Exhibits on Settlement Payment Dispute — Customers Bank and KServicing, Case 22-10951-CTG
- Date
- 2022-11-28
Summary
Doc 289-1 in Case 22-10951-CTG, the KServicing bankruptcy, filed November 28, 2022, is a 30-page set of exhibits on the settlement payment dispute between Customers Bank and Kabbage Inc. d/b/a KServicing. Exhibit A is a reconciliation table deducting Disputed KServicing Holdbacks of $37,500,317 from a Negotiated Receivable of $58,000,000 to reach a Settlement Payment of $20,499,683. Exhibit B is a November 2022 email exchange in which debtor's counsel at Weil, Gotshal & Manges LLP states a $19,469,355 wire is not the full Settlement Payment, and Customers Bank's counsel at Holland & Knight LLP responds explaining its calculation. Exhibit D begins with a November 3, 2022 email from Customers Bank's counsel seeking the data behind the remittance holdback estimate. The document closes with a November 17, 2022 Holland & Knight letter demanding a cure by November 18, 2022.
Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used
Full text
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 1 of 30
Exhibit A
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 2 of 30
Reurned/Cancelled Loans $3,617,304
Reurned/Cancelled Loans in Remittance Report ($426,258)
Additional Loans not Disbursed (per Danny) $35,899
Adjusted Returned/Canceled Loans $3,226,945
Borrower Principal Repayments and Returns per Remittance File $25,578,633
Interest Collected $1,030,328
Reported Remittance Account Variance $497,900
Total Borrower Remittance Payments (P&I) $27,106,862
Adjusted Returned/Cancelled Loans $3,226,945
Total Borrower Remittance Payments (P&I) $27,106,862
Fees Owed to SBA (Borrower Overpayments) ($1,150,513)
Disputed KServicing Remittance Holdbacks $29,183,294
Disputed KServicing Fee Holdbacks $8,317,023
Disputed KServicing Remittance Holdbacks $29,183,294
Disputed KServicing Fee Holdbacks $8,317,023
Disputed KServicing Holdbacks $37,500,317
Negotiated Receivable $58,000,000
Disputed KServicing Holdbacks ($37,500,317)
Settlement Payment $20,499,683
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 3 of 30
Exhibit B
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 4 of 30
Sternberg. Jeremy M (BOS - X71476)
From: Sternberg, Jeremy M (BOS - X71476)
Sent: Tuesday, November 15, 2022 10:22 PM
To: Arthur, Candace M.; Watkins, Philip S; Vervlied, Michele L; White, Alyssa A; Leibold, Carla;
Monaghan, John (BOS - X75834)
Cc: Slack, Richard; Tsekerides, Theodore; Sal Kafiti; Schrock, Ray; Bentley, Chase; Donna
Evans
Subject: RE: Settlement Payment
Attachments: Kabbage Settlement Payment Reconciliation FINAL UPDATED 11 15 22.pdf
Candace and team,
We write in response to your email from 9:26pm on Monday. Your email incorrectly asserts that Customers
Bank (“CB”) has not paid the “full Settlement Payment.”
Some history and context is required in light of your disappointing and errant accusations of “bad faith and
contempt of Court.”
The Settlement and Release Agreement obliges CB to pay $58MM less the amount of the Disputed KServicing
Holdbacks as of the Petition Date. Paragraph 3 of the Agreement provides that following the execution of the
Agreement “through the Effective Date, the Parties shall work together in good faith to promptly reconcile the
amounts of the Disputed KServicing Fee Holdback and the Disputed KServicing Holdback as of the Petition
Date to determine the appropriate amount of the Settlement Payment.” Paragraph 2 of the Agreement provides
that the Effective Date is the date the Bankruptcy Court approves the Agreement. That date was November 9,
2022.
An important part of the history of the Agreement is that KServicing wanted a term (see 10/25/22 DRAFT
Agreement at paragraph 3(B)) that would continue the reconciliation process from the Effective Date “through
the Servicing Termination Date.. .” CB rejected that term, and in a phone call on October 26, 2022,1 explained
the reasons that CB was uncomfortable with and would not agree to that term, and by email dated October 26,
2022 at 5:14 pm your team responded that you had “discussed with KS the final two outstanding points on the
Settlement Agreement and are comfortable removing them, per your request.” That same day your team
circulated the final Agreement, CB signed it, and the next day KServicing signed it and then filed it with the
court with the 9019 motion. Based on an email that Donna Evans of KServicing sent at 6:23pm on November
14, 2022 to the CB team stating that “my understanding is we’d continue to work together to ensure data points
align on both sides. . .”, it does not seem that certain members of the KServicing team appreciate that the
reconciliation process had already ceased, per the terms of the final Settlement Agreement. CB intends to abide
by the Settlement Agreement it signed and that the Court entered, not an earlier version that proposed an
extended reconciliation process.
