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UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF VIRGINIA 

Richmond Division 

In re: Toys “R” Us., Inc., et al. Case No. 17-34665-KLP 

 Debtors. Chapter 11 

 Jointly Administered 

The TRU Creditor Litigation Trust 

 Plaintiff, 

v. Adv. Pro. No. 19-03087-KLP 

 

UPS Supply Chain Solutions Inc. 

 Defendant. 

MEMORANDUM OPINION AND ORDER 

Before the Court is the motion to dismiss (the “Motion to Dismiss”) filed by 

Defendant UPS Supply Chain Solutions, Inc. (the “Defendant”). Plaintiff TRU 

Creditor Litigation Trust (the “Trust”) filed the complaint initiating this adversary 

proceeding (the “Complaint”) against Defendant on September 16, 2019, seeking the 

avoidance of certain allegedly preferential transfers and the return of 

$12,186,529.05, plus costs and pre- and post-petition interest. 

The Court has jurisdiction over this adversary proceeding pursuant to 28 

U.S.C. §§ 157 and 1334 and the General Order of Reference from the United States 

District Court for the Eastern District of Virginia dated August 14, 1984. The 

preference cause of action is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F). 

Standard of review. Rule 8(a)(2) of the Federal Rules of Civil Procedure, 

Fed. R. Civ. P. 8(a)(2),1 provides that in order to state a claim for relief, a complaint 

must contain “a short and plain statement of the claim showing that the pleader is 

1 Made applicable herein by Rule 7008 of the Federal Rules of Bankruptcy Procedure, Fed. R. Bankr. 

P. 7008. 

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entitled to relief.” To survive a motion to dismiss for failure to state a claim, 

pursuant to Federal Rule of Civil Procedure 12(b)(6), Fed. R. Civ. P. 12(b)(6),2 a 

complaint must contain enough factual matter to state a claim to relief that is 

“plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citations omitted). 

In making this determination, a court must “accept as true all well-pled facts in the 

complaint and construe them in the light most favorable to [the plaintiff],” but 

“[a]. . . court is not bound to ‘accept as true a legal conclusion couched as a factual 

allegation.’” Garrett v. Cape Fox Facilities Servs., Civil Action No. 1:19-cv-579, 2020 

WL 265869, at *3 (E.D. Va. Jan. 17, 2020) (quoting Anand v. Ocwen Loan Servicing, 

LLC, 754 F.3d 195, 198 (4th Cir. 2014)). The rule in the Fourth Circuit is that 

generally, consideration of extrinsic evidence is not proper at the 12(b)(6) stage, but 

“a court may consider it in determining whether to dismiss the complaint [if] it was 

integral to and explicitly relied on in the complaint and [if] the plaintiffs do not 

challenge its authenticity.” Am. Chiropractic Ass’n v. Trigon Healthcare, Inc., 367 

F.3d 212, 234 (4th Cir. 2004). 

A review of the relevant history of the case. The Debtors3 filed their 

chapter 11 cases on September 19, 2017. In July 2018, certain parties in the cases 

2 Made applicable herein by Rule 7012 of the Federal Rules of Bankruptcy Procedure, Fed. R. Bankr. 

P. 7012. 

3 An order was entered on September 19, 2017, in accordance with Rule 1015(b) of the Federal Rules 

of Bankruptcy Procedure and Rule 1015-1 of the Local Bankruptcy Rules for the United States 

Bankruptcy Court for the Eastern District of Virginia directing joint administration for procedural 

purposes only of the chapter 11 cases of: Toys “R” Us, Inc., Case No. 17-34665; Geoffrey Holdings, 

LLC, Case No. 17-34660; Geoffrey International, LLC, Case No. 17-34666; Geoffrey, LLC, Case No. 

17-34667; Giraffe Holdings, LLC, Case No. 17-34661; Giraffe Junior Holdings, LLC, Case No. 17-

34662; MAP 2005 Real Estate, LLC, Case No. 17-34663; Toys “R” Us - Value, Inc., Case No. 17-

34664; Toys “R” Us (Canada) Ltd., Case No. 17-34668; Toys “R” Us - Delaware Inc., Case No. 17-

34669; Toys “R” Us Europe, LLC, Case No. 17-34670; Toys “R” Us Property Company II, LLC, Case 

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entered into a comprehensive settlement agreement (the “Settlement Agreement”). 

The Debtors’ motion seeking approval of the Settlement Agreement summarized the 

terms of the agreement as follows: 

Among other things, the Settlement Agreement resolves potential 

Claims and Causes of Action that could be asserted by the Creditors’ 

Committee (on behalf of the Debtors’ estates) or by other parties 

against the B-4 lenders. In exchange for this resolution, the Settlement 

Agreement provides significant benefits to creditors. First, it 

contemplates a significant cash payment for the benefit of 

Administrative Claim Holders—along with the potential for increased 

recoveries through preserved litigations and contingent sharing 

arrangements—facilitated by the Prepetition Secured Lenders’ consent 

to carve out significant value from their collateral and the 

superpriority administrative claims granted to such lenders as 

adequate protection. Second, it provides a waiver of all preference 

actions against prepetition unsecured creditors as well as postpetition 

creditors and vendors (other than any vendors who choose to opt-out). 

