Court filing
Objection to Plan Confirmation (Paul Pietschner) — In re KServicing (Bankr. D. Del., 2023-02-28)
Filed February 28, 2023 in Kservicing Bankruptcy; one of 140 filings from this case.
Record facts
| Court | U.S. Bankruptcy Court for the District of Delaware |
|---|---|
| Filed | 2023-02-28 |
U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 591 · 2023-02-28 · Docket on CourtListener
Full text
UNITED STATES BANKRUPTCY COURT
DISTRICT OF DELAWARE
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:
In re
:
Chapter 11
:
KABBAGE, INC. d/b/a KSERVICING, et al., :
Case No. 22-10951 (CTG)
:
:
Debtors.1
:
(Jointly Administered)
:
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OBJECTION OF PAUL PIETSCHNER TO CONFIRMATION
OF DEBTORS' PROPOSED PLAN OF LIQUIDATION
Paul Pietschner ("Pietschner"), a creditor with unsecured claims against each of
the above-captioned debtors and debtors-in-possession (the "Debtors") in these cases, hereby
objects (the "Objection") to the Amended Joint Chapter 11 Plan of Liquidation of Kabbage, Inc.
(d/b/a KServicing) and its Affiliated Debtors (as the same may be amended from time-to-time, the
"Plan") (D.I. 466), filed by the Debtors, as follow:
INTRODUCTION
1.
The Plan's release and injunction provisions are overbroad, in that they would
prohibit Pietschner from liquidating his claims, and would effectively provide Debtors with a
discharge of Pietschner's claims in violation of sections 1141(d)(6)(A) of title 11 of the United
States Code, 11 U.S.C. § 101, et. seq. (the "Bankruptcy Code"). Consequently, the Plan fails to
satisfy section 1129(a)(1) of the Bankruptcy Code, and cannot be confirmed.
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.
Case 22-10951-CTG Doc 591 Filed 02/28/23 Page 1 of 9
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2.
Pietschner has communicated his concerns to the Debtors and has provided Debtors
with a proposed stipulation to resolve his objections. Pietschner continues to seek a consensual
resolution, but files this objection to protect his interests in the event one is not available.
BACKGROUND
3.
Pietschner is the relator in a proceeding commenced under the False Claims Act,
31 U.S.C. Sec. 3729, et seq., currently pending, under seal, in the United States District Court
for the Eastern District of Texas, Sherman Division, Case No. 4:21-cv-110 (the "FCA Action").
4.
In the FCA Action, Pietschner alleges, among other things, that Kabbage, Inc.,
in connection with the federal Paycheck Protection Plan loan program (the "PPP"), part of the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act, Pub. L. 116–136),
knowingly presented or caused to be presented false or fraudulent claims for payment and that,
as a result, owes the United States substantial monetary damages.
5.
On October 3, 2022 (the "Petition Date"), the Debtors each filed a voluntary
petition under chapter 11 of the Bankruptcy Code with this Court.
6.
On November 30, 2022, Pietschner filed the following six (6) proofs of claim
against each of the Debtors:
1. Claim No. 10 against Kabbage Asset Funding 2019-A LLC;
2. Claim No. 8 against Kabbage Canada Holdings, LLC;
3. Claim No. 6 against Kabbage Asset Securitization LLC;
4. Claim No. 7 against Kabbage Asset Funding 2017-A LLC;
5. Claim No. 7 against Kabbage Diameter, LLC; and
6. Claim No. 174 against Kabbage, Inc. d/b/a KServicing.
Claims against Kabbage Asset Funding 2019-A LLC, Kabbage Canada Holdings, LLC, Kabbage
Asset Securitization LLC, Kabbage Asset Funding 2017-A LLC and Kabbage Diameter, LLC
Case 22-10951-CTG Doc 591 Filed 02/28/23 Page 2 of 9
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(items 1-5 above) are collectively referred to as the "Subsidiary Claims," and the claim against
Kabbage, Inc. d/b/a KServicing (item 6 above) is referred to as the "KS Claim."
