Objection (debtors' response to motion to compel) — In re KServicing (Bankr. D. Del.)

Record facts

U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 355 · 2022-12-21 · Docket on CourtListener

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IN THE UNITED STATES BANKRUPTCY COURT 
FOR THE DISTRICT OF DELAWARE 
 
 
)  
In re 
) Chapter 11 
 
)  
KABBAGE, INC. d/b/a KSERVICING, et 
al., 
) 
) 
Case No. 22-10951 (CTG) 
 
                                      Debtors.1 
 
) 
) 
) 
) 
) 
) 
(Jointly Administered) 
 
Re: Docket No. 336 
                                              
 
 
DEBTORS’ OBJECTION TO 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 
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 objection (the “Debtors’ Objection”) to 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 (the “Motion to Compel”) [Docket No. 336].2 Contemporaneously herewith, 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 In support of its Motion to Compel, on December 7, 2022, CB also filed the Declaration of Alyssa White in Support 
of 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 (“White Declaration”) [Docket No. 337]. 
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Debtors submit the declaration of Tamica M. Williams (the “Williams Objection Declaration”) 
and respectfully state as follows in support of the Debtors’ Objection:   
PRELIMINARY STATEMENT3 
1. 
The Motion to Compel seeks excessive relief based on isolated circumstances. On 
its face, the Motion to Compel asserts that the Settlement Agreement approved by the Court 
requires all borrower remittances received by KServicing on account of loans in the Customers 
Bank (“CB”) PPP portfolio that are placed in a separate account for the benefit of CB must be 
remitted to CB without regard to the Debtors’ loan servicing obligations, the historical course of 
dealings between the Parties in connection with treatment of such amounts, the SBA’s regulatory 
guidance concerning the PPP initiative, or other relevant orders of this Court. Specifically, CB 
contends that KServicing’s payment of approximately $925,243 to the SBA for CB PPP Loans 
purchased by the SBA pursuant to its guaranty purchase obligations (the “SBA Payment”) 
violated the Settlement Agreement. The Motion to Compel also contends that, notwithstanding the 
fact that the SBA Payment was indisputably owed to the SBA, such amounts should have been 
remitted to CB because the Debtors already accounted for it during the reconciliation commenced 
pursuant to the Settlement Agreement – essentially that the Debtors double-counted the $925,243.  
2. 
The Motion to Compel should be overruled. First, the Debtors have already 
addressed the inadvertent double-counting of the SBA Payment for the month of October 2022 
and remitted the full amount to CB on December 14th. Thus, the primary issue raised by CB is 
resolved and the related relief requested moot. Second, it is undisputed that the SBA Payment was 
due to the SBA and CB has not provided the Debtors with any indemnification protections or 
 
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 to Compel 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. 
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releases in exchange for demanding the Debtors cease performing certain of their core PPP 
servicing functions. Third, the extensive adequate protection requested is neither justified nor 
warranted.  
3. 
The Motion to Compel is both unnecessary and tactical. It is designed to have an 
affirmative motion in front of the Court at the same time as the Debtors’ Motion to Enforce4 to 
require CB to pay the full amount of the Settlement Payment. Had CB simply raised the issue of 
the double-counting of the SBA Payment and attempted to work cooperatively with KServicing, 
that issue would have been completely resolved without the need for a motion. Just as CB failed 
to work with KServicing to determine the proper amount of the Settlement Payment as detailed in 
KServicing’s Motion to Enforce, CB rushed to court instead of making any effort to confer with 
KServicing to avoid this dispute. CB’s contention that KServicing has, since CB notified 
KServicing of the deficiency in KServicing’s October Borrower Remittance Payment, “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,” is wrong. See Mot. to Compel, at pp. 3. KServicing corrected this error through 
its payment to CB on December 14th once CB provided KServicing with sufficient information to 
identify it and do so. 
4. 
CB’s Motion to Compel also argues that the Settlement Agreement prohibits 
KServicing from continuing to make payments due and owing to the SBA. This position is wholly 
contrary to the practice of the Parties and this Court’s Final Order Authorizing Debtors to (I) 
 
