Motion to Shorten Notice Period — Rule 2004 Examination of American Express — In re KServicing (Bankr. D. Del.)

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U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 625 · 2023-03-08 · Docket on CourtListener

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21624447
IN THE UNITED STATES BANKRUPTCY COURT 
FOR THE DISTRICT OF DELAWARE 
In re  
KABBAGE, INC. d/b/a KSERVICING, et al.,  
Debtors.1 
Chapter 11 
Case No. 22-10951 (CTG) 
(Jointly Administered) 
JOINT MOTION OF CROSS RIVER BANK AND CUSTOMERS BANK FOR ENTRY 
OF AN ORDER SHORTENING NOTICE AND OBJECTION PERIODS FOR JOINT 
MOTION OF CROSS RIVER BANK AND CUSTOMERS BANK FOR AN ORDER, 
PURSUANT TO SECTION 105(a) OF THE BANKRUPTCY CODE, BANKRUPTCY 
RULE 2004, AND LOCAL BANKRUPTCY RULE 2004-1, AUTHORIZING AND 
DIRECTING THE EXAMINATION OF AMERICAN EXPRESS KABBAGE INC. 
Cross River Bank (“Cross River”) and Customers Bank, respectfully state as follows in 
support of this motion (the “Motion”):2 
Relief Requested 
1.
By this Motion, Cross River and Customers Bank seek entry of an order pursuant
to Rule 9006 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and Rules 
2004-1 and 9006-1 of the Local Rules of Bankruptcy Practice and Procedure of the United States 
Bankruptcy Court for the District of Delaware (the “Local Rules”) shortening the notice and 
objection periods for the Joint Motion of Cross River Bank and Customers Bank for an Order, 
Pursuant to Section 105(A) of the Bankruptcy Code, Bankruptcy Rule 2004, and Local 
Bankruptcy Rule 2004-1, Authorizing and Directing the Examination of American Express 
Kabbage Inc. filed contemporaneously herewith (the “Examination Motion”) as follows: (a) 
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) (collectively, the “Debtors”). 
2
Capitalized terms used but not defined herein shall have the respective meanings ascribed to such terms in 
the Examination Motion (as defined below). 
RE: D.I. 622
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scheduling a hearing on the Examination Motion for March 20, 2023 at 10:00 a.m. (Eastern 
Time) (the “Hearing”), which is an existing omnibus hearing date in these Chapter 11 Cases; (b) 
requiring objections and responses to the Examination Motion, if any, to be filed on or before 
March 15, 2023 at 4:00 p.m. (Eastern Time) (the “Objection Deadline”); and (c) authorizing 
Cross River and Customers Bank to file a joint reply in further support of the Examination 
Motion on or before March 17, 2023 at 12:00 noon (Eastern Time). 
2.
A proposed form of order granting the relief requested herein is attached hereto as
Exhibit A (the “Proposed Order”). 
Jurisdiction 
3.
The Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157
and 1334, and the Amending Standing Order of Reference from the United States District Court 
for the District of Delaware, dated February 29, 2012.  This is a core proceeding pursuant to 28 
U.S.C. § 157(b).   Pursuant to Rule 9013-1(f) of the Local Rules, Cross River and Customers 
Bank consent to the entry of a final order by the Court in connection with this Motion to the 
extent it is later determined that the Court, absent consent of the parties, cannot enter final orders 
or judgments consistent with Article III of the United States Constitution. Venue is proper before 
the Court pursuant to 28 U.S.C. §§ 1408 and 1409.  The statutory predicates for the relief 
requested herein are sections 105(a) of title 11 of the United States Code (the “Bankruptcy 
Code”), Bankruptcy Rule 9006, and Local Rules 2004-1 and 9006-1. 
Background 
A. General Background.
4.
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 
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Debtors are authorized to continue to operate their business as debtors in possession pursuant to 
sections 1107(a) and 1008 of the Bankruptcy Code.  No trustee, examiner, or statutory 
committee of creditors has been appointed in the Chapter 11 Cases. 
5.
