Robert I. Bodian (admitted pro hac vice) James C. Cosby, Esq. (VSB No. 25992)

Scott A. Rader (admitted pro hac vice) J. Brandon Sieg, Esq. (VSB No. 84446)

John P. Sefick (admitted pro hac vice) O’HAGAN MEYER, PLLC

Kaitlin R. Walsh (admitted pro hac vice) 411 E. Franklin Street, Suite 500

Amanda B. Asaro (admitted pro hac vice) Richmond, Virginia 23219

Kerime S. Akoglu (admitted pro hac vice) (804) 403:7100

MINTZ LEVIN COHN FERRIS GLOVSKY Counsel for Defendants

and POPEO, P.C. 

666 Third Avenue, 25th Floor

New York, New York 10017

(212) 935-3000

Counsel for Defendants

UNITED STATES BANKRUPTCY COURT

FOR THE EASTERN DISTRICT OF VIRGINIA

RICHMOND DIVISION

In re: ) Chapter 11

)

TOYS “R” US, INC., et al.,

1

) Case No. 17-34665

)

Debtors. ) (Jointly Administered)

)

TRU CREDITOR LITIGATION TRUST, )

)

Plaintiff, ) Adv. Proceeding No. 20-03038-K

)

v. )

)

DAVID A. BRANDON, et al )

)

Defendants. )

)

DEFENDANTS’ MOTION AND 

MEMORANDUM OF LAW FOR SUMMARY JUDGMENT2

 

1 The Debtors in these Chapter 11 cases, along with the last four digits of each Debtor’s federal 

tax identification number, are set forth in the Order (I) Directing Joint Administration of Chapter 

11 Cases and (II) Granting Related Relief. (ECF No. 78.) The location of Debtors’ service address 

is One Geoffrey Way, Wayne, NJ 07470.

2 Pursuant to the Court’s Order (I) Establishing Certain Notice, Case Management, and 

Administrative Procedures and (II) Granting Related Relief, Case 17-34665-KLP (Bankr. E.D. Va. 

Sept. 21, 2017), ECF No. 129, Defendants have filed their motion and memorandum together.

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i

TABLE OF CONTENTS

Page

SUMMARY OF ARGUMENT.......................................................................................................1

STANDARD OF REVIEW.............................................................................................................4

UNDISPUTED MATERIAL FACTS .............................................................................................5

ARGUMENT...................................................................................................................................5

I. DEFENDANTS ARE ENTITLED TO SUMMARY JUDGMENT ON THE 

TRUST’S FIDUCIARY DUTY CLAIM RELATING TO THE DIP FINANCING..........5

A. This Court’s Ruling in the Final DIP Order That the DIP Financing Was 

an Exercise of Debtors’ “Prudent Business Judgment Consistent with 

[Their] Fiduciary Duties” Is Binding Law of the Case............................................5

B. The Final DIP Order Is Binding on the Trust by Its Own Terms............................7

C. The Trust is Estopped from Alleging That the DIP Financing Was a 

Breach of Defendants’ Fiduciary Duty....................................................................7

D. The Exculpatory Provision in TRU’s Certificate of Incorporation Bars the 

Trust’s Duty of Care Claim Relating to the DIP Financing.....................................9

E. The Business Judgment Rule Prevents the Trust from Challenging with the 

Benefit of Hindsight the Board’s Decision to Obtain DIP Financing ...................11

1. The Trust Cannot Demonstrate a Breach of the Duty of Loyalty 

Because There Is No Evidence of Self-Interest or Self-Dealing ...............11

2. The Trust Cannot Demonstrate Bad Faith or Failure to Exercise 

Due Care ....................................................................................................14

II. DEFENDANTS ARE ENTITLED TO SUMMARY JUDGMENT ON THE 

TRUST’S FIDUCIARY DUTY CLAIM RELATING TO THE PRE-PETITION 

RETENTION PAYMENTS...............................................................................................18

A. The Trust is Estopped From Asserting Breach of Fiduciary Duty Claims 

Relating to the Pre-Petition Retention Payments...................................................18

B. The Board’s Decision to Approve Pre-Petition Retention Payments Is 

Protected by the Business Judgment Rule .............................................................19

1. The Business Judgment Rule Applies with Particular Force to 

Matters of Executive Compensation..........................................................19

2. The Undisputed Factual Record Does Not Support a Finding of the 

Board’s Bad Faith or a Breach of the Duty of Care...................................20

3. The Undisputed Factual Record Does Not Support a Finding That 

the Board Engaged in Self-Dealing ...........................................................23

4. The Board’s Decision to Pay the Pre-Petition Retention Payments 

Indisputably Had a Rational Business Purpose .........................................26

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C. TRU’s Board Is Immunized from a Claim That the Pre-Petition Retention 

Bonuses Constituted a Breach of the Duty of Care by the Exculpatory 

Provision in TRU’s Certificate of Incorporation ...................................................27

III. DEFENDANTS ARE ENTITLED TO SUMMARY JUDGMENT ON THE 

TRUST’S CLAIMS REGARDING THE PAYMENT OF ADVISORY FEES ...............27

A. The Payment of Advisory Fees Was Not a Breach of Fiduciary Duty 

Because TRU Was Solvent When the Bonuses Were Paid ...................................27

B. Even if TRU Were Insolvent, Defendants Did Not Breach Their Duty to 

TRU By Authorizing the Payment of Advisory Fees............................................29

C. The Advisory Fees Were Disclosed Contemporaneously in TRU’s SEC 

Filings and Cannot Now Be Challenged................................................................29

IV. THE TRUST’S TORT CLAIMS MUST BE DISMISSED BECAUSE THE 

TRUST LACKS STANDING TO PURSUE THE CLAIMS OF INDIVIDUAL 

CREDITORS .....................................................................................................................30

V. DEFENDANTS ARE ENTITLED TO SUMMARY JUDGMENT ON THE 

TRUST’S TORT CLAIMS BECAUSE THE UNDISPUTED EVIDENCE 

SHOWS THAT THE TRUST CANNOT SATISFY ITS BURDEN OF PROOF 

FOR ANY INDIVIDUAL TRADE VENDOR .................................................................32

A. The Trust’s Tort Claims Must Be Dismissed for All Trade Vendors Who 

Signed Critical Vendor Agreements......................................................................34

B. The Alleged Misrepresentation Claim Must Be Dismissed Because the 

Trust Cannot Identify Actionable Misstatements..................................................38

1. The Trust Cannot Pursue Fraudulent Misrepresentation Claims 

Based on Statements Made to Vendors in September and October 

2017............................................................................................................38

2. The Trust Cannot Pursue Fraud Claims on Behalf of Vendors Who 

Could Not Identify the Words Spoken or Dates of Any 

Misstatements They Allegedly Relied Upon .............................................42

C. The Trust’s Fraud-Based Claims Must Be Dismissed Because the 

Undisputed Factual Evidence Does Not Support a Finding of Scienter................44

D. The Trust’s Tort Claims Must Be Dismissed for Every Vendor Whose 

30(b)(6) Testimony Precludes the Trust from Establishing Reliance....................47

E. The Trust’s Tort Claims Must Be Dismissed Because the Trust Cannot 

Prove Reasonable Reliance....................................................................................48

F. The Trust Cannot Cite Evidence to Prove Causation for Most Trade 

Vendors..................................................................................................................49

G. The Trust Cannot Prove a Fraudulent Omission Claim Because No Duty 

to Disclose Existed.................................................................................................50

1. The Trust Cannot Establish a Claim for Fraudulent Concealment............50

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2. The Trust Cannot Establish a Claim for Negligent 

Misrepresentation.......................................................................................55

H. The Trust Cannot Prove Reasonable Reliance on the Allegedly Omitted 

Information ............................................................................................................57

I. The Trade Vendor’s Own 30(b)(6) Testimony Demonstrates That the 

Trust Cannot Prove Every Element of Any Trade Vendor’s Claims.....................58

1. The Trust’s Claims on Behalf of Lego Must Be Dismissed ......................58

2. The Trust’s Claims on Behalf of Hasbro Must Be Dismissed...................60

3. The Trust’s Claims on Behalf of Funrise Must Be Dismissed ..................62

4. The Trust’s Claims on Behalf of Huffy Must Be Dismissed.....................63

5. The Trust’s Claims on Behalf of Jakks Must Be Dismissed .....................64

6. The Trust’s Claims on Behalf of Graco Must Be Dismissed.....................65

7. The Trust’s Claims on Behalf of Mattel Must Be Dismissed....................66

8. The Trust’s Claims on Behalf of Best Chairs Must Be Dismissed............67

9. The Trust’s Claims on Behalf of Dorel Must Be Dismissed .....................68

10. The Trust’s Claims on Behalf of Jazwares Must Be Dismissed................69

11. The Trust’s Claims on Behalf of Just Play Must Be Dismissed ................70

12. The Trust’s Claims on Behalf of Kent International Must Be 

Dismissed...................................................................................................71

13. The Trust’s Claims on Behalf of Kids2 Must Be Dismissed.....................73

14. The Trust’s Claims on Behalf of MGA Must Be Dismissed.....................74

15. The Trust’s Claims on Behalf of Skyrocket Must Be Dismissed ..............75

16. The Trust’s Claims on Behalf of RR Donnelley Must Be 

Dismissed...................................................................................................76

17. The Trust’s Claims on Behalf of LSC Communications Must Be 

Dismissed...................................................................................................77

18. The Trust’s Claims on Behalf of Crayola Must Be Dismissed..................78

19. The Trust’s Claims on Behalf of Evenflo Must Be Dismissed..................80

20. The Trust’s Claims on Behalf of Bandai Must Be Dismissed ...................81

21. The Trust’s Claim on Behalf of Spin Master Must Be Dismissed ............82

22. The Trust’s Claims on Behalf of American Plastic Toys Must Be 

Dismissed...................................................................................................83

23. The Trust’s Claims on Behalf of Munchkin Must Be Dismissed..............84

24. The Trust’s Claims on Behalf of Bestway Must Be Dismissed.................85

25. The Trust’s Claims on Behalf of Yvolve Must Be Dismissed...................86

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26. The Trust’s Claims on Behalf of Jada Toys Must Be Dismissed ..............88

27. The Trust’s Claims on Behalf of North States Must Be Dismissed ..........89

28. The Trust’s Claims on Behalf of eKids Must Be Dismissed.....................89

29. The Trust’s Claims on Behalf of Handi-Craft Must Be Dismissed ...........90

30. The Trust’s Claims on Behalf of Learning Resources Must Be 

Dismissed...................................................................................................91

31. The Trust’s Claims on Behalf of MerchSource Must Be Dismissed.........92

32. The Trust’s Claims on Behalf of Warner Brothers Must Be 

Dismissed...................................................................................................92

33. The Trust’s claims on Behalf of Artsana Must Be Dismissed...................94

34. The Trust’s Claims on Behalf of Delta Enterprise Must Be 

Dismissed...................................................................................................95

35. The Trust’s Claims on Behalf of Kitex Must Be Dismissed .....................96

36. The Trust’s Claims on Behalf of Step2 and Adventure Playsets 

Must Be Dismissed ....................................................................................96

37. The Trust’s Claims on Behalf of Bridge Direct Must Be Dismissed ........98

J. The Trust’s Stand-Alone Negligence Claim Cannot Survive Summary 

Judgment................................................................................................................99

K. The Trust Cannot Prosecute the Claims of Trade Vendors That Received 

More Than They Lost During the Period of the Alleged Fraudulent 

Omissions.............................................................................................................100

CONCLUSION............................................................................................................................102

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TABLE OF AUTHORITIES

Page(s)

Cases

Aaron Ferer & Sons Ltd. v. Chase Manhattan Bank, Nat’l Ass’n,

731 F.2d 112 (2d Cir. 1984).....................................................................................................32

In re AgFeed USA, LLC,

558 B.R. 116 (Bankr. D. Del. 2016)........................................................................................19

Alley Sports Bar, LLC v. SimplexGrinnell, LP,

58 F. Supp. 3d 280 (W.D.N.Y. 2014)......................................................................................56

Am. Bottling Co. v. Repole,

2020 Del. Super. LEXIS 3049 (Del. Super. Ct. Dec. 30, 2020)..............................................16

In re Am. Int’l Grp., Inc. Derivative Litig.,

700 F. Supp. 2d 419 (S.D.N.Y. 2010)................................................................................ 51-52

In re Answers Corp. S’holders Litig.,

2014 Del. Ch. LEXIS 17 (Del. Ch. Feb. 3, 2014)....................................................................17

In re ATP Oil & Gas Corp.,

711 F. App’x 216 (5th Cir. 2017) ............................................................................................26

Bioenergy Life Sci., Inc. v. Ribocor, Inc.,

2015 N.Y. Misc. LEXIS 289 (N.Y. Sup. Ct. Feb. 3, 2015).....................................................49

Bolling v. Va. Dep’t of Health,

2013 U.S. Dist. LEXIS 187486 (E.D. Va. Sept. 3, 2013)............................................ 42, 46-47

Bomardier Capital, Inc. v. Naske Air GMBH,

2003 U.S. Dist. LEXIS 16173 (S.D.N.Y. Sept. 17, 2003)................................................. 43-44

In re Books-A-Million, Inc. Stockholders Litig.,

2016 Del. Ch. LEXIS 154 (Del. Ch. Oct. 10, 2016)............................................................... 22

Brehm v. Eisner,

746 A.2d 244 (Del. 2000) ..................................................................................................14, 19

Brown v. Wolf Grp. Integrated Commc’ns, Ltd.,

23 A.D. 3d 239 (N.Y. App. Div. 2005) ...................................................................................43

Campers’ World Int’l, Inc. v. Perry Ellis Int’l, Inc.,

2002 U.S. Dist. LEXIS 14909 (S.D.N.Y. Aug. 13, 2002).......................................................43

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vi

Caplin v.Marine Midland Grace Tr. Co.,

406 U.S. 416 (1972).................................................................................................................31

Caviness v. DeRand Res. Corp.,

983 F.2d 1295 (4th Cir. 1993) ........................................................................................... 49-50

Celotex Corp. v. Catrett,

477 U.S. 317 (1986)...................................................................................................................4

Century Pac., Inc. v. Hilton Hotels Corp.,

528 F. Supp. 2d 206 (S.D.N.Y. 2017)......................................................................................44

Charter Twp. of Clinton Police & Fire Ret. Sys. v. Martin,

219 Cal. App. 4th 924 (Cal. Ct. App. 2013)........................................................................... 24

In re Chase,

372 B.R. 133 (Bankr. S.D.N.Y. 2007).....................................................................................40

City of Coral Springs Police Officers’ Ret. Plan v. Farfetch Ltd.,

2021 U.S. Dist. LEXIS 189502 (S.D.N.Y. Sept. 30, 2021).....................................................46

City of Millville v. Rock,

683 F. Supp. 2d 319 (D.N.J. 2010)..........................................................................................54

Cole v. Daoud,

2016 U.S. Dist. LEXIS 39749 (E.D. Va. Feb. 17, 2016).........................................................49

Connaughton v. Chipotle Mexican Grill, Inc.,

29 N.Y.3d 137 (2017)............................................................................................................101

Continuing Creditors’ Comm. Of Star Telecomms. Inc. v. Edgecomb,

385 F. Supp. 2d 449 (D. Del. 2004).........................................................................................99

In re Convergent Techs. Sec. Litig.,

948 F.2d 507 (9th Cir. 1991) ...................................................................................................55

Corona Heights Real Estate, LLC v. LaSalle Tech., Inc.,

2011 U.S. Dist. LEXIS 173449 (E.D.N.Y. Feb. 11, 2011)......................................................38

Coughlan v. Jachney,

473 F. Supp. 3d 166 (E.D.N.Y. 2020) .....................................................................................35

Coyne v. Gen. Elec. Co.,

2010 U.S. Dist. LEXIS 70879 (D. Conn. July 15, 2010).........................................................55

Crescent/Mach I Partners, L.P. v. Turner,

846 A.2d 963 (Del. Ch. 2000)............................................................................................ 13-14

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vii

In re Cyan, Inc. Stockholders Litig.,

2017 Del. Ch. LEXIS 79 (Del. Ch. May 11, 2017) .................................................................11

Devansky v. Dryvit Sys., Inc.,

52 Va. Cir. 359 (Va. Cir. Ct. 2000)..........................................................................................43

Dopp v. Teachers Ins. & Annuity Ass’n of Am.,

1993 U.S. Dist. LEXIS 13980 (S.D.N.Y. Sept. 27, 1993).......................................................51

Douglas v. Dry Clean Concepts, Inc.,

2021 U.S. Dist. LEXIS 205104 (D. Md. Oct. 25, 2021)..........................................................41

In re Duane Reade Inc. Sec. Litig.,

2003 U.S. Dist. LEXIS 21319 (S.D.N.Y. Nov. 24, 2003).......................................................55

In re DuFrayne,

194 B.R. 354 (Bankr. E.D. Pa. 1996) ........................................................................................6

In re Earned Capital Corp.,

331 B.R. 208 (Bankr. W.D. Pa. 2005)................................................................................... 7-8

Emmett v. Johnson,

532 F.3d 291 (4th Cir. 2008) ................................................................................................. 4-5

Ernst & Ernst v. Hochfelder,

425 U.S. 185 (1976).................................................................................................................44

Esposus Creek Value LP v. Hauf,

913 A.2d 593 (Del. Ch. 2006)..................................................................................................28

In re Express Scripts Holdings Co. Sec. Litig.,

773 F. App’x 9 (2nd Cir. 2019) ...............................................................................................54

Favour Mind Ltd. v. Pac. Shores, Inc.,

2004 U.S. Dist. LEXIS 637 (S.D.N.Y. Jan. 16, 2004).............................................................58

Ferens v. John Deere Co.,

494 U.S. 516 (1990)...........................................................................................................30, 32

Ferry v. Black Diamond Video, Inc.,

2016 U.S. Dist. LEXIS 76893 (D.N.J. June 13, 2016)......................................................51, 52

FMC Corp. v. Fleet Bank,

226 A.D.2d 225 (N.Y. App. Div. 1996) ..................................................................................41

Frederick Hsu Living Tr. v. ODN Holding Corp.,

2017 Del. Ch. LEXIS 67 (Del. Ch. Apr. 14, 2017) .................................................................29

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Friedman v. Dolan,

2015 Del. Ch. LEXIS 178 (Del. Ch. June 30, 2015) ...............................................................25

Garbutt v. S. Clays, Inc.,

894 F. Supp. 456 (M.D. Ga. 1995) ..........................................................................................50

Gennari v. Weichert Co. Realtors,

148 N.J. 582 (1997) .................................................................................................................32

Geyer v. Ingersoll Publ’ns Co.,

621 A.2d 784 (Del. Ch. 1992)..................................................................................................28

Goodwin v. Live Entm’t, Inc.,

1999 Del. Ch. LEXIS 5 (Del. Ch. Jan. 22, 1999) ....................................................................14

Grobow v. Perot,

539 A.2d 180 (Del. 1988) ........................................................................................................14

Grumman Allied Indus., Inc. v. Rohr Indus., Inc.,

748 F.2d 729 (2d Cir. 1984)...............................................................................................49, 52

Guinness PLC v. Ward,

955 F.2d 875 (4th Cir. 1992) .....................................................................................................8

Hau Yin To v. HSBC Holdings, PLC,

700 F. App’x 66 (2d Cir. 2017) ...............................................................................................30

In re HH Liquidation, LLC,

590 B.R. 211 (Bankr. D. Del. 2018)........................................................................................16

Holbrook v. Trivago N.V.,

2021 U.S. Dist. LEXIS 189502 (S.D.N.Y. Feb. 26, 2019)......................................................46

Horton v. Greenwich Hosp.,

2014 U.S. Dist. LEXIS 33161 (S.D.N.Y. Mar. 10, 2014) .......................................................32

HSH Nordbank AG v. RBS Holdings USA Inc.,

2015 U.S. Dist. LEXIS 36087 (S.D.N.Y. Mar. 20, 2015) .......................................................51

IBM Credit Fin. Corp. v. Mazda Motor Mfg. Corp.,

152 A.D.2d 451 (N.Y. App. Div. 1989) ..................................................................................35

ICBC (London) PLC v. Blacksands Pac. Grp., Inc.,

2015 U.S. Dist. LEXIS 131211 (S.D.N.Y. Sept. 29, 2015).....................................................35

Icebox-Scoops, Inc. v. Finanz St. Honore, B.V.,

676 F. Supp. 2d 100 (E.D.N.Y. 2009) .....................................................................................55

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ISM Connect Inv. Grp. LLC v. ISM Connect, LLC,

2018 U.S. Dist. LEXIS 152120 (D.N.J. Sept. 5, 2018) ..................................................... 51-52

Johnson v. Washington,

559 F.3d 238 (4th Cir. 2009) .............................................................................................39, 57

JP Morgan Chase Bank v. Winnick,

350 F. Supp. 2d 393 (S.D.N.Y. 2004)......................................................................................56