4 The “Motion to Enforce” means the Motion of Debtors for Entry of an Order Enforcing the Settlement Order and 
the Settlement Agreement Between KServicing and Customers Bank, (Dec. 7, 2022) [Docket No. 340]; the “Williams 
Declaration” means the Declaration of Tamica Williams in Support of Motion of Debtors for Entry of an Order 
Enforcing the Settlement Order and the Settlement Agreement Between KServicing and Customers Bank, (Dec. 7, 
2022) [Docket No. 341]. 
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Continue Servicing and Subservicing Activities and (II) Perform Related Obligations [Docket No. 
140] (the “Loan Servicing Final Order”). The amounts KServicing paid to the SBA were actually 
owed to the SBA. KServicing thus paid to the SBA funds that were undoubtedly due to the SBA, 
and not to CB, during the month of October on account of payments KServicing received from 
borrowers whose loans had been guaranty purchased by the SBA,5 meaning the SBA owned the 
loans and the right to any payment thereon. Moreover, CB has not set forth any basis for how they 
were harmed by these payments given the SBA was owed these amounts (CB would have had to 
pay them anyway). 
5. 
In any event, if CB is now requesting that it, rather than KServicing, should make 
required payments to the SBA and borrowers from the monthly borrower remittances KServicing 
receives (notwithstanding regulatory guidance and a Court order which suggests otherwise), 
KServicing has no objection to CB doing so, provided that CB provides an indemnity to 
KServicing for any possible resulting liability from the SBA and borrowers. To be clear, 
KServicing does not contend that the money owed to the SBA or to borrowers is property of 
KServicing and it is prepared, with appropriate protections much like in an interpleader, to send 
the remittance in the future to CB as either directed by the Court or agreed to by the SBA (on its 
behalf and on behalf of PPP borrowers) and CB. Given the Loan Servicing Final Order and 
regulatory guidance, which expressly contemplate that payment will be made to the SBA and 
borrowers, as applicable, the Debtors should not be obligated to remit funds to CB but then be 
exposed to potential liability for doing so to the SBA or borrowers. 
 