The Debtors’ cases are being jointly administered for procedural purposes only
pursuant to Bankruptcy Rule 1015(b). 
6.
On the Petition Date, the Debtors filed the Joint Chapter 11 Plan of Liquidation
of Kabbage, Inc. (d/b/a KServicing) and its Affiliated Debtors [ECF 14]. 
7.
On January 19, 2023, the Debtors filed the Amended Joint Chapter 11 Plan of
Liquidation of Kabbage, Inc. (d/b/a KServicing) and its Affiliated Debtors [ECF 446] (the 
“Amended Plan”). 
8.
On January 19, 2023, the Debtors filed the Amended Disclosure Statement for the
Amended Joint Chapter 11 Plan of Liquidation of Kabbage, Inc. (d/b/a KServicing) and its 
Affiliated Debtors [ECF 467] (the “Amended Disclosure Statement”).  On January 19, 2023, the 
Court entered an order approving the Amended Disclosure Statement [ECF 470]. 
9.
A hearing to consider confirmation of the Amended Plan has been scheduled
before the Court on March 13, 2023 at 10:00 a.m. (Eastern Time) (the “Confirmation Hearing”). 
10.
On March 6, 2023, Customers Bank filed its Motion for an Order Pursuant to
Bankruptcy Rule 2004 Directing Production of Documents and Materials and Appearance for 
Oral Examination, [ECF 608] (the “CB-Debtor Examination Motion”). By the CB-Debtor 
Examination Motion, Customers Bank seeks to examine the Debtor to obtain, inter alia, 
documents and information in the possession, custody or control of the Debtors necessary for the 
transition of loan servicing obligations from the Debtors to Customers Bank, which intends to act 
as a successor servicer.  Customers Bank has noticed the CB-Debtor Examination Motion for a 
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hearing on March 20, 2023 – the same date as proposed for the Hearing on the Examination 
Motion that is the subject of this Motion. 
11.
March 20, 2023, is an existing omnibus hearing case in these Chapter 11 Cases.
The next omnibus hearing date is not scheduled to occur until April 13, 2023 [ECF 580].  
 The Examination Motion. 
12.
As more fully set forth in the Examination Motion, Cross River and Kabbage
entered into agreements relating to the origination and servicing of PPP loans in April and May 
of 2020.  Pursuant to the Loan Program Agreement (as amended and supplemented, the “LPA”), 
Cross River appointed Kabbage to act as its “Agent” to market, process, and service PPP 
applications on Cross River’s behalf.  Cross River and Kabbage also entered into a Sale and 
Servicing Agreement (“SSA”), which, among other things, effectuated Cross River’s purchase of 
the rights to certain PPP loans that Kabbage had previously originated in its own name (defined 
in the SSA as the “Assets”).  The SSA also obligated Kabbage to continue in its role as servicer 
for the Assets. 
13.
The LPA requires Kabbage to “maintain and retain on behalf of [Cross River] all
original” loan applications, copies of notices of declination, other documents relating to rejected 
loan applications, and originals or copies of any other documents provided to or received from 
borrowers, LPA § 3.1(g), and to provide such documents to Cross River on request.  Id. § 
3.1(i)(2).  Likewise, the SSA requires Kabbage to “collect, verify, and maintain all documents 
required under the CARES Act, the Paycheck protection Program and SBA Regulations for each 
Asset to be an eligible loan to an eligible borrower,” SSA § 5(e)(iv), (vi), and to provide access 
to such documents upon Cross River’s request.  id. §§ 5(e)(viii), 9(b). 
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14.
Both the SSA and LPA state that the “Servicing File”—the “documents, files and
records held or maintained by or on behalf of [Kabbage]”—is the property of the Cross River, 
that it is held in trust by Kabbage “in a custodial capacity only,” and that Kabbage “shall deliver” 
Servicing Files to Cross River “promptly” upon request.  SPA § 11(a); LPA Letter Agreement at 
3-4. 3
15.