Third, the Settlement Agreement specifically preserves all potential 

claims and causes of action against the North American Debtors’ 

directors, officers, and managers (including Sponsor-appointed 

directors, officers, and managers), and transfers such claims, along 

with other avoidance actions, to a trust for the primary benefit of 

holders of Administrative Claims. Finally, the Settlement Agreement 

also provides certainty to the Prepetition Secured Lenders, and 

provides for mutual releases of claims among creditor constituencies in 

addition to the estate releases of Claims and Causes of Action against 

creditors. 

ECF Dkt. 3814, Motion ¶ 3. In short, in the Settlement Agreement, the Debtors 

granted releases of the estates’ potential litigation claims against certain lenders. 

Those released claims might have provided some recovery to certain creditors. In 

order to compensate those creditors for consenting to the Debtors’ releases of the 

No. 17-34671; Toys Acquisition, LLC, Case No. 17-34672; TRU Asia, LLC, Case No. 17-34673; TRU 

Guam, LLC, Case No. 17-34674; TRU Mobility, LLC, Case No. 17-34675; TRU of Puerto Rico, Inc., 

Case No. 17-34676; TRU Taj (Europe) Holdings, LLC, Case No. 17-34677; TRU Taj Finance, Inc., 

Case No. 17-34678; TRU Taj Holdings 1, LLC, Case No. 17-34679; TRU Taj Holdings 2 Limited, Case 

No. 17-34680; TRU Taj Holdings 3, LLC, Case No. 17-34681; TRU Taj LLC, Case No. 17-34682; 

TRU-SVC, Inc., Case No. 17-34659; Wayne Real Estate Parent Company, LLC, Case No. 17-34683. 

The docket in Case No. 17-34665 should be consulted for all matters affecting these cases. 

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potential litigation claims, the Debtors agreed to release any potential avoidance 

claims against those creditors. The Debtors sought court approval of the Settlement 

Agreement pursuant to Bankruptcy Rule 9019 (ECF 3814), and the order approving 

the Settlement Agreement was entered on August 8, 2018 (ECF 4083). 

The Settlement Agreement contained the following language: 

Section 3.4(b) Debtor Release. For good and valuable consideration, on and after the date 

of the entry of the Settlement Order, the Debtors and their estates hereby release and

discharge the following Claims and Causes of Action whether known or

unknown:

...

(5) any and all Claims and Causes of Action arising under (a) chapter 5 of the

Bankruptcy Code (including, for the avoidance of doubt, claims arising

under section 502(d) of the Bankruptcy Code), or (b) any state-law

equivalents of chapter 5 of the Bankruptcy Code, including state

fraudulent conveyance laws and/or state preference laws, against any noninsider

pre- or postpetition creditors, whether or not they are eligible to

participate in the Administrative Claims Distribution Pool (including,

without limitation, vendors, suppliers, landlords, employees, and other

creditors, each in their capacity as such) other than any Administrative

Claim Holders that affirmatively opt-out of participation in the

Administrative Claims Distribution Pool.

ECF 3814, Settlement Agreement § 3.4(b). The Debtors’ chapter 11 plan (the 

“Plan”) (ECF 5602), confirmed by order entered November 21, 2018 (the 

“Confirmation Order”) (ECF 5746), incorporates the terms of the Settlement 

Agreement. The Confirmation Order required, as a condition precedent to the 

effectiveness of the Plan, that Debtors file a Non-Released Claims Trust Agreement 

as soon as reasonably practicable after the entry of the Confirmation Order, as 

required by the terms of the Settlement Agreement. (Confirmation Order, page 8). 

The Non-Released Claims Trust Agreement (the “Trust Agreement”) was 

filed with the Court on April 30, 2019. (ECF 6925). Article II of that Trust 

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Agreement created the TRU Creditor Litigation Trust (the “Trust”), the plaintiff in 

this action, for the purpose of liquidating and distributing the Non-Released Claims 

Trust Assets. Trust Agreement § 2.2(a). The Trust Agreement defines “NonReleased Claims” as: 

(i) any Claims or Causes of Action held by the Toys Delaware Debtors, 

Toys Inc., or their respective estates or creditors against any D&O 

Party, and (ii) any Avoidance Actions held by, as applicable, Toys 

Delaware or Toys Inc. or their respective estates that are not released 

pursuant to the Settlement Agreement or Global Settlement 

Agreement, including any Avoidance Actions against noninsiders not 

otherwise released pursuant to the Plans or the Propco I Plan. For the 

avoidance of doubt, Non-Released Claims shall include all D&O 

Claims. 

Trust Agreement, § 1.2(dd). 