5 In the event a PPP Loan was not eligible for forgiveness pursuant to the SBA guidelines, the SBA nevertheless 
guaranteed its purchase of 100% of the PPP Loan from the originating lender upon application of the lender. Such 
purchase of a loan by the SBA is defined as a “Guaranty Purchase.” 
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6. 
Finally, CB is not entitled to the laundry list of extensive additional “adequate 
protection” sought in its Motion to Compel. The Settlement Agreement itself sets forth the 
bargained for adequate protections agreed to by the Parties. It then specifically states that CB is 
not permitted to challenge such protections as inadequate. In other words, while CB can enforce 
any existing protections in the Settlement Agreement, it cannot contractually seek any additional 
protections. Moreover, even if such additional protections were not contractually barred, the facts 
here show that they are unnecessary and inappropriate in any event. 
RELEVANT BACKGROUND 
I. 
The Parties’ Relationship Prior to Settlement Agreement and Entering into 
the Settlement Agreement 
7. 
Relevant to the dispute raised in CB’s Motion to Compel, the original underlying 
disputes between CB and KServicing involved the Parties’ obligations related to their respective 
participation in the SBA’s PPP initiative. CB owed KServicing approximately $65.5 million in 
fees under KServicing’s agreements to service PPP loans issued by CB, which fees were due at 
loan origination, and which CB failed to pay for years (the “CB Receivable”). In response to CB’s 
refusal to pay KServicing the CB Receivable, KServicing retained funds as part of its servicing 
that would otherwise be due to CB under the Parties’ Agreements—just over $34 million up to the 
Petition Date. The Parties resolved this dispute, among others, when they entered into the 
Settlement Agreement on October 27, 2022. 
8. 
The Settlement Agreement not only required CB make the cash Settlement Payment 
to KServicing, but also contained other terms the Parties’ agreed would govern their business 
relationship going forward, including the Parties’ agreements with respect to loan servicing 
obligations under applicable contracts, and KServicing’s agreement—in light of receiving the 
Settlement Payment—to remit to CB borrower payments due to CB instead of holding back 
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amounts as KServicing had done prior to the settlement as a result of CB’s failure to pay 
KServicing its fees. 
9. 
In essence, the Settlement Agreement was intended as a true-up and reset 
mechanism: as a result, CB was to finally and immediately pay KServicing approximately 90% of 
what it owed, and KServicing would begin remitting to CB, on a monthly basis, amounts 
KServicing collected from borrowers each month post-petition that were due to CB (“Monthly 
Borrower Remittance Payments”). 
II. 
The Settlement Agreement Contains Provisions That Undermine the Motion 
10. 
The Settlement Payment calculation in the Settlement Agreement required the 
deduction of the “Disputed KServicing Holdbacks” from the $58 million “Settlement Amount” to 
yield the Settlement Payment. Settlement Agreement §§ 1(G), 1(H). These Disputed KServicing 
Holdbacks are defined in the Settlement Agreement to comprise two separate types of holdbacks, 
one of which, “Disputed KServicing Remittance Holdback,” included funds “collected from 
borrowers that KServicing is required to remit to CB.” Settlement Agreement § 1(E). But that 
amount, to be deducted from the Settlement Amount to reach the Settlement Payment, excludes 
“Borrower Overpayments” or, as CB describes it, “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.” Settlement Agreement §§ 1(A), 1(E); Mot. to Compel, ¶ 13; 
Williams Objection Decl., ¶¶ 6, 7. These funds were left behind by CB with KServicing in the 
Settlement Payment calculation in order for KServicing to make payments to the SBA and to 
borrowers, where applicable. The Settlement Agreement thus contemplates that KServicing make 
precisely the payments to the SBA that CB challenges. 
11. 
A key component of the Parties’ agreement to settle their disputes involved 
KServicing’s agreement to “continue as loan servicer for the Remaining Loan Population” as 
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detailed in Section 4 of the Settlement Agreement (the “Servicing Plan”) and Exhibit A thereto 
(the “Servicing Plan Reports”) for a specified period of time. Settlement Agreement § 4, Ex. A. 
Indeed, as part of the agreed-upon Servicing Plan and in order to avoid disputes and maintain a 
productive business relationship going forward, the Parties agreed “to hold weekly meetings, as 
needed or reasonably requested by either Party…to review matters relating to the Remaining Loan 
Population,” those CB PPP loans that remain outstanding and are serviced by KServicing. Id., at 
§ 4(D). CB agreed to “accept[] the Servicing Plan,” and agreed that “CB shall not challenge the 
Servicing Plan or the sufficiency of the Servicing Information provided by KServicing in support 
thereof.” Id., at § 4(F). CB’s Motion to Compel violates these provisions. While CB can seek to 
enforce the agreement, it cannot seek more protections than the Parties bargained for under the 
Settlement Agreement. 
III. 
Both Parties Understood That Amounts KServicing Was to Remit to SBA 
Were Not Payable to CB 
12. 
Neither Party contemplated that CB would collect and distribute Borrower 
Overpayments. In the Settlement Agreement and consistent with the Court’s Loan Servicing Final 
Order, the Parties understood KServicing, and not CB, would, on account of “Borrower 
Overpayments” (i) pay to the SBA, and not to CB, those amounts due to the SBA on account of 
payments made by borrowers on loans issued by CB where those loans had since been guaranty 
purchased by the SBA (“thus resulting in such collected amounts being payable by KServicing to 
the SBA,” not CB), (ii) refund by paying directly to borrowers payments a borrower made on a 
loan that is forgiven by the SBA, “thus resulting in such collected amounts being payable by 
KServicing to the applicable borrower,” not CB, and (iii) remit to either the SBA or borrower, 
depending on the circumstances, and not to CB, “any other overpayments received by KServicing 
from any source” that were due to the SBA or a borrower. See Settlement Agreement, § 1(A). This 
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provision of the Settlement Agreement is consistent with the relief granted in the Loan Servicing 
Final Order, paragraph 5. Accordingly, such amounts were and are to be deducted from any 
payments owed to CB.  
IV. 
CB Failed to Confer with KServicing in Good Faith Concerning KServicing’s 
Borrower Remittance Payments Post-Settlement 
13. 
As contemplated in the Settlement Agreement, KServicing prepared during the 
month of October to pay CB funds KServicing had received from borrowers that month (but after 
the Petition Date) that were due and payable to CB. Then, on November 18, 2022, KServicing sent 
to CB via SFTP the October (post-petition) Borrower Remittance Report and wired $376,326.59 
to CB. See Williams Objection Decl., ¶ 13. KServicing’s payment on November 18th was 
comprised of amounts KServicing had collected from borrowers on account of CB PPP loans 
during that time and owed to CB under the terms of the Parties’ prior agreements, but did not 
include funds collected from borrowers due instead to the SBA, including with respect to Borrower 
Overpayments, which KServicing paid to the SBA on a loan-by-loan basis during the month of 
October. Id.  
14. 
KServicing, however, made an error in calculating this payment, which it has since 
corrected. Notably, given the long-standing dispute between the Parties giving rise to the 
Settlement Agreement, this was the first time KServicing had paid borrower remittance amounts 
to CB since the Parties entered into the Settlement Agreement. See Williams Objection Decl., ¶ 
11. When KServicing made this October Remittance Payment to CB, it did so in a good faith effort 
to remit to CB all amounts collected from borrowers and due to CB on a monthly basis. 
KServicing, however, mistakenly omitted from its October Remittance Payment the SBA Payment 
because those funds had already been accounted for in the Parties’ Settlement Payment 
calculations. In other words, the funds were left behind by CB as part of the Settlement Agreement 
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for KServicing to pay the SBA and therefore should not have been deducted again from the post-
Settlement Borrower Remittance Payment for October. See Williams Objection Decl., ¶ 19.6 
15. 
Between November 18th and November 28th, CB said nothing to KServicing 
regarding KServicing’s October Remittance Payment. But on November 28, 2022, only after 
KServicing submitted its November 25th letter to the Court describing the Parties’ dispute as to 
CB’s failure to pay the correct Settlement Payment amount, CB decided to notify KServicing of 
its belief that KServicing’s October Remittance Payment was insufficient. Even these 
communications did not explain or identify the double-counting issue. 
16. 
On November 28th, CB’s Alyssa White sent KServicing representatives, including 
Ms. Williams, an email confirming CB’s receipt of KServicing’s October Remittance Report and 
wire for $376,326.59, and stating that “it appears SBA payments were netted out,” and that given 
KServicing’s October Synovus bank statement showed $1,551,275.91 in deposits, the remainder 
was “not accounted for.” See White Decl., Ex. B. The email contains no specifics or any detail and 
appears designed as part of CB’s litigation tactics. Indeed, only a few hours after sending the email,   
CB filed a letter with the Court, which focused primarily on the Parties’ dispute regarding the 
Settlement Payment amount, but stated that KServicing’s November 18th October Remittance 
Payment of $376,326.59 to CB was short by over $1 million. See Docket No. 289. 
17. 
Like the email, CB’s letter to the Court did not specify the exact amount of or reason 
for the shortfall, despite KServicing having made the payment and submitted the applicable 
Servicing Plan Reports ten days prior. See Docket No. 289; Williams Objection Decl., ¶ 15. CB 
also stated in its letter that “KServicing has failed to provide any reason for this shortfall,” but 
 