In October 2020, the Debtors transferred the substantial majority of their assets to
American Express Kabbage Inc. (“Amex Kabbage,” and collectively with its parent, American 
Express Travel Related Services Company, Inc., and subsidiaries of such parent, “American 
Express”).  Disclosure Statement at 3; see also Debtors’ 2004 Motion at 5 [ECF 576].  American 
Express obtained, among other things, the Debtors’ valuable lending and servicing platform, and 
the Kabbage IP, including the “Kabbage” name.  See Disclosure Statement at 43.  American 
Express now runs “Kabbage Funding From American Express.”  The Debtors’ management and 
shareholders took nearly all of the $750 million that American Express paid for the Debtors’ 
assets.  Id. at 43.  Kabbage itself was rendered a “wind down” entity, with minimal funding, 
intended to service the loans and then close.  Id.   
16.
As relevant here, in connection with the transaction, Kabbage transferred certain
data and information to American Express.  This transfer included key components of the 
3
As detailed in numerous pleadings filed with this Court, including Customers Bank’s Motion for Entry of 
an Order Compelling Compliance with Court Approved Settlement Agreement [ECF 336] at paragraphs 1-7, 
Customers Bank has a similar contractual relationship with the Debtors, and one of the agreements between the 
parties, the April 2020 Processing and Servicing Agreement provides that the “Loan File” “means, with respect to 
each Loan, the Loan Application, Note, Loan Agreement, and any other documents provided to Borrowers in 
connection with a Loan, as directed by the Bank” (p.3) and that “Loan Files” are the “sole property of the Bank” and 
“shall remain the sole property of the Bank at all times” (p. 22).  Another agreement between Customers Bank and 
the Debtor, the Sales and Servicing Agreement, defines Loan Documents as “the Asset Files, Servicing File, 
Confirmation Documents, and any documents created under the Subservicer’s compliance program related to the 
Asset” (p. 4) and provides that the Debtor “shall deliver or cause to be delivered . . . as soon as practicable upon 
request, all Loan Documents” (p. 14).   
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servicing files Kabbage was required to maintain, and which are the property of Cross River and 
Customers Bank, as applicable, under their respective agreements with the Debtors. 
17.
To fulfill its servicing obligations, Kabbage entered into a transition services
agreement with Amex Kabbage (“AmEx TSA”), pursuant to which American Express is to 
provide Kabbage “with information and access to books and records necessary and critical to run 
its PPP business.” Disclosure Statement at 35.  Notwithstanding its obligations under the AmEx 
TSA, and notwithstanding that it does not own the Partner Bank Files, American Express has 
failed to provide key components of those files to the Debtors and Cross River and Customers 
Bank. 
18.
According to the Debtors, they have made several attempts to obtain information
pursuant to the AmEx TSA, but, as detailed more fully in the Examination Motion, American 
Express has not been accommodating.  To date, however, the Debtors have not sought relief 
from this or another court to compel American Express to provide the missing components of the 
Partner Bank Files to Cross River and Customers Bank. 
19.
The files in American Express’s possession are relevant not only to the impending
servicing transfer, administration of forgiveness and guaranty purchase applications, and to the 
liquidation of Cross River’s asserted claims against the Debtors, but also to numerous 
governmental investigations regarding the Debtors and their origination of PPP Loans.  See 
Disclosure Statement at 30-35.  Additionally, the SBA has held up the payment of PPP loans 
held by Customers Bank and Cross River for forgiveness or guarantee purchase on multiple 
purported grounds, including that the Debtors may not have followed proper procedures at the 
time of origination, and that the Debtors should be liable for loan amounts paid to borrowers 
exceeding what the borrowers were entitled to receive.  First Day Declaration, ¶ 16. 
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20.
Both Cross River and Customers Bank have a critical and imminent need for the
relief requested in the Examination Motion.  Pursuant to the Debtors’ Amended Plan, the 
Confirmation Hearing for which is to be held in this Court on March 13, 2023, (a) the Debtors 
apparently intend to transition servicing of Cross River’s and Customers Bank’s respective PPP 
loan portfolios to new servicers prior to the Plan’s Effective Date, and to reject the contracts 
under which that servicing occurs (including, the AmEx TSA and other contracts that allow for 
access to pertinent documents) as of the Effective Date, and (b) the Debtors purport to have the 
unilateral option to provide or not provide any servicing or transitioning efforts from and after 
the Amended Plan’s Effective Date.  Further, under the terms of the Amended Plan, the Effective 
Date could occur as early as March 28, 2023, if the Amended Plan is confirmed at the March 13, 
2023 Confirmation Hearing.   
Basis for Relief 
21.
