Objection to Motion — In re KServicing

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UNITED STATES BANKRUPTCY COURT · No. 22-10951 · Doc. 547 · 2023-02-17 · Docket on CourtListener

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RLF1 28619966v.1 
UNITED STATES BANKRUPTCY COURT 
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) 
 
 
 
: 
 
------------------------------------------------------------ x 
Re: D.I. No. 345 
 
 
 
DEBTORS’ OBJECTION TO THE MOTION OF THE JUNEAU  
GROUP, LLC FOR ALLOWANCE OF ADMINISTRATIVE EXPENSE  
CLAIM PURSUANT TO SECTION 503(b)(9) OF THE BANKRUPTCY CODE 
Kabbage, Inc. d/b/a KServicing and its debtor affiliates, as debtors and debtors in 
possession in the above-captioned chapter 11 cases (collectively, the “Debtors”), respectfully 
submit this objection (the “Objection”) to the Motion of the Juneau Group, LLC for Allowance of 
Administrative Expense Claim Pursuant to 11 U.S.C. § 503(b)(9) (the “503(b)(9) Motion”) 
[Docket No. 345] filed by the Juneau Group, LLC (the “Juneau Group”).2  In support of this 
 
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 The Debtors note that the Juneau Group has filed the 503(b)(9) Motion without the assistance of counsel.  It is 
established in both Delaware and Federal case law that a corporate entity cannot appear pro se and must be 
represented by counsel. See e.g. Rowland v. Cal. Men’s Colony, Unit II Men’s Advisory Council, 506 U.S. 194, 201-
02 (1993) (“It has been the law for the better part of two centuries, for example, that a corporation may appear in 
the federal courts only through licensed counsel.”); Carickhoff v. Occupational Med. Clinics (In re Cal Dive Int’l, 
Inc.), No. 15-10458 (CSS), 2018 WL 456156 at *2 n.8 (Bankr. D. Del. Jan. 16, 2018) (finding that the defendant, a 
limited liability company, improperly appeared pro se and directing the defendant to retain counsel); Gavin 
Solmonese, LLC v. True Line Wire (In re Boomerang Sys., Inc.), No. 15-11729 (MFW), 2017 WL 4221095 at *3 
(Bankr. D. Del. Sept. 21, 2017) (stating that “[i]t is well-settled that a corporation must retain licensed counsel to 
appear in federal court” and directing the defendant, a corporation, to retain counsel); Transpolymer Indus., Inc. v. 
Chapel Main Corp., 582 A.2d 936 (Table), 1990 WL 168276 at *1 (Del. 1990) (“[A] corporation, being an artificial 
entity, can only act through its agents and, before a court only through an agent duly licensed to practice law.”).  
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Objection, the Debtors submit the declaration of Thora Thoroddsen, attached hereto as Exhibit A 
(the “Thoroddsen Declaration”) and respectfully state as follows: 
General Background 
1. 
On October 3, 2022 (the “Petition Date”), the Debtors each commenced 
with this Court a voluntary case under chapter 11 of the Bankruptcy Code (the “Chapter 11 
Cases”).  The Debtors are authorized to continue to operate their business as debtors in possession 
pursuant to sections 1107(a) and 1108 of the Bankruptcy Code.  No trustee, examiner, or statutory 
committee of creditors has been appointed in these Chapter 11 Cases. 
2. 
Pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure (the 
“Bankruptcy Rules”), the Chapter 11 Cases are being jointly administered under the above 
captioned case. 
3. 
Additional information regarding the Debtors’ businesses, capital structure, 
and the circumstances leading to the commencement of these Chapter 11 Cases is set forth in the 
Declaration of Deborah Rieger-Paganis in Support of the Chapter 11 Petitions and First-Day 
Pleadings [Docket No. 13] (the “First Day Declaration”).3 
Specific Background 
4. 
On October 26, 2022, this Court entered the Order (I) Establishing a 
General Bar Date to File Proofs of Claim, (II) Establishing a Bar Date to File Proofs of Claim by 
Governmental Units, (III) Establishing an Amended Schedules Bar Date, (IV) Establishing a 
Rejection Damages Bar Date, (V) Approving the Form and Manner for Filing Proofs of Claim, 
(VI) Approving the Proposed Notice of Bar Dates, (VII) Approving Procedures with Respect to 
 
