Opposition — Customers Bank (settlement enforcement motion) — In re KServicing (Bankr. D. Del.)

Record facts

U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 356 · 2022-12-21 · Docket on CourtListener

Full text

IN THE UNITED STATES BANKRUPTCY COURT 
FOR THE DISTRICT OF DELAWARE 
 
 
In re: 
 
KABBAGE, INC., d/b/a KSERVICING, et al.,1 
Debtors.2 
Chapter 11 
Case No. 22-10951 (CTG) 
(Jointly Administered) 
 
Hearing Date:  January 6, 2023  
   at 10:00 AM EST 
 
OPPOSITION OF CUSTOMERS BANK TO DEBTORS’ MOTION FOR AN ENTRY OF 
AN ORDER ENFORCING THE SETTLEMENT ORDER AND THE SETTLEMENT 
AGREEMENT BETWEEN KSERVICING AND CUSTOMERS BANK 
 
Customers Bank, an operating subsidiary of Customers Bancorp. Inc. (“Customers Bank”), 
hereby objects to the Motion of Debtors for Entry of an Order Enforcing the Settlement Order and 
the Settlement Agreement Between KServicing and Customers Bank filed by the debtor, Kabbage, 
Inc., d/b/a KServicing (“Kabbage” or the “Debtor”) on December 7, 2022 [Dkt. No. 340] (the 
“Debtors’ Motion”).  The Debtors’ Motion reflects a profound misunderstanding of the obligations 
of a loan servicer, and should be denied because it fails to provide any reliable basis for a 
reconciliation of the required sums during (or even after) the reconciliation period.  Instead, the 
Debtors’ Motion and Declarations filed in support reveal a continued inability to provide basic 
information in a way that ultimately ties to the fundamental obligations of a servicer, namely an 
identification of each loan that is being serviced and its current status (as adjusted for payments, 
forgiveness, guaranty or cancellation).  This industry standard “trial balance” provides the basic 
data from which each component of this or any other reconciliation flows.   
 
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. 
2 While KServicing is the counterparty to the Settlement Agreement, the Motion has been filed by KServicing and 
each of the above captioned debtors, referred to herein as “Debtors” when appropriate. 
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As set forth in greater detail below, before and during the reconciliation period, the Debtor 
provided Customers Bank with numerous, different documents purporting to be trial balances.  All 
were riddled with errors that Customers Bank pointed out to the Debtor, including errors such as 
listing loans on the trial balance that were not made by Customers Bank.  The Debtor has fallen 
short in its financial reporting obligations to Customers Bank throughout the relationship between 
the parties.  Those shortcomings come into sharp focus with respect to the two primary issues in 
the Debtors’ Motion, namely its assertions that: (1) the amount of the Borrower Remittances3 (as 
set forth in Section 1(E)(i) of the Settlement Agreement) should be reduced by approximately $1.5 
million due to some late discovered file showing a payment of such amount made by the Debtor 
to Customers Bank in October, 2020; and (2) that the Cancelled Loan4 amount (as set forth in 
Section 1(E)(ii) of the Settlement Agreement) should be reduced by approximately $1.9 million 
due to the Debtor’s tardy and erroneous assertion that such amount actually represents funded 
loans.   
As a threshold matter, the Debtor seems to view the reconciliation specifically called for 
by the Settlement Agreement (specifically Section 3) as some kind of give and take compromise 
effort in which the Debtor throws an ever-changing barrage of numbers and internally inconsistent 
reports at Customers Bank and Customers Bank provides its views.  Not at all.  The Debtor is the 
servicer.  Only the Debtor received the Borrower Remittances, maintained a bank account for those 
remittances, held the monies for Cancelled Loans, and received the information on Cancelled 
 