In addition to the Confirmation Order’s requirement that the Non-Released 

Claims Trust Agreement be filed, the Plan itself provides that “[o]n and after the 

Effective Date, the Debtors waive, release and discharge any and all Avoidance 

Actions against all Released Parties, and each Avoidance Action Released 

Party . . . .” (Plan, Art. VIII(D)). The Plan’s definition of “Released Parties” includes 

“all Holders of Administrative Claims who do not affirmatively opt-out of the 

Settlement Agreement.” (Plan, Art. I.A 154(j)). The Plan defines “Avoidance Action 

Released Party” in part as “any non-insider holder of a prepetition or postpetition 

Claim against the Debtors (other than holders of Administrative Settlement Claims 

that opt-out of the Settlement), regardless of whether such holder is entitled to 

participate in the Administrative Claims Distribution Pool...” (Plan, Art. I.A.28(a)). 

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After its creation, the Trust began to pursue various claims on behalf of its 

constituency, the first of which, including this adversary proceeding, were filed on 

September 16, 2019. The Complaint in this adversary proceeding seeks the 

recovery of $12,186,529.05, plus costs and pre- and postpetition interest pursuant to 

§§ 547, 549, and 550 of the Bankruptcy Code. The Defendant then filed the Motion 

to Dismiss, asserting that the Defendant is a “Released Party” as that term is 

defined in the Settlement Agreement and arguing that any Chapter 5 claims 

against it were released by the Settlement Agreement. 

Positions of the Parties. The Defendant does not argue that the Trust, in the 

Complaint, has failed to plead the elements of a preference pursuant to § 547 of the 

Bankruptcy Code. Rather, the Defendant asserts that any Chapter 5 claims against 

it were released by the terms of the Settlement Agreement. 

The Trust urges that the question of whether the Defendant was a Released 

Party constitutes an affirmative defense that is not proper to address in a motion to 

dismiss. The Trust points to the decision of this Court in Arrowsmith v. Mallory (In 

re Health Diagnostic Lab, Inc.), Adv. Pro. No. 16-03271, 2017 Bankr. LEXIS 2230 

(Bankr. E.D. Va. Aug. 9, 2017), as support for its position. As part of its argument, 

the Trust also asserts that the Motion to Dismiss relies on facts that are not 

properly before the Court. The Trust further argues that the Defendant was not a 

Released Party within the scope of the Settlement Agreement and Plan because it 

did not hold a claim either at the effective date of the Settlement Agreement or the 

effective date of the Plan. 

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Analysis. The Court is guided in this matter by the recent decision of Judge 

Ellis in Garrett v. Cape Fox Facilities Servs., Civil Action No. 1:19-cv-579, 2020 WL 

265869 (E.D. Va. Jan. 17, 2020). In that case, the defendants moved to dismiss the 

complaint against then, contending that the plaintiff had signed a release of the 

claims she was asserting against them. In addressing the motion to dismiss, Judge 

Ellis instructed that a motion to dismiss based upon an affirmative defense may 

succeed only when the affirmative defense appears clearly on the face of the 

complaint: 

Ordinarily, however, an affirmative defense such as the execution of a 

release is not appropriately considered on a motion to dismiss. See 

Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007). The 

Fourth Circuit has held that, only “in the relatively rare circumstances 

where facts sufficient to rule on an affirmative defense are alleged in 

the complaint, the defense may be reached by a motion to dismiss filed 

under Rule 12(b)(6).” Id. Importantly, the Fourth Circuit has limited 

this exception to instances where all facts necessary to the affirmative 

defense “clearly appear [ ] on the face of the complaint.” Richmond, 

Fredericksburg & Potomac R.R. v. Forst, 4 F.3d 244, 250 (4th Cir. 

1993) (emphasis added). 

2020 WL 265869, at *3. Judge Ellis further noted that the validity of a release 

relied upon as an affirmative defense may be put into question, since a release itself 

may be subject to defenses, including “mutual mistake, fraud, misrepresentation or 

duress and [whether the release was] knowing and voluntary.” Id. He further cited 

Fourth Circuit precedent that “to fall within the limited exception of addressing an 

affirmative defense on a motion to dismiss, the movant cannot merely show that the 

elements of the defense appear on the face of the complaint but must also ‘show that 

plaintiff’s potential rejoinder to the affirmative defense was foreclosed by the 

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allegations in the complaint.’” Id. (quoting Goodman v. Praxair, Inc., 494 F.2d 458, 

466 (4th Cir. 2007). Because the affirmative defense of release did not appear on 

the face of the complaint, Judge Ellis denied the motion to dismiss without 

prejudice to its assertion at the appropriate time. 

 Judge Huennekens of this Court also followed this approach in Arrowsmith v. 

Mallory (In re Health Diagnostic Lab., Inc.), stating that “[t]he Court can entertain 

an affirmative defense in the context of a motion to dismiss only if the defense 

clearly appears upon the face of the Complaint.” 2017 