Kalnit v. Eichler,

264 F.3d 131 (2d Cir. 2001).....................................................................................................45

Kattawar v. Logistics & Distribution Servs., Inc.,

111 F. Supp. 3d 838 (W.D. Tenn. 2015)..................................................................................50

Krim v. Pronet, Inc.,

744 A.2d 523 (Del. Ch. 1999)..................................................................................................14

In re La Paloma Generating Co.,

2020 Bankr. LEXIS 67 (Bankr. D. Del. Jan. 13, 2020).........................................................1, 6

LaSalle Nat’l Bank v. Perelman,

82 F. Supp. 2d 279 (D. Del. 2000)...........................................................................................49

Lissmann v. Hartford Fire Ins. Co.,

848 F.2d 50 (4th Cir. 1988) .....................................................................................................41

Lucas v. Icahn,

616 F. App’x 448 (2d Cir. 2015) .............................................................................................46

Magee-Boyle v. Reliastar Life Ins. Co. of N.Y.,

2016 N.Y. Misc. LEXIS 17542 (N.Y. Sup. Ct. Apr. 4, 2016).................................................39

Maier-Schule GMC, Inc. v. Gen. Motors Corp.,

1993 U.S. Dist. LEXIS 21728 (W.D.N.Y. May 3, 1993)........................................................43

Medtronic Sofamor Danek, Inc. v. Michelson,

2004 U.S. Dist. LEXIS 26385 (W.D. Tenn. May 20, 2004)....................................................54

Megaris Furs, Inc. v. Gimbel Bros., Inc.,

172 A.D.2d 209 (N.Y. App. Div. 1991) ..............................................................................3, 35

In re Midway Games Inc.,

428 B.R. 303 (Bankr. D. Del. 2010)........................................................................................99

Mills Acquisition Co. v. Macmillan, Inc.,

559 A.2d 1261 (Del. 1989) ......................................................................................................22

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Mizrahi v. Adler,

2014 N.Y. Misc. LEXIS 2934 (N.Y. Sup. Ct. June 30, 2014).................................................49

In re Munford, Inc.,

98 F.3d 604 (11th Cir. 1996) ...................................................................................................22

Music Royalty Consulting, Inc. v. Reservoir Media Mgmt., Inc.,

2019 U.S. Dist. LEXIS 66581 (S.D.N.Y. Apr. 17, 2019)........................................................41

N. Am. Catholic Educ. Programming Found., Inc. v. Gheewalla,

930 A.2d 92 (Del. 2007) .................................................................................................... 27-28

Nat’l Org. for Marriage, Inc. v. United States,

24 F. Supp. 3d 518 (E.D. Va. 2014) ...................................................................................... 4-5

Nat’l Westminster Bank, U.S.A. v. Ross,

130 B.R. 656 (S.D.N.Y. 1991).................................................................................................44

Norddeutsche Landesbank Girozentrale v. Tilton,

149 A.D.3d 152 (N.Y. App. Div. 2017) ..................................................................................32

Official Comm. of Unsecured Creditors of Integrated Health Servs., Inc. v. Elkins,

2004 Del. Ch. LEXIS 122 (Del. Ch. Aug. 24, 2004)......................................................... 25-26

Official Comm. of Unsecured Creditors v. Meltzer,

589 B.R. 6 (D. Me. 2018) ........................................................................................................27

Orban v. Field,

1997 Del. Ch. LEXIS 48 (Del. Ch. Apr. 1, 1997) ...................................................................29

Owens v. DRS Auto. Fantomworks, Inc.,

288 Va. 489 (2014) ..................................................................................................................32

Palmisano, LLC v. N. Am. Capacity Ins. Co.,

2021 U.S. Dist. LEXIS 91955 (E.D. La. May 13, 2021)...........................................................5

Parnes v. Bally Entm’t Corp.,

2001 Del. Ch. LEXIS 34 (Del. Ch. Feb. 20, 2001)..................................................................11

Pereira v. Farace,

413 F.3d 330 (2d Cir. 2005).....................................................................................................10

Peterson v. Bass,

48 Va. Cir. 206 (Va. Cir. Ct. 1999)..........................................................................................43

Puma v. Marriott,

283 A.2d 693 (Del. Ch. 1971)..................................................................................................25

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Quadrant Structured Prods. Co. v. Vertin,

102 A.3d 155 (Del. Ch. 2014)......................................................................................27, 28, 99

In re Radnor Holdings Corp.,

353 B.R. 820 (Bankr. D. Del. 2006)....................................................................................6, 12

Raul v. Rynd,

929 F. Supp. 2d 333, 346 (D. Del. 2013).................................................................................25

Revak v. SEC Realty Corp.,

18 F.3d 81 (2nd Cir. 1994).......................................................................................................50

In re RSL COM Primecall, Inc.,

2003 Bankr. LEXIS 1635 (Bankr. S.D.N.Y. Dec. 11, 2003)...................................................33

Ryan, Inc. v. Circuit City Stores, Inc.,

2010 U.S. Dist. LEXIS 120627 (E.D. Va. Nov. 15, 2010)........................................................8

Seidman v. Clifton Sav. Bank, S.L.A.,

2009 N.J. Super. Unpub. LEXIS 2267 (N.J. Super. Ct. App. Div. Aug. 19, 

2009) .................................................................................................................................. 22-23

Small v. Lorillard Tobacco Co.,

252 A.D.2d 1 (N.Y. App. Div. 1998) ......................................................................................39

In re SportCo Holdings, Inc.,

2021 Bankr. LEXIS 2848 (Bankr. D. Del. Oct. 14, 2021)...............................11, 14, 17, 22, 23

Staples v. Billing,

1994 Del. Ch. LEXIS 10 (Del. Ch. Jan. 31, 1994) ..................................................................29

In re Stylesite Mktg., Inc.,

253 B.R. 503 (Bankr. S.D.N.Y. 2000).....................................................................................38

Thomas v. FTS USA, LLC,

2016 U.S. Dist. LEXIS 82679 (E.D. Va. June 24, 2016) ........................................................33

Torch Liquidating Tr. ex rel. Bridge Assocs., LLC v. Stockstill,

2008 U.S. Dist. LEXIS 19535 (E.D. La. Mar. 13, 2008).........................................................31

Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P.,

906 A.2d 168 (Del. Ch. 2006)......................................................................................17, 28, 31

In re Triangle Capital Corp. Sec. Litig.

988 F.3d 743 (4th Cir. 2021) .............................................................................................44, 46

Triton Constr. Co. v. E. Shore Elec. Servs., Inc.,

2009 Del. Ch. LEXIS 88 (Del. Ch. May 18, 2009) .................................................................99

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In re Tropicana Entm’t, LLC,

520 B.R. 455 (Bankr. D. Del. 2014)........................................................................................28

Tyler v. Berger,

2005 U.S. Dist. LEXIS 57466 (W.D. Va. Nov. 1, 2005).........................................................41

United Artists Theatre Circuit, Inc. v. Sun Plaza Enter. Corp.,

352 F. Supp. 2d 342, 351 (E.D.N.Y. 2005) .............................................................................38

In re Vance,

298 B.R. 262 (Bankr. E.D. Va. 2003)....................................................................................102

Walker v. Action Indus., Inc.,

802 F.2d 703 (4th Cir. 1986) ...................................................................................................55

In re Walt Disney Co. Derivative Litig.,

731 A.2d 342 (Del. Ch. 1998)......................................................................................16, 20, 23

In re Walt Disney Co. Derivative Litig.,

907 A.2d 693 (Del. Ch. 2005)..................................................................................................11

Warhanek v. Bidzos,

2013 U.S. Dist. LEXIS 133099 (D. Del. Sept. 18, 2013)........................................................24

White v. Panic,

793 A.2d 356 (Del. Ch. 2000)..................................................................................................20

Williams v. Prince George’s Cty.,

157 F. Supp. 2d 596 (D. Md. 2001)...........................................................................................4

In re Wonderwork, Inc.,

611 B.R. 169 (Bankr. S.D.N.Y. 2020).....................................................................................23

Rules and Statutes

8 Del. C. § 102(b)(7).......................................................................................................... 10-11, 99

8 Del. C. § 141(e)...........................................................................................................................22

28 U.S.C. § 1404(a) .......................................................................................................................30

11 U.S.C. § 1129 (b)(2) .................................................................................................................13

Fed. R. Bankr. P. 7056.....................................................................................................................1

Fed. R. Civ. P. 56.................................................................................................................1, 4, 101

Restatement (Second) of Torts § 551 cmt. l (Am. Law Inst. 1997)...............................................51

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SUMMARY OF ARGUMENT

As mandated by the binding law of this case, sound principles of estoppel and clear 

contractual requirements, and because the Trust cannot prove essential elements of any of the 

claims alleged, this action lacks a viable basis to proceed to trial. This case should be dismissed 

and summary judgment granted in Defendants’ favor pursuant to Rule 56 of the Federal Rules of 

Civil Procedure and Rule 7056 of the Federal Rules of Bankruptcy Procedure for the reasons set 

forth below.

The Trust’s claims against Defendants, former Directors and Officers of Debtor Toys “R” 

Us, Inc. (“TRU”), fall within four categories: (1) breach of fiduciary duty claims relating to TRU’s 

decision to obtain DIP financing and file a Chapter 11 case in this Court (the “Chapter 11 

Proceeding”); (2) breach of fiduciary duty claims relating to TRU’s pre-petition retention

payments to company executives; (3) breach of fiduciary duty claims relating to TRU’s advisory 

fee payments to TRU’s private equity sponsors from the fourth quarter of 2014 through the first 

quarter of 2017; and (4) tort claims relating to Defendants’ alleged statements and omissions about 

the DIP financing and TRU’s ability to pay for goods post-petition. None of these claims can 

survive summary judgment.

First, the Trust’s breach of fiduciary duty claim relating to TRU’s decision to obtain DIP 

financing, which seeks a range of $515 million to $835 million in damages, is barred by the law 

of the case doctrine. This doctrine “applies to factual findings made in a main bankruptcy 

proceeding and is binding on parties to a subsequent adversary proceeding.” In re La Paloma 

Generating Co., 2020 Bankr. LEXIS 67, at *13 (Bankr. D. Del. Jan. 13, 2020). Here, following

two evidentiary hearings in the Chapter 11 Proceeding, this Court entered a Final DIP Order which 

concluded that the “DIP Documents are fair and reasonable, reflect the [Debtors’] exercise of 

prudent business judgment consistent with their fiduciary duties and constitute reasonably 

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2

equivalent value and fair consideration.” (ECF No. 711 ¶ 5(d).) The Final DIP Order is binding 

in this adversary proceeding as a matter of law. In addition, the Final DIP Order is binding by its 

terms upon any “fiduciary appointed as a legal representative of any of the Debtors or with respect 

to the property of the estate of any of the Debtors.” (ECF No. 711 ¶ 27.) This includes the Trust, 

which is the successor-in-interest to the Debtors and the representative of their estate. (ECF No. 

6925, Ex. A §§ 2.3(a), 2.3(b)). Moreover, the Board’s decision to obtain DIP financing is protected 

by the business judgment rule, and the exculpatory provision in TRU’s Certificate of Incorporation 

immunizes Board members for alleged breaches of their duty of care. For each of these reasons, 

the Trust’s claim relating to the DIP financing must be dismissed.

Second, the Trust’s claim for breach of fiduciary duty relating to TRU’s pre-petition 

retention payments to approximately 117 company executives totaling about $16.2 million must 

be dismissed. During the Chapter 11 Proceeding, the Official Committee of Unsecured Creditors 

(“UCC”) told this Court that these payments were “addressed” through adjustments to the Senior 

Employee Incentive Program (“SEIP”) approved by this Court upon the UCC’s support. The UCC 

stated that these adjustments were “a more pragmatic and constructive way to address those 

retention payments rather than litigating about them.” (ECF No. 1184 at 166:14-23.) Because this 

Court approved the negotiated SEIP following the UCC’s advocacy in favor of it, the Trust is 

estopped from litigating the retention payments now. In addition, the Board’s decision to authorize 

these payments is protected by the business judgment rule, which applies with particular force to 

decisions relating to executive compensation. Further, the exculpatory provision in TRU’s 

Certificate of Incorporation immunizes Board members from the Trust’s claim that they breached

their duty of care, and the undisputed factual record does not support the Trust’s claim that they 

breached the duty of loyalty. 

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Third, the Trust’s claim for breach of fiduciary duty relating to TRU’s payments of 

advisory fees totaling approximately $17.8 million must be dismissed. A company’s payments to 

its owners never breach a fiduciary duty when the company is solvent, and here the undisputed 

evidence demonstrates that TRU was solvent when the advisory fees were paid. Moreover, even 

if the company were insolvent, the advisory fee payments were contemporaneously disclosed in 

TRU’s SEC filings and never challenged by any person or entity, and the governing agreements 

between TRU and its sponsors required the payments to be made. This contractual requirement 

further precludes any claim that the payments violated a fiduciary duty.

Fourth, the Trust’s tort claims, which seek approximately $250 million, cannot survive 

summary judgment because the Trust lacks standing to bring the claims of individual creditors,

and no evidence in the record suggests that any Defendant acted with scienter. Moreover, because 

this is not a class action, the Trust must be able to cite evidence to support each element of its tort 

claim for every vendor whose claims it is bringing. The Trust cannot do so as a matter of law for 

(i) vendors who signed critical vendor agreements requiring them to ship for the duration of the 

Chapter 11 Proceeding because “a plaintiff cannot claim to have been defrauded into doing what 

it was legally bound to do” (Megaris Furs, Inc. v. Gimbel Brothers, Inc., 172 A.D.2d 209, 212 

(N.Y. App. Div. 1991)); or (ii) vendors who testified that Defendants’ only statements to them 

during the Chapter 11 Proceeding were made in September or October 2017 and were forwardlooking statements of optimism and/or true at the time they were made. The Trust also cannot 

bring tort claims against Defendants based on an alleged failure to disclose confidential 

information to trade vendors during the Chapter 11 Proceeding because no such duty to disclose 

existed. In addition, the undisputed evidence, including the vendors’ own testimony at their Rule 

30(b)(6) depositions, demonstrates that the Trust cannot satisfy the necessary elements of reliance 

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and causation for nearly all trade vendors, including because many of the trade trade vendors 

expressly disavowed the Trust’s allegations of reliance and causation attributed to them in the 

Trust’s Complaint. And, perhaps unsurprisingly given these fatal defects in the Trust’s claims, 

nearly all vendors testified that the Trust never asked them to corroborate the Trust’s allegations

before the Trust filed claims on their behalf. Finally, the Trust cannot pursue the tort claims of the 

many vendors that the undisputed evidence demonstrates suffered no damages even according to 

the Trust’s view of how damages should be calculated.

STANDARD OF REVIEW

On summary judgment, “[a] party who bears the burden of proof on a particular claim must 

factually support each element of his or her claim.” Williams v. Prince George’s Cty., 157 F. 

Supp. 2d 596, 600 (D. Md. 2001). “[A] complete failure of proof concerning an essential 

element . . . necessarily renders all other facts immaterial.” Celotex Corp. v. Catrett, 477 U.S.

317, 323 (1986) (emphasis added). The party opposing summary judgment therefore must go 

beyond the pleadings and proffer evidence that establishes each of the challenged elements of the 

case, demonstrating that genuine issues of material fact do exist that must be resolved at trial. Nat’l 

Org. for Marriage, Inc. v. United States, 24 F. Supp. 3d 518, 522 (E.D. Va. 2014). And of 

particular importance in the instant case, once that burden has shifted to the Trust, it cannot be met 

simply by “rest[ing] upon mere allegations or denials . . . [the Trust] must come forward with 

specific facts showing that there is a genuine issue for trial. . . . Nor can [the Trust] create a 

genuine issue of material fact through mere speculation or the building of one inference upon 

another. When the moving party has carried its burden under Rule 56(c), its opponent must do 

more than simply show that there is some metaphysical doubt as to the material facts.” Emmett v. 

Johnson, 532 F.3d 291, 297 (4th Cir. 2008) (emphasis added); see also Nat’l Org. for Marriage, 

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24 F. Supp. 3d at 522 (explaining that the nonmoving party further “must show more than some 

metaphysical doubt as to the material facts.”). Moreover, the Trust must recognize that 

the testimony of key Rule 30(b)(6) witnesses is binding on a company and therefore that “a party 

may not create a material issue of fact at the summary judgment stage by submitting an affidavit 

or testimony that contradicts statements made in a 30(b)(6) deposition.” Palmisano, LLC v. N. 

Am. Capacity Ins. Co., 2021 U.S. Dist. LEXIS 91955, at *5-7 (E.D. La. May 13, 2021).

UNDISPUTED MATERIAL FACTS

Defendants respectfully refer to the Statement of Facts filed herewith listing the undisputed 

material facts relevant to this motion.

ARGUMENT

I. DEFENDANTS ARE ENTITLED TO SUMMARY JUDGMENT ON THE TRUST’S 

FIDUCIARY DUTY CLAIM RELATING TO THE DIP FINANCING

The Trust’s breach of fiduciary duty claim relating to the DIP financing must be dismissed 

for each of the reasons set forth below.

A. This Court’s Ruling in the Final DIP Order That the DIP Financing Was an 

Exercise of Debtors’ “Prudent Business Judgment Consistent with [Their] 

Fiduciary Duties” Is Binding Law of the Case

On October 24, 2017, this Court held a Final Hearing on Debtors’ motion for authorization 

to obtain DIP financing following an earlier evidentiary hearing. (ECF No. 749.) Debtors’ legal 

counsel presented the DIP financing package to this Court on a completely consensual basis, and 

the UCC’s counsel spoke in favor of it. This Court then entered the Final DIP Order authorizing 

TRU to obtain post-petition DIP financing (the “Final DIP Order”). (ECF No. 711.) The Final 

DIP Order recognized TRU’s need for DIP financing and found that the DIP financing constituted 

an exercise of Debtors’ prudent business judgment consistent with their fiduciary duties:

The access of the DIP Loan Parties to sufficient working capital and 

liquidity through the use of Cash Collateral and other Prepetition 

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Collateral, incurrence of new indebtedness under the DIP 

Documents and other financial accommodations provided under the 

DIP Documents are necessary and vital to the preservation and 

maintenance of the going concern values of the DIP Loan Parties 

and to a successful reorganization of the DIP Loan Parties. 

. . .

[T]he terms of the DIP Financing and the terms on which the DIP 

Loan Parties may continue to use the Prepetition Collateral 

(including Cash Collateral) pursuant to this Final Order and the DIP 

Documents are fair and reasonable, reflect the DIP Loan Parties’ 

exercise of prudent business judgment consistent with their 

fiduciary duties and constitute reasonably equivalent value and fair 

consideration. 

(ECF No. 711 ¶¶ 5(b), (d) (emphasis added).)

This Court’s ruling that the DIP financing reflected the Debtors’ exercise of prudent 

business judgment and did not breach their fiduciary duties constitutes law of the case in this 

adversary proceeding and cannot be disturbed. As a different bankruptcy court recently explained:

The law of the case doctrine bars the re-litigation of matters once 

decided during the course of a continuing lawsuit. . . . The doctrine 

applies to factual findings made in a main bankruptcy 

proceeding and is binding on parties to a subsequent adversary 

proceeding.

In re La Paloma Generating Co., 2020 Bankr. LEXIS 67, at *12-13 (emphasis added); see also In 

re Radnor Holdings Corp., 353 B.R. 820, 843-844 (Bankr. D. Del. 2006) (rejecting a Litigation

Committee’s argument that the defendant “aided and abetted the board’s breach of fiduciary duty 

of accepting TCP’s stalking horse bid. That argument is precluded by the law of the case, since 

the Bidding Procedures Order already approved the stalking horse bid as in the best interests of 

the estates.”); In re DuFrayne, 194 B.R. 354, 358 (Bankr. E.D. Pa. 1996) (“The factual findings 

made in the Prior Opinion [in the underlying Bankruptcy Proceeding] are the law of the case and 

are therefore binding on the parties in this [adversary] proceeding.”).

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B. The Final DIP Order Is Binding on the Trust by Its Own Terms

This Court ruled in the Final DIP Order that all provisions and findings of the Final DIP 

Order are final and binding upon all parties in interest in the Chapter 11 Proceeding:

The DIP Documents and the provisions of this Final Order, 

including all findings herein, shall be binding upon all parties in 

interest in these Chapter 11 Cases, including, without limitation, 

the DIP Agents, the DIP Lenders, the Prepetition Secured Parties, 

the Creditors’ Committee, any non-statutory committees appointed 

or formed in these Chapter 11 Cases, the Debtors and their 

respective successors and assigns (including any chapter 7 or 

chapter 11 trustee hereinafter appointed or elected for the estate of 

any of the Debtors, an examiner appointed pursuant to section 1104 

of the Bankruptcy Code, or any other fiduciary appointed as a 

legal representative of any of the Debtors or with respect to the 

property of the estate of any of the Debtors).