As part of its efforts to work “in good faith” with KServicing to reconcile the Disputed KServicing Holdback,
CB promptly and repeatedly sought basic source information from KServicing. At every turn, these requests
were either ignored, met with misdirection, or resulted in KServicing providing information different from the
basic information that any servicer should have (trial balance and bank statements) and that any bank would
want and expect. In fact, at no time prior to the Effective Date did KServicing provide CB with the figure that
KServicing thought was the amount of the Disputed KServicing Remittance Holdbacks. When we repeatedly
asked for the data and calculations used by Alix Partners to arrive at its estimate of that figure, KServicing
i
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 5 of 30
refused to provide it. It certainly began to raise a suspicion within the CB team that by refusing to provide basic
information KServicing was trying to hide something.
By way of a few examples of CB’s good faith requests for information and KServicing’s stonewalling or
inability to provide it:
1. On November 3, Andrew Sachs of CB made an email request to the KServicing team for: (a) records
evidencing total amounts received into the remittance account; (b) records evidence total amounts CB paid
KServicing for loans that were never funded or that were canceled and repaid by the borrower; and (c) records
evidencing total amounts withdrawn from the remittance account and then returned to the borrowers or paid to
the SBA. KServicing refused to provide these documents. That same day, CB made a written request for an
updated trial balance. KServicing’s response via email from Donna Evans was that KServicing would be
unable to provide that information in a timely way.
2. As an alternative, I sought on multiple occasions from you (11/3/22 email at 6:56pm and 11/9/22 email at
8:36am) the information that Alix Partners reviewed and its calculations that were the basis for the estimated
figure of $26.6MM in paragraph 1(E) of the Settlement Agreement for the Disputed KServicing Remittance
Holdback. You did not provide that information.
3. On Friday night (11/4/22) by email at 7:52pm, KServicing promised to provide remittance reports and ACH
information. On Monday evening (11/7/22), by email from Donna Evans at 4:54pm, KServicing announced
that it was still working on providing the “Canceled loan file/status discrepancies,” “Synovus file follow up,”
and “Trial balance update.” Those materials were not provided in full by the Effective Date.
KServicing’s inability to provide the basic information that would be expected in a good faith reconciliation is
emblematic of its processing and servicing failures that led to the dispute between the parties. Though
frustrated by KServicing’s inability to provide basic information that would be required for a good faith
reconciliation, CB worked hard and in good faith to meet its obligations under the Settlement Agreement from
both a substance and timing perspective. Therefore, while KServicing’s data was incomplete as of the Effective
Date, CB reluctantly accepted it and used it to calculate the Settlement Payment.
In any event, each figure in the payment reconciliation provided by CB to KServicing on the payment day
(11/14/22) is accurate based on KServicing’s information, with one exception set forth below.
The Settlement Agreement provides that the Settlement Amount = $58MM less Disputed KServicing
Holdbacks
Disputed KServicing Holdbacks are:
A. The amounts of the SBA loan origination fees due to CB under the Sale and Servicing
Agreement (Settlement Agreement at paragraph 1(C)) and were estimated at $8.3 million. According to
an email from Donna Evans of KServicing to CB on 11/4/22 at 4:25pm the amount of the Fee Holdback is
$8,317,023. CB accepted that amount.
B. The amounts collected from borrowers that KServicing was required to remit to CB (Settlement
Agreement at paragraph l(E)(i)). These total $26,608,962 according to a spreadsheet provided by
KServicing to CB by email on 11/4/22 at 7pm. CB accepted that amount. That same spreadsheet describes a
separate amount for interest in the amount of $1,030,328.48. CB mistakenly viewed that as separate and
distinct from the aggregate borrower remittance figure, and will be wiring that amount ($1,030,328.48) to
KServicing tomorrow morning. The only other element of the borrower remittance figure is $497,900,
described in a spreadsheet called Synovus Account Analysis sent by KServicing to CB by email on 11/4/22 at
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Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 6 of 30
7:38pm. After correcting its error noted above, the remittance amount used by CB in calculating the Settlement
Payment is the exact figure that KServicing reported in the Synovus Account Analysis as having been collected
from CB ’ s borrowers.