3 These are defined as the amount “collected from borrowers that KServicing is required to remit to [Customers Bank] 
under the Original [Processing and Servicing Agreement] and [Sales and Servicing] Agreement. Settlement 
Agreement at § 1(E)(i). 
4 As the Debtors stated in their Motion, “[t]he cancelled loan remittance amount consists of funds that were disbursed 
by [Customers Bank] 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.” Debtors’ Motion, at par. 32; see also Settlement Agreement, at § 1(E)(ii) 
(identifying cancelled loan amount as the funds “held by KServicing on account of cancelled loans.”). 
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Loans.  The Debtor, as servicer, is required to maintain an accurate trial balance for the portfolio.  
Customers Bank relied on and continues to rely on the Debtor to report accurately on the sums the 
Debtor collects from borrowers due to loan payments, cancellations or other reasons.  All of this 
information is uniquely and exclusively in the hands of the Debtor until it shares that information 
with Customers Bank (or with others, such as the SBA).  The Debtors’ Motion and supporting 
papers incorrectly suggest that Customers Bank has access to independent sources of this 
information, and further fail to appreciate that the ultimate reconciliation of the figures required 
by the Settlement Agreement is to determine that all of the funds loaned by Customers Bank and 
all the monies paid by borrowers (or forgiven or guaranteed by the SBA) must match.  Customers 
Bank’s reconciliation indicates that, with the sum already paid by Customers Bank as the 
Settlement Payment, they do match.   
There are many concrete and demonstrable reasons to disbelieve the Debtor’s 
reconciliation, presented to Customers Bank for the first time in the Debtors’ Motion which was 
filed on December 7, 2020, nearly a month after the reconciliation period ended.  One reason for 
doubt is the fallacy in the Debtors’ Motion and supporting documents is that the Settlement 
Payment had to be $23.2 million or something close to it because that is what was estimated in the 
Settlement Agreement.  Contrary to Debtor’s suggestion, that Settlement Agreement requires the 
Settlement Payment to equal an amount resulting from an actual reconciliation.  Based on the 
information that the Debtor provided (namely bank account statements, summaries, and 
spreadsheets regarding cancelled loans and summaries), upon which Customers Bank reasonably 
relied, the Settlement Payment is exactly the amount that Customers Bank has paid to the Debtor, 
namely $20,499,683.   
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The Court should be aware that the $23.2 million estimate in the Settlement Agreement 
was based on an analysis performed by the Debtor’s financial advisor, AlixPartners LLP.  For 
reasons that remain unknown to Customers Bank, but are so inexplicable as to raise serious 
questions regarding the Debtor’s intentions of arriving at a fully informed and accurate 
reconciliation, as set forth in the accompanying Declaration of Alyssa White in Support of 
Customers Bank’s Opposition to Debtors’ Motion For an Order Enforcing the Settlement Order 
and Settlement Agreement Between KServicing and Customers Bank (“Second White 
Declaration”), the Debtor refused to share the AlixPartners LLP information despite two written 
requests from Customers Bank during the reconciliation process. For these reasons, and as more 
fully set forth below, the Debtors’ Motion must be denied.  
In support of this Opposition, Customers Bank relies upon and incorporates by reference 
the Second White Declaration.5  In further support of the relief requested in this Motion, Customers 
Bank 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 
 