3 Capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in the First 
Day Declaration. 
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Service of the Proposed Notice of Bar Dates, and (VIII) Granting Related Relief [Docket No. 161] 
(the “Bar Date Order”).  
5. 
Among other things, the Bar Date Order established November 30, 2022 at 
5:00 p.m. (Prevailing Eastern Time) as the deadline by which all entities, not including 
governmental units, holding claims (whether secured, unsecured priority (including claims under 
section 503(b)(9) of the Bankruptcy Code), or unsecured nonpriority) against the Debtors that 
arose prior to the Petition Date must file proofs of claim (the “General Bar Date”). 
6. 
Prior to the General Bar Date, on November 28, 2022, the Juneau Group 
submitted a proof of claim, Claim No. 951-184 (“Claim No. 184”), asserting an administrative 
expense claim identical to the 503(b)(9) Claim (as defined below) asserted in the 503(b)(9) Motion.  
See Claim No. 951-184.4 On January 27, 2023, the Debtors filed their first omnibus objection 
[Docket No. 491] (the “First Omnibus Objection”) seeking to reclassify Claim No. 184 as a 
general unsecured claim without prejudice to the Debtors’ rights to object to such claim on 
additional grounds.5    
7. 
Then, on December 6, 2022, the Juneau Group filed the 503(b)(9) Motion 
requesting payment on account of an alleged $499,999.99 administrative expense claim 
(the “503(b)(9) Claim”) pursuant to section 503(b)(9) of the Bankruptcy Code.6  See 503(b)(9) 
 
4  In addition to the 503(b)(9) Claim and Claim No. 184, the Juneau Group also filed multiple other proofs of claim, 
including Claim Nos. 951-91, 955-4, 952-2, 953-2, 954-2, and 956-2, against certain of the Debtors asserting an 
$11,000,000 secured and priority claim (collectively, the “Other Juneau Group Claims”).  
5 All of the Other Juneau Group Claims are also subject to the First Omnibus Objection.  The response deadline for 
the First Omnibus Objection was February 15, 2023, at 4:00 p.m. (Prevailing Eastern Time).  No creditor, including 
the Juneau Group, filed, and the Debtors did not receive, any responses to the First Omnibus Objection.   On February 
17, 2023, the Court entered an order [Docket No. 546] sustaining the First Omnibus Objection, thereby reclassifying 
the Other Juneau Group Claims and Claim No. 184 to general unsecured claims. 
6 The Debtors, and their advisors, confirmed that the Juneau Group is a borrower of a Paycheck Protection Program 
Loan (“PPP Loan”) that the Debtors service.  The Juneau Group’s PPP Loan was guaranty purchased by the Small 
Business Administration (the “SBA”) on August 29, 2022, and the total value of the loan is only $2,223.  As of the 
date of filing this Objection, the Juneau Group has not applied for SBA forgiveness of its PPP Loan.     
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Motion ¶ 4.7  Specifically, the Juneau Group asserts that it “manufactures, among other things, for 
industry” and that, in the twenty days prior to the Petition Date, the Debtors received goods that 
the Juneau Group sold to the Debtors in the ordinary course of business.  See id. at ¶¶ 3-4.  Further, 
the Juneau Group describes such goods as “TIME” with an aggregate value of $499,999.99.  See 
id. at ¶ 4.  The Juneau Group also asserts “an administrative expense claim in the amount of 
$20,833/month for the duration of the case.” See id.  In support of its 503(b)(9) Claim, the Juneau 
Group references invoices and proofs of delivery attached as Exhibit A to the 503(b)(9) Motion 
but fails to attach such supporting documentation.8  See id. at ¶ 4. 
8. 
For the reasons set forth below, and in the Thoroddsen Declaration, the 
Court should deny the 503(b)(9) Motion for allowance of the 503(b)(9) Claim. 
Objection 
I.  
The Court Should Deny the 503(b)(9) Motion Because the Juneau Group is not 
Entitled to an Administrative Expense Claim Under Section 503(b)(9) of the 
Bankruptcy Code 
9. 
Section 503(b)(9) of the Bankruptcy Code provides administrative expense 
priority for “the value of any goods received by the debtor within 20 days before the date of 
commencement of a case under this title in which the goods have been sold to the debtor in the 
ordinary course of such debtor’s business.” 11 U.S.C. § 503(b)(9) (emphasis added).  To establish 
an administrative priority claim under section 503(b)(9), a claimant must show that “(1) the vendor 
sold ‘goods’ to the debtor; (2) the goods were received by the debtor within twenty days prior to 
filing; and (3) the goods were sold to the debtor in the ordinary course of business.”  See In re NE 
Opco, Inc., 501 B.R. 233, 240-41 (Bankr. D. Del. 2013); see also In re Goody’s Family Clothing, 
 