C. The amounts held by KServicing on account of cancelled loans (Settlement Agreement at
paragraph l(E)(ii)). By email dated 11/4/22 at 4:14pm, Donna Evans of KServicing wrote to the CB team that
the “amount of cancelled/missing/incomplete loan holdback: $3,617,304.” CB accepted that amount, but
acting in the highest level of good faith reduced it by $426,258 (in KServicing’s favor) based on payments that
it found duplicated in KServicing’s remittance report. It added back $35,899 based on loans that KServicing’s
CFO advised by email dated August 28, 2021 had been funded by CB but not disbursed. CB also agreed with
KServicing’s figure of $1,150,513 for fees owed to the SB A for borrower overpayments, a figure provided by
KServicing to CB by email on 11/4/22 at 8:33pm.
We have attached an updated and corrected reconciliation summary that includes all of these figures.
Contrary to the accusation in your email, CB does not believe there is any “unilateral attempt to pay millions of
dollars less than what is owed...” Rather, CB made appropriate efforts to pay what was owed and did so
openly and transparently by providing the full calculation to KServicing.
The time for reconciliation has ended, and it is time for KServicing to focus on its servicing obligations in the
Settlement Agreement. You should be aware that KServicing unilaterally canceled its vital servicing meetings
today with CB. CB entered into this settlement so as to obtain important loan servicing from KServicing. If
those commitments are not going to be met, CB will be seeking relief from the court.
Jeremy Sternberg ( Holland & Knight
Partner
Holland & Knight LLP
10 St. James Avenue, 11th Floor | Boston, Massachusetts 02116
Phone 617.854.1476 | Fax 617.523.6850
jeremy.sternberg@hklaw.com | www.hklaw.com
From: Arthur, Candace M. <Candace.Arthur@weil.com>
Sent: Monday, November 14, 2022 9:21 PM
To: Watkins, Philip S <pwatkins@customersbank.com>; Vervlied, Michele L <mvervlied@customersbank.com>; White,
Alyssa A <awhite@customersbank.com>; Leibold, Carla <cleibold@customersbank.com>; Sternberg, Jeremy M (BOS -
X71476) <Jeremy.Sternberg@hklaw.com>; Monaghan, John (BOS - X75834) <john.monaghan@hklaw.com>
Cc: Slack, Richard <richard.s!ack@weil.com>; Tsekerides, Theodore <theodore.tsekerides@weil.com>; Sal Kafiti
<skafiti@kservicecorp.com>; Schrock, Ray <Ray.Schrock@weil.com>; Bentley, Chase <Chase.Bentiey@weil.com>; Donna
Evans <devans@kservicecorp.com>
Subject: RE: Settlement Payment
[External email]
We are in receipt of the below correspondence from Customers Bank reflecting the initiation of a wire payment in the
amount of $19,469,355 (the "Deposit") in connection with its obligations under that certain Settlement Agreement
between Customers Bank and Kabbage Inc. d/b/a KServicing (the "Debtor"), dated October 27, 2022, and approved by
the United States Bankruptcy Court for the District of Delaware on November 9, 2022 (the "Settlement Agreement").
The Deposit is not the full Settlement Payment due to the Debtor. The Debtor's reject any attempt to pay less than the
Court ordered settlement amount of $58 million and such action is, among other things, in bad faith and in contempt of
the Court. The Debtor's view the pending payment as a deposit in connection with the full Settlement Amount due and
3
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 7 of 30
demand immediate remittance of the balance. It is my understanding that the parties were mutually engaged in further
reconciliation and, in response to direct requests made by Customers Bank, the Debtor provided Customers Bank with
data reconciling the Disputed KServicing Remittance Holdback before the issuance of any wire payment and such data
clearly demonstrates that the Deposit is incorrect as to final amounts due.
The unilateral attempt to pay millions of dollars less than what is owed is not accepted nor acceptable. For the
avoidance of doubt, any acceptance of the Deposit by the Debtor is not in full and final satisfaction of amounts due to
the Debtor from Customers Bank under the Settlement Agreement. The acceptance of the partial payment shall in no
way abridge the Debtor's rights with respect to receiving the balance of the Settlement Payment due under the
Settlement Agreement and all rights, remedies, claims and defenses are fully reserved.
I have copied my litigation partners, Richard Slack and Theodore Tsekerides to this correspondence. We trust you will
govern yourselves accordingly and look forward to promptly hearing from you. Absent corrective action on your part
the Debtor will seek immediate Court intervention.
