In light 
of the nature of the relief requested, Debtors submit that no further notice is required or needed 
under the circumstances. 
 
 
 
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Case 22-10951-CTG    Doc 340    Filed 12/07/22    Page 19 of 20

 
 
RLF1 28328477v.1 
CONCLUSION 
WHEREFORE, the Debtors respectfully request that the Court enter the Proposed Order, 
granting the relief requested in this Motion and such other and further relief as may be just and 
proper.  
Dated: December 7, 2022 
Wilmington, Delaware 
 
/s/ Matthew P. Milana 
RICHARDS, LAYTON & FINGER, P.A. 
Daniel J. DeFranceschi, Esq. (No. 2732) 
Amanda R. Steele, Esq. (No. 5530) 
Zachary I. Shapiro, Esq. (No. 5103) 
Matthew P. Milana, Esq. (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, Esq. (admitted pro hac vice) 
Theodore E. Tsekerides (admitted pro hac vice) 
Richard W. Slack (admitted pro hac vice) 
Natasha S. Hwangpo, Esq. (admitted pro hac vice) 
Chase A. Bentley, Esq. (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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