7  The 503(b)(9) Motion was docketed by the Court on December 8, 2022.   
8  Claim No. 184 and the Other Juneau Group Claims also fail to attach any supporting documentation.   
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Inc., 401 B.R. 131, 133 (Bankr. D. Del. 2009).  It is well settled that a party requesting payment 
of an administrative expense claim bears the burden of proof in establishing that its claim is entitled 
to administrative expense status.  See, e.g., In re Unidigital, Inc., 262 B.R. 283, 288 (Bankr. D. 
Del. 2001).  For the reasons set forth below, the Juneau Group has failed to demonstrate how its 
503(b)(9) Claim satisfies the standards for an administrative expense claim under section 503(b)(9) 
of the Bankruptcy Code.9   
A. “TIME” Does Not Constitute “Goods” Under Section 503(b)(9) of the 
Bankruptcy Code 
10. 
Section 503(b)(9) of the Bankruptcy Code affords administrative expense 
priority status for claims arising from “goods” received by the debtor, in the ordinary course, 
within the twenty days prior to the filing of a bankruptcy petition.  The Bankruptcy Code, however, 
does not define what constitutes “goods”.  See In re NE Opco, 501 B.R. at 241.  In the absence 
of a definition in the Bankruptcy Code, courts, including this Court, typically adhere to the 
definition of “goods” in the Uniform Commercial Code (the “UCC”).  See, e.g., id. (noting that 
“this Court has previously adopted the definition of goods in the Uniform Commercial Code”).  
Under the UCC, goods mean “things” that are “moveable at the time of identification to the 
contract for sale.” UCC § 2-105(1); see also In re NE Opco, 501 B.R. at 241 (quoting UCC § 2-
105(1)). 
11. 
Applying this straight-forward definition, courts in this and other 
jurisdictions, have excluded from section 503(b)(9) claims for any non-goods items, including 
claims for services rendered. See In re NE Opco, 501 B.R. at 250 (illustrating the difference 
 