(ECF No. 711 ¶ 27 (emphasis added).) This language includes the Trust, which is the successorin-interest to the Debtors with respect to the claims asserted in this proceeding and the 

representative of the Debtors’ estate with respect to these claims. (ECF No. 6925, Ex. A §§ 2.3(a), 

2.3(b).) The Final DIP Order was never challenged on any appeal before the time to do so expired. 

Consequently, the Final DIP Order’s own terms prevent the Trust from litigating its findings now.

C. The Trust is Estopped from Alleging That the DIP Financing Was a Breach of 

Defendants’ Fiduciary Duty

The Trust’s counsel and the UCC argued in favor of the DIP financing in the Chapter 11 

Proceeding, and this Court approved it. (SOF ¶¶ 46-49, 92.) The Trust, which is pursuing claims 

on behalf of the UCC’s constituency and remains represented by the UCC’s counsel (see infra, at 

54), is now advancing the opposite argument. This inconsistency is not permitted as a matter of 

law. See In re Earned Capital Corp., 331 B.R. 208, 224-226 (Bankr. W.D. Pa. 2005) (“The 

Plaintiffs herein, as constituents of the Committee, may not now change their position” where 

“Plaintiffs, whether directly or through their Committee, had every opportunity to litigate, 

investigate and question every aspect of the Debtor’s operation, finances, assets and valuations” 

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prior to plan confirmation); Ryan, Inc. v. Circuit City Stores, Inc., 2010 U.S. Dist. LEXIS 120627, 

at *13-14 (E.D. Va. Nov. 15, 2010) (“It cannot be supposed that the committee of unsecured 

creditors, which is duty bound to act in the best interest of unsecured creditors, would support a 

decision which is inimical to the best interests of the debtor’s estate and unsecured creditors.”); 

Guinness PLC v. Ward, 955 F.2d 875, 899 (4th Cir. 1992) (“That an estoppel can arise because of 

a prior inconsistent claim or position taken in a judicial proceeding is clear. A party cannot have 

its cake and eat it too.”).

Specifically, at the first-day hearing at which this Court approved the DIP financing on an 

interim basis, Mattel’s outside counsel (who is now one of three members of the Trust’s Oversight 

Committee) spoke emphatically about the DIP financing’s importance for trade vendors:

We think this is an important company. We think it’s important not 

just to the suppliers like Mattel, it’s important to lots of the 

employees, really, to the retail environment. Retail’s, obviously, 

under great stress, the brick and mortar retail. So we think it’s 

important that this company survive and thrive . . .

[W]e think that it’s important they get the liquidity and that the 

flow of goods is uninterrupted, particularly for Christmas. And 

so, Your Honor, we would urge the Court to approve it today on an 

interim basis as requested.

(ECF No. 192 at 132:22-134:14 (emphasis added).) This Court entered an Interim Order 

approving the DIP financing in order to avoid immediate and irreparable harm to the Debtors’ 

estates. (ECF No. 29 at 12-13.) 

The UCC subsequently was formed and represented to this Court that it “worked 

diligently” to review and improve the terms of the DIP financing. (ECF No. 659 ¶ 1.) The UCC 

explained in its written submission:

The Committee supports the Debtors’ decision to seek 

postpetition financing, as the Debtors have a compelling need to 

obtain capital as they enter the busiest time of the year for their 

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business. Accordingly, from the date of its inception, the 

Committee has worked diligently with the Debtors and their pre- and 

postpetition lenders to reach consensus regarding the terms on

which the estates should be permitted to borrow. 

(Id.) 

In addition, the UCC’s counsel asked this Court to approve the DIP financing at the Final 

DIP Hearing: 

Your Honor, the committee had two goals leading into today’s 

hearing. Its first goal was a clear recognition from the outset 

that this company clearly needed debtor-in-possession 

financing. . . . [T]he key to this company’s business is the fourth 

quarter and the holiday season. The case was filed on the eve of the 

fourth quarter. And the committee recognized that it was 

important to make sure that the company had the financial 

wherewithal and the market confidence to operate successfully. 

And we believed that a consensual order or consensual orders and a 

consensual hearing would help facilitate both the necessary 

financing and the confidence that the marketplace would have in the 

company’s viability and success going forward, and we worked 

hard to try to achieve consensus.

(ECF No. 749 at 29:3-17.) This Court then stated that it was pleased that “the parties have been 

able to work together to this point and table any potential disputes in an effort to try to stabilize 

the debtor. I do think that’s important and I think that’s being accomplished with the orders that 

are being presented at this point. Appreciative of that, and I’ll grant the motion in respect to both 

DIP facilities and overrule any objections.” (Id. at 43:20-44:1.) The Trust therefore cannot now 

argue that obtaining the DIP financing was a breach of Defendants’ fiduciary duties.

D. The Exculpatory Provision in TRU’s Certificate of Incorporation Bars the 

Trust’s Duty of Care Claim Relating to the DIP Financing

Delaware law governs the Trust’s breach of fiduciary duty claims based on the internal 

affairs doctrine. This doctrine provides that the law of the state where a corporation is incorporated

governs issues relating to the internal affairs of a corporation, which include issues relating to a 

corporations’ directors’ and officers’ fiduciary duties. See In re Hydrogen, L.L.C., 431 B.R. 337, 

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346 (Bankr. S.D.N.Y. 2010) (“A claim for breach of fiduciary duty brought against a corporate 

officer or director raises issues relating to the internal affairs of a corporation and therefore should 

be governed by the law of the state of incorporation of the relevant corporation.”).

Here, TRU’s Board members are immunized from the Trust’s claim that they breached 

their duty of care in approving the DIP financing in their capacity as company directors pursuant 

to the exculpatory clause in TRU’s Amended and Restated Certificate of Incorporation that is 

effective under Delaware law. See SOF Ex. 126 at Article Eight (“A director of the corporation 

shall not be liable to the corporation or its stockholders for monetary damages for breach of 

fiduciary duty as a director, except to the extent that exculpation from liability is not permitted 

under the DGCL as in effect at the time such liability is determined.”); 8 Del. C. § 102(b)(7)

(providing that an exculpatory provision is effective under Delaware law in eliminating personal 

liability of directors for breaches of their duty of care); Pereira v. Farace, 413 F.3d 330, 342 (2d 

Cir. 2005) (“[B]ecause breach of fiduciary duty claims belong to the corporation, they are subject 

to the exculpatory clause defense even when pressed by a trustee.”). Consequently, the Trust 

cannot assert these claims. 

The Trust carefully avoids explicitly alleging that Defendants breached their duty of care, 

instead alleging that Defendants breached “a fiduciary duty of loyalty, a duty of candor, and a duty 

of good faith.” (Compl. ¶ 227.)3 However, the substantive allegations asserted by the Trust in 

connection with the DIP financing go directly to alleged breaches of the duty of care, such as an

alleged failure to learn all material information, alleged failure to consider alternatives, and

allegedly authorizing the DIP financing unreasonably. (Id. ¶ 228.) The Trust’s claim therefore 

implicates the duty of care, and the Trust cannot use artful pleading to avoid the exculpatory 

 

3 All citations to the Complaint (“Compl.”) herein are to the Second Amended Complaint (ECF 

No. 146), which is the operative Complaint in this action.

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provision. See In re Cyan, Inc. Stockholders Litig., 2017 Del. Ch. LEXIS 79, at *47-48 (Del. Ch. 

May 11, 2017) (“[P]laintiffs cannot circumvent the protection afforded in [a corporation’s] 

certificate of incorporation through artful pleading. To hold otherwise would undermine the very 

purpose of 8 Del C. § 102(b)(7).”).

E. The Business Judgment Rule Prevents the Trust from Challenging with the 

Benefit of Hindsight the Board’s Decision to Obtain DIP Financing

Even if the above arguments did not defeat the DIP financing claims as a matter of law 

(and they do), the undisputed factual evidence demonstrates that the Board’s decision to obtain 

DIP financing is protected by the business judgment rule. This rule is a presumption that in 

“making a business decision the directors of a corporation acted on an informed basis and in the 

honest belief that the action taken was in the best interest of the company.” In re Walt Disney Co. 

Derivative Litig., 907 A.2d 693, 746-47 (Del. Ch. 2005). The Trust bears the burden of rebutting 

the business judgment rule by introducing evidence that a director breached the duty of loyalty 

(i.e., by engaging in self-interest or self-dealing), or that the directors lacked good faith or failed 

to exercise due care. See Parnes v. Bally Entm’t Corp., 2001 Del. Ch. LEXIS 34, at *29 (Del. Ch. 

Feb. 20, 2001). Otherwise, a court will not second-guess any director’s decision that had a rational 

business purpose. Id. 

1. The Trust Cannot Demonstrate a Breach of the Duty of Loyalty Because 

There Is No Evidence of Self-Interest or Self-Dealing

“A director is interested in a transaction if he or she will receive a personal financial benefit 

from a transaction that is not equally shared by the stockholders . . . . The private benefit to the 

director must be of a sufficiently material importance, in the context of the director’s economic 

circumstances, as to have made it improbable that the director could perform her fiduciary 

duties . . . . without being influenced by her overriding personal interest.” In re SportCo 

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Holdings, Inc., 2021 Bankr. LEXIS 2848, at *16 (Bankr. D. Del. Oct. 14, 2021). Here, the 

undisputed factual evidence precludes any claim of self-interest or self-dealing. 

First, the factual record contains no evidence that the Sponsor-affiliated Directors received 

any personal benefit from TRU’s decision to file for Chapter 11. The Trust alleges in its Complaint 

that the Sponsor-affiliated Directors authorized the Chapter 11 as a “longshot” and “gamble” to 

protect their equity, and thus they were interested in the transaction. (Compl. ¶ 177-78.) A

different bankruptcy court recently rejected this same type of argument:

The Radnor Board did not act disloyally in entering into the 

transactions with Tennenbaum. Given the company’s prospects 

with its new products, the advice of competent financial advisors 

and the consideration of the board, I find no basis in the record 

for the Committee’s repeated assertion that Mr. Kennedy was 

“swinging for the fences” just to protect his equity investment, 

rather than acting in the best interests of the company and its 

stakeholders. Indeed, the Court notes that Mr. Darr’s concession 

that had the company liquidated in October 2005, even without 

considering transaction costs, such liquidation would have ensured 

a substantial loss for unsecured creditors, provides a good faith basis 

for the Radnor board to have continued with its business plan rather 

than shutting down prematurely.

The Radnor Board’s good faith decisions to enter into the subject 

transactions with Tennenbaum to aid Radnor in carrying out its 

business plan are afforded the protection of the business judgment 

rule. Radnor’s business judgment against liquidation and in 

favor of attempting to continue operations and continue with its 

business plan of expansion was not inherently wrongful.

Radnor, 353 B.R. at 843-44.

Further, TRU’s bankruptcy counsel testified in this action that the Chapter 11 filing was 

the exact opposite of a “Hail Mary” because as a matter of law a formal restructuring inures to the 

best interests of the company’s creditors and estate at the expense of the equity holders: 

[Though] the [B]oard and management team very much wanted to 

avoid a bankruptcy [filing,] all of the options that otherwise could 

have been explored and effectuated [that would potentially solve 

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TRU’s liquidity issues] outside of the Court process were akin to a 

Hail Mary. 

. . . 

A Hail Mary pass in this context is taking an action that effectively 

is for the benefit of shareholders [KKR, Bain, and Vornado] that 

ultimately inures to the detriment of lenders and creditors. 

[T]ypically, it’s the type of transaction where a company is seeking 

to avoid a formal restructuring, the review of a court, the process 

associated with the restructuring, to keep the company out and 

extend its runway.

...

[T]he filing of a Chapter 11 crystallizes that the shareholders are out 

of the money and they are recognizing that the restructuring process 

is one that’s meant to benefit the entire stakeholder universe and 

maximize the value of the company.

(Sussberg Tr. (SOF Ex. 58) 13:25–16:21.) Consistent with this testimony, the absolute priority 

rule of the Bankruptcy Code ensures that all creditors must first be paid in full following a Chapter 

11 filing and that a debtor’s shareholders are the last in line to be repaid. See 11 U.S.C. § 1129 

(b)(2). Thus, the Trust’s theory that the Sponsor-affiliated Defendants violated their fiduciary 

duties by voting in favor of a Chapter 11 filing to protect their equity investments is contradicted 

by the relevant case law, the undisputed factual evidence, and the Bankruptcy Code. 

Second, the Trust’s allegations concerning David Brandon’s purported self-interest also

fail as a matter of law. The Trust alleges that Brandon voted in favor of his own self-interest 

because a Chapter 11 filing would allow him to continue to earn his salary. (Compl. ¶ 175.) Even 

if there were evidence to support this conclusory allegation, which there is not, an executive’s 

ongoing receipt of salary does not constitute sufficient self-interest to obviate the protection of the 

business judgment rule. See, e.g., Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 980

(Del. Ch. 2000) (“Under the terms of the merger, DLJ was to receive compensation for its efforts 

in orchestrating the merger. It cannot be reasonably inferred from this fact alone that Sweezey 

acted self-interestedly. . . . There are no well-pleaded allegations of financial interest other than 

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the compensation paid to his firm, DLJ, for their work.”); Grobow v. Perot, 539 A.2d 180, 188 

(Del. 1988) (“The only averment permitting such an inference is the allegation that all GM’s 

directors are paid for their services as directors. However, such allegations, without more, do not 

establish any financial interest.”), overruled on other grounds by Brehm v. Eisner, 746 A.2d 244 

(Del. 2000); Krim v. Pronet, Inc., 744 A.2d 523, 528 n.16 (Del. Ch. 1999) (“The fact that several 

directors would retain board membership in the merged entity does not, standing alone, create a 

conflict of interest.”). Further, even if Brandon were self-interested, his one vote as a Board 

member was insufficient to outweigh the vote of the other Board members, and therefore his 

alleged self-interest cannot constitute self-dealing as a matter of law. See Goodwin v. Live Entm’t, 

Inc., 1999 Del. Ch. LEXIS 5, at *77-78 (Del. Ch. Jan. 22, 1999) (dismissing breach of fiduciary 

duty claims on summary judgment because plaintiff could not show that the allegedly materially 

self-interested members “either: a) constituted a majority of the board; b) controlled and 

dominated the board as a whole; or c) i) failed to disclose their interests in the transaction to the 

board”).

Lastly, Defendant Michael Short (whom the Trust also alleges breached a fiduciary duty 

in connection with the DIP financing) was not even a member of the TRU Board, and there is 

nothing in the record to suggest that he influenced the Board’s vote in any improper way.

2. The Trust Cannot Demonstrate Bad Faith or Failure to Exercise Due 

Care

The Trust also cannot show that in obtaining the DIP financing the Board acted in bad faith

or failed to exercise due care, which requires evidence that the “directors were intentionally 

disregarding their duties, or that the decision under attack is so far beyond the bounds of reasonable 

judgment that it seems essentially inexplicable on any ground other than bad faith.” In re SportCo 

Holdings, Inc., 2021 Bankr. LEXIS 2848, at *16. 

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It is undisputed that TRU’s Board retained outside expert legal and financial advisors to 

assist it in considering and evaluating various potential solutions to TRU’s liquidity issues. (SOF 

¶ 11.) It also is undisputed that the Board was briefed throughout August 2017 concerning the 

different solutions that TRU’s advisors Kirkland & Ellis (“Kirkland”), Lazard Ltd. (“Lazard”) and 

Alvarez & Marsal (“A&M”) were pursuing with TRU management to solve TRU’s liquidity 

issues. (Id. ¶¶ 21-26.) Further, it is undisputed that during the five-week period when TRU 

management and its advisors were sizing and negotiating the DIP financing, the Board met at least 

six times, and was presented with materials prepared by TRU’s advisors intended to update and 

inform the Board on the Chapter 11 process and the status of the DIP financing facilities. (Id. ¶ 

25.) The undisputed factual record thus does not create a triable issue as to whether the “directors 

were intentionally disregarding their duties.” 

Further, the Trust’s claim that the Board failed to consider alternatives to the DIP financing 

(Compl. ¶ 192) is contradicted by the undisputed factual record, which includes the following:

 TRU retained Kirkland in July 2017 and tasked Kirkland and the company’s investment 

banker, Lazard, with determining if there were liquidity solutions that would allow TRU 

to avoid a formal restructuring and bankruptcy. (SOF ¶ 11.)

 In early August 2017, Lazard provided Board member Matt Levin with an outline for a 

potential sale-leaseback transaction that was intended to “supplement the Company’s nearterm liquidity needs and could be negotiated and closed by early September 2017.” (SOF 

¶ 11.) 

 On August 23, 2017 the Board met again with Lazard to discuss the sale-leaseback 

transaction and also discussed other alternatives, including second-lien financing. (SOF ¶ 

13.) 

 The Board met on August 30, 2017 to discuss these potential solutions again and met 

multiple times in September 2017 to discuss the same topics. (SOF ¶¶ 13, 25-26, 28-30.)

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At these meetings, the Board regularly received and reviewed materials and analysis from 

TRU’s advisors, and was given the opportunity to ask questions and provide feedback. (SOF ¶¶ 

21-24.) 

These undisputed facts reflecting the involvement of Kirkland, Lazard, and A&M in the 

Board’s process to obtain DIP financing and explore reasonable alternatives preclude a finding of 

bad faith. See In re HH Liquidation, LLC, 590 B.R. 211, 279 (Bankr. D. Del. 2018) (“Caple, like 

everyone at Comvest and Haggen, relied on the subject matter expertise of the numerous advisors 

they hired. . . . Caple spent enormous time and effort trying to make Holdings successful. While 

in the end it did not prove successful, to fulfill his fiduciary duties Caple needed only to act 

reasonably, not perfectly.”). 

The Trust relies on TRU’s ultimate liquidation as proof that TRU should have conducted 

a structured wind-down instead of filing for Chapter 11 and pursuing a going concern 

reorganization. But the law precludes the Trust from premising claims on such Monday-morning 

quarterbacking. See, e.g., Am. Bottling Co. v. Repole, 2020 Del. Super. LEXIS 3049, at *19-20

(Del. Super. Ct. Dec. 30, 2020) (rejecting arguments that “do nothing more than second-guess 

prototypical business decisions. Delaware law eschews that type of ‘Monday Morning 

quarterbacking.’”); In re Walt Disney Co. Derivative Litig., 731 A.2d 342, 362 (Del. Ch. 1998) 

(“It is the essence of the business judgment rule that a court will not apply 20/20 hindsight to 

second guess a board’s decision, except in rare cases [where] a transaction may be so egregious 

on its face that board approval cannot meet the test of business judgment.”). 

The undisputed factual evidence makes clear that the Trust cannot prove that Defendants’ 

decision to authorize DIP financing was so “egregious on its face” to overcome the protection of 

the business judgment rule. In fact, as explained above, the UCC itself supported this decision in 

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recognition of TRU’s need for liquidity (see supra, at Section I.C.), as did TRU’s outside financial 

advisor who submitted an affidavit to this Court in favor of the DIP financing. (ECF No. 33.) 

TRU’s legal advisors also argued emphatically to this Court in support of the DIP financing (see, 

e.g., ECF No. 192 at 41:18-23), and this Court entered a Final DIP Order authorizing it. (ECF No. 

711.) These undisputed facts underscore the frivolity of the Trust’s claim that the DIP financing 

was “egregious on its face.” Moreover, the relevant Delaware law governing the Board’s fiduciary 

obligations imposed no duty on the Board to liquidate TRU. See Trenwick Am. Litig. Tr. v. Ernst 

& Young, L.L.P., 906 A.2d 168, 204-05 (Del. Ch. 2006) (“Delaware law imposes no absolute 

obligation on the board of a company that is unable to pay its bills to cease operations and to 

liquidate. . . . Chapter 11 of the Bankruptcy Code expresses a societal recognition that an insolvent 

corporation’s creditors (and society as a whole) may benefit if the corporation continues to conduct 

operations in the hope of turning things around.”); In re SportCo Holdings, Inc., 2021 Bankr. 

LEXIS 2848, at *15 (“When assessing claims for breach of fiduciary duties, the Court bears in 

mind that a director does not become ‘a guarantor of success’ by choosing to continue a firm’s 

operations when it may be insolvent.”) (quoting Trenwick, 906 A.2d at 174); In re Answers Corp. 

S’holders Litig., 2014 Del. Ch. LEXIS 17, at *49 (Del. Ch. Feb. 3, 2014) (“[A]lthough Plaintiffs 

identify a variety of ways in which they believe the process could have been better conducted, they 

offer no evidence of that extreme set of facts required to show that the board utterly failed to 

attempt to comply with its duties.”).

Finally, the Trust’s theory is nonsensical. As TRU’s lead bankruptcy counsel testified in 

this action with respect to the Trust’s hindsight-based theory, “[i]t’s pretty unprecedented for 

someone to suggest that a company of this size that was able to access this amount of liquidity 

without having milestones tied to plan[] deadlines and disclosure statements would precipitously 

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decide to wind down and turn off the lights.” (Sussberg Tr. (SOF Ex. 58) 341:25–342:6.) And of 

course, no party – be it potential investors, the secured lenders, the UCC, nor any trade vendors –

suggested contemporaneously that the company should have done so; rather, they suggested the 

exact opposite, highlighting the absurdity of the Trust’s current position.