6 For the avoidance of doubt, the issues raised in this motion do not impact the Settlement Payment calculation in 
KServicing’s Motion to Enforce and the Williams Declaration accompanying that motion, nor does CB’s Motion to 
Compel allege that they do. See Docket Nos. 340, 341. The error described herein occurred due to a mistaken double-
count of amounts due to the SBA post-settlement that were already accounted for in that calculation. 
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omitted the fact that CB had only alerted KServicing to the issue that very same day, allowing no 
chance for KServicing to discuss the issue with CB, let alone review its records to determine the 
presence and extent of any shortfall. Id. Following CB’s general description of complaints in the 
letter, CB stated it would be seeking relief from KServicing in court “by way of prompt motion,” 
including payment of the remaining October remittances, an accounting, and adequate protection. 
See Docket. No. 289, at 5. It is therefore obvious that CB was looking to rush to Court, likely to 
deflect from its failure to make the full Settlement Payment. 
18. 
After making no attempt to meet and confer on the issue, on December 7, 2022 CB 
filed its Motion to Compel. In sum, rather than attempting to resolve the matters at issue in CB’s 
Motion to Compel consensually, CB chose to raise them in a litigation posture. 
V. 
KServicing Omits the SBA Payment from its October Remittance Payment, 
but Promptly Corrects the Issue 
19. 
KServicing has always sought to calculate and remit the correct amount of the 
Monthly Borrower Remittance Payments and continues to be open to reconcile any discrepancies 
cooperatively with CB. Although CB never attempted to meet and confer with respect to the 
underlying issues in its Motion to Compel, as soon as KServicing was alerted to CB’s issue, it 
worked to determine whether KServicing had correctly calculated that payment. Within a week, 
KServicing determined that it had not remitted the correct amount and sought to promptly rectify 
the situation. 
20. 
KServicing had paid the SBA a total of $925,242.87 (the SBA Payment) throughout 
the month of October (post-petition), made up of borrower payments made on loans that had been 
guaranty purchased by the SBA, meaning those loans were owned by, and borrower payments thus 
due to, the SBA instead of CB. Williams Objection Decl., ¶ 18. KServicing had deducted this 
amount from its October Borrower Remittance Payment (yielding the $376,326.59 paid on 
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November 18th), but determined that KServicing had already accounted for these funds when it 
calculated the $1,071,094 Borrower Overpayments amount included Settlement Payment amount. 
Id.7 In essence, the $1,071,094 Borrower Overpayment amount acted as a credit to CB, leaving 
behind with KServicing those funds in order to make payments that were due to the SBA as of the 
Petition Date, but that KServicing had not yet paid to the SBA. As a result, the full amount of the 
SBA Payment was already properly encompassed within the calculation of the Settlement 
Payment—meaning the total October Borrower Remittance Payment to CB for post-petition 
October should have been $1,302,569.46. Id. 
21. 
To be clear, the treatment of the SBA Payment was not a matter of failing to 
accurately calculate the amounts owed to the SBA—KServicing properly accounted for borrower 
remittances and paid the proper amount due to the SBA based on borrower payments on guaranty-
purchased loans during the month of October—but rather, the issue related to the timing of 
accounting for payments due to the SBA. KServicing simply erred when it attributed those 
payments during October, when they were actually made, rather than as payments that were due 
(but not yet paid) as of the Petition Date and already properly credited to KServicing as Borrower 
Overpayments in the Settlement Payment calculation. 
22. 
To rectify this error, on December 14th, KServicing paid CB $1,026,516.58, which 
included the $925,242.87 KServicing mistakenly omitted from its October Borrower Remittance 
Payment. Williams Objection Decl., ¶ 20. As a result of the December 14th payment, the October 
and November Borrower Remittance Payments are now complete and accurate.  
 