Weil
Candace M. Arthur
Partner
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
candace.arthur@weil.com
+1 212 310 8324 Direct
+1 212 310 8007 Fax
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 8 of 30
Exhibit C
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 9 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 10 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 11 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 12 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 13 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 14 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 15 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 16 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 17 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 18 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 19 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 20 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 21 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 22 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 23 of 30
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 24 of 30
Exhibit D
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 25 of 30
Ruprecht, Sarah (BOS - X75838)
From: Sternberg, Jeremy M (BOS - X71476)
Sent: Thursday, November 3, 2022 6:56 PM
To: Arthur, Candace M.
Cc: Monaghan, John (BOS - X75834); Bentley, Chase; Hwangpo, Natasha
Subject: RE: CUBI/KS Reconciliation Efforts
Candace,
Thanks for your email. The only holdbacks that need to be reconciled at this point seem to be the ones involving the borrower
remittances and the SBA fees withheld by Kabbage (the receivable has been settled at $58 million, so there is no need to
reconcile CUBI’s holdback). CUBI does not have any borrower remittance figures independent of what it has received from
Kabbage. That is why CUBI wants the actual balances from the segregated account that Kabbage has maintained for CUBI
remittances. What did Alix Partners look at to come up with the $26.5 million figure in the settlement agreement? At a
minimum, please provide us as soon as possible the Alix Partners materials that calculated that figure and whatever back up
they used.
Any focus on “variances” is misplaced, because the only information that CUBI has regarding borrower remittances is the
information that it gets from Kabbage. Under these circumstances, CUBI’s request to its servicer to report on remittance funds
received in a segregated account is more than reasonable; it is vital. CUBI does not have independent visibility into those
remittances or the account to which they are deposited.
Apparently Kabbage told CUBI today that it will not be able to provide final numbers until Monday. That is too late given the
hearing on Monday. We are with you on the imperative to solve this by Monday, but need CUBI needs source data from
Kabbage to do so. Please let me know how we can quickly unlock this source data.
Regards,
Jeremy
Jeremy Sternberg | Holland & Knight
Partner
Holland & Knight LLP
10 St. James Avenue, 11th Floor | Boston, Massachusetts 02116
Phone 617.854.1476 | Fax 617.523.6850
jeremy.sternberg@hklaw.com | www.hklaw.com
From: Arthur, Candace M. <Candace.Arthur@weil.com>
Sent: Thursday, November 3, 2022 6:15 PM
To: Sternberg, Jeremy M (BOS ‐ X71476) <Jeremy.Sternberg@hklaw.com>
Cc: Monaghan, John (BOS ‐ X75834) <john.monaghan@hklaw.com>; Bentley, Chase <Chase.Bentley@weil.com>; Hwangpo,
Natasha <Natasha.Hwangpo@weil.com>
Subject: CUBI/KS Reconciliation Efforts
[External email]
Jeremy
I have touched base with the company and specifically the operations team. I understand that since Monday our clients have
had 2‐3 meetings a day (@ CB’s request) to review and reconcile differences in reporting. In addition to reconciling the holdback
amounts – which is what currently has the Monday deadline under the settlement agreement – requests have been made for
1
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 26 of 30
Ruprecht, Sarah (BOS - X75838)
From: Arthur, Candace M. <Candace.Arthur@weil.com>
Sent: Wednesday, November 9, 2022 10:55 AM
To: Sternberg, Jeremy M (BOS - X71476)
Subject: Re:
[External email]
My understanding is that the AlixP materials are not what you are looking for. When they started their engagement they
received company info of what was collected up to that date. Going forward they then took bank cash activity and applied it ‐ it
isn’t loan level detail which I understand is what you are looking for. I also understand the difference with the company data and
the AmEX data your client is relying on is very small at this point.
I am waiting for an update as to how the 11:30 call goes and our deliverables at that time.
Candace M. Arthur
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
candace.arthur@weil.com
+1 212 310 8324 Direct
+1 212 310 8007 Fax
On Nov 9, 2022, at 8:36 AM, Sternberg, Jeremy M (BOS ‐ X71476) <Jeremy.Sternberg@hklaw.com> wrote:
OK. In the meantime, can you have your team send us whatever Alix Partners used to get to the $26.5MM
borrower remittance figure that is in the settlement agreement?
From: Arthur, Candace M. <Candace.Arthur@weil.com>
Sent: Tuesday, November 8, 2022 9:29 PM
To: Sternberg, Jeremy M (BOS ‐ X71476) <Jeremy.Sternberg@hklaw.com>
Subject: RE:
[External email]
Let’s speak after the 11:30am call to see if there are any other open points as I understand it may be closed off.