II. DEFENDANTS ARE ENTITLED TO SUMMARY JUDGMENT ON THE TRUST’S 

FIDUCIARY DUTY CLAIM RELATING TO THE PRE-PETITION RETENTION 

PAYMENTS

The Trust alleges that Defendants breached their fiduciary duty by approving the payment 

of retention bonuses to a group of 117 TRU executives and management-level employees in 

September 2017 before TRU filed for Chapter 11 protection. This claim must be dismissed as a 

matter of law because the Trust is estopped from making it. Even if the Trust were not estopped, 

the claim would fail because the Board’s decision relating to executive compensation is protected 

by the business judgment rule, and the undisputed facts demonstrate that the Trust cannot 

overcome this protection.

A. The Trust is Estopped From Asserting Breach of Fiduciary Duty Claims 

Relating to the Pre-Petition Retention Payments

The undisputed factual record establishes that the UCC addressed the pre-petition retention 

payments during the Chapter 11 bankruptcy proceeding through its negotiation of a reduction to 

the senior employees incentive payments (“SEIP”). The UCC explained to this Court:

So essentially, from the committee’s perspective, of the eight 

million dollars that was paid to the senior executives 

pre-petition, seven million dollars was essentially addressed 

through a reduction of the payment amounts by two million and 

a deferral of the five million dollars to the back of the case. Now, 

let me speak briefly, Your Honor, as to -- and we thought that was 

important because we thought the retention payments were unusual, 

and we thought that this was a more pragmatic and constructive 

way to address those retention payments rather than litigating 

about them.

. . .

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There’s no question that we all want the employees to stay with 

the company and work through the Chapter 11 case. That’s 

obvious, so it’s not does it have some element of retention, but is it 

properly structured so that it’s primarily an incentive coupled with 

retention. 

(ECF No. 1184 at 166:14-23; 169:9-13) (emphasis added). This Court then approved the SEIP,

which incorporated the UCC’s proposal to address the pre-petition retention payments through 

adjustments to the SEIP. (SOF ¶ 79.)

As explained above, the Trust cannot take a position in an adversary proceeding that is 

inconsistent from the position that the UCC took during the Chapter 11 restructuring on behalf of 

the same constituency. (See supra, at Section 1.C.) Having sought and received the Court’s 

approval to address the retention payments through a compromise rather than litigation, the Trust 

is estopped from litigating the retention payments here.

B. The Board’s Decision to Approve Pre-Petition Retention Payments Is

Protected by the Business Judgment Rule

1. The Business Judgment Rule Applies with Particular Force to Matters of 

Executive Compensation

Boards are given “the power, authority, and wide discretion to make decisions on executive 

compensation” because a board’s decisions relating to executive compensation are “the essence of 

business judgment.” Brehm, 746 A.2d at 262 n.56. Courts therefore must reject a claim relating 

to executive compensation under the business judgment rule unless “a majority of either the Board 

or the Compensation Committee—whichever approved [the executive’s] compensation—was not 

independent of [the recipient] or lacked good faith in making the award.” In re AgFeed USA, LLC, 

558 B.R. 116, 128 (Bankr. D. Del. 2016). 

Here, the Trust cannot show that a majority of the Board or the Independent Compensation 

Committee that approved the pre-petition retention payments was not independent or lacked good 

faith, and their decision indisputably had a rational business purpose. Consequently, the business 

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judgment rule protects it. See White v. Panic, 793 A.2d 356, 369 (Del. Ch. 2000) (“Except for 

cases involving allegations of fraud, ‘this Court’s deference to directors’ business judgment is 

particularly broad in matters of executive compensation.’”) (quoting In re Walt Disney Co. 

Derivative Litig., 731 A.2d at 362). 

2. The Undisputed Factual Record Does Not Support a Finding of the 

Board’s Bad Faith or a Breach of the Duty of Care

The Trust cannot overcome the protection of the business judgment rule by arguing that 

the Board’s decision to approve the pre-petition retention payments constituted bad faith or a 

breach of the duty of care. The undisputed evidence reflects that the Board authorized these

payments to retain key personnel due to demonstrated employee attrition and concern over 

continued attrition. (SOF ¶¶ 54, 69-71, 77.) Specifically, in July 2017, two months prior to TRU’s 

Chapter 11 filing, TRU’s Chief Talent Officer, Tim Grace, observed that some key TRU 

employees had left the company and that others were thinking about leaving. (SOF ¶ 54.) TRU 

management was worried that additional employees might leave the company because TRU was 

projected to miss the EBITDA target to which performance-based compensation was tied, which 

meant that these employees would not be compensated under this plan. (SOF ¶ 54.) Grace

personally believed that although TRU’s salaries were competitive, two-thirds of executive 

compensation was tied to EBITDA, so executives were not actually reaping the benefits of the 

salaries that initially brought them in. (SOF ¶ 55.) Accordingly, in early August 2017, TRU 

retained A&M’s executive compensation team to help advise the Board on how to retain key 

personnel. (SOF ¶ 56.) 

The factual record demonstrates a robust process whereby A&M and Kirkland worked 

alongside TRU management to develop a plan to retain key employees, and advised on the 

propriety of making pre-petition retention payments. The following evidence is undisputed and 

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reflects the knowledge and involvement of TRU’s legal and executive compensation advisors with 

respect to the timing and scope of the pre-petition retention payment plan.

 On August 3, 2017, A&M sent Brandon a presentation entitled “Overview of 

Compensation Alternatives for a Distressed Company and Compensation Issues in Chapter 

11.” (SOF ¶¶ 60-61, SOF Ex. 75.) The deck explained that retention payments are “often 

provided to key employees to ensure they remain with the Company during this uncertain 

time.” (SOF Ex. 75 at 5). The presentation advised that “any retention payments must be 

paid prior to the bankruptcy filing” and are generally subject to clawback from the 

employee if the employee leaves the company to provide an effective retention. (Id. 

(emphasis in original).)

 On August 9, 2017, Kirkland provided TRU’s Board with a presentation listing seven 

possible options for retaining key employees. (SOF ¶ 64-65.) One such option was the 

payment of pre-petition retention bonuses to critical employees. (Id.) 

 A&M discussed with Kirkland the implications of paying retention payments before the 

Chapter 11 filing and asked whether such payments would trigger SEC disclosure 

requirements. (SOF ¶¶ 64-66.) 

 Throughout August 2017, A&M collected documents from TRU, requested and obtained 

a significant amount of employee/compensation data, and had regular calls with Grace in 

which they discussed the structure of the compensation plan. (SOF ¶¶ 62-64.) Grace also 

sent drafts to A&M for its review, which A&M often would forward to Kirkland for review. 

(Id. ¶¶ 62-66.)

 On August 28, 2017, the Compensation Committee met to review and discuss the proposed 

pre-petition retention payments. (SOF ¶ 67.) A&M provided a presentation at this 

meeting, which confirmed the business rationale of adopting a retention bonus plan, 

including that “loss of essential personnel could jeopardize the Company’s ongoing 

operations, significantly reducing the value of the estate.” (Id. ¶ 69, SOF Ex. 100 at 8.)

The presentation also confirmed that A&M believed the proposed structure was reasonable 

in terms of payout and design. (SOF ¶ 70, SOF Ex. 100 at 8.) The Compensation 

Committee raised a number of questions for management and TRU advisors to consider 

and address at a follow-up meeting. (Id. ¶¶ 71-72.) 

 On September 5, 2017, A&M and Kirkland attended another Compensation Committee 

meeting to discuss the updated proposal for the pre-petition retention payments that A&M 

circulated in response to the questions the Committee raised during the prior meeting. 

(SOF ¶ 74.) A&M set forth the issues raised by the Committee and the advisors’ and 

management’s collective recommendation for each point set forth in bold. (Id. ¶ 75.) The 

Compensation Committee also discussed a potential increase in CFO compensation and 

whether they should increase the clawback period to 18 months. (Id.)

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 On September 6, 2017, a full Board meeting was held to discuss, among other topics, the 

“Compensation Committee Report.” At this meeting, the Board was provided with an 11-

page executive summary of the full presentation that had been vetted and reviewed by 

TRU’s advisors and the Compensation Committee. (Id. ¶ 76.)

 On September 13, 2017, another Board meeting was held. At that meeting, A&M’s 

National Director of Executive Compensation, Brian Cumberland, walked the Board 

through the compensation proposal, and the full Board approved the Compensation 

Committee’s recommendation. (SOF ¶ 77.)

Based on these undisputed facts, the Trust cannot establish that TRU’s Board was 

recklessly uninformed or acted outside the bounds of reason. The Board’s decision to retain 

Kirkland and A&M to work with management to develop a lawful and reasonable plan that was 

presented to the fully independent Compensation Committee for consideration and approval is 

sufficient to withstand any challenge to the duty of care. See, e.g., In re Books-A-Million, Inc. 

Stockholders Litig., 2016 Del. Ch. LEXIS 154, at *63 (Del. Ch. Oct. 10, 2016) (stating that a 

special committee assigned to negotiate a transaction “can satisfy its duty of care by negotiating 

diligently with the assistance of advisors.”); Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 

1261, 1283-84 (Del. 1989) (“Under 8 Del. C. § 141(e), when corporate directors rely in good faith 

upon opinions or reports of officers and other experts selected with reasonable care, they 

necessarily do so on the presumption that the information provided is both accurate and complete. 

Normally, decisions of a board based upon such data will not be disturbed when made in the proper 

exercise of business judgment.”); In re Munford, Inc., 98 F.3d 604, 611 (11th Cir. 1996) 

(dismissing breach of fiduciary duty claim on summary judgment because “the record is replete 

with evidence that the directors and officers consulted legal and financial experts throughout the 

solicitation and negotiation for a purchaser for Munford, Inc. Applying the business judgment 

rule, we conclude that the directors and officers satisfied their duties.”); Seidman v. Clifton Sav. 

Bank, S.L.A., 2009 N.J. Super. Unpub. LEXIS 2267, at *29 (N.J. Super. Ct. App. Div. Aug. 19, 

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2009) (“Here, the board members had the assistance of outside advisors; they reviewed substantial 

data regarding the compensation paid to senior executives by other New Jersey institutions in 

setting Celentano’s cash compensation. There is simply no evidence that the directors were grossly 

negligent in setting Celentano’s cash compensation.”).

To manufacture a claim of bad faith, the Trust alleges that (i) certain executives should 

have been excluded from receiving a retention bonus, (ii) Brandon’s $2 million retention bonus 

was higher than it should have been, and (iii) the peer group that A&M and management used was 

flawed. (Compl. ¶¶ 57, 73.) But even if these allegations were true (and they are not), they would 

not establish that the directors intentionally disregarded their duties or that their decision is “so far 

beyond the bounds of reasonable judgment that it seems essentially inexplicable on any ground 

other than bad faith.” In re SportCo Holdings, Inc., 2021 Bankr. LEXIS 2848, at *16. Moreover, 

a “board is not required to be informed of every fact, but rather is required to be reasonably 

informed.” In re Walt Disney Co. Derivative Litig., 731 A.2d at 362. Here, the undisputed factual 

record discussed above demonstrates that the Board was so informed. 

3. The Undisputed Factual Record Does Not Support a Finding That the 

Board Engaged in Self-Dealing

The Trust asserts three bases for its claim that the Board engaged in self-dealing: 

(1) Brandon’s receipt of a payment and alleged involvement in the plan’s development tainted the 

process; (2) A&M was not an independent financial advisor because one of A&M’s co-founders

had an alleged personal friendship with Brandon; and (3) some of the Sponsor-related directors 

allegedly were “beholden” to Brandon because they had offered him jobs or did him favors with 

respect to other portfolio companies. (Compl. ¶¶ 35-40, 58, 63, 66.) These contentions are

meritless.

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First, Brandon is the only one of ten Board members who received a retention payment, 

and the factual record does not reflect that he had the power to control or unduly influence the

other Board members. As a matter of law, when a CEO is a Board member and receives 

compensation that the majority of disinterested Board members approve, the Board’s decision is 

protected by the business judgment rule even where the CEO participates in developing the 

compensation plan. See, e.g., In re Wonderwork, Inc., 611 B.R. 169, 203 (Bankr. S.D.N.Y. 2020) 

(“Mullaney’s participation in the development of the peer groups does not constitute bad faith. He 

was participating in the process at Pearl Meyer’s request with the knowledge of the independent 

Board and the Board approved his compensation.”); Warhanek v. Bidzos, 2013 U.S. Dist. LEXIS 

133099, at *16-17 (D. Del. Sept. 18, 2013) (“Bizdos is the only executive officer who also serves 

on the VeriSign Board. . . . [The plaintiff] Warhanek has, therefore, failed to establish that a 

majority of the Director Defendants have a disabling self-interest”); Charter Twp. of Clinton 

Police & Fire Ret. Sys. v. Martin, 219 Cal. App. 4th 924, 935-36 (Cal. Ct. App. 2013) (“Plaintiffs 

do not argue that the complaint supports a reasonable doubt that the Jacobs directors are 

independent. There are 11 directors on the Board, 10 of whom are independent and are not covered 

by the executive compensation plan. The one exception is Martin, who is president and chief 

executive officer and is one of the recipients . . . However, there is no allegation he had a 

controlling interest in the corporation or exercised undue influence over the Board.”). 

Moreover, as A&M’s lead executive compensation director testified during the Chapter 11 

Proceeding, “[i]t’s standard practice that any company putting in a bonus program, their insiders 

are going to have some types of insight into what -- what is appropriate and what type of 

performance metrics are right. And then we stepped in and looked at it saying it is appropriate in 

the marketplace as far as design and amount.” (ECF No. 1184 at 67:14-19.) Even the Litigation 

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Trustee 

.” (Kors Tr. (SOF Ex. 

66) 278:5-21.) 

Second, even if Brandon did have more than one-tenth of a vote on the Board (and he did 

not), that would be immaterial because the Board followed the advice of Kirkland and A&M and 

set up an Independent Compensation Committee to review and approve the pre-petition retention 

payments. (SOF ¶¶ 56-79.) When an independent committee is established to review and approve 

a plan, as was done here, the protection of the business judgment rule applies. See e.g., Friedman 

v. Dolan, 2015 Del. Ch. LEXIS 178, at *17 (Del. Ch. June 30, 2015) (“Entire fairness is not the 

default standard for compensation awarded by an independent board or committee, even when a 

controller is at the helm of the company. The significance of an independent committee is wellrecognized by our case law.”); Puma v. Marriott, 283 A.2d 693, 696 (Del. Ch. 1971) (holding that 

because the transaction “was accomplished as a result of the exercise of independent business 

judgment of the outside, independent directors whose sole interest was the furtherance of the 

corporate enterprise, the court is precluded from substituting its uninformed opinion for that of the 

experienced, independent board members of [the company].”).

Third, the alleged conflicts of interest asserted by the Trust are immaterial under the 

relevant law which “presumes that a corporation’s board of directors is disinterested and 

independent.” Raul v. Rynd, 929 F. Supp. 2d 333, 346 (D. Del. 2013). To rebut this presumption, 

a plaintiff “must undertake a ‘director-by-director analysis’ showing that a majority of the Board 

was incapable, due either to a material personal interest or domination and control,” of objectively 

evaluating a particular transaction. Id. In this regard, an alleged friendship or outside business 

relationship between two individuals does not negate independence as a matter of law. See Official 

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Comm. of Unsecured Creditors of Integrated Health Servs., Inc. v. Elkins, 2004 Del. Ch. LEXIS 

122, at *39 (Del. Ch. Aug. 24, 2004) (“Our cases have determined that personal friendships, 

without more; outside business relationships, without more; and approving of or acquiescing in 

the challenged transactions, without more, are each insufficient to raise a reasonable doubt of a 

director’s ability to exercise independent business judgment.”) (emphasis in original). Because 

this is all that the Trust alleges with respect to the relationships at issue, the Trust cannot create a 

triable issue of material fact by referencing Brandon’s relationships with A&M or other Board 

members.

4. The Board’s Decision to Pay the Pre-Petition Retention Payments 

Indisputably Had a Rational Business Purpose

The need to retain key employees is indisputably a legitimate business purpose. As 

Kirkland explained to the Board, “[c]ompanies facing a financial restructuring often face 

significant difficulties in retaining and motivating high performing executives and key 

employees. . . . As a result, key employees may find otherwise uncompetitive employment 

opportunities more attractive.” (SOF ¶¶ 64-65.) Similarly, the UCC represented to this Court 

during the Chapter 11 Proceeding that retaining employees was critical: “[t]here’s no question that 

we all want the employees to stay with the company and work through the Chapter 11 case. That’s 

obvious . . . .” (ECF No. 1184 at 169:9-13.) Courts likewise regularly recognize the 

efficaciousness of retention payments in helping to keep critical employees during challenging 

financial times. See, e.g., In re ATP Oil & Gas Corp., 711 F. App’x 216, 222 (5th Cir. 2017) 

(“Executives may judge that continuing to compensate corporate management during times of 

financial hardship may be necessary to retain those employees. And during a time of potential 

insolvency, retaining corporate leadership may be the best way to revitalize the corporation.”); In 

re Am. Int’l Grp., Inc. Derivative Litig., 700 F. Supp. 2d 419, 446 (S.D.N.Y. 2010) (“In light of 

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the challenging environment in the financial markets that prevailed at the time, and the necessity 

to retain personnel in the near-term to navigate those challenges, the Court concludes that the 

decision to offer retention payments to personnel that, in management’s view, were valuable to the 

Company, does not appear to be one which no person of ordinary, sound business judgment could 

conclude represents a fair exchange.”). Consequently, the business judgment rule protects the 

Board’s decision.

C. TRU’s Board Is Immunized from a Claim That the Pre-Petition Retention 

Bonuses Constituted a Breach of the Duty of Care by the Exculpatory 

Provision in TRU’s Certificate of Incorporation

As explained above, TRU’s Certificate of Incorporation contains an exculpatory provision 

that immunizes TRU’s Directors against duty of care claims in their capacity as Directors. (See 

supra, at Section I.D.) Therefore, the Trust’s claim relating to the pre-petition bonuses must also 

be dismissed to the extent it alleges a violation of the duty of care.

III. DEFENDANTS ARE ENTITLED TO SUMMARY JUDGMENT ON THE TRUST’S 

CLAIMS REGARDING THE PAYMENT OF ADVISORY FEES

A. The Payment of Advisory Fees Was Not a Breach of Fiduciary Duty Because 

TRU Was Solvent When the Fees Were Paid 

Under Delaware law, so long as a company is not insolvent, its Board members owe a 

fiduciary duty to the company and its owners, and can take actions that benefit the owners to the 

detriment of the company. See, e.g., Quadrant Structured Prods. Co. v. Vertin, 102 A.3d 155, 184

(Del. Ch. 2014) (“A transfer of value from a solvent subsidiary to the holder of 100% of the equity 

cannot give rise to a fiduciary wrong.”); Official Comm. of Unsecured Creditors v. Meltzer, 589 

B.R. 6, 27 (D. Me. 2018) (“Remember that it is acceptable, even required, for the directors of a 

solvent wholly-owned subsidiary to serve its parent’s interests.”). This remains the case even 

where a company is in the “zone of insolvency” but not yet insolvent. See N. Am. Catholic Educ. 

Programming Found., Inc. v. Gheewalla, 930 A.2d 92, 101-103 (Del. 2007) (“When a solvent 

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corporation is navigating in the zone of insolvency, the focus for Delaware directors does not 

change: directors must continue to discharge their fiduciary duties to the corporation and its 

shareholders by exercising their business judgment in the best interests of the corporation for the 

benefit of its shareholder owners.”).

Based on this principle, in order to survive summary judgment, the Trust would have to 

show that there is a material issue of fact regarding TRU’s insolvency. Delaware law uses two 

tests to determine solvency: the cash flow test and the balance sheet test. 

Under the “Cash Flow” test, a corporation is considered insolvent when “it is unable to pay 

its debts as they fall due in the usual course of business.” Geyer v. Ingersoll Publ’ns Co., 621 

A.2d 784, 789 (Del. Ch. 1992). The undisputed factual evidence of TRU’s continued ability to 

operate and pay its debts until the Chapter 11 filing date demonstrates that it was not insolvent

under this test. See Esposus Creek Value LP v. Hauf, 913 A.2d 593, 604 (Del. Ch. 2006) (company 

is “clearly solvent” given its ability to pay debts as they mature).