7 See Williams Declaration [Docket No. 341], at 8 (table); id. at Exhibit 1. 
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ARGUMENT 
I. 
KServicing Has Paid CB The Full Borrower Remittance Payments Due to CB 
for October and November 2022 
23. 
 As set forth above, as soon as CB provided KServicing with information regarding 
the possibility that KServicing’s October Borrower Remittance Payment was short because of the 
double-counting issue, KServicing undertook to determine if it had made an error. As described in 
the Williams Objection Declaration and above, KServicing diligently worked out that the SBA 
Payment made in October (and therefore deducted from its initial October Borrower Remittance 
Payment to CB) was already encompassed within the credit properly taken as part of the Settlement 
Payment calculation. Williams Objection Decl., ¶ 19. KServicing corrected this error by paying 
CB $925,242.87 on December 14th, along with its payment for the month of November. 
II. 
KServicing’s Payments to the SBA Were Proper 
24. 
While KServicing determined that the SBA Payment should have been paid to CB 
(as described above), the reason that such payment was necessary was not that the funds were 
improperly paid to the SBA. The payments to the SBA were entirely proper. As described above 
and in the Williams Objection Declaration, KServicing paid to the SBA funds that are concededly 
owed to the SBA. Indeed, the payments to the SBA during the month of October were on account 
of payments KServicing received from borrowers whose loans had been guaranty purchased by 
the SBA—therefore, CB is no longer the holder of the loan note and is not entitled to payments on 
the loan collected by KServicing from borrowers.  
25. 
Furthermore, the Settlement Agreement itself states that with respect to Borrower 
Overpayments on account of loans guaranty purchased by the SBA included in the Settlement 
Payment Calculation, the SBA’s purchase results in those  amounts “being payable by KServicing 
to the SBA.” Settlement Agreement § 1(A). The Settlement Payment calculation as set forth in the 
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Settlement Agreement explicitly carved out these Borrower Overpayments from the amounts to 
be deducted from the Settlement Amount to reach the Settlement Payment, meaning the Parties 
intended this money be left behind with KServicing such that KServicing would remit the funds 
to the SBA itself. Thus, the Parties explicitly contemplated KServicing making these payments. 
The Motion to Compel does not raise any dispute as to whether such payments are due to the SBA, 
and a practice requiring that KServicing first pay those funds to CB so that CB could then remit 
them to the SBA would not only be contrary to the terms of the Settlement Agreement, but also to 
the Debtors’ historical practices and the Loan Servicing Final Order (which CB did not object to). 
See Loan Servicing Final Order [Docket No. 140], at ¶ 5.  
26. 
On the Petition Date, the Debtors filed their Loan Servicing Motion,8 seeking 
authority from the Court to continue various loan servicing activities, which the Court granted in 
its Loan Servicing Final Order. In the Loan Servicing Motion, the Debtors described that 
borrowers make payments to the company that may be “(a) in excess of the required minimum 
loan payments… (‘Regular Overpayments’), (b) on account of PPP Loans that are ultimately 
forgiven by the SBA (‘Forgiveness Overpayments’), and (c) on account of PPP Loans that the 
SBA has already granted Guaranty Purchase (‘Guaranty Overpayments’),” “Borrower 
Overpayments.” Loan Servicing Mot., ¶ 41. Regarding these Borrower Overpayments, 
KServicing described that it, “in the ordinary course of business,” (a) remits both “Regular 
Overpayments and Forgiveness Overpayments to borrowers” (b) “may adjust regular remittances 
to” Partner Banks, including CB, on account of borrower refunds and payments to the SBA, and 
“(c) remits Guaranty Overpayments to the SBA” (the “Overpayment Procedures”). Id. at ¶ 43 
 