5 The Second White Declaration is being filed contemporaneously herewith.  
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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. 
ARGUMENT 
5. 
The Debtor’s arguments fail for three reasons.  First, it is undisputed that as of the 
end of the reconciliation period, the Debtor had not provided Customers Bank with any of the 
materials or information that it now claims justifies a different Settlement Payment.  Second, the 
“new” information that it has provided is at best an exercise in misdirection.  The facts asserted 
are both demonstrably incorrect and camouflage a deep rot in the internal financial accounting 
function at the Debtor. Third, and importantly the Settlement Payment actually made by Customers 
Bank reconciles with the overall trial balance, thus indicating that not only are each of the two 
disputed items correct as calculated by Customers Bank as part of the Settlement Payment it made 
to the Debtor, but also that the calculations make sense from a macro/total portfolio level as well.   
A. 
The Debtor’s Arguments Are Untimely and Unsupported and Unsupportable. 
6. 
The Settlement Agreement, which was approved by the Court on November 9, 2022 
[Dkt No. 232], provided in Sections 2 and 3 for a reconciliation period that ended on the Effective 
Date, which as defined in the Settlement Agreement was the date the Court approved the 
Settlement Agreement, which was November 9, 2022.  Paragraph 12 of the Settlement Agreement 
also provides that it can only be amended in writing.  The Debtor does not argue that there was 
any written amendment to extend the reconciliation period.  Nor could it, as there was none.  
Instead, the Debtor seems to try to transform its own late actions into an oral contract amendment.  
There is no support for this.   
7. 
Under Pennsylvania law (which governs according to paragraph 20 of the 
Settlement Agreement), an agreement that prohibits amendment other than by writing may be 
modified by parties’ subsequent oral agreement or conduct only if parties’ conduct clearly shows 
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an intent to waive the requirement.  See In re Marcus Lee Assocs., L.P., 422 B.R. 21, 39-40 (Bankr. 
E.D. Pa. 2009); In re Ginko Assocs., L.P., 372 B.R. 229, 239 (Bankr. E.D. Pa. 2007); Schluth v. 
Krishavtar, Inc., Nos. 745 EDA 2021, 746 EDA 2021, 2022 WL 703685, at *3 (Pa. Super. Ct. 
Mar. 9, 2022). Oral modification is prohibited unless the new agreement is (1) based on valid 
consideration and (2) proved by clear, precise, and convincing evidence.  2101 Allegheny Assocs. 
By Rappaport v. Cox Home Video, Inc., No. 91-2743, 1991 WL 225008, at *5-6 (E.D. Pa. Oct. 29, 
1991) (citing Bonczek v. Pascoe Equip. Co., 450 A.2d 75, 77 (Pa. Super. Ct. 1982)) (finding 
subsequent oral modification failed where party offered no evidence that modification was 
supported by additional consideration beyond the preexisting duty present in the original contract); 
Douglas v. Benson, 439 A.2d 779, 783 (Pa. Super. 1982) (holding verbal agreement invalid where 
“there was no evidence by anyone that the parties had consciously intended to waive the 
requirement that amendments must be in writing.”); Koken v. Commonwealth Prof’l Grp., No. 
5968, 2006 WL 334787, at *4 (Pa. Ct. C.P. Feb. 9, 2006) (finding continued negotiations 
themselves do not demonstrate waiver of no-oral modification clause). While Debtor tepidly 
alludes to some post-reconciliation communications by both parties, the Debtor neither explicitly 
claims that there was any amendment to the Settlement Agreement, nor could it, given the failure 
to proffer any evidence, let alone clear and convincing evidence, of conscious waiver and clear 
consideration.   
8. 
 Nor is there any dispute that the issues that are at the core of the Debtors’ motion 
are not timely in that the Debtor raised them after November 9, 2022.  The two main issues are:  
(1) the Debtors’ contention that the amount of the Cancelled Loans is approximately $1.6 million 
as opposed to the $3.6 million figure that it provided to Customers Bank during the reconciliation 
period; and (2) the Debtors’ contention that the Borrower Remittances figure in its Synovus Bank 
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statement provided to Customers Bank during the reconciliation period should be reduced by 
$1,556,656 on the theory that the Debtor had previously paid that amount to Customers Bank (in 
October 2020).   
9. 
Both contentions are substantively and demonstrably wrong, and they are untimely.  
It is undisputed that the Debtor only advised Customers Bank for the first time on November 14, 
2022 of its contention on the Cancelled Loan Issue.  See Debtors’ Motion [Dkt No. 340] at p. 11, 
par. 25; Declaration of Donna Evans in Support, at par. 21 & Ex. 6 (November 14, 2022 email 
from Ms. Evans to numerous Customers Bank employees stating: “We have a follow up analysis 
about the cancelled loan file that KS had forward to the CB team on 11.4.22.  We conducted 
another analysis of the data last week, and confirmed the cancelled loan population was 
different.”).  Therefore, the only information that the Debtor communicated to Customers Bank 
during the reconciliation period regarding the Cancelled Loan amount was the exact figure that 
Customers Bank used.  Second White Declaration, at par. 11(c) & Ex. 4 (November 4, 2022 email 
from Donna Evans of the Debtor to Alyssa White and others at Customers Bank stating:  “Attached 
are two files that include the detail for cancelled/missing/incomplete loans that KServicing has 
included as part of the holdback amount.  Total amount of cancelled/missing/incomplete loan 
holdback: $ 3,617,304”).   
10. 
The Debtor’s communication of information regarding its different view of its own 
Borrower Remittance file is equally untimely but somewhat more bizarre. During the 
reconciliation period, the Debtor sent Customers Bank its Synovus bank statements and a summary 
of them,6 on which Customers Bank properly relied.  Oddly, according to the Declaration of 
 