The Court my grant the relief requested herein pursuant to Bankruptcy Rule
9006(c)(1) and Local Rule 9006-1(c). 
22.
Local Rule 2004-1(d) applies to motions for relief pursuant to Bankruptcy Rule
2004 and provides that the hearing on such a motion shall be “no less than fourteen (14) days 
from service of the motion.” Del. Bankr. L.R. 2004-1(d).  Local Rule 9006-1(e) provides in 
relevant part that “no motion will be scheduled on less notice than required by these Local Rules 
or the Fed. R. Bankr. P. except by Order of the Court, on written motion . . . specifying the 
exigencies justifying shortened notice.” Del. Bankr. L.R. 9006-1(e); see also Fed. R. Bankr. P. 
9006(c)(1) (“[T]he court for cause shown may in its discretion with or without motion or notice 
order the period reduced.”).   
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23.
Cross River and Customers Bank submit that good cause exists to expedite
consideration of the Examination Motion.  As set forth herein and in the Examination Motion, 
Cross River has been trying to obtain copies of its Servicing Files, as defined in the CRB 
Agreements, for Cross River’s PPP Loans (the “CRB Servicing Files”) for over a year. 
Customers Bank has made similar efforts to obtain its own files and key information (the “CB 
Files” and, together with the CRB Servicing Files, the “Partner Bank Files”), and has not 
received the complete requested transaction data information and key origination data. 
24.
American Express currently has possession of key components of the Partner
Bank Files and American Express has failed to provide those files to the Debtors or Cross River 
and Customers Bank.  
25.
At the Debtors’ (and American Express’s) insistence Cross River and Customers
Bank had allowed the Debtors to attempt to obtain the Partner Bank Files from American 
Express.  But the Debtors have not yet been able to provide any further information or 
documents from American Express, and time has run out.  Per the Debtors’ Amended Plan, 
servicing of Cross River’s and Customers Bank’s loans must be transferred in potentially a 
matter of just a few weeks.  As such, the Partner Bank Files are imperative to ensure that 
servicing of the loans can continue without interruption after the Debtors cease servicing of these 
loans, and that Cross River and Customers Bank have the information and materials necessary to 
continue servicing and to comply with regulatory and legal obligations under PPP guidelines and 
otherwise. 
26.
Cross River and Customers Bank have attempted to informally obtain the
requested information (including through the Debtors, as insisted by American Express and the 
Debtors), but are now left with no option but to compel American Express to produce the 
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requested information before the servicing of Cross River’s and Customers Bank’s loans must be 
transferred.  
27.
As such, Cross River and Customers Bank have a compelling need for prompt
relief on the Examination Motion.  As discussed above, the Amended Plan could be confirmed as 
early as March 13, 2023.  If that occurs, the Effective Date of the Amended Plan could occur just 
two weeks later – as early as March 28, 2023.  To date, the Debtors have not made any definitive 
commitments to Cross River and Customers Bank concerning how the servicing obligations for 
the PPP loans will be addressed following the Effective Date.  Cross River and Customers Bank, 
thus, must proceed on the assumption that they or their respective designees will be responsible 
for servicing of the PPP loans following the Effective Date and responding to any SBA inquiries. 
Without the missing pieces of the Partner Bank Files that apparently remain in the custody or 
control of American Express, Cross River and Customers Bank will be hamstrung in their ability 
to do so.  Such a result would be harmful, not only for Cross River and Customers Bank, but also 
for all other parties that have an interest in the proper servicing of the PPP loans.   
28.