8 Motion of Debtors For Interim and Final Orders Authorizing the Debtors to (I) Continue Servicing and Subservicing 
Activities and (II) Perform Related Obligations, October 3, 2022 (“Loan Servicing Motion”) [Docket No. 11]. 
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The Loan Servicing Final Order authorized the Debtors to continue engaging in these activities. 
[Docket No. 140], at ¶ 5. Thus, the practices authorized by the Court and not objected to by CB 
permit and authorize KServicing to pay the SBA and borrowers as a matter of standard servicing 
practices. 
27. 
In addition, the SBA’s guidance concerning its PPP initiative makes it clear that 
any borrower payments collected on account of loans the SBA has guaranty purchased must be 
remitted to the SBA as owner of the loan. The SBA Form of Assignment,9 which CB would have 
been required to sign on account of each guaranty purchase of a loan by the SBA, constitutes an 
assignment by CB to the SBA of all right, title and interest to and under the PPP Loan and provides 
that if an “Assignor receives any payment or any value of any kind with respect to the Loan or 
obligations secured or evidenced thereby, Assignor shall hold the same in trust for Assignee [the 
SBA] and shall immediately deliver the guaranteed share to Assignee [the SBA].” Id. SBA 
Procedural Notice No. 5000-835955, dated October 5, 2022 reiterates the obligation to turn over 
any post-guaranty purchase loan payments to the SBA: “If the Lender receives any post-guaranty 
purchase payments from the borrower, the Lender must send the full payments to SBA via 
Pay.Gov.”10 Put simply, after a PPP loan is guaranty purchased by the SBA, the SBA owns that 
loan (not CB) and is therefore entitled to any payments made on that loan. 
28. 
Here, KServicing’s role as servicer for CB PPP loans involves KServicing’s receipt 
of payments from borrowers (where CB would have received these payments had it not contracted 
with KServicing to do so), including where the SBA had guaranty purchased the loan. In 
 