<image001.jpg>
Candace M. Arthur
Partner
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
candace.arthur@weil.com
+1 212 310 8324 Direct
+1 212 310 8007 Fax
1
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 27 of 30
From: Sternberg, Jeremy M (BOS ‐ X71476) <Jeremy.Sternberg@hklaw.com>
Sent: Tuesday, November 8, 2022 5:03 PM
To: Arthur, Candace M. <Candace.Arthur@weil.com>
Subject:
Jeremy Sternberg | Holland & Knight
Partner
Holland & Knight LLP
10 St. James Avenue, 11th Floor | Boston, Massachusetts 02116
Phone 617.854.1476 | Fax 617.523.6850
jeremy.sternberg@hklaw.com | www.hklaw.com
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2
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 28 of 30
Exhibit E
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 29 of 30
Holland & Knight
10 St. James Avenue | Boston, MA 02116 | T 617.523.2700 | F 617.523.6850
Holland & Knight LLP | www.hklaw.com
Jeremy M. Sternberg
+1 617-854-1476
Jeremy.Sternberg@hklaw.com
Via Email (Candace.Arthur@weil.com)
November 17, 2022
Candace M. Arthur
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, NY 10153
Re: Notice of Breach of Settlement and Release Agreement
Dear Ms. Arthur:
I write on behalf of our client, Customers Bank (“CB”), to notify you of multiple
breaches of the Settlement and Release Agreement (the “Agreement”) by your client Kabbage,
Inc., d/b/a KServicing (“KServicing”).
One of the key terms of the Agreement was the continuity of servicing of the CB loan
portfolio by KServicing during this critical period. Your client’s CEO testified at the November
7, 2022 hearing as to the importance of being able to continue to service for the good of all
parties, and particularly stressed KServicing’s obligations to the borrowers. The servicing
obligations that KServicing has to CB are in paragraph 4 of the Agreement entitled Servicing
Plan. The Agreement obligates KServicing from the Petition Date (October 3, 2022) onward to
hold all borrower collections in trust for CB, in a segregated account in the name of and for
benefit of CB, and to transfer such funds to CB “promptly, but in any event within ten (10)
Business Days of the end of each month. . .” Ten business days from the end of October was
November 14, 2022. That day has passed without CB fulfilling its prompt payment
obligation. This is especially concerning because it appears that there is over $1.5 million that
was deposited into that account in October. Those funds are the property of CB and KServicing
is wrongfully holding that property.
Those servicing obligations also include that “KServicing shall provide to CB the reports
described on Exhibit A hereto.” As of November 14, 2022, KServicing has failed to provide the
following reports described in Exhibit A: (1) Monthly Borrower Remittance Reports that are due
“within 5 business days of the close of each month”; (2) the supplemental trial balance report
that is due each day; (3) the “Weekly/Work Daily Portfolio Report” that is due “every Tuesday,
by end of business.”
Atlanta | Austin | Boston | Century City | Charlotte | Chicago | Dallas | Denver | Fort Lauderdale | Fort Worth
Houston | Jacksonville | Los Angeles | Miami | New York | Orange County | Orlando | Philadelphia
Portland | Richmond | San Francisco | Stamford | Tallahassee | Tampa | Tysons
Washington, D.C. | West Palm Beach
Algiers | Bogota | London | Mexico City | Monterrey
Case 22-10951-CTG Doc 289-1 Filed 11/28/22 Page 30 of 30
Candace M. Arthur
November 17, 2022
Page 2
The Agreement also provides that the parties will “hold weekly meetings, as needed or
reasonably requested by either Party.. KServicing has unilaterally canceled every meeting
with CB scheduled for this week (Tuesday, Wednesday, and Thursday). Further to the
Agreement, CB reasonably wants, needs, and requests these meetings to “review matters relating
to the Remaining Loan Population” that totals approximately $180 million in principal.
CB demands that KServicing rectify these breaches by end of day on November 18,
2022. Absent a complete cure by then, CB will invoke Paragraph 15 of the Agreement's
provision that the Agreement's terms "shall be enforceable by any of the Parties and their
respective successors, representatives, and assigns," and paragraph 21's establishment of the
Bankruptcy Court as the forum for adjudication, and seek prompt relief from the court.
Very truly yours,
HOLLAND & KNIGHT LLP
/s/Jeremy M. Sternberg
Jeremy M. Sternberg
#180601715 vl
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