9 As set forth in the Thoroddsen Declaration, the 503(b)(9) Motion appears to assert both a claim under section 
503(b)(9) of the Bankruptcy Code for prepetition services and a post-petition claim in the amount of “$20,833/month 
for the duration of the case”.  The Juneau Group has not provided any goods or services to the Debtors either before 
or after the Petition Date.  Accordingly, the 503(b)(9) Motion should also be denied to the extent it seeks payment of 
an administrative expense for the provision of post-petition goods or services to the Debtors. 
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between a good and a service).  See also In re O.W. Bunker Holding N.A. Inc., 607 B.R. 47, 66 
(Bankr. D. Conn. 2019) (excluding claims for services from the 503(b)(9) claim); In re Goody’s 
Family Clothing, Inc., 401 B.R. at 135 (explaining that a claim for an administrative expense under 
503(b)(9) cannot be a claim for services provided); In re SemCrude, L.P., 416 B.R. 399, 405 
(Bankr. D. Del. 2009) (explaining services are not goods within the meaning of section 503(b)(9)); 
In re Sklar Expl. Co., LLC, 638 B.R. 627, 632 (Bankr. D. Colo. 2022) (explaining 503(b)(9) 
requires a distinction between goods and services).   
12. 
In NE OPCO, the claimant was a utility provider that asserted an 
administrative expense priority claim pursuant to section 503(b)(9) for electricity and natural gas, 
including incidental services and fees, it provided to the debtors twenty days prior to the debtors’ 
bankruptcy.  See NE OPCO, 501 B.R. at 236-37.  Applying the UCC’s definition, and illustrating 
the difference between services and goods, the Court determined that only the natural gas 
constituted a “good” under the UCC and section 503(b)(9).  The Court subsequently denied the 
claimant’s argument that the related services and fees provided in connection with the natural gas 
constituted “goods” under 503(b)(9), or were otherwise entitled to administrative expense priority:  
“As to the natural gas provided by Westfield — the Court finds that 
natural gas is a good. However, the Court . . . will award Westfield 
an administrative priority claim . . . for the value of the natural gas 
provided, but not the associated services.”  
Id. at 260.  
13. 
As an additional example, in Goody’s Family Clothing, the debtors, an 
apparel retailer, objected to section 503(b)(9) claims filed by one of their vendors for certain 
services rendered within the twenty days prior to the petition date.  Such services included 
inspecting, ticketing, and repackaging apparel purchased from other vendors.  See 401 B.R. at 133.  
The debtors objected to the claims on the basis that services are not “goods” as required by section 
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503(b)(9).  See id.  Finding that the UCC definition applied to the meaning of “goods” under 
section 503(b)(9), the Court sustained the debtors’ objection and held that the services the vendors 
provided did not constitute goods for purposes of an administrative expense claim pursuant to 
section 503(b)(9).  Id. at 135-36.   
14. 
As described above, the Juneau Group asserts that twenty days prior to the 
Petition Date it sold goods described as “TIME” to the Debtors in the ordinary course of business, 
and such goods have an aggregate value of $499,999.99.  See 503(b)(9) Motion ¶ 4.  Applying the 
relevant case law, the 503(b)(9) Claim for “TIME” is not a “good” within the meaning of the UCC 
and section 503(b)(9), and at most is a claim for services similar to those in NE OPCO or Goody’s 
Family Clothing that is not entitled to administrative expense priority.10  Accordingly, the Juneau 
Group’s alleged 503(b)(9) Claim is not entitled to administrative priority.    
B. The Juneau Group’s Claim Should Be Expunged, Or At Least Reclassified, 
Because It Has Failed to Provide Any Support For its 503(b)(9) Claim  
15. 
The framework for assessing the validity of a claim filed in a bankruptcy 
proceeding is a burden shifting one.  See In re Allegheny Int’l, Inc., 954 F.2d 167, 173-74 (3d Cir. 
1992).  The burden rests initially on the claimant to provide sufficient evidence to support a finding 
that their claim is “prima facie” valid.  See id. at 173 (“If the averments in [the] filed claim meet 
this standard of sufficiency, it is ‘prima facie’ valid.) (citing In re Holm, 931 F.2d 620, 623 (9th 
Cir. 1991)).  The Juneau Group’s alleged 503(b)(9) Claim has provided no support whatsoever for 
its assertion that it sold “goods” to the Debtors, the amount of the “goods,” and that such goods 
were provided within twenty days of the Petition Date.  The 503(b)(9) Motion simply makes 
conclusory statements without including any description of the goods sold, the date the goods were 
 