9 SBA Form of Assignment, Effective October 5, 2022, available at https://www.sba.gov/sites/default/files/2020-
02/Assignment%20Revised%2002-22-20.pdf (last accessed Dec. 17, 2022).  
10 
SBA 
Procedural 
Notice 
No. 
5000-835955, 
dated 
October 
5, 
2022, 
available 
at 
https://cdn.ymaws.com/www.naggl.org/resource/resmgr/policynotices_2022/SBA_Procedural_Notice_5000-8.pdf 
(last accessed Dec. 17, 2022). 
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accordance with KServicing’s role, the Parties’ contemplated in the Settlement Agreement, and 
the Court authorized in the Loan Servicing Final Order, that KServicing would remit payments on 
guaranty purchased loans directly to the SBA. The SBA’s guidance further supports that these 
funds must be paid to the SBA. As a result, CB’s contention that the Settlement Agreement dictates 
that “Borrower Remittances are received, held in trust for Customers Bank pending month end, 
and then paid to, and only to, Customers Bank” is wrong. See Mot. to Compel, at 2. The Settlement 
Agreement simply provides that money actually due to CB after proper payments to the SBA and 
borrowers be held in trust and paid to CB, and the Settlement Agreement should be interpreted 
consistent with the Court’s Loan Servicing Final Order. 
29. 
Nevertheless, if it is CB’s contention that CB as lender, rather than KServicing as 
servicer, should remit both (i) to the SBA any and all borrower payments made on SBA guaranty-
purchased loans going forward, and (ii) to the borrower any refunds for borrower overpayments 
and payments made on account of loans that are forgiven, KServicing is amenable to changing 
common practice, provided however, that CB provides KServicing with an indemnity in case the 
SBA takes the position, consistent with past practice, that KServicing must make the payments to 
the SBA. Specifically, CB should be required to (i) obtain confirmation from the SBA in writing 
that SBA will not hold KServicing responsible for any underpayments made by CB to the SBA, 
and (ii) provide KServicing with an indemnity. Given regulatory guidance and past practice on all 
of KServicing’s PPP loan portfolios, KServicing is not willing to pay to CB amounts due and 
owing to the SBA and borrowers without these protections, and potentially expose itself to liability 
from the SBA and borrowers. 
III. 
CB Is Not Entitled To Additional Adequate Protection Measures 
30. 
CB’s requested adequate protection measures, including requiring that KServicing 
(i) “cause Synovus Bank to add Customers Bank as an authorized user of, and owner of, the Trust 
Case 22-10951-CTG    Doc 355    Filed 12/21/22    Page 15 of 18