6 Second White Declaration, at par. 11(b), Exs. 3 & 3(a) (11/4/22 email from Donna Evans of the Debtor to Alyssa 
White and others at Customers Bank stating:  “Synovus accounts analysis:  KServicing has performed an analysis of 
the activity in the Synovus account from inception to October 3, 2022, reconciling the activity in the account to our 
remittances files. See attached files for reference.”) (emphasis added).  The attachments include an excel spreadsheet 
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Tamica Williams at paragraph 22, the Debtor’s Corporate Controller, she learned from the Debtor’s 
former CFO, “Mr. Eidson on November 10, 2022 that there was a file of which we were not 
previously aware that reflected amounts KServicing had passed on to CB on account of additional 
borrower payments.”  How this would not be known to the Debtor earlier is a legitimate question, 
but it is clear that this belated revelation took place after the reconciliation period, and in fact was 
not communicated to Customers Bank until the filing on December 7, 2022 of the Debtors’ Motion.   
11. 
The Debtor entered a contract - the Settlement Agreement - that bound it to a 
reconciliation process that was time limited.  This was an important point of negotiation and one 
the Debtor clearly understood.  See Letter to Court [Dkt No. 289] dated November 28, 2022, at 
Ex. 2 (detailing that Customers Bank rejected an open-ended reconciliation process and insisted 
on one that was time limited, to which the parties reached agreement). Having received a series of 
inconsistent, inaccurate and ever-changing analyses over a months-long period, and entering a 
Settlement Agreement that provided for Customers Bank to deliver, as it turns out, over $20 
million to the Debtor, it was important to Customers Bank that the reconciliation process not 
provide an open route to undercutting the central provisions of that agreement. 
12. 
The Debtor should have been highly motivated to provide thorough and accurate 
documents regarding borrower remittances and cancelled loans.  In fact, the Debtor’s extremely 
sophisticated financial advisor had performed the calculations that resulted in the estimates that 
are in the Settlement Agreement for those figures.  Knowing that on two occasions during the 
reconciliation period counsel for Customers Bank asked counsel for the Debtor in writing for the 
 
of a “Synovus account analysis,” (see id. at Ex. 3(a)), that provides a “Total” of $27,106,862 (see id. at Ex. 3(a), tab 
(“Summary analysis”)).  The other attachments are the Synovus bank statements which begin in November 2020 
(“inception”) and the very first activity in the account is on November 17, 2020.  This is significant to the substantive 
analysis discussed below.  Id. at Ex. 3. 
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AlixPartners LLP calculations, once on November 3 and again on November 9.  Second White 
Declaration, at par. 13, Exs. 7 & 7(a).  The Debtor did not provide this information.   
13. 
Moreover, at no point during the reconciliation process did the Debtor provide to 
Customers Bank a calculation of what it thought the amount of the Settlement Payment to be.  
Second White Declaration, at par. 14.  Instead, the Debtor provided information to Customers 
Bank, information that as servicer it, and only it, had and Customers Bank used that very 
information to determine the Settlement Payment.  Apparently unaware of how the numbers would 
add and subtract, the Debtor expressed shock and accused Customers Bank of wrongdoing upon 
receiving the mathematically determined Settlement Payment applying the very data that the 
Debtor provided during the reconciliation process.  Instead of respecting the timing and substance 
of the reconciliation process required by the Settlement Agreement, the Debtors’ motion is a new 
strategy to obtain, wrongfully, more money than it is entitled to under the Settlement Agreement 
from Customers Bank.  The Court should reject this effort. 
II. 
The Debtor’s Substantive Arguments on the Borrower Remittance and the Cancelled 
Loan Amounts Are Demonstrably Wrong. 
A. 
The Borrower Remittance Amount Must Not Be Reduced by $1,555,656.  
14. 
The Debtor goes to some lengths to concoct an argument that the Court should 
disregard the bank statements and reconciliation of those bank statements that the Debtor provided 
to Customers Bank during the reconciliation period (on November 4, 2022) that showed a total of 
borrower remittance payments of $27,106,862.7  The concocted argument is that after the 
 