7.
The KS Claims and the Subsidiary Claims each assert an unliquidated,
contingent claim against the Debtors on account of the FCA Action.
8.
On January 10, 2023, the Court entered an order approving the Stipulation by
and among Debtors and Pietschner to extend Pietschner's deadline to file a complaint to
determine dischargeability of debt, extending such deadline to the date which is 21 days
following the entry of an order confirming any plan (D.I. 430).
9.
On January 19, 2023, the Court entered the Order (I) Approving the Disclosure
Statement of the Debtors, (II) Establishing Solicitation, Voting, and Related Procedures, (III)
Scheduling Confirmation Hearing, (IV) Establishing Notice and Objection Procedures for
Confirmation of Plan, (V) Approving Special Electronic Noticing Procedures, (VI) Approving
Debtors' Proposed Cure Procedures for Unexpired Leases and Executory Contracts, and (VII)
Granting Related Relief (D.I. 470) (the "Disclosure Statement Order") approving the Amended
Disclosure Statement for the Amended Joint Chapter 11 Plan of Liquidation of Kabbage, Inc.
(d/b/a KServicing) and its Affiliated Debtors (D.I. 467) (together with all schedules and exhibits
thereto, and as may be modified, amended, or supplemented from time to time, the "Disclosure
Statement"), which authorized the Debtors to solicit votes to accept or reject the Plan, and that
scheduled a confirmation hearing for the Plan on March 13, 2023 (the "Confirmation Hearing").
10.
Section 10.3(a) of the Plan, provides in part, that upon confirmation holders of
claims are enjoined from taking any action, in relation to any claim released pursuant to the
Plan, that would interfere with the implementation or consummation of the Plan. Section
Case 22-10951-CTG Doc 591 Filed 02/28/23 Page 3 of 9
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10.3(b) of the Plan, upon the Effective Date, enjoins holders of claims from continuing any
lawsuit against the Debtors, with respect to any claims treated by the Plan:
10.3. Injunction.
(a) Upon entry of the Confirmation Order, all holders of Claims and
Interests and other parties in interest, along with their respective present or
former employees, agents, officers, directors, principals, and affiliates, shall
be enjoined from taking any actions to interfere with the implementation or
consummation of the Plan in relation to any Claim extinguished,
discharged, or released pursuant to the Plan.
(b) Except as expressly provided in the Plan, the Definitive Documents, the
Confirmation Order, or a separate order of the Bankruptcy Court or as
agreed to by the Debtors and a holder of a Claim against or Interest in the
Debtors, all Entities who have held, hold, or may hold Claims against or
Interests in the Debtors (whether proof of such Claims or Interests has been
filed or not and whether or not such Entities vote in favor of, against or
abstain from voting on the Plan or are presumed to have accepted or deemed
to have rejected the Plan) and other parties in interest, along with their
respective present or former employees, agents, officers, directors,
principals, and affiliates are permanently enjoined, on and after the
Effective Date, solely with respect to any Claims, Interests, and Causes of
Action that will be or are treated by the Plan from (i) commencing,
conducting, or continuing in any manner, directly or indirectly, any suit,
action, or other proceeding of any kind (including, without limitation, any
proceeding in a judicial, arbitral, administrative or other forum) against or
affecting the Debtors, the Wind Down Estates, or the Wind Down Officer,
as applicable, or the property of any of the Debtors, the Wind Down Estates,
or the Wind Down Officer, as applicable; (ii) enforcing, levying, attaching
(including, without limitation, any prejudgment attachment), collecting, or
otherwise recovering by any manner or means, whether directly or
indirectly, any judgment, award, decree, or order against the Debtors, the
Wind Down Estates, or the Wind Down Officer; or the property of any of
the Debtors, or the Wind Down Estates, as applicable; (iii) creating,
perfecting, or otherwise enforcing in any manner, directly or indirectly, any
encumbrance of any kind against the Debtors, the Wind Down Estates, or
the property of any of the Debtors, the Wind Down Estates, or the Wind
Down Officer, as applicable; (iv) asserting any right of setoff, directly or
indirectly, against any obligation due from the Debtors, or the Wind Down
Estates, as applicable, or against property or interests in property of any of
the Debtors, or the Wind Down Estates, except as contemplated or Allowed
by the Plan; and (v) acting or proceeding in any manner, in any place
whatsoever, that does not conform to or comply with the provisions of the
Plan.