Furthermore, the shortened notice period request does not prejudice the parties in
interest.  As discussed in the Examination Motion, both the Debtors and American Express have 
been aware of the critical need that Cross River and Customers Bank have for the Partner Bank 
Files and that they were likely to seek relief from this Court to obtain such documents and 
information if American Express did not voluntarily provide it.  Moreover, with respect to the 
Debtors, this schedule is being driven by the Debtors’ own scheduled Confirmation Hearing on 
March 13, 2023, and the possibility that the Debtors would cause the Amended Plan’s Effective 
Date to occur as early as two weeks after the Amended Plan is confirmed.   
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29.
For the foregoing reasons, Cross River and Customers Bank respectfully submit
that allowing the Examination Motion to be considered on shortened notice is reasonable and 
appropriate under the circumstances. 
Compliance with Local Rule 9006-1(e) 
30.
Prior to the filing of this Motion, and pursuant to Local Rule 9006-1(e), counsel
for Cross River and Customers Bank notified counsel for the Debtors, American Express, and the 
U.S. Trustee of the relief requested in this Motion.  The U.S. Trustee has advised movants that 
they take no position with respect to the scheduling relief requested in the Motion.  Movants 
understand that the Debtors and American Express oppose the proposed scheduling of 
Examination Motion for hearing on March 20, 2023.4   
Notice 
31.
Notice of this Motion will be provided to (a) the Office of the United States
Trustee for the District of Delaware; (b) the holders of the thirty (30) largest unsecured claims 
against the Debtors on a consolidated basis; (c) the Federal Reserve Bank; (d) the Small Business 
Administration; (e) counsel for American Express; and (f) any party that has requested notice 
pursuant to Bankruptcy Rule 2002. 
No Prior Request 
32.
No previous request for relief sought herein has been made by Cross River or
Customers Bank to this or any other court. 
4 Movants understand that the Court may have some availability on Wednesday, March 22, 2022, which 
would be an acceptable alternative hearing date for Cross River and Customers Bank.  If the Court is inclined to 
schedule the Examination Motion to be heard on March 22, 2023, the relief requested by this Motion would no 
longer be necessary under Local Rule 2004-1(d), which requires 14 days’ notice of the hearing on motion of this 
nature.  Additionally, movants understand that the Debtors do not oppose the scheduling of the Examination Motion 
for a hearing on March 22, 2023.  American Express’s position on the use of the March 22nd hearing date is 
unknown at this time. 
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WHEREFORE, Cross River and Customers Bank respectfully requests entry of the 
Proposed Order granting the relief requested herein and such other and further relief as the Court 
may deem just and appropriate. 
Dated: March 8, 2023  
Respectfully submitted, 
Wilmington, Delaware 
BENESCH, FRIEDLANDER, COPLAN & 
ARONOFF LLP 
/s/ Gregory W. Werkheiser 
Gregory W. Werkheiser (No. 3553) 
1313 N. Market Street, Suite 1201 
Wilmington, Delaware 19801 
Telephone: (302) 442-7010 
Facsimile: (302) 442-7012 
gwerkheiser@beneschlaw.com 
-and-
QUINN EMANUEL URQUHART &  
SULLIVAN, LLP 
Susheel Kirpalani (admitted pro hac vice) 
Isaac Nesser (admitted pro hac vice) 
51 Madison Avenue, 22nd Floor 
New York, NY 10010 
Telephone:  (212) 849-7000 
susheelkirpalani@quinnemanuel.com 
isaacnesser@quinnemanuel.com 
Erika Morabito (admitted pro hac vice) 
1300 I Street NW, Suite 900 
Washington, D.C. 20005 
Telephone: (202) 538-8000 
erikamorabito@quinnemanuel.com 
Matthew R. Scheck (admitted pro hac vice) 
300 West 6th Street, Suite 2010 
Austin, TX 78701 
Telephone: (737) 667-6100 
matthewscheck@quinnemanuel.com 
Counsel to Cross River Bank 
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Sullivan Hazeltine Allinson LLP 
/s/ William A. Hazeltine 
William D. Sullivan (No. 2820) 
William A. Hazeltine (No. 3294) 
919 N. 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 
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 
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