Under the “Balance Sheet” test, an entity is insolvent if it “‘has liabilities in excess of a 

reasonable market value of assets held[,]’” Quadrant Structured Prods., 102 A.3d at 176 (quoting 

Trenwick, 906 A.2d at 195 n.74), and a plaintiff can plead facts showing that there is “no 

reasonable prospect that the business can be successfully continued.” In re Tropicana Entm’t, 

LLC, 520 B.R. 455, 472 (Bankr. D. Del. 2014). Defendants’ expert conducted a detailed solvency 

analysis during the challenged period and determined that TRU was solvent according to the 

balance sheet test (as well as the cash flow test) during the entire time that the challenged advisory 

fees were paid. (SOF ¶ 7, SOF Ex. 8A.) Neither of the Trust’s experts conducted a rebuttal 

solvency analysis, and no other evidence in the record supports a conclusion that the company was 

insolvent under any test on or before the last date that advisory fees were paid. To the contrary, 

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undisputed factual evidence in the record regarding solvency – including a contemporaneously 

conducted Duff & Phelps opinion – demonstrates that TRU was solvent during the relevant time 

period. (SOF ¶ 7; SOF Ex. 19).

B. Even if TRU Were Insolvent, Defendants Did Not Breach Their Duty to TRU 

By Authorizing the Payment of Advisory Fees

Even if TRU were insolvent, TRU still was contractually obligated to pay the advisory 

fees. (SOF ¶¶ 1-8.) The Trust cannot cite any evidence demonstrating that it would have been 

reasonable, must less required, for the Board to direct TRU to breach these contractual obligations. 

The case law also does not support the proposition that it was a breach of fiduciary duty for the 

Board not to do so. See Frederick Hsu Living Tr. v. ODN Holding Corp., 2017 Del. Ch. LEXIS 

67, at *53 (Del. Ch. Apr. 14, 2017) (“It is true that the fiduciary status of directors does not give 

them Houdini-like powers to escape from valid contracts.”); Orban v. Field, 1997 Del. Ch. LEXIS 

48, at *31-32 (Del. Ch. Apr. 1, 1997) (“[I]t would be bizarre to take [the efficient breach doctrine] 

so far as to assert . . . that the Board had a duty to common stock[holders] to refrain from 

recognizing the corporation’s [contractual] obligations to its other classes of voting securities.”). 

C. The Advisory Fees Were Disclosed Contemporaneously in TRU’s SEC Filings

and Cannot Now Be Challenged. 

A party with access to knowledge of actions that take place regularly for years, who lodges 

no objection to those actions, when an objection easily could have been made in court or elsewhere, 

is estopped from later claiming that those actions were a breach of fiduciary duty. See Staples v. 

Billing, 1994 Del. Ch. LEXIS 10, at *37 (Del. Ch. Jan. 31 1994) (holding that plaintiff’s breach of 

fiduciary claim is barred by the equitable defense of acquiescence, which provides that “one who 

has full knowledge of and accepts the benefits of a transaction may be denied equitable relief if he 

or she thereafter attacks the same transaction.”). TRU regularly disclosed the advisory fees as 

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Related Party Transactions in its SEC filings (SOF ¶ 7), and no party challenged these payments. 

The Trust cannot do so for the first time now.

IV. THE TRUST’S TORT CLAIMS MUST BE DISMISSED BECAUSE THE TRUST 

LACKS STANDING TO PURSUE THE CLAIMS OF INDIVIDUAL CREDITORS

Because the Trust filed this lawsuit in New York and this case was transferred to this 

District upon Defendants’ motion, New York’s choice-of-law rules govern the analysis of whether 

the Trust has standing to bring its tort claims on behalf of the trade vendors. See Ferens, 494 U.S. 

at 519 (following a “transfer under § 1404(a) initiated by a defendant, the transferee court must 

follow the choice-of-law rules that prevailed in the transferor court.”). Under New York’s 

choice-of-law rules, on issues relating to “plaintiffs’ standing to bring direct claims,” New York 

courts look to the jurisdiction that has the “greatest interest in resolving the particular issue.” Hau 

Yin To v. HSBC Holdings, PLC, 700 F. App’x 66, 68-69 (2d Cir. 2017). 

Here, this jurisdiction is Delaware. The Trust is a Delaware entity formed for purposes of 

liquidating and distributing certain of the Trust’s assets, and the Trust Agreement has a governing 

law provision prescribing that the agreement “shall be governed by and construed in accordance 

with the laws of the State of Delaware.” (See ECF No. 6925, Ex. A § 12.1.) In addition, the 

Litigation Trustee testified that 

 “

” (Kors Tr. (SOF Ex. 66) at 62:5-10.) Thus, because the Trust’s 

powers are derived from a contract that is governed by Delaware law and the Trust 

, Delaware has the greatest interest in determining what powers the Trust can exercise. 

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Under Delaware’s interpretation of federal bankruptcy law, a litigation trust does not have 

standing to pursue the direct claims of individual creditors, even where creditors have assigned 

their claims to the Trust. The Delaware Chancery Court has explained the reason for this principle:

[E]ven if the Litigation Trust Agreement or plan of reorganization 

did expressly assign the direct claims of Trenwick America’s 

creditors to the Litigation Trust, federal bankruptcy law is clear 

that litigation trusts do not have standing to pursue the direct 

claims of creditors. In Caplin v. Marine Midland Grace Trust Co., 

the U.S. Supreme Court established that bankruptcy trustees and 

litigation trusts formed as part of reorganization plans do not have 

standing to bring direct claims belonging to creditors under the 

federal bankruptcy statute. The U.S. Supreme Court explained that 

the bankruptcy statute authorized bankruptcy trustees or litigation 

trusts to bring only those claims belonging to the debtor at the time 

of the debtor’s bankruptcy filing, but that it did not vest with trustees 

or litigation trusts standing to pursue separate claims belonging to 

others, such as the direct claims of individual creditors. The rule 

articulated in Caplin holds true even in cases where a creditor 

has assigned her claims to a trustee or Trust.

Trenwick, 906 A.2d at 191 (emphasis added) (footnotes omitted); see also Torch Liquidating Tr.

ex rel. Bridge Assocs., LLC v. Stockstill, 2008 U.S. Dist. LEXIS 19535 (E.D. La. Mar. 13, 2008) 

(same).

The Torch decision is illustrative. There, the confirmed bankruptcy plan and the 

bankruptcy court’s orders transferred to a litigation trust all D&O claims within the debtors’ 

policies. The court dismissed the creditors’ fraud and other tort claims because “prior case law is 

explicit that Litigation Trusts such as Plaintiff do not have standing to pursue the direct claims of 

creditors.” Id. at *20 n.4. Likewise here, the Trust cannot pursue the direct claims of creditors.

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V. DEFENDANTS ARE ENTITLED TO SUMMARY JUDGMENT ON THE TRUST’S 

TORT CLAIMS BECAUSE THE UNDISPUTED EVIDENCE SHOWS THAT THE 

TRUST CANNOT SATISFY ITS BURDEN OF PROOF FOR ANY INDIVIDUAL 

TRADE VENDOR

The Trust is pursuing tort claims against Defendants on behalf of thirty-seven trade 

vendors.

4

 As will be demonstrated below, the Trust cannot satisfy the elements of its tort claims 

for any of the trade vendors. These elements of its fraud-based claims are the following:

 Fraud: (i) a defendant’s false representation of an existing, material fact; (ii) a 

defendant’s scienter/intent to deceive; (iii) the plaintiff’s reasonable reliance; (iv)

causation; and (v) damages. Norddeutsche Landesbank Girozentrale v. Tilton, 149 

A.D.3d 152 (N.Y. App. Div. 2017).

5

 

 Fraudulent omission: (i) a defendant’s omission of an existing, material fact; (ii) a 

defendant’s scienter/intent to deceive; (iii) the plaintiff’s reasonable reliance; 

(iv) causation; (v) damages; and (vi) a legal duty to disclose the allegedly withheld 

information. Aaron Ferer & Sons Ltd. v. Chase Manhattan Bank, Nat’l Ass’n, 731 

F.2d 112, 123 (2d Cir. 1984).

 

4 Many more trade vendors were listed in the Trust’s Complaint, but the Trust has dropped its 

claims for numerous trade vendors, as reflected in correspondence with Defendants’ counsel.

5 Because this case was transferred from the Southern District of New York, New York’s choiceof-law principles govern the tort claims in this action. See Ferens, 494 U.S. 516, 519 (1990). 

Under New York choice-of-law rules, unless the applicable laws from each potentially applicable 

jurisdiction will have the potential to affect the outcome of the case significantly, New York’s 

choice-of-law rules require the application of New York substantive law to tort claims like fraud 

and negligent misrepresentation. See Horton v. Greenwich Hosp., 2014 U.S. Dist. LEXIS 33161, 

at *5 n.1 (S.D.N.Y. Mar. 10, 2014). In this action, there is significant overlap between the law of 

New York and that of other states that have an interest in the tort claims asserted in this jurisdiction, 

like New Jersey (TRU’s headquarters) or Virginia (the location of the bankruptcy proceeding). 

See, e.g., Gennari v. Weichert Co. Realtors, 148 N.J. 582, 610 (1997); Owens v. DRS Auto. 

Fantomworks, Inc., 288 Va. 489, 497 (2014).

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Because this is not a class action, the Trust must be able to cite evidence to support every

element of each vendor’s claims or that vendor’s claim must be dismissed. As one bankruptcy

court has explained:

Plaintiffs cannot be deemed to act as surrogates for all creditors who 

extended credit to the Debtors throughout this entire period and 

necessarily relied (or did not rely) on different information at

different times. . . . Plaintiffs are not relieved of their burden of 

alleging and proving individual reliance and damages. . . . Fraud is 

a claim that peculiarly belongs to individual plaintiffs who had 

different access to information about RSL USA at different times, 

and in some cases may not have relied on any information.

In re RSL COM Primecall, Inc., 2003 Bankr. LEXIS 1635, at *15-16 (Bankr. S.D.N.Y. Dec. 11, 

2003). Accordingly, the Trust’s claims must be dismissed for all trade vendors whose 

individualized claims are not supported by the undisputed evidence in the record or that gave 

30(b)(6) testimony directly contradicting the Trust’s claims. See Thomas v. FTS USA, LLC, 2016 

U.S. Dist. LEXIS 82679, at *24 n.4 (E.D. Va. June 24, 2016) (“[I]t is well settled in the Fourth 

Circuit that as a general proposition, a party may not submit an affidavit or declaration at the 

summary judgment stage contradicting its earlier deposition testimony, including corporate

testimony taken pursuant to Rule 30(b)(6).”).6 

As set forth in detail below, the undisputed evidence shows that (a) the critical vendor 

agreements that required vendors to ship for the duration of the Chapter 11 Proceeding completely 

undermine any possibility of reliance or causation for the vendors who signed these agreements 

and received payments on their pre-petition claims they otherwise would not have received; (b) the 

alleged misstatements are not actionable; (c) no Defendant acted with scienter; (d) the Trust cannot 

 

6

In this regard, nearly every trade vendor testified that the Trust (i) never communicated with 

it before asserting claims on its behalf, (ii) never asked for emails or other documents to assess the 

Trust’s claims on its behalf, and (iii) never asked the vendor to corroborate the Trust’s allegations 

on its behalf. A table reflecting many of the vendors who gave this testimony is contained in 

Appendix 1 attached hereto.

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establish reliance for the vendors who disavowed the Trust’s allegations of reliance; (e) the Trust 

cannot establish that any vendor’s reliance was reasonable; (f) no duty to disclose existed; (g) no 

trade vendor could have reasonably relied on allegedly omitted information that was publicly 

known and available; and (h) most vendors did not suffer damages from the alleged misconduct.

A. The Trust’s Tort Claims Must Be Dismissed for All Trade Vendors Who 

Signed Critical Vendor Agreements

The Trust is asserting the claims of fifteen trade vendors who signed Critical Vendor 

Agreements during the Chapter 11 proceeding. These vendors, in exchange for receiving 

significant payments on pre-petition shipments they otherwise would not have, agreed to assume

a contractual obligation to ship to TRU for the duration of the Chapter 11 Proceeding. (See, e.g., 

SOF ¶¶ 189-192.) These vendors acknowledged that they made a business decision to receive 

payments on their pre-petition claims and incur an obligation ship for the duration of the Chapter 

11 Proceeding despite the risk involved in doing so. (See, e.g., id. ¶ 188.) The Critical Vendor 

Agreement itself made clear that “liquidation of the Company or conversion of the Debtor’s 

chapter 11 cases to cases under chapter 7 of the Bankruptcy Code” and “a default under any of the 

Company’s debtor-in-possession financing facilities that results in the Company losing access to 

funds available under any such facility” were two possible outcomes of the Debtors’ cases. (See 

ECF No. 708, Schedule 1 ¶ 3(a) (Form of Trade Agreement).)

7

 

As a matter of law, the Critical Vendor Agreements prevent the Trust from proving reliance 

or causation for the vendors who signed them because these vendors were contractually obligated 

 

7 By contrast, other trade vendors did not enter into critical vendor agreements and turned down 

the significant payment on pre-petition claims because they wanted to retain flexibility about 

whether and on what terms to ship. See, e.g., (SOF Ex. 254) 183:21-184:2 

( ) (“

”); 

 (SOF Ex. 198) 81:9-82:24 (same). 

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to ship regardless of what Defendants said to them. See, e.g., Coughlan v. Jachney, 473 F. Supp. 

3d 166, 195 (E.D.N.Y. 2020) (granting defendant’s cross-motion for summary judgment on fraud 

claim because the plaintiff “[could not] have been induced to perform an obligation already 

required by [a contract] by any of defendant’s alleged misrepresentations.”); ICBC (London) PLC 

v. Blacksands Pac. Grp., Inc., 2015 U.S. Dist. LEXIS 131211, at *33 (S.D.N.Y. Sept. 29, 2015) 

(dismissing fraud counterclaim where allegedly defrauded party “was legally obligated to make 

all required payments under the contract”); Megaris Furs, 172 A.D.2d at 212 (dismissing fraud 

claim because “a plaintiff cannot claim to have been defrauded into doing what it was legally 

bound to do.”); IBM Credit Fin. Corp. v. Mazda Motor Mfg. Corp., 152 A.D.2d 451, 453 (N.Y. 

App. Div. 1989) (where a party was contractually bound to make payments, a communication by 

defendant “cannot be reasonably regarded as communication which constitutes an inducement in 

reliance upon which [the party] changed its position.”). 

The vendors who signed Critical Vendor Agreements also acknowledged at their Rule 

30(b)(6) depositions that they were required to ship for the duration of the Chapter 11 Proceeding, 

as the below chart demonstrates:

Critical

Vendor

Date of 

Signing

Payment 

on PrePetition 

Claim 

Vendor’s Testimony Confirming Contractual 

Obligation to Ship

.

11/8/17 “

.” ( . Tr. (SOF 

Ex. 182) 207:6-22.8)

 

8 Objections to form are omitted in citations to deposition testimony herein. Emphasis is 

added.

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10/24/17 $ “Q.

.” ( 

(SOF Ex. 206)130:4-8.)

1/2/18 “

” ( (SOF Ex. 229) 59:3-8 ( ).)

12/21/17 “

” ( (SOF Ex. 238) 

49:10-23.)

10/22/17 “

.” ( (SOF Ex. 263) 49:19-50:4.)

11/28/17 “

” ( (SOF Ex. 279) 87:21-88:4 ( ).)

12/8/17 “

” (J (SOF Ex. 290) 95:22-96:1.)

10/20/17 “

” ( (SOF Ex. 300) 

111:13-17.)

10/18/17 “

” ( (SOF Ex. 302) 168:20-169:2.)

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10/19/17 “

” ( (SOF Ex. 307) 103:3-8.)

10/20/17 “

” ( (SOF 

Ex. 314) 151:19-23 ( ).)

11/15/17 “

” ( (SOF Ex. 333) 136:10-14.)

9/29/17 “

” ( 

(SOF Ex. 348) 63:1-8 ( )

10/6/17 “

.” ( (SOF Ex. 365)

63:21-25.)

11/20/17 “ 

” ( (SOF Ex. 383) 92:15-25.)

Finally, the Trust cannot argue that the trade vendors were fraudulently induced into 

signing the Critical Vendor Agreements. The remedy for a fraudulent inducement of contract 

claim would be (i) rescission of the contract – which would require the trade vendor to return the 

critical vendor payment on pre-petition shipments – or (ii) the trade vendor’s alleged losses after 

subtracting the amount of the critical vendor payment received on pre-petition payments under the 

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contract. See Corona Heights Real Estate, LLC v. LaSalle Tech. , Inc., 2011 U.S. Dist. LEXIS 

173449, at *9 (E.D.N.Y. Feb. 11, 2011) (“‘[A] party fraudulently induced to enter into a contract 

has two general avenues; rescind the contract, return any consideration and seek restitution, or 

affirm the contract and seek damages.’”) (quoting In re Stylesite Mktg., Inc., 253 B.R. 503, 511 

(Bankr. S.D.N.Y. 2000)). Here, no vendor is seeking to rescind the Critical Vendor Agreement 

and return the payment it received on pre-petition shipments nor has any vendor subtracted the 

payment it received on pre-petition shipments from its claimed damages. Indeed, most of these 

vendors’ pre-petition payments exceed the total amount of their claimed damages based on the 

Trust’s own damages theory, as reflected in the chart contained in Appendix 2 attached hereto. 

Further, none of the alleged misrepresentations allegedly made before the critical vendor 

agreements were executed can give rise to tort liability for the reasons explained below (at Section 

V.B). And in any event, nearly all the Critical Vendor Agreements contain integration provisions 

which expressly disclaim reliance on any prior representation as the basis for entering into the 

agreements. See United Artists Theatre Circuit, Inc. v. Sun Plaza Enter. Corp., 352 F. Supp. 2d 

342, 351 (E.D.N.Y. 2005) (concluding that reliance is “unreasonable and undermined” by written 

disclaimer in contract that oral representations shall have no force or effect).

B. The Alleged Misrepresentation Claim Must Be Dismissed Because the Trust 

Cannot Identify Actionable Misstatements

The Trust must be able to identify a specific actionable representation to every trade vendor 

that was false when made to proceed with its fraudulent misrepresentation claim for that vendor. 

The Trust cannot do so for the reasons below.

1. The Trust Cannot Pursue Fraudulent Misrepresentation Claims Based on 

Statements Made to Vendors in September and October 2017

The Trust cannot pursue tort claims of vendors based on alleged misrepresentations made 

to them in the September or October 2017 time period. These statements generally consisted of 

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written statements in TRU’s Frequently Asked Questions (“FAQs”) and a business letter to trade 

vendors informing them that (i) TRU received commitments for over $3 billion in new financing 

that would support the company’s operations and enable TRU to meet its business obligations

during the financial restructuring process; and (ii) TRU would pay vendors in full for services 

provided on or after the filing date. (SOF ¶¶ 178; 186.) Some trade vendors also testified that 

Defendants Brandon, Short, or Barry verbally told them the same substantive information or that 

they saw this information contained in TRU’s press releases and court filings. (SOF ¶¶ 135-138.

9

) 

As explained below, these statements cannot give rise to tort liability because they were true when 

made and/or forward-looking aspirational or promissory statements. See Johnson v. Washington, 

559 F.3d 238, 245 (4th Cir. 2009) (“[W]e reject the [Plaintiffs’] claim of fraud because the 

statements made . . . were either accurate or were forward-looking statements of opinion.”). 

First, the undisputed evidence shows that Defendants’ statements made in September and 

October 2017 regarding TRU’s access to DIP financing were true when they were made: it is 

undisputed that TRU did receive commitments for new financing that was expected to support 

Debtors’ operations during the financial restructuring process. (SOF ¶¶ 35-51, 93.) The 

undisputed evidence also demonstrates that all parties involved in the Chapter 11 Proceeding –

including TRU’s legal counsel and financial advisors, and the UCC and its financial advisors and 

legal counsel – believed that the DIP financing provided TRU with sufficient liquidity to pay trade 

vendors. (See supra, at Section I.) This Court’s Final DIP Order affirmed that one purpose of the 

 

9 The Trust does not allege that Board members made misrepresentations directly to trade 

vendors. And the Board members cannot be found liable for “ratifying” management’s statements. 

Magee-Boyle v. Reliastar Life Ins. Co. of N.Y., 2016 N.Y. Misc. LEXIS 17542 (N.Y. Sup. Ct. Apr. 

4, 2016) (dismissing complaint where there were no factual allegations supporting claim that 

Reliastar “ratified statements”); Small v. Lorillard Tobacco Co., 252 A.D.2d 1, 8-9 (N.Y. App. 

Div. 1998) (dismissing fraud claim where complaint did not show any specific misrepresentation 

and instead based claim on “defendants’ general strategy of trying to hide the fact that nicotine 

was addictive”).

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DIP financing was to provide TRU with liquidity to pay its trade vendors. (ECF No. 711 § 5(b).) 

Nothing in the factual record suggests that these statements were not true when they were made. 

Moreover, the undisputed factual evidence demonstrates that TRU’s legal and financial 

advisors reviewed and approved the messaging and written statements that TRU issued during this 

time period -- including TRU’s FAQs, vendor talking points, press releases and letter to customers

– which were prepared by TRU’s outside public relations firm and distributed in connection with 

TRU’s Chapter 11 filing. (SOF ¶¶ 85-88, SOF Ex. 109-11.) Further, TRU’s counsel made these 

same substantive representations to trade vendors. See, e.g., (SOF Ex. 333) 98:7-13 

(“

.”); SOF ¶ 753; SOF Ex. 110.) And the Trust does not contend 

that Kirkland engaged in any wrongdoing in connection with DIP financing. ( (SOF Ex. 