Case 22-10951-CTG Doc 591 Filed 02/28/23 Page 4 of 9
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11.
Section 10.6 of the Plan, provides in part, that as of the Effective Date, each of
the Released Parties2 is deemed released from any claims or suits, "based on or relating to, or
in any manner arising from, in whole or in part, the Debtors … ":
10.6. Releases By Holders of Claims and Interests. As of the Effective Date,
except (a) for the right to enforce the Plan or (b) as otherwise expressly
provided in the Plan or in the Confirmation Order, to the fullest extent
permissible under applicable law, as such law may be extended or integrated
after the date upon which the Bankruptcy Court enters the Confirmation
Order, on or after the Effective Date, each Released Party shall be deemed
expressly, conclusively, absolutely, unconditionally, irrevocably and
forever, released, and waived by each of the Releasing Parties from any and
all claims, interests, obligations, rights, suits, damages, Causes of Action,
remedies, and liabilities whatsoever (including any derivative claims
asserted or that may be asserted on behalf of any of the Debtors or their
Estates), whether known or unknown, foreseen or unforeseen, existing or
hereinafter arising, in law, equity, or otherwise, based on or relating to, or
in any manner arising from, in whole or in part, the Debtors, the Chapter 11
Cases, the Plan (including the Plan Supplement), the Disclosure Statement,
the restructuring of Claims or Interests in the Chapter 11 Cases, the
formulation, preparation, dissemination, negotiation of any of the foregoing
or any contract, instrument, release, or other agreement or document created
or entered into in connection with any of the foregoing, … [.]
12.
Pursuant to the Disclosure Statement Order, the KS Claim and the Subsidiary
Claims are designated as Class 4 (General Unsecured Claims).
13.
On February 15, 2023, the Court entered an order approving the Stipulation by
and among Debtors and Pietschner disallowing Pietschner's Subsidiary Claims solely for voting
purposes (D.I. 538). Accordingly, Pietschner asserts this objection solely with respect to the
KS Claim.
2 The Released Parties, as defined in the Plan, include, in part, Debtors. See Plan at 1.102.
Case 22-10951-CTG Doc 591 Filed 02/28/23 Page 5 of 9
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ARGUMENT
14.
The Plan, in its current state, cannot be confirmed. To confirm a plan of
reorganization, a debtor must prove by a preponderance of the evidence that all elements of §
1129 of the Bankruptcy Code are satisfied. See In re BSA, 642 B.R. 504, 553 (Bankr. D. Del.
2022). Courts universally agree that the burden of proof lies with the proponent of the plan,
which, here, are the Debtors. See, e.g., In re Washington Mut., Inc., 442 B.R. 314, 328 (Bankr.
D. Del. 2011) ("[T]he Plan Supporters bear the burden of proving that the Plan complies with
all of the requirements of the Bankruptcy Code for confirmation."). Here, the Plan cannot and
does not meet the requirements of section 1129(a)(1) which allows for confirmation only if the
plan complies with the applicable provisions of the Bankruptcy Code. Because the Plan does
not, it cannot be confirmed.
15.
Specifically, the Plan proposed by Debtors includes provisions that would
release the Debtors from any liability in the FCA Action, and that would enjoin Pietschner from
prosecuting the FCA Action and liquidating his claims. As a result, the Plan effectively
discharges Debtors' debt arising from the FCA Action.
16.