7 Courts have repeatedly recognized in a variety of legal contexts that a company’s own reported financial documents 
are assumed to be correct.  See, e.g., Finger v. Pearson PLC, No. 17 Civ. 1422 (RJS), 2019 WL 10632904, at *11 
(S.D.N.Y. Sept. 16, 2019) (stating “when a company chooses to speak on a topic, it assumes ‘a duty to be both accurate 
and complete.’”) (quoting Caiola v. Citibank, N.A., N.Y., 295 F.3d 312, 331 (2d Cir. 2002)); Anderson v. Dickson, No. 
5:16-71-KKC, 2018 WL 4059373, at *1 (E.D. Ky. Aug. 24, 2018) (noting court presumes records of a plaintiff’s 
finances are accurate where plaintiff “failed to correct the financial information in the record”); U.S. v. DeLeon, 704 
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reconciliation period had finished, the Debtor had some contact with its former CFO who advised 
them of a secret file of which it was “not previously aware,” and that this file “reflected amounts 
KServicing had passed on to CB [Customers Bank] on account of additional borrower payments.”  
Declaration of Tamica Williams, at par. 22.  Ms. Williams goes on to swear that according to this 
newly discovered file and other records she “determined that KServicing, at the direction of its 
former CFO, had separately already paid to CB on October 21, 2020 $1,555,656 of borrower 
payments on account of five individual loans listed in the Synovus Repayment File, but the 
payments to CB had not been accounted for in the Synovus Repayment File.”  Id.  Based on these 
averments, the Debtor argues that it should reduce by $1,555,656 the amount showing in its 
Synovus bank reconciliation file.   
15. 
This is a shocking assertion.  As noted earlier, the Synovus bank account records 
and summaries provided to Customers Bank by the Debtor during the reconciliation period showed 
that the Synovus account’s entries began in mid-November 2020.  Second White Declaration, at 
par. 11(b) & Ex. 3 and par. 21.  The reconciliation was to determine the amount of borrower 
payments (remittances) that had been paid to the Debtor and which the Debtor had “held back” (as 
part of a self-help strategy) from Customers Bank.  Of course this item is referred to in the 
Settlement Agreement at paragraph 1(E) as the “Disputed KServicing Remittance Holdback.”  The 
point is these were monies that the Debtor had held back from their rightful owner, Customers 
Bank, and those holdbacks began after October 2020 and after the Synovus account that was to be 
reconciled began to have activity in it.  Any payment to Customers Bank of borrower remittances 
before that time frame has no bearing on the reconciliation of the Synovus account.   
 
F.3d 189, 195 (1st Cir. 2013) (finding calculation for tax evasion statute purposes is reasonable by using company’s 
own data as an estimate based on available facts). 
 
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16. 
Moreover, it appears that the payment of $1,555,656 referred to by the Debtor was 
made from a Wells Fargo bank account, not a Synovus account.  Second White Declaration, at par. 
22.  In any event, the immutable problem with Debtor’s position is that the payment had nothing 
to do with the Synovus account reconciliation and could have no impact on its numbers.  As noted, 
one of the principal aims of the reconciliation required by the Settlement Agreement was to 
determine how much money in borrower remittances went into the Synovus account from 
November 2020 through October 3, 2022 (Petition Date). All such Borrower Remittances (or SBA 
guaranty or forgiveness payments)8 were the property of Customers Bank and were to be offset 
from any monies owed to the Debtor.   
17. 
In short, the Debtor’s position is an irrelevant invention.  It also reflects a troubling 
misunderstanding on behalf of the Debtor of what it meant to reconcile the borrower remittances 
paid in to the Synovus account apparently dedicated to borrower payments on Customers Bank 
loans.  This artifice by the Debtor must be rejected. 
B. 
The Debtor’s Assertion That the Cancelled Loan Amount Is $1.6 Million Is Also 
Demonstrably Incorrect. 
 
18. 
The Debtor argues that days after the reconciliation ended it performed an analysis 
of the Cancelled Loan amount, in part based on suggestions from Customers Bank that the figure 
the Debtor had proffered during the reconciliation process may not be correct, and in the process 
of doing so “found” that the correct number was not approximately $3.6 million, but rather was 
approximately $1.6 million.   
19. 
To understand the fallacy in the Debtor’s assertion it is important to begin with 
historical facts, including that on November 4, 2022, during the reconciliation process, the Debtor 
 