66) 116:24-117:3 (“ 

”). This disproves any claim that 

Kirkland was transmitting false information. 

Consequently, statements by Defendants in September and October 2017 to trade vendors 

regarding TRU’s liquidity and ability to pay trade vendors cannot give rise to tort liability because 

there is no evidence in the record to suggest they were false when made. See In re Chase, 372 

B.R. 133, 139 (Bankr. S.D.N.Y. 2007) (if debtor “‘so intend[ed] at the time he made the promise 

[to perform], but subsequently decided that he could not or would not so perform, then his initial 

representation was not false when made.’”). 

Second, Defendants’ alleged misstatements in September and October 2017 regarding the 

purpose of the DIP financing and TRU’s intent to pay trade vendors as a result of its access to DIP 

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financing were forward looking and aspirational or promissory statements and therefore not 

actionable as a matter of law. See Landes v. Sullivan, 235 A.D.2d 657, 659 (N.Y. App. Div. 1997) 

(“a representation of opinion or a prediction of something which is hoped or expected to 

occur in the future will not sustain an action for fraud”); Glidepath Holding B.V. v. Spherion 

Corp., 2010 U.S. Dist. LEXIS 33255, at *34 (S.D.N.Y. Mar. 26, 2010) (rejecting claim for tort 

liability based on “forward looking statements of opinion that could not reasonably have been 

relied on. Just as it was not fraudulent in this context to predict success, it was not fraudulent to 

fail to predict failure.”) As a district court within this Circuit recently concluded, even “repeated 

false assurances and predictions can be puffing and related expressions of opinion that are common 

in sales but are not actionable as fraud.” Douglas v. Dry Clean Concepts, Inc., 2021 U.S. Dist. 

LEXIS 205104, at*9 (D. Md. Oct. 25, 2021) (emphasis added). The court there found that 

governing Fourth Circuit law supported the Bankruptcy Court’s dismissal of a fraud claim because 

a “promise to perform an act in the future is not, in a legal sense, a representation as that term is 

used in the fraud context.” Id. at *10 (citing Lissmann v. Hartford Fire Ins. Co., 848 F.2d 50, 53 

(4th Cir. 1988)); see also Music Royalty Consulting, Inc. v. Reservoir Media Mgmt., Inc., 2019 

U.S. Dist. LEXIS 66581 (S.D.N.Y. Apr. 17, 2019) (finding that defendant’s representation that it 

would pay royalties owed under a contract cannot give rise to a fraud claim); FMC Corp. v. Fleet 

Bank, 226 A.D.2d 225, 225 (N.Y. App. Div. 1996) (an opinion based on a “prediction as to future 

performance” is not actionable fraud); Tyler v. Berger, 2005 U.S. Dist. LEXIS 57466, at *5-6 

(W.D. Va. Nov. 1, 2005) (“Mere statements of opinion, unfulfilled promises, or statements as to 

future events cannot give rise to a fraud claim, because common law fraud requires proof of a false 

representation of a material present or pre-existing fact.”). 

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Here, Defendants’ alleged assurances to trade vendors that TRU would make payments on 

post-petition shipments and that the DIP financing received would provide sufficient liquidity to 

TRU throughout the restructuring period were clear examples of promissory or aspirational 

forward-looking statements, and these statements therefore cannot serve as the basis for tort 

liability. See also Music Royalty Consulting, 2019 U.S. Dist. LEXIS 66581, at *20 (“[The 

Plaintiff’s] naked attempt to restyle a future intent to abide by a contract as a fraudulent 

misrepresentation of a present fact is unavailing.”).

Finally, many vendors testified that they still believe that Defendants were speaking 

truthfully when they made these statements in September and October 2017. See, e.g., Tr. 

(SOF Ex. 263) at 49:2-9 (“

”); . Tr. (SOF Ex. 396) at 139:12-16 (“

”) These admissions by the trade 

vendors that Defendants’ statements were truthful when they were made are fatal to the Trust’s 

misrepresentation claims brought on behalf of the trade vendors. See Bolling, 2013 U.S. Dist. 

LEXIS 187486, at *9 (E.D. Va. Sept. 3, 2013) (granting defendant’s motion for summary judgment 

on the basis of “[p]laintiff’s sworn testimony” that is “admissible as a party admission”).

2. The Trust Cannot Pursue Fraud Claims on Behalf of Vendors Who Could 

Not Identify the Words Spoken or Dates of Any Misstatements They 

Allegedly Relied Upon

A number of vendors testified that they could not identify the specifics of any 

misstatements allegedly made to them. This requires dismissal of these vendors’ claims because

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fraud cases “turn upon whether the statements alleged contain factual statements as opposed to an 

opinion, so the actual words upon which the tort of fraud is premised are critical to the pleading 

and the viability of the action.” Peterson v. Bass, 48 Va. Cir. 206, 210 (Va. Cir. Ct. 1999); see 

also Devansky v. Dryvit Sys., Inc., 52 Va. Cir. 359, 360 (Va. Cir. Ct. 2000) (holding that “[t]he 

facts out of which the fraud arises, including the identity of the person or persons making the 

misrepresentations and the date and time that they were made, must be alleged as well as proven.”); 

Brown v. Wolf Grp. Integrated Commc’ns, Ltd., 23 A.D. 3d 239, 240 (N.Y. App. Div. 2005)

(dismissing a fraud claim where the plaintiff failed to specify “the words or actions used to deceive 

him”). Similarly, the inability of many vendors to specifically identify when the alleged 

misstatements were made to them requires their dismissal. Maier-Schule GMC, Inc. v. Gen. 

Motors Corp., 1993 U.S. Dist. LEXIS 21728, at *99 (W.D.N.Y. May 3, 1993) (dismissing fraud 

claim on summary judgment for plaintiff’s failing “to allege the dates and places of the 

representations that were allegedly made to it, the manner in which it was misled, and what the 

defendants allegedly obtained as a result of the misrepresentations.”); see also Campers’ World 

Int’l, Inc. v. Perry Ellis Int’l, Inc., 2002 U.S. Dist. LEXIS 14909, at *10-11 (S.D.N.Y. Aug. 13, 

2002) (finding counter-claimant’s fraud allegations insufficient where it did “not provide the 

names of the agents who made the alleged misrepresentations, which of the alleged 

misrepresentations were made by each agent, the dates on which the alleged misrepresentations 

were made, or the location at which the misrepresentations were made.”); Bomardier Capital, Inc. 

v. Naske Air GMBH, 2003 U.S. Dist. LEXIS 16173, at *11 (S.D.N.Y. Sept. 17, 2003) (dismissing 

the borrowers’ fraud claim because they failed to meet their “obligation to plead the specific 

representations that constitute the fraud and to identi[fy] the speaker and date of the 

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representations.”). The vendor-by-vendor analysis contained below (at Section V.I) reflects 

numerous examples of vendors unable to identify any specifics of alleged misstatements.

C. The Trust’s Fraud-Based Claims Must Be Dismissed Because the Undisputed 

Factual Evidence Does Not Support a Finding of Scienter

To proceed on its fraudulent misrepresentation and fraudulent omission claims, the Trust 

must be able to cite specific evidence in the record that Defendants acted with scienter, defined as 

“a mental state embracing intent to deceive, manipulate, or defraud.” Ernst & Ernst v. Hochfelder,

425 U.S. 185, 193 n.12 (1976). Conclusory allegations of scienter are not sufficient. Nor can the 

Trust prove scienter by showing that the alleged promises of future performance did not come true. 

See In re Triangle Capital Corp. Sec. Litig., 988 F.3d 743, 754-756 (4th Cir. 2021) (explaining 

that scienter cannot be based on “statements and omissions of facts arising from the execution of 

legitimate, subjective business judgments that, only when viewed in hindsight, allegedly become 

misleading”); Nat’l Westminster Bank, U.S.A. v. Ross, 130 B.R. 656, 664 (S.D.N.Y. 1991) (“The 

law is well settled, however, that a party may not establish fraudulent intent solely from the nonperformance of the future event.”). Rather, the Trust must be able to cite specific facts that “could 

support a reasonable finding, by clear and convincing evidence, that Defendants had a present 

intent to defraud the Plaintiffs” when they made the representations at issue. Century Pac., Inc. v. 

Hilton Hotels Corp., 528 F. Supp. 2d 206, 225 (S.D.N.Y. 2017). To meet this standard “the 

evidence cannot be loose, equivocal, or contradictory.” Id. No such evidence appears in the factual 

record. 

The Trust alleges in its Complaint that Defendants wanted “to continue business as usual” 

as a means of “continu[ing] to receive their large salaries” or maintaining their Board 

memberships. (Compl. ¶ 18.) This does not suffice to establish scienter, however, because to 

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prove scienter a plaintiff “‘must do more than merely charge that executives aim[ed] to prolong 

the benefits of the positions they hold.’” Kalnit v. Eichler, 264 F.3d 131, 139 (2d Cir. 2001). 

Moreover, the undisputed evidence reflects that Defendants did not want to deceive the 

trade vendors: for example, the minutes of TRU’s March 3, 2018 Board meeting clearly reflect 

that David Brandon “said he believed the Company should notify vendors as soon as possible of 

the B-4 Lenders' change of position so they could decide whether they keep shipping.” (SOF ¶ 

129.) In addition, the minutes of TRU’s March 4, 2018 Board meeting reflect that David Brandon 

reiterated his concerns about vendors shipping once it seemed likely that TRU would need to 

liquidate, and his concerns were promptly and appropriately addressed: 

Mr. Brandon expressed concerns about not informing all parties 

of a pending liquidation. . . . Mr. Brandon advised that last week 

he believed the Company could restructure by partnering with 

Sycamore but now it seems that the U.S. business will liquidate, 

so he is looking for guidance on how best to address the vendors. 

A discussion ensued related to communications with vendors, and 

the Board agreed that, if asked prior to the expected update that will 

be given to the Bankruptcy Court on Thursday, management should 

tell vendors truthfully the Company is working towards a resolution 

with its lenders and has a covenant waiver through March 12. 

Further, the Board advised management that, if asked, the 

Company should be open that payment for shipped goods is not 

guaranteed. The Board, with input from the advisors, determined 

that these statements were truthful and accurate, and would allow 

the Vendors to determine their own risk threshold.

(SOF ¶ 130, Ex. 162). 

In addition, TRU made a detailed public disclosure in its contemporaneous SEC filing at 

the beginning of the Chapter 11 Proceeding alerting the trade vendors and all interested parties to 

the risk that TRU might not be able to emerge: 

We cannot assure you that we will be able to comply with the 

covenants of our DIP Financing or that cash on hand and cash 

flow from operations will be sufficient to continue to fund our 

operations and allow us to satisfy our obligations related to the 

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Chapter 11 proceedings until we are able to emerge from our 

Chapter 11 proceedings. Our liquidity, including our ability to 

meet our ongoing operational obligations, is dependent upon, among 

other things: (i) our ability to comply with the terms and conditions 

of our DIP Financing agreements, (ii) our ability to comply with the 

terms and conditions of any cash collateral order that may be entered 

by the Bankruptcy Court in connection with the Chapter 11 

proceedings, (iii) our ability to maintain adequate cash on hand, (iv) 

our ability to generate cash flow from operations, (v) our ability to 

develop, confirm and consummate a Chapter 11 plan or other 

alternative restructuring transaction, and (vi) the cost, duration and 

outcome of the Chapter 11 proceedings.

(TRU Form 10-Q, September 29, 2017, at 39 (emphasis added); see SOF ¶ 94.) This disclosure 

further prevents the Trust from establishing that Defendants acted with an intent to deceive. See, 

e.g., In re Triangle Capital, 988 F.3d at 756 (“While Defendants shared with investors their 

optimism with the quality of investment opportunities Defendants saw in those years, this did not 

mean that they were guaranteed to prove fruitful. That is precisely what Defendants disclosed.”); 

City of Coral Springs Police Officers’ Ret. Plan v. Farfetch Ltd., 2021 U.S. Dist. LEXIS 189502, 

at *21 (S.D.N.Y. Sept. 30, 2021) (“[A] defendant’s decision to make significant disclosures about 

the exact risk he or she is purportedly trying to hide is ‘inconsistent with a state of mind going 

toward deliberate illegal behavior or conduct which is highly unreasonable and which represents 

an extreme departure from the standards of ordinary care.’”) (quoting Holbrook v. Trivago N.V., 

2021 U.S. Dist. LEXIS 189502, at *58 (S.D.N.Y. Feb. 26, 2019)); Lucas v. Icahn, 616 F. App’x 

448, 450 (2d Cir. 2015) (holding that “even if” statements were misleading, the plaintiff had not 

adequately pleaded that the defendants acted with scienter in light of disclosures).

Lastly, vendors testified at their 30(b)(6) depositions in this action that they do not believe 

that Defendants had an intent to deceive. See, e.g., Tr. (SOF Ex. 378) 77:14-2 (“ 

”); The Trust cannot pursue tort claims on behalf of those who 

have testified that this element of their claim is not met. See Bolling, 2013 U.S. Dist. LEXIS 

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187486, at *9 (E.D. Va. Sept. 3, 2013) (granting summary judgment to defendant because 

“[p]laintiff’s sworn testimony is admissible as a party admission”).

D. The Trust’s Tort Claims Must Be Dismissed for Every Vendor Whose 30(b)(6) 

Testimony Precludes the Trust from Establishing Reliance

The Trust alleges that Defendants represented to the trade vendors that the DIP financing 

was guaranteed and they could ship goods during the Chapter 11 proceeding based on an assurance 

that they would be paid. (See, e.g., Compl. ¶ 93 (alleging that Defendants’ “representations 

provided Trade Vendors assurance that if the Trade Vendor shipped goods to TRU on credit, then 

TRU had the ability to pay for the goods”).) But the vast majority of trade vendors at their 30(b)(6) 

depositions rejected the Trust’s theory that they relied on Defendants’ assurances they would get 

paid for the goods that they shipped. The chart contained in Appendix 3 (attached hereto) contains 

examples of many vendors acknowledging at their 30(b)(6) depositions that they did not ship in 

reliance on Defendants’ alleged guarantees of payment and that they knew that receiving payment 

on their postpetition shipments was not guaranteed.

Moreover, the Trust in its Complaint lists numerous vendors that it claims relied on 

Defendants’ statements made to them at the Hong Kong Toy Fair in January 2018 and the New 

York Toy Fair in February 2018. (Compl. ¶¶ 143, 156, 157.) But many of these vendors testified 

explicitly that they did not rely on any statements made to them by Defendants or anyone affiliated 

with TRU at these toy fairs. See, e.g., Tr. (SOF Ex. 387) 159-61 (“

”); Tr. (SOF Ex. 302) 159:15-160:11 (“ 

); Tr. (SOF Ex. 198) 75:23-

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76:5 (“ 

”); Tr. (SOF Ex. 302) 

141:3-6 (“

”). This testimony 

is binding upon these vendors as a matter of law and undisputed in the factual record, and the Trust 

cannot bring claims of reliance for the vendors who disavowed the Trust’s claims on their behalf. 

And on the undisputed evidence, including the admissions of trade vendors at their Rule 30(b)(6) 

depositions, the Trust cannot prove that many of the vendors even attended the Hong Kong Toy 

Fair or the New York Toy Fair. See, e.g., Tr. (SOF Ex. 170) 195:12-18 (reflecting that 

 did not attend the Hong Kong Toy Fair or New York Toy Fair).

Lastly, several vendors testified that representations they received from Defendants in 

February 2018 were not reassuring, as the chart contained in Appendix 3 also reflects. The Trust 

cannot bring fraud claims on behalf of these vendors who testified that, directly contrary to the 

Trust’s allegation, they relied on Defendants’ statements as their basis to stop shipping.

E. The Trust’s Tort Claims Must Be Dismissed Because the Trust Cannot Prove 

Reasonable Reliance

Even if the Trust could prove the trade vendor’s reliance (and it cannot), the Trust cannot 

prove that any vendor’s reliance was reasonable because TRU publicly and explicitly disclosed in 

its SEC filings the risk that it might not emerge. (See supra, at 46; SOF ¶ 94.) In addition, the 

DIP financing agreements themselves were publicly filed and contained the governing covenants. 

(ECF No. 158.) The trade vendors were all sophisticated companies. (See, e.g., SOF ¶¶ 520, 660, 

741, 907, 1055.) They and their counsel therefore knew or could have known about the risk of 

shipping goods to TRU through reasonable diligence by reviewing these disclosures, as many trade 

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vendors readily admitted. (See, e.g., SOF ¶ 180.) This precludes the Trust from proving reasonable 

reliance on their behalf. See Bioenergy Life Sci., Inc. v. Ribocor, Inc., 2015 N.Y. Misc. LEXIS 

289, at *5 (N.Y. Sup. Ct. Feb. 3, 2015) (“[W]here the fraud could have been discovered with 

reasonable due diligence, a plaintiff cannot claim reasonable reliance.”); LaSalle Nat’l Bank v. 

Perelman, 82 F. Supp. 2d 279, 296 (D. Del. 2000) (“This is a case where investors who purchased 

high-risk bonds are seeking to rescind the investments because the potential risks that they were 

warned of materialized. Each offering memorandum contains an abundance of warnings and 

cautionary language concerning the notes.”); Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 

F.2d 729, 737 (2d Cir. 1984) (“Where sophisticated businessmen engaged in major transactions 

enjoy access to critical information but fail to take advantage of that access, New York courts are 

particularly disinclined to entertain claims of justifiable reliance.”).

In addition, the Trust cannot predicate tort liability on alleged statements that the DIP 

financing was guaranteed because, as a matter of law, no vendor could reasonably believe that 

shipping goods to a company during a Chapter 11 proceeding was risk free. See, e.g., Mizrahi v. 

Adler, 2014 N.Y. Misc. LEXIS 2934, at *15-16 (N.Y. Sup. Ct. June 30, 2014) (plaintiff cannot 

establish reasonable reliance on any representation that deal was “risk free”); Cole v. Daoud, 2016 

U.S. Dist. LEXIS 39749, at *39 (E.D. Va. Feb. 17, 2016) (holding that because the promises at 

issue “reflect funding conditioned on the occurrence of other requirements . . . the result of the 

promise was necessarily uncertain and any reliance by [Plaintiff] was not reasonable.”).

F. The Trust Cannot Cite Evidence to Prove Causation for Most Trade Vendors

To prove causation, the Trust must be able to cite evidence to prove that Defendants’ 

statements are what caused it to ship. See, e.g., Caviness v. DeRand Res. Corp., 983 F.2d 1295, 

1305 (4th Cir. 1993) (affirming district court decision to dismiss common law fraud count because 

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“the common law of Virginia requires a showing of proximate cause to establish a fraud claim”); 

Revak v. SEC Realty Corp., 18 F.3d 81, 89-90 (2nd Cir. 1994) (explaining a plaintiff must be able 

to establish that “the loss complained of is a direct result of the defendant’s wrongful actions and 

independent of other causes.”). The Trust cannot satisfy this requirement of causation for the many 

vendors listed in the chart contained in Appendix 4 (attached hereto) who testified that factors 

other than Defendants’ statements were the proximate cause of their decision to ship.

G. The Trust Cannot Prove a Fraudulent Omission Claim Because No Duty to 

Disclose Existed 

The Trust alleges that Defendants were required to tell the trade vendors earlier than they 

did that TRU was having financial difficulties and was in danger of breaching its financial 

covenants. (Compl. ¶¶ 234-236, 243, 245.) As a matter of law, Defendants had no obligation to 

disclose this information in the manner the Trust alleges.

1. The Trust Cannot Establish a Claim for Fraudulent Concealment

To establish its claim for fraudulent concealment, the Trust must be able to demonstrate 

that Defendants had a duty to disclose material information. This duty generally does not exist in 

the context of a vendor-vendee relationship. See Kattawar v. Logistics & Distribution Servs., Inc., 

111 F. Supp. 3d 838, 855 (W.D. Tenn. 2015) (holding that “a vendor-vendee relationship where 

two companies enter into an arms-length transaction will not, as a matter of law, create a special 

relationship and attendant duty to disclose.”); Garbutt v. S. Clays, Inc., 894 F. Supp. 456, 461 

(M.D. Ga. 1995) (granting the defendants’ summary judgment motion as to all fraud claims 

because a “vendor and vendee of property are not, by virtue of such fact, placed in a confidential 

relationship to each other, but on the contrary are presumed to be dealing at arm’s length.”).

Courts have held that exceptions to the general absence of a duty to disclose can arise in 

limited exceptions. One exception is where the parties are in a fiduciary or confidential 

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relationship. Here, the trade vendors have testified that they had an arms-length relationship with 

TRU, as the chart set forth in Appendix 5 (attached hereto) demonstrates. Consequently, the Trust 

cannot prove that any vendor was in a confidential or fiduciary relationship with TRU, much less 

with any individual Defendant. See Dopp v. Teachers Ins. & Annuity Ass’n of Am., 1993 U.S. 