Section 1141(d)(6)(A) of the Bankruptcy Code, however, provides that:
the confirmation of a plan does not discharge a debtor that is a
corporation from any debt (A) of a kind specified in paragraphs
(2)(A) or (2)(B) of Section 523(a) that is owed to a domestic
governmental unit, or to a person as the result of an action filed
under subchapter III of chapter 37 of title 31 or any similar statute
….
11 U.S.C. § 1141(d)(6)(A).
17.
Pietschner's allegations in the FCA Action, that money was obtained by false
pretenses and false representations, are allegations of debts that are "of a kind specified in
Section 523(a)(2)(A)," because that section of the code exempts from discharge those debts "for
Case 22-10951-CTG Doc 591 Filed 02/28/23 Page 6 of 9
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money, property, services, … to the extent obtained by false pretenses, false representations or
actual fraud …." See In re Hawker Beechcraft, Inc., 515 B.R. 416, 419, 426 (S.D.N.Y. 2014)
Moreover, because Pietschner is prosecuting the FCA Action on behalf of the United States, he
is pursuing a debt owed to a "domestic governmental unit." See 11 U.S.C. § 1141(d)(6)(A).
18.
Accordingly, Debtors' liability in the FCA Action is both a debt of the kind
specified in section 523(a)(2)(A) that is owed to a domestic governmental unit, and is also a
debt owed to Pietschner as a result of his filing of the FCA Action under subchapter III of
chapter 37 of title 31 of the United States Code.
19.
Consequently, the Plan fails to comply with the applicable provisions of the
Bankruptcy Code, and pursuant to section 1129(a)(1) of the Bankruptcy Code, it cannot be
confirmed.
RESERVATION OF RIGHTS
20.
Pietschner does not waive any, and expressly reserves all, rights and defenses
under the Bankruptcy Code, applicable law or otherwise. Pietschner further reserve all rights
to assert any and all such rights and defenses in any appropriate manner or forum whatsoever,
including the right to raise and respond to the issues relating to the Plan in the FCA Action, and
any procedurally appropriate contested matter and/or adversary proceeding.
21.
Pietschner reserves his right to amend, modify, and/or supplement this Objection
and to introduce evidence at any hearing related to the Plan, including at the Confirmation
Hearing. Pietschner also expressly reserves the right to adopt any other confirmation objections
filed by any other party.
Case 22-10951-CTG Doc 591 Filed 02/28/23 Page 7 of 9
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CONCLUSION
For the foregoing reasons, the Plan does not comply with the applicable provisions of the
Bankruptcy Code and pursuant to section 1129(a)(1) of the Bankruptcy Code, it cannot be
confirmed.
Dated: February 28, 2023
PAUL PIETSCHNER
/s/ Randall L. Klein
MORRIS NICHOLS ARSHT &
TUNNELL
Robert J. Dehney
1201 North Market Street
16th Floor
P.O. Box 1347
Wilmington, DE 19899-1347
Tel: 302.351.9353
Fax: 302.425.4673
rdehney@morrisnichols.com
-and-
GOLDBERG KOHN LTD
Randall L. Klein
William C. Meyers
Prisca M. Kim
55 East Monroe, Suite 3300
Chicago, Illinois 60603
Tel: 312.201.4000
Fax: 312.863.7419
randall.klein@goldbergkohn.com
prisca.kim@goldbergkohn.com
william.meyers@goldbergkohn.com
Counsel for Paul Pietschner
Case 22-10951-CTG Doc 591 Filed 02/28/23 Page 8 of 9
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CERTIFICATE OF SERVICE
The undersigned certifies that, on February 28, 2023, the foregoing OBJECTION OF
PAUL PIETSCHNER TO CONFIRMATION OF DEBTORS' PROPOSED PLAN OF
LIQUIDATION was filed with the Clerk of the Court using the CM/ECF filing system, which
then sent notification of electronic filing to all CM/ECF participants.
/s/ Randall L. Klein
Randall L. Klein
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