10 For the avoidance of doubt, the Juneau Group has not provided any services to the Debtors. 
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received by the Debtors, or the invoice for such goods.  As such, the 503(b)(9) Claim does not set 
forth a prima facie showing necessary to state a claim nor a showing that any such claim is an 
administrative claim.  See In re New Century TRS Holdings, Inc., 446 B.R. 656, 662 (Bankr. D. 
Del. 2011) (denying a claimant’s asserted administrative expense claim after finding the claimant 
failed to provide sufficient facts to support a valid claim).  Further, the 503(b)(9) Motion references 
that supporting documentation, including invoices and proofs of delivery, is attached as an exhibit 
to the 503(b)(9) Motion but fails to attach such documentation.11  It is the Juneau Group’s burden 
to support its claim and it has failed to do so.  See In re Unidigital, 262 B.R. at 288.  For these 
reasons, the Court should deny the 503(b)(9) Motion. 
II. 
The Debtors Have No Record of Receiving Any Goods or Services from the Juneau 
Group 
16. 
Finally, prior to the filing of this Objection, the Debtors diligently inspected 
their books and records and did not locate any invoices, proofs of delivery, or other records 
indicating the existence of the “goods” the Juneau Group alleges the Debtors received twenty days 
prior to the Petition Date.  See Thoroddsen Declaration ¶ 4.  Additionally, the Debtors coordinated 
with their advisors who confirmed no records exist of the Debtors ever receiving any other goods 
or services from the Juneau Group.  See id.  Further, the Debtors attempted to contact the Juneau 
Group to obtain more information regarding the 503(b)(9) Claim in an effort to reach a mutual 
understanding and to the extent possible, a resolution of the dispute.  However, after initiating 
contact via various modes of communication (via email and telephone, utilizing the information 
 
11 In addition, no such documentation is attached to Claim No. 184 or the Other Juneau Group Claims. 
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set forth on the 503(b)(9) Motion and the email address used to contact the Court’s Chambers), 
the Juneau Group failed to respond to the Debtors.  See id at ¶ 5.    
Reservation of Rights 
 
17. 
The Debtors reserve the right, without limitation, to: (a) dispute any and all 
facts in the 503(b)(9) Motion in the context of the claims resolution process or for any other reason; 
(b) dispute the actual amount of the Juneau Group’s claims as set forth in the 503(b)(9) Motion; 
(c) object to claims alleged in the 503(b)(9) Motion if such claims are supplemented with 
additional documentation (or additional amounts) on any grounds whatsoever at a later date; and 
(d) object to Claim No. 184 and the Other Juneau Group Claims on any and all grounds.   
 
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WHEREFORE, the Debtors respectfully request that the Court deny the relief requested in 
the 503(b)(9) Motion.  
Dated: February 17, 2023 
 
Wilmington, Delaware 
 
 
/s/ Matthew P. Milana 
RICHARDS, LAYTON & FINGER, P.A. 
Daniel J. DeFranceschi (No. 2732) 
Amanda R. Steele (No. 5530) 
Zachary I. Shapiro (No. 5103) 
Matthew P. Milana (No. 6681) 
One Rodney Square 
920 North King Street 
Wilmington, Delaware 19801 
Telephone: (302) 651-7700 
E-mail: defranceschi@rlf.com 
             steele@rlf.com 
             shapiro@rlf.com 
             milana@rlf.com 
 
-and- 
 
WEIL, GOTSHAL & MANGES LLP 
Ray C. Schrock (admitted pro hac vice) 
Candace M. Arthur (admitted pro hac vice) 
Natasha S. Hwangpo (admitted pro hac vice) 
Chase A. Bentley (admitted pro hac vice) 
767 Fifth Avenue 
New York, New York 10153 
Telephone:  
(212) 310-8000 
E-mail:  
ray.schrock@weil.com 
                        candace.arthur@weil.com 
 
 
natasha.hwangpo@weil.com 
                        chase.bentley@weil.com  
 
Attorneys for Debtors and Debtors in Possession 
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