Dist. LEXIS 13980, at *15 (S.D.N.Y. Sept. 27, 1993) (“The arm’s-length relationship of parties in 

a business transaction is, if anything, antithetical to the notion that either would owe a fiduciary 

relationship to the other. Consequently the Court finds that defendants did not owe a fiduciary 

duty to plaintiff, and that defendants’ alleged failure to disclose their negotiations cannot constitute 

fraudulent concealment.”); HSH Nordbank AG v. RBS Holdings USA Inc., 2015 U.S. Dist. LEXIS 

36087, at *38 (S.D.N.Y. Mar. 20, 2015) (“Plaintiffs have not alleged facts demonstrating the 

special relationship necessary to sustain actions for negligent misrepresentation and fraudulent 

concealment. The parties here are ‘sophisticated entities [who were] engaged in an arm’s length 

transaction.’”).

A second exception exists where “either one or each of the parties in entering the 

transaction, expressly reposes a trust and confidence in the other or because of the circumstances 

of the case, the nature of their dealings, or their position towards each other, such a trust and 

confidence is necessarily implied.” Ferry v. Black Diamond Video, Inc., 2016 U.S. Dist. LEXIS 

76893, at *21-22 (D.N.J. June 13, 2016). Courts find that this duty exists where the defendant has 

“superior knowledge” and “‘the advantage taken of the plaintiff’s ignorance is so shocking to the 

ethical sense of the community, and is so extreme and unfair, as to amount to a form of swindling.’” 

Ferry, 2016 U.S. Dist. LEXIS 76893, at *21-22 (quoting Restatement (Second) of Torts § 551

cmt. l (Am. Law Inst. 1997)); see also ISM Connect Inv. Grp. LLC v. ISM Connect, LLC, 2018 

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U.S. Dist. LEXIS 152120, at *37 (D.N.J. Sept. 5, 2018) (explaining that this standard “creates a 

high bar for plaintiffs to meet in establishing a duty to disclose.”). 

Whether this duty to disclose exists is a question of law for the court to decide. Ferry,

2016 U.S. Dist. LEXIS 76893, at *22. Here, this duty does not exist for several reasons.

First, there is no evidence in the record that the vendors “reposed a trust and confidence” 

in Defendants that would create a duty to disclose. The vendors consistently testified that they 

were in an arms-length relationship with TRU, with both parties typically represented by their own 

counsel protecting their respective client’s own interests. (See, e.g., SOF ¶¶ 168, 185.) This type 

of arms-length relationship between two sophisticated parties represented by counsel precludes a 

claim that the vendors shipped based on their reposing trust and confidence in TRU. See 

Grumman, 748 F.2d at 739 (“Grumman’s attempt to transmute its ordinary arms-length business 

relationship with Rohr into a fiduciary relationship is unpersuasive. The fact that Rohr has sold 

aircraft components to a subsidiary of Grumman in no way alters our conclusion. Grumman has 

completely failed to offer any evidence indicating that the parties placed sufficient trust and 

confidence in each other to trigger a duty of disclosure.”). 

Second, the Trust cannot credibly argue that any trade vendor was “taken advantage of” in 

a manner that is “so shocking to the ethical sense of the community, and is so extreme and unfair, 

as to amount to a form of swindling.” Indeed, it is undisputed that the UCC and its lawyers were

well aware that the company was having financial difficulties. The UCC was contemporaneously 

informed when the B-4 lenders provided a waiver of section 6.16 on January 31, 2018, and the 

UCC participated in conversations in chambers in this Court on January 23, 2018 and February 6, 

2018 in which TRU’s counsel discussed TRU’s financial condition. (SOF ¶¶ 107-109, 115.) As 

the Litigation Trustee testified with respect to one of these conversations:

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....

 

(Kors Tr. (SOF Ex. 66) at 258:11-260:18.) The UCC’s counsel, which owed a fiduciary 

duty to the trade vendors, never disclosed this information to the trade vendors contemporaneously.

That same counsel now represents the Trust, as the Litigation Trustee testified. See id. 41:4-9 (“ 

”). The Trust cannot credibly allege that Defendants’ decision not to 

disclose information to the trade vendors was “shocking to the ethical sense of the community” 

when the Trust’s counsel decided not to make the same disclosures to the trade vendors and even 

owed them a fiduciary duty (unlike Defendants, who were in arms-length relationships with them).

See also Tr. (SOF Ex. 279) 96:16-21 ( ) (“

”). Given this, Defendants and their counsel cannot be accused by the 

same individuals to have engaged in an ethically shocking decision by following the same course 

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of action. This is particularly so where, as discussed above, nearly all trade vendors testified that 

they understood that TRU was in Chapter 11 and that there was risk in shipping to TRU. See also 

City of Millville v. Rock, 683 F. Supp. 2d 319 (D.N.J. 2010) (holding that defendants did not have 

a duty to disclose that they were contemplating bankruptcy when securing a loan because the 

circumstances of the case, including the plaintiff’s knowledge of the potential risk, did not 

demonstrate conduct “so shocking . . . as to amount to a form of swindling”). 

In addition, the statements made by Defendants in September and October 2017 that the 

Trust now claims were misleading did not create any duty to update or correct. As explained 

above, these statements were true when made and were promissory statements not cognizable as 

tort claims. (See supra, at Section V.B.1.) As a result, no duty to update them existed. See 

Medtronic Sofamor Danek, Inc. v. Michelson, 2004 U.S. Dist. LEXIS 26385, at * 48 (W.D. Tenn. 

May 20, 2004) (dismissing fraudulent omission claim because where parties had a “significant 

history of arms-length negotiations,” there was no duty to disclose updated sales projections to 

counterparty that developed after initial representations).

Finally, the undisputed evidence demonstrates that TRU’s Board was concerned in the 

December through February time period about the company’s liquidity issues and was working to 

renegotiate existing covenants or obtain new sources of financing. (SOF ¶¶ 102, 106, 107, 108, 

116, 117, 119.) As a matter of law there was no duty to update the trade vendor community with 

real-time confidential information about these discussions while the outcome of these discussions 

and state of the company’s access to liquidity remained highly uncertain. See, e.g., In re Express 

Scripts Holdings Co. Sec. Litig., 773 F. App’x 9, 14 (2nd Cir. 2019) (“[Plaintiff] essentially argues 

that Defendants should have anticipated the outcome of the negotiations sooner or that the 

negotiations would deteriorate, but in the circumstances here, where the discussions were ongoing, 

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Defendants did not have a duty to disclose more about the uncertain state of the negotiations.”); 

Coyne v. Gen. Elec. Co., 2010 U.S. Dist. LEXIS 70879, at *21 (D. Conn. July 15, 2010) (“Those 

statements of earnings projections for the quarter established goals at the start of the quarter and 

could not plausibly mislead. Thus, GE was under no duty to correct them during the quarter. 

Holding otherwise would lead to an absurd result, effectively imposing on GE a duty to inform 

investors constantly about the company’s earnings throughout the quarter.”); Walker v. Action 

Indus., Inc., 802 F.2d 703, 710 (4th Cir. 1986) (“Because of the frequency and volatility of these 

projections, the imposition of a duty to disclose them would have required virtually constant 

statements by [the issuer] in order not to mislead investors. Under these circumstances, we deem 

the projection disclosures urged by [appellant] to be impractical, if not unreasonable.”); In re 

Convergent Techs. Sec. Litig., 948 F.2d 507, 516 (9th Cir. 1991) (explaining that a company is 

generally “not obliged to disclose [its] internal projections.”); In re Duane Reade Inc. Sec. Litig., 

2003 U.S. Dist. LEXIS 21319, at *35 (S.D.N.Y. Nov. 24, 2003) (“Plaintiffs’ argument that because 

sales were down at the end of the first quarter, the impending final results for the second quarter 

must have been apparent throughout the quarter (including after the first three weeks) mimics the 

typical type of ‘fraud by hindsight’ theory that courts have been unwilling to entertain.”). 

2. The Trust Cannot Establish a Claim for Negligent Misrepresentation

To establish a claim for negligent misrepresentation, the Trust must be able to prove (1) a 

special or privity-like relationship between the parties sufficient to impose on the defendant a duty 

to impart correct information, (2) that the information provided by the defendant was incorrect, 

and (3) reasonable reliance on the information. See Icebox-Scoops, Inc. v. Finanz St. Honore, B.V., 

676 F. Supp. 2d 100, 110 (E.D.N.Y. 2009). The Trust is unable to prove these factors.

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The Trust cannot point to facts establishing a special or privity-like relationship that would 

trigger a duty to disclose, which means it cannot establish a required element to maintain its 

negligent misrepresentation claim. As explained above, nearly all of the vendors testified that they 

were in an arms-length relationship with TRU, and testimony to the contrary is not creditable. It 

is well established that an ordinary, arms-length business relationship does not create a special or 

privity-like relationship. See Alley Sports Bar, LLC v. SimplexGrinnell, LP, 58 F. Supp. 3d 280, 

293-94 (W.D.N.Y. 2014) (“A special relationship requires a closer degree of trust between the 

parties than that of the ordinary buyer and seller in order to find reliance on such statements 

justified.”). 

In addition, the case law is clear that one party’s “[k]nowledge of the particulars of the 

company’s business” is not the type of special knowledge and expertise that gives rise to a special 

relationship creating a duty to disclose. See, e.g., JP Morgan Chase Bank v. Winnick, 350 F. Supp. 

2d 393, 401-02 (S.D.N.Y. 2004) (knowledge and experience of accounting and financial condition 

is not the type of specialized knowledge that triggers a duty of care in the commercial context); 

Alley Sports Bar, 58 F. Supp. 3d at 294 (comparing professionals, like lawyers and engineers, who 

by virtue of their training and experience may have special relationships of confidence and trust 

with their clients, with a fire alarm inspector, who “is simply not such a professional,” 

notwithstanding that he knew that plaintiff would be relying on information he provided). Thus, 

the Trust cannot establish that Defendants and the vendors had a special relationship based on their 

“expertise” about TRU’s own financials.

In addition, as explained above, the Trust cannot establish that the information provided 

by Defendants was incorrect at the time it was given, or that the trade vendors reasonably relied 

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on information to their detriment. (See supra, at Sections V.B.1 and V.C.) For these reasons as 

well, the negligent misrepresentation claims must be dismissed.

H. The Trust Cannot Prove Reasonable Reliance on the Allegedly Omitted 

Information

Even if a duty to disclose existed (and it did not), the Trust’s fraudulent omission and 

negligent misrepresentation claims cannot survive because the trade vendors knew or could have 

known the allegedly omitted information.

The Trust alleges in its Complaint that vendors shipped goods to TRU because Defendants 

told them that TRU had entered into DIP financing agreements but failed to tell them that the DIP 

financing agreements contained covenants that needed to be met. (Compl. ¶ 117.) But numerous 

trade vendors acknowledged knowing that the DIP financing agreements contained covenants and 

these covenants were contained in the publicly filed DIP financing agreements. (ECF No. 158.) 

Even the Litigation Trustee conceded in his deposition testimony that any interested party could 

have accessed them. See Tr. (SOF Ex. 66) 174:24-175:3 (“

”). This alleged omission therefore cannot give 

rise to a fraud claims as a matter of law. See Johnson, 559 F.3d at 245 (“Even assuming that 

[Defendant] did mislead the [Plaintiffs], which we do not suggest, the documents that they signed 

plainly stated the terms of the transaction and more than corrected any misleading oral statements. 

Plaintiffs cannot be heard to complain when they failed to read the relevant documents.”).

The Trust also alleges that Defendants failed to disclose to the trade vendors TRU’s poor 

holiday sales. (Compl. ¶¶ 236, 245.) But multiple vendors testified that they saw news of TRU’s 

poor holiday results and/or knew about TRU’s poor holidays results based on their access to 

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information on TRU’s portal, as the chart contained in Appendix 6 demonstrates. Thus, this 

alleged omission also cannot give rise to a tort claim. 

Finally, the Trust alleges that Defendants failed to tell trade vendors that TRU was in 

danger of breaching its covenants. (Compl. ¶ 124.) But numerous trade vendors testified they 

knew this information as well because it was publicly reported and/or was told to them by 

Defendants, as the chart contained in Appendix 6 also demonstrates. The Trust cannot bring tort 

claims on behalf of vendors who testified they knew the information that the Trust alleges was 

hidden from them and chose to ship goods to TRU anyway. See Favour Mind Ltd. v. Pac. Shores, 

Inc., 2004 U.S. Dist. LEXIS 637, at *20 (S.D.N.Y. Jan. 16, 2004) (“Plaintiff’s decision to do 

business with [the company] in light of this knowledge indicates an informed decision. After 

Plaintiff was alerted to signs that [the company] needed help in paying its bills, Plaintiff’s unabated 

business with [the company] indicates a ratification of its previous decision and evinces a deeper 

appreciation of the risks involved.”) 

I. The Trade Vendor’s Own 30(b)(6) Testimony Demonstrates That the Trust 

Cannot Prove Every Element of Any Trade Vendor’s Claims

For the reasons explained above and summarized on a vendor-by-vendor basis below, the 

undisputed evidence makes clear that none of the trade vendors’ tort claims asserted by the Trust 

can survive summary judgment, even if the Trust had standing to pursue them and could cite 

evidence in the record to support a finding of a Defendant’s scienter, duty to disclose, and the trade 

vendor’s damages (and it cannot).

1. The Trust’s Claims on Behalf of Lego Must Be Dismissed 

Lego’s claims must be dismissed because 

. Lego’s claims also 

must be dismissed because 

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Element 

Requiring 

Dismissal

Lego’s 30(b)(6) Testimony

“

” (Lego Tr. 137:6-11.)

“

.” (Lego Tr. 69:11-17.)

“

.” (Lego Tr. 58:6-13.)

“

” 

(Lego Tr. 27:17-21.)10

“

” (Lego Tr. 122:14-25.)

 

10 These citations regarding statements relied upon were given in response to Defendants’ 

questioning of the trade vendors’ 30(b)(6) witnesses. As reflected in the Statement of Facts, 

upon questioning by the Trust’s counsel (typically through leading questions that are 

inadmissible), some of these vendors testified that they relied upon the written materials that 

TRU distributed in September 2017 in connection with the Chapter 11 filing, including a press 

release, Frequently Asked Questions (”FAQs”), a Dear Valued Business Partner letter signed by 

Richard Barry, and/or declarations in support of the DIP financing submitted to this Court. For 

the reasons explained above, none of these documents give rise to tort claims because they were 

true when made and/or forward-looking.

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.” (Lego Tr. 123:1-6.)

“

.” (Lego Tr. 192:22-193:6.)

“

” (Lego Tr. 81:10-17.)

“

” (Lego Tr. 62:10-16.)

“

” (Lego Tr. 143:17-25.)

2. The Trust’s Claims on Behalf of Hasbro Must Be Dismissed

The Trust’s claims on behalf of Hasbro must be dismissed because 

. In addition, 

.

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Element

Requiring 

Dismissal

Hasbro’s 30(b)(6) Testimony

“

” (Hasbro Tr. 49:19-50:4.)

“

” (Hasbro Tr. 39:5-9.)

“

” (Hasbro Tr. 49:2-9.)

“

” (Hasbro Tr. 74:5-10.)

“

. (Hasbro Tr. 53:4-11.)

“

.

. . .

” (Hasbro Tr. 96:4-21 (emphasis 

added).)

“

.” (Hasbro Tr. 172:6-17.)

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“

” (Hasbro Tr. 236:19-25.)

3. The Trust’s Claims on Behalf of Funrise Must Be Dismissed

The Trust’s claims on behalf of Funrise must be dismissed because 

. In addition, 

.

Element

Requiring 

Dismissal

Funrise’s 30(b)(6) Testimony

“

” (Funrise Tr. 59:3-8 ( .)

“

” (Funrise Tr. 27:4-11 ( ).)

“

” (Funrise Tr. 69:3-9 ( ).)

“

” (Funrise 

Tr. 72:25-73:22 ( ).)

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“

” (Funrise Tr. 163:24-164:4 ( ).)

4. The Trust’s Claims on Behalf of Huffy Must Be Dismissed

The Trust’s claims on behalf of Huffy must be dismissed because 

. The Trust also cannot establish 

 

Element 

Requiring 

Dismissal

Huffy’s 30(b)(6) Testimony

“

” (Huffy Tr. 87:21-88:4 ( ).)

“

.” (Huffy Tr. 30:10-13 ( ).)

“

.” (Huffy Tr. 66:25-67:8 ( .)

“

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” ( )

“

” (Huffy Tr. 32:20-23 (O’Gara).)

“

” 

(Huffy Tr. 95:15-21 (Kerr).)

5. The Trust’s Claims on Behalf of Jakks Must Be Dismissed

The Trust’s claims on behalf of Jakks must be dismissed because 

. In addition, 

.

Element

Requiring 

Dismissal

Jakks’ 30(b)(6) Testimony

” (Jakks Tr. 94:14-95:4.)

“

” (Jakks Tr. 87:13-19; 90:2-5; 103:4-13.)

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“

” (Jakks Tr. 96:25-97:7.)

6. The Trust’s Claims on Behalf of Graco Must Be Dismissed

The Trust’s claims on behalf of Graco must be dismissed because 

 Graco’s 30(b)(6) testimony (SOF ¶¶ 379-413; SOF Ex. 238 (Graco 

Tr.)) 

.

Element

Requiring 

Dismissal

Graco’s 30(b)(6) Testimony

“

.” (Graco Tr. 

49:10-23.)

“

” (Graco Tr. 34:15-35:8.)

“

.” (Graco Tr. 46:11-14.)

“

” (Graco Tr. 

32:14-20.)

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“

” (Graco Tr. 67:18-68:2.)

“

” (Graco Tr. 86:25-87:13.)

7. The Trust’s Claims on Behalf of Mattel Must Be Dismissed

Mattel’s claims must be dismissed because 

. Mattel’s claims also must 

be dismissed because 

.

Element 

Requiring 

Dismissal

Mattel’s 30(b)(6) Testimony

“

” (Mattel Tr. 63:1-8 ( ).)

“

” (Mattel Tr. 96:3-5 ( ).)

“

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” 

(Mattel Tr. 70:20-71:17 ( ).) 

“

” (Mattel Tr. 85:7-12 ( ).)

“

” (Mattel Tr. 

73:3-21 ( ).)

“

.” (Mattel Tr. 130:5-12 ( ).)

8. The Trust’s Claims on Behalf of Best Chairs Must Be Dismissed

The Trust’s claims on behalf of Best Chairs must be dismissed because 

. In addition, 

.

Element

Requiring 

Dismissal

Best Chairs’ 30(b)(6) Testimony

“

.” (Best Chairs Tr. 208:4-15.)

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“

” (Best Chairs Tr. 261:13-262:6.)

“

” (Best 

Chairs Tr. 147:22-148:11.)

“

” (Best Chairs Tr. 176:15-22.)

9. The Trust’s Claims on Behalf of Dorel Must Be Dismissed

The Trust’s claims on behalf of Dorel must be dismissed because 

. Dorel’s 30(b)(6) testimony (

.

Element

Requiring 

Dismissal

Dorel’s 30(b)(6) Testimony

“

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” (Dorel Tr. 129:9-130:8.)

“

.” (Dorel Tr. 28:20-29:3.)

“

” 

(Dorel Tr. 104:8-10.)

“

.” (Dorel 

Tr. 81:21-82:3.)

“

.” (Dorel Tr. 133:21-25.)

“

” (Dorel Tr. 99:3-6.)

10. The Trust’s Claims on Behalf of Jazwares Must Be Dismissed

The Trust’s claims on behalf of Jazwares must be dismissed because 

. 

In addition, 

.

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Element

Requiring 

Dismissal

Jazwares’ 30(b)(6) Testimony

“

” (Jazwares Tr. 114:12-16.)

“

” (Jazwares Tr. 41:1-10.)

“

 

” (Jazwares Tr. 

68:5-14.)

“

 

” (Jazwares Tr. 131:2-21 (emphasis added).)

11. The Trust’s Claims on Behalf of Just Play Must Be Dismissed

The Trust’s claims on behalf of Just Play must be dismissed because 

. The Trust 

also cannot establish 

.

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Element

Requiring 

Dismissal

Just Play’s 30(b)(6) Testimony

t

“

” (Just Play Tr. 125:16-19.)

“

.” (Just Play Tr. 223:23-224:12.)

“

” (Just Play Tr. 159:15-160:11.)

“

.” (Just Play Tr. 169:24-171:19

(emphasis added).)

“

” (Just Play Tr. 110:10-14.)

12. The Trust’s Claims on Behalf of Kent International Must Be Dismissed

The Trust’s claims on behalf of Kent International must be dismissed because 

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. The Trust also cannot 

prove 

.

Element

Requiring 

Dismissal

Kent International’s 30(b)(6) Testimony

“

” 

(Kent Tr. 108:3-11.)