8 Other than mistaken excess payments, which would be borrower or SBA property. 
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told Customers Bank in writing that the Cancelled Loan amount was $3,617,304.  Second White 
Declaration, at par. 11(c) & Ex. 4 (November 4, 2022 email from Donna Evans of the Debtor to 
Alyssa White and others at Customers Bank stating:  “Attached are two files that include the detail 
for cancelled/missing/incomplete loans that KServicing has included as part of the holdback 
amount.  Total amount of cancelled/missing/incomplete loan holdback:  $ 3,617,304”).  The 
Debtor made this assertion unreservedly and not preliminarily or initially, as its motion papers 
suggest.  Customers Bank indeed questioned the accuracy of this figure because of concerns that 
loans that appeared on the list had been submitted by the Debtor to the SBA for forgiveness of 
guaranty purchase.  For example, Customers Bank was aware that there were loans on the SBA’s 
ETran list of active loans and the Debtor’s list of active loans that actually were not active, funded 
loans.9   
20. 
The Debtor argues that after the reconciliation period had ended it determined that 
nearly $2 million of loans that it originally said were cancelled were actually not cancelled.  The 
reasoning behind this argument is that after the reconciliation period, the Debtor consulted the 
SBA’s ETran website and determined that the loans were active and thus not cancelled.  More 
specifically, in her Declaration, Donna Evans, the Debtor’s Vice President of Operations, swears 
at paragraph 21 that “after additional review based on the SBA data, KServicing was able to 
confirm that 115 of the 204 loans listed in the preliminary cancelled loan spreadsheet sent to CB 
on November 4th were cancelled . . . .”  (emphasis added).   
21. 
As noted, the SBA’s ETran site is not a reliable indicator of whether a loan was 
actually funded, and any effort to establish that site as the standard is misguided and wrong.  The 
 
9 One example involves a borrower identified herein for privacy reasons as MV.  Second White Declaration, at par. 
17 & Ex. 9.  As the emails make clear, the borrower never received its funds but it was listed by on the SBA’s ETran 
site as a funded loan.  Id.  This example is highly relevant to the Debtor’s creative but obviously inaccurate effort to 
arrogate to itself nearly $2 million on the Cancelled Loan issue.   
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information for the Customers Bank loans on the SBA’s ETran system is not independently 
generated, because it is supplied to the SBA by the Debtor.  Second White Declaration, at par. 17.  
As set forth in the MV example above, the data is highly unreliable as it is based on the Debtor’s 
reporting, including the need for corrective reporting if the Debtor originally reported a loan as 
funded and thereafter the loan was returned.  Returns occurred frequently.   
22. 
There are two pieces of evidence that the Debtor does not discuss that are relevant.  
One undermines the Debtor’s argument.  The other would eviscerate it, but the Debtor did not 
share it. 
23. 
The first piece of evidence, which completely undermines the Debtor’s assertion is 
the Debtor’s own excel spreadsheet provided to Customers Bank on November 14, 2022 (after the 
reconciliation period had ended) entitled “CUBI Returned or Incomplete Loans_11.4.22Updated.”  
Second White Declaration, at par. 18 & Ex. 8.  This spreadsheet shows that for every one of the 
100 or so loans that the Debtor’s belated “research” has transformed from a cancelled loan to a 
funded loan there is an entry in column R (called Return_Reason_Code) showing that the loans 
were returned, meaning the Debtor, not the borrower, had possession of funds that Customers Bank 
had provided to the Debtor to make the loan.  Id.10  Each of the “Return Reasons” has a so-called 
RCode.  These codes all correspond to a reason for an ACH11 return.  Id.  The ACH codes on the 
spreadsheet include R02 (Account Closed), R03 (No Account/Unable to Locate Account), and 
R23 (Credit Entry Refused by Receiver).  Id. at Ex. 10 (Glossary of ACH Return Codes).  
 
10 A funded loan is a loan in which funds were actually lent to a borrower and loan documents were executed and 
delivered.  A cancelled loan is one that was underwritten, Customers Bank forwarded money to the Debtor to make 
a loan, but no loan was ever made to a borrower and the money advanced by Customers Bank to the Debtor was 
never refunded to Customers Bank.  A returned loan is one in which efforts were made to fund the borrower, but 
those efforts were unsuccessful or returned.  Second White Declaration, at par. 18 
11 ACH or Automated Clearing House network is an electronic fund transfer made between banks across what is 
called the Automated Clearing House network. 
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Therefore, the Debtor’s own records reveal that these loans were returned and/or not funded, yet 
the Debtor is arguing that they are funded loans merely because of its failures to update the SBA’s 
ETran site.12  Any servicer that wanted to prove that a cancelled or returned loan was actually 
made would have proffered the only record that would be dispositive, namely the Debtor’s ACH 
records showing that the loan was funded after the return/cancellation.  Curiously, not only does 
the Debtor not provide such records, it also does not even refer to them or their existence, instead 
relying on misdirection by referring to the SBA ETran site that is only as good as the faulty 
information that the Debtor provides.13   
24. 
Any servicer who wanted to prove that an initially cancelled or returned loan was 
subsequently made knows how to do so.  It is simple.  One supplies the ACH confirmation.  See 
Second White Declaration, at par. 18.  The Debtor did not do so and instead relies on fictional 
constructs that contradict its own records.  The Court should see this effort for the cynical 
misdirection that it is and reject it. 
25. 
During the reconciliation process, by email dated November 4, 2022, Donna Evans, 
the Debtor’s Vice President of Operations, informed Customers Bank that the amount of the 
Cancelled Loan holdback was $3,617,304 and that the “Cancelled Loan file includes list of 204 
loans that KServicing owes Cubi remittance for.”  Second White Declaration, at par. 11(c) & Ex. 
4.  Now, the Debtor is claiming that 115 of those loans were not cancelled and that the principal 
amount of those loans is $1,940,112, thereby reducing the Cancelled Loan Amount from 
 