Account,” (ii) “cause Synovus Bank to provide Customers Bank with unrestricted online access to 
the Trust Account,” and (iii) prohibit KServicing “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,” are neither appropriate under 
the Settlement Agreement nor otherwise warranted. See Motion to Compel, ¶ 39. 
31. 
Not only is it unclear exactly what CB is seeking, but providing CB with access 
and control over a KServicing bank account could lead to a situation where KServicing is liable 
for what occurs in the account, but has no control over the account’s maintenance. If KServicing 
is required to seek express written approval from CB for every debit or transfer in the account, 
KServicing may be in danger (should CB not agree to the measures discussed in Section II above) 
of being held liable by the SBA and borrowers for delays or inaccuracies in payments due to those 
third parties.  
32. 
Furthermore, the Settlement Agreement precludes the relief sought here. At the 
time the Parties settled their ongoing disputes on October 27, 2022, CB contended that KServicing 
had committed various errors, omissions, and failures in its servicing of the CB loans under the 
Parties’ prior agreements. Settlement Agreement, pp. 2-3 (A)–(I). As a result, and to guide the 
Parties’ going-forward relationship, the Settlement Agreement contains an agreed-upon “Servicing 
Plan.” CB agreed to “accept[] the Servicing Plan,” and agreed that “CB shall not challenge the 
Servicing Plan or the sufficiency of the Servicing Information provided by KServicing in support 
thereof.” Id., at § 4(F). Thus, CB agreed in the Settlement Agreement not to challenge the provision 
for specific documents and data KServicing is to deliver to CB on an ongoing basis contained in 
the Servicing Plan. The Servicing Plan does not, however, provide for CB to have full access to 
and control of KServicing’s CB trust account; CB should have bargained for that right in the 
Case 22-10951-CTG    Doc 355    Filed 12/21/22    Page 16 of 18

Settlement Agreement if CB believed it necessary, but did not. While CB can certainly enforce the 
terms of the Servicing Plan set forth in the Settlement Agreement, it is expressly precluded from 
seeking any additional protections. 
33. 
Even if the relief sought was not precluded, it is not otherwise warranted here. 
Adequate protection measures are “designed to protect secured creditors against diminution in 
value of their collateral[.]” Del. Trust Co. v. Wilmington Trust, N.A. (In re Energy Future Holdings 
Corp.), 546 B.R. 566, 581 (Bankr. D. Del. 2016). The term “adequate protection” is not defined in 
the Bankruptcy Code, but Section 361 provides three examples of what constitutes adequate 
protection: (1) “the making of periodic cash payments to the creditor;” (2) “sufficient equity in the 
property for the creditor to cover fully on foreclosure the entire balance due on the debt;” and (3) 
“the debtor provid[ing] the creditor with such relief as will result in the ‘indubitable equivalent’ of 
the creditor's interest in the property.” In re Adams, 27 B.R. 582, 584 (Bankr. D. Del. 1983). The 
third example is often referred to as a “catch-all,” “a flexible concept which requires a Court to 
make decisions [on whether adequate protection is warranted] on a case-by-case basis, after full 
consideration of the peculiar characteristics common to each proceeding.” In re Monroe Park, 17 
B.R. 934, 940 (Bankr. D. Del. 1982). Courts should consider “the nature of the creditor’s interest 
in the property, the potential harm to the creditor as a result of the property’s decline in value and 
the method of protection.”  Matter of Braniff Airways, Inc., 783 F.2d 1283, 1286 (5th Cir. 1986).   
34. 
In consideration of the aforementioned factors, in light of the circumstances of this 
dispute, it is apparent that CB’s requested adequate protection measures are not proper. Because 
the relief CB seeks is inappropriate, and because CB agreed not to challenge the Servicing Plan 
(which it negotiated less than two months ago) CB’s request that the Court order adequate 
protection should be denied.  
Case 22-10951-CTG    Doc 355    Filed 12/21/22    Page 17 of 18

CONCLUSION 
WHEREFORE, for the reasons set forth above, the Debtors respectfully request that the 
Court deny the Motion to Compel.  
Dated: December 21, 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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