“

” (Kent Tr. 140:21-25.)

“

” (Kent Tr. 141:13-18.)

“

” (Kent Tr. 

142:11-143:4.)

“

” (Kent Tr. 143:23-

144:4.)

“

” (Kent Tr. 145:3-18.)

“

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.” (Kent Tr. 88:11-19.)

13. The Trust’s Claims on Behalf of Kids2 Must Be Dismissed

The Trust’s claims on behalf of Kids2 must be dismissed because 

. Kids2 further testified that 

Element

Requiring 

Dismissal

Kids2’s 30(b)(6) Testimony

“

.” (Kids2 Tr. 149:15-18 ( ).)

“

.” (Kids2 Tr. 151:19-23 ( ).)

“

.” (Kids2 Tr. 52:8-10 ( ).)

“

” (Kids2 Tr. 164:20-25 ( ).)

“

.” (Kids2 Tr. 123:2-8 

( ).)

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“

” (Kids2 Tr. 116:15-22 ( .)

“

 ( ).)

“

” (Kids2 Tr. 71:22-25 ( ).)

“

” (Kids2 Tr. 73:2-10 ( ).)

14. The Trust’s Claims on Behalf of MGA Must Be Dismissed

The Trust’s claims on behalf of MGA must be dismissed because 

. The Trust also cannot prove 

.

Element

Requiring 

Dismissal

MGA’s 30(b)(6) Testimony

“

.” (MGA Tr. 141:17-22.)

“

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” (MGA Tr. 54:15-24.)

“

” (MGA Tr. 140:9-16.)

“

.” (MGA Tr. 166:21-23.)

“

.” (MGA Tr. 211:10-16.)

15. The Trust’s Claims on Behalf of Skyrocket Must Be Dismissed

The Trust’s claims on behalf of Skyrocket must be dismissed because 

.

Principle 

Requiring 

Dismissal

Skyrocket’s 30(b)(6) Testimony

“

.” (Skyrocket Tr. 92:15-25.)

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“

.” (Skyrocket Tr. 74:12-14.)

“

.” (Skyrocket Tr. 118:2-7.)

“

.” (Skyrocket Tr. 87:9-12.)

16. The Trust’s Claims on Behalf of RR Donnelley Must Be Dismissed

The Trust’s claims on behalf of RR Donnelley must be dismissed because 

. The 

Trust also cannot prove 

. 

Principle 

Requiring 

Dismissal

RR Donnelley 30(b)(6) Testimony

“

.” (RR Donnelley Tr. 64:13-17.)

 

“ 

” (RR Donnelley Tr. 68:15-18.)

“ 

” (RR Donnelley Tr. 67:16-19.)

“ 

” (RR Donnelley Tr. 69:2-5.)

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“

” (RR Donnelley Tr. 49:6-13.)

“ 

.” (RR Donnelley Tr. 60:8-15.)

“

” (RR 

Donnelley Tr. 62:9-63:5.)

17. The Trust’s Claims on Behalf of LSC Communications Must Be Dismissed

The Trust’s claims on behalf of LSC Communications must be dismissed because 

. The Trust also cannot prove 

” 

Principle 

Requiring 

Dismissal

LSC Communications 30(b)(6) Testimony

“

” (LSC Tr. 69:7-11.)

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“

” (LSC Tr. 71:14-20.)

 

“

” (LSC Tr. 203:23-204:14.)

“

” (LSC Tr. 212:5-14.)

“ 

” (LSC Tr. 180:24-181:4.)

“

” (LSC Tr. 167:8-18.)

18. The Trust’s Claims on Behalf of Crayola Must Be Dismissed

The Trust’s claims on behalf of Crayola must be dismissed because 

. The Trust also cannot prove causation 

because 

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.

Principle 

Requiring 

Dismissal

Crayola’s 30(b)(6) Testimony

 

“

” (Crayola Tr. 61:18-23.)

“ 

” (Crayola Tr. 68:14-19.)

“

” (Crayola Tr. 66:25-67:7)

“

” (Crayola Tr. 78:14-25.)

“

 

.” (Crayola Tr. 79:3-24.)

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“ 

” (Crayola Tr. 162:8-18.)

” (Crayola Tr. 83:2-7.)

19. The Trust’s Claims on Behalf of Evenflo Must Be Dismissed

The Trust’s claims on behalf of Evenflo must be dismissed because 

. 

Element

Requiring 

Dismissal

Evenflo’s 30(b)(6) Testimony

“ 

” (Evenflo Tr. 

40:18-41:11 ( ) (emphasis added).)

“

” (Evenflo Tr. 13:14-16 ( ).)

“

” (Evenflo Tr. 14:21-23 ( ).)

“

” (Evenflo Tr. 38:20-23 ( ).)

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“ 

.” (Evenflo Tr. 

127:4-12 ( ).)

20. The Trust’s Claims on Behalf of Bandai Must Be Dismissed

The Trust’s claims on behalf of Bandai must be dismissed because 

. The Trust 

also cannot prove 

.

Principle 

Requiring 

Dismissal

Bandai’s 30(b)(6) Testimony

.” (Bandai Tr. 50:18-51:2.)

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“

.” 

(Bandai Tr. 53:6-13.)

21. The Trust’s Claim on Behalf of Spin Master Must Be Dismissed

The Trust’s claims on behalf of Spin Master must be dismissed because 

. The Trust 

also cannot demonstrate 

.

Element

Requiring 

Dismissal

Spin Master’s 30(b)(6) Testimony

“

” (Spin Master Tr. 143:1-10.)

“

” (Spin Master Tr. 65:6-8.)

“

” (Spin Master Tr. 196:14-197:16.)

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“

.” (Spin Master 

Tr. 198:25-199:13.)

“

” (Spin Master Tr. 98:5-8.)

“

.” (Spin Master Tr. 156:12-157:6.)

22. The Trust’s Claims on Behalf of American Plastic Toys Must Be 

Dismissed

The Trust’s claims on behalf of American Plastic Toys must be dismissed because 

. American Plastic Toys also testified that 

.

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Element

Requiring 

Dismissal

American Plastic Toys’ 30(b)(6) Testimony

“

 

” (APT Tr. 211:22-213:2, APT 

Tr. 218:13-18.)

“

.” (APT Tr. 223:7-18.)

“

.” (APT 

Tr. 175:7-15.)

23. The Trust’s Claims on Behalf of Munchkin Must Be Dismissed

The Trust’s claims on behalf of Munchkin must be dismissed because 

. In addition, the Trust cannot demonstrate 

. 

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Element

Requiring 

Dismissal

Munchkin’s 30(b)(6) Testimony

“

.” (Munchkin Tr. 74:10-13 ( ).)

“

.” (Munchkin Tr. 206:15-207:3 ( ).)

“

.” (Munchkin Tr. 217:2-6 ( ).)

24. The Trust’s Claims on Behalf of Bestway Must Be Dismissed

The Trust’s claims on behalf of Bestway must be dismissed because 

. Bestway’s 30(b)(6) deposition testimony 

.

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Element

Requiring 

Dismissal

Bestway’s 30(b)(6) Testimony

“

” (Bestway Tr. 100:16-101:11.)

“

” (Bestway Tr. 102:3-103:2.)

25. The Trust’s Claims on Behalf of Yvolve Must Be Dismissed

The Trust’s claims on behalf of Yvolve must be dismissed because 

. The Trust also cannot prove 

.

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Element

Requiring 

Dismissal

Yvolve’s 30(b)(6) Testimony

“

” (Yvolve Tr. 42:3-43:2.)

“

” (Yvolve Tr. 208:6-9.)

“

.” (Yvolve Tr. 

56:21-57:9.)

“

” (Yvolve Tr. 166:8-20.)

“

” (Yvolve Tr. 118:22-119:2.)

“

” (Yvolve Tr. 170:24-

171:5.)

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26. The Trust’s Claims on Behalf of Jada Toys Must Be Dismissed

The Trust’s claims on behalf of Jada Toys must be dismissed because 

.

Element

Requiring 

Dismissal

Jada Toys’ 30(b)(6) Testimony

“

” (Jada Tr. 194:24-195:12.)

“

” (Jada Tr. 114:7-16.)

“

” (Jada Tr. 183:3-7.)

“

” (Jada Tr. 205:18-206:7.)

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27. The Trust’s Claims on Behalf of North States Must Be Dismissed

The Trust’s claims on behalf of North States must be dismissed because

 

In addition, 

. 

Element

Requiring 

Dismissal

North States’ 30(b)(6) Testimony

“

.” (North States Tr. 61:6-10 ( ).)

“

.” (North States Tr. 61:22-25 ( ).)

“

” (North States Tr. 63:15-20 ( ).)

“

.” 

(North States Tr. 55:1-5 ( ).)

28. The Trust’s Claims on Behalf of eKids Must Be Dismissed

The Trust’s claim on behalf of eKids must be dismissed because 

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2

. The Trust’s claim on behalf of eKids also must be 

dismissed because 

.

Element

Requiring 

Dismissal

eKids’ 30(b)(6) Testimony

“

” (eKids Tr. 246:23-247:8.)

“

” (eKids Tr. 251:2-4.)

“

” (eKids Tr. 263:14-17.)

“

” (eKids Tr. 232:11-13.)

29. The Trust’s Claims on Behalf of Handi-Craft Must Be Dismissed

The Trust’s claims on behalf of Handi-Craft must be dismissed because 

.

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Element

Requiring 

Dismissal

Handi-Craft’s 30(b)(6) Testimony

“

.” (Handi-Craft Tr. 184:3-9 ( ).)

“

.” (Handi-Craft Tr. 181:8-17 ( ).)

30. The Trust’s Claims on Behalf of Learning Resources Must Be Dismissed

The Trust’s claims on behalf of Learning Resources must be dismissed because 

. The Trust also cannot 

prove c

.

Element

Requiring 

Dismissal

Learning Resources’ 30(b)(6) Testimony

“

.” (Learning Resources Tr. 36:3-14.)

“

.” (Learning Resources Tr. 212:9-19 (emphasis added).)

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31. The Trust’s Claims on Behalf of MerchSource Must Be Dismissed

The Trust’s claims on behalf of MerchSource must be dismissed because 

. 

Element

Requiring 

Dismissal

MerchSource’s 30(b)(6) Testimony

“

” (MerchSource Tr. 44:12-22.)

“

” (MerchSource Tr. 45:7-12.)

“

” (MerchSource Tr. 48:25-49:4.)

32. The Trust’s Claims on Behalf of Warner Brothers Must Be Dismissed

The Trust’s claims on behalf of Warner Brothers must be dismissed because 

.

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Element

Requiring 

Dismissal

Warner Brothers’ 30(b)(6) Testimony/Documentary Evidence

“

” (Warner Bros. Tr. 134:8-13.)

“

” (Warner Bros. Tr. 

137:4-23.)

“

” (Warner Bros. Tr. 139:12-21.)

“

.” (Warner Bros. 93:1-10.)

“

” (Warner Bros. Tr. 106:6-18.)

“

” (Warner Bros. Tr. 96:17-97:2.)

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“

.” (Warner Bros. Tr. 143:4-7.)

“

” (Warner Bros. Tr. 113:1-18.)

“

” (Warner Bros. Tr. 154:11-16.)

33. The Trust’s claims on Behalf of Artsana Must Be Dismissed

The Trust’s claims on behalf of Artsana must be dismissed because 

.

Element

Requiring 

Dismissal

Artsana’s 30(b)(6) Testimony

“

 (Tr. 186:21-187:1.)

“

.” (Artsana Tr. 189:7-15.)

“

” (Artsana Tr. 190-12:17.)

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“

” (Artsana Tr. 194:8-19.)

“

” (Artsana Tr. 195:19-196:12.)

34. The Trust’s Claims on Behalf of Delta Enterprise Must Be Dismissed

The Trust’s claims on behalf of Delta Enterprise must be dismissed because 

.

Element

Requiring 

Dismissal

Delta Enterprise’s 30(b)(6) Testimony

“

” (Delta Tr. 38:15-23.)

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“

” (Delta 

Tr. 40:16-42:13.)

35. The Trust’s Claims on Behalf of Kitex Must Be Dismissed

The Trust’s claims on behalf of Kitex must be dismissed because

. 

Principle 

Requiring 

Dismissal

Kitex’s Testimony

“

 

” (Kitex Tr. 63:23-64:66:17.)

“ 

” (Kitex Tr. 54:2-55:24.)

36. The Trust’s Claims on Behalf of Step2 and Adventure Playsets Must Be 

Dismissed

The claims on behalf of Step2 and its associated entity Adventure Playsets must be 

dismissed because 

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.

Element 

Requiring 

Dismissal 

Step2’s and Adventure Playset’s 30(b)(6) Testimony

“

” (Step2 Tr. 22:19-23:1.)

“

” (Step2 Tr. 25:18-26:5.)

“

” (Step2 Tr. 

29:4-16.)

“

” (Step2 Tr. 32:14-19.)

“

” (Step2 Tr. 

56:25-57:8.)

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“

.” (Step2 Tr. 124:23-125:2.)

37. The Trust’s Claims on Behalf of Bridge Direct Must Be Dismissed

The Trust’s claims on behalf of Bridge Direct (also referred to as Basic Fun) 

.

Principle 

Requiring 

Dismissal

Bridge Direct’s 30(b)(6) Testimony

“

” (Bridge Direct Tr. 113:18-114:1; id. 116:6-10.)

 (Bridge Direct Tr. 122:16-

123:21.)

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.” (Bridge Direct Tr. 126:4-7.)

“ 

.” (Bridge Direct Tr. 119:12-16.)

“

” (Bridge Direct Tr. 151:6-8.)

J. The Trust’s Stand-Alone Negligence Claim Cannot Survive Summary 

Judgment

To proceed on a negligence claim, the Trust must be able to show that a Defendant owed 

a duty of care to the plaintiff, the defendant breached that duty, and the breach proximately caused 

injury to the plaintiff. Triton Constr. Co. v. E. Shore Elec. Servs., Inc., 2009 Del. Ch. LEXIS 88, 

at *74 (Del. Ch. May 18, 2009). 

Under Delaware law, even where a company is insolvent, the company’s directors and 

officers do not owe any “special duties” to the creditors; rather, upon insolvency, creditors gain 

derivative standing to enforce “the fiduciary duties that directors owe to the corporation to 

maximize its value for the benefit of all residual claimants.” See Quadrant Structured Prods. Co. 

v. Vertin, 102 A.3d 155, 176 (Del. Ch. Ct. 2014) (citing Gheewalla, 930 A.2d at 101). As stated 

above, there is no duty to liquidate under U.S. bankruptcy law. See also In re Midway Games Inc., 

428 B.R. 303, 316 (Bankr. D. Del. 2010) (“The law is thus settled that directors do not have a duty 

to creditors of an insolvent corporation to abandon the effort to rehabilitate the corporation in favor 

of creditors’ interests.”). Therefore, even if TRU was insolvent, as a matter of law, Defendants 

did not owe a duty to the trade vendors apart from the duty the Defendants owed to the company, 

which the creditors, standing in the shoes of the company, can bring on the company’s behalf. 

Gheewalla, 930 A.2d at 103. Consequently, the Trust’s negligence claim must be dismissed 

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because it is brought as a direct claim on behalf of the individual creditors in their capacity as 

creditors, rather than on behalf of the company.

In addition, as explained above, pursuant to 8 Del. C. § 102(b)(7), corporations may 

eliminate personal liability of directors for breaches of their duty of care. See also Continuing 

Creditors’ Comm. Of Star Telecomms. Inc. v. Edgecomb, 385 F. Supp. 2d 449, 463 (stating that § 

102(b)(7) applies to prevent shareholder and creditors from bringing duty of care claims). TRU 

did so, and the vendors cannot assign their claims from the Trust to get around this prohibition. 

Accordingly, the negligence claim must be dismissed for this reason as well.

K. The Trust Cannot Prosecute the Claims of Trade Vendors That Received 

More Than They Lost During the Period of the Alleged Fraudulent Omissions

The Trust claims that the Defendants should have disclosed to the vendors in December 

2017 or January 2018 that TRU’s holiday results were “disastrous,” and that as a result, TRU was 

expected to default under the DIP financing. (Compl. ¶¶ 120, 124, 140.) The Trust contends that 

this failure to disclose constitutes fraud and that, had the trade vendors known this information, 

they would not have shipped to TRU, and would have been saved from incurring losses in the form 

of unpaid invoices. Based on the Trust’s questioning at various depositions, it appears that the 

Trust believes that as early as December 13, 2017, Defendants should have informed the trade 

vendor community that TRU was having a difficult holiday season and liquidity issues that would 

have led to the trade vendors ceasing shipping at that time. If so, the company would have needed 

to liquidate as of this date, and the trade vendors would not have received any of the payments 

they received from this date forward during the Chapter 11 proceeding. See, e.g.

(SOF Ex. 254) 214:12-216:14 ( ) (“

”).

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However, as the below table demonstrates, the undisputed evidence shows that nearly all 

of the trade vendors benefitted from TRU’s continuing to operate because they received payments 

from December 13, 2017 onward (including many invoices that were due in this timeframe on 

earlier shipments) that far exceeded the invoiced amounts of the goods they shipped after this time

(and while the analysis must be individualized for each vendor, the undisputed facts demonstrate 

that in the aggregate the vendors benefitted collectively by well over one hundred million 

dollars). As a result, the undisputed evidence demonstrates that the Trust cannot establish that the 

majority of trade vendors suffered damages as a result of the alleged fraud. This requires dismissal 

of these trade vendors’ claims as a matter of law. See Connaughton v. Chipotle Mexican Grill, 

Inc., 29 N.Y.3d 137, 142 (N.Y. 2017) (“Critically, a false representation does not, without more, 

give rise to a right of action, either at law or in equity, in favor of the person to whom it is 

addressed. To give rise, under any circumstances, to a cause of action, either in law or equity, 

reliance on the false representation must result in injury. If the fraud causes no loss, then the 

plaintiff has suffered no damages”). Moreover, this chart does not even account for the fact that a 

trade vendor’s tort damages are out-of-pocket losses, not the invoiced value of their goods under 

the governing law.11

Trade Vendor Amounts invoiced 

12/13/17 through 

wind down 

announcement

Amounts paid 

12/13/17 through 

wind down 

announcement

Net Benefit to Trade 

Vendor

 

11 See Connaughton, 29 N.Y.3d at 142 (“In New York, as in multiple other states, the true 

measure of damage is indemnity for the actual pecuniary loss sustained as the direct result of the 

wrong or what is known as the ‘out-of-pocket’ rule. Under that rule, damages are to be calculated 

to compensate plaintiffs for what they lost because of the fraud, not to compensate them for what 

they might have gained . . . . There can be no recovery of profits which would have been realized 

in the absence of fraud.”). 

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Trade Vendor Amounts invoiced 

12/13/17 through 

wind down 

announcement

Amounts paid 

12/13/17 through 

wind down 

announcement

Net Benefit to Trade 

Vendor

The Trust cannot pursue any tort claims for these vendors that benefitted from the ongoing 

operations of TRU that Defendants’ allegedly wrongfully enabled.

CONCLUSION

Summary judgment is favored as a mechanism to secure the just, speedy and inexpensive 

determination of a case when the requirements of Rule 56 are met. In re Vance, 298 B.R. 262, 265 

(Bankr. E.D. Va. 2003). This mechanism is appropriate here for the reasons discussed above. 

Defendants thus request that this Court grant summary judgment and dismiss the Trust’s claims.

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Dated: December 13, 2021

Richmond, Virginia

By: /s/ J. Brandon Sieg

Robert I. Bodian (admitted pro hac vice)

Scott A. Rader (admitted pro hac vice)

John P. Sefick (admitted pro hac vice)

Kaitlin R. Walsh (admitted pro hac vice)

Amanda B. Asaro (admitted pro hac vice)

Kerime S. Akoglu (admitted pro hac vice)

MINTZ LEVIN COHN FERRIS

 GLOVSKY and POPEO, P.C.

Chrysler Center

666 Third Avenue, 25th Floor

New York, New York 10017

(212) 935-3000

RIBodian@mintz.com

SARader@mintz.com

JPSefick@mintz.com

KRWalsh@mintz.com

ABAsaro@mintz.com

KSAkoglu@mintz.com

- and -

James C. Cosby, Esq. (VSB No. 25992) 

J. Brandon Sieg, Esq. (VSB No. 84446) 

O’HAGAN MEYER, PLLC

411 E. Franklin Street, Suite 500 

Richmond, Virginia 23219

Tel: (804) 403-7100 

Fax: (804) 403-7110 

jcosby@ohaganmeyer.com

bsieg@ohaganmeyer.com

Counsel for Defendants

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CERTIFICATE OF SERVICE

I hereby certify that on December 13, 2021, I caused a true and accurate copy of the 

foregoing to be electronically served by the Court’s CM/ECF System on all parties that receive 

CM/ECF notification in the above-captioned case.

DATED: December 13, 2021 By: /s/ J. Brandon Sieg

Counsel

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