12 Further evidence from the Debtor’s own spreadsheet that these loans were not funded is found in Column Z 
“Status” in which many of the loans have the Status “Not Reissuing.”  Id. at Ex. 8.   
13 One clear example of the SBA's ETran data base being infected with the "garbage in garbage out" phenomenon 
involves a would be borrower here as MV for privacy reasons.  As the Second Alyssa White Declaration at 
paragraphs 17 through 20 reveals, when pressed on the status of loan listed by the Debtor as funded, after the Debtor 
undertook a six week investigation it conceded that the loan had not been funded, it had been cancelled, but  
nonetheless it was submitted to the SBA for a guaranty purchase. 
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$3,617,304 to $1,677,192.  Declaration of Tamica Williams, at par. 18.  All of those 115 loans 
bear a return code on the Debtor’s spreadsheet.  Second White Declaration, at pars. 18-20.  All of 
them also bear an explanation that is inconsistent with funding.  For none of them has the Debtor 
provided an ACH confirmation after the date of return.  Id.  Debtors’ motion must be denied for 
these reasons.   
C. 
Customers Bank’s Calculated Settlement Payment Ties to the Trial Balance 
26. 
In determining the Settlement Payment, Customers Bank considered not just the 
calculation of borrower remittances and cancelled loans in isolation, but also in terms of the entire 
trial balance of its portfolio of loans that the Debtor is servicing.  Second White Declaration, at 
par. 23.  Using the figures as provided by the Debtor during the reconciliation period for the 
borrower remittances and the cancelled loans resulted in Customers Bank being able to reconcile 
the trial balance on its nearly $175 million current portfolio that is being serviced by the Debtor to 
within about one thousand three hundred and eighty-two dollars ($1,382.00).  Id.  This is further 
evidence that the Settlement Payment as made by Customers Bank is proper.   
27. 
For context, Customers Bank analyzed the PPP portfolio that Kabbage is servicing 
as of September 30, 2022 and determined that it had outstanding loans of over $202 million.  Id. 
at par. 24.  It then engaged in an analysis to compare (based on figures for Borrower Remittances 
and cancelled loans provided by the Debtor during the reconciliation period) the outstanding loan 
amounts (approximately $202 million) with the Borrower Remittances and Cancelled Loan 
amounts and borrower/SBA return amounts reported by the Debtor during the reconciliation period 
(approximately $27 million) with the amount outstanding on the trial balance (approximately $174 
million).  Id.  In short, the amount of outstanding loans plus the borrower remittances should equal 
the trial balance.  Doing this analysis as of September 30, 2022 using the figures reported by the 
Case 22-10951-CTG    Doc 356    Filed 12/21/22    Page 15 of 17

 
 
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Debtor to Customers Bank during the reconciliation period the numbers match within just over 
one thousand dollars.  Id.  Adopting the Debtor’s positions would not only be at odds with the 
facts, as set forth above, but would also put Customers Bank in a deficit position on its PPP 
portfolio.   
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. 
 
 
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CONCLUSION 
Based on the foregoing reasons, and as set forth herein, Customers Bank respectfully 
request that this Court deny the Debtors’ Motion, with prejudice.  
  
 
 
Dated:  
 
 
 
December 21, 2022 
Wilmington, Delaware 
 
Respectfully submitted, 
 
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  
 
Case 22-10951-CTG    Doc 356    Filed 12/21/22    Page 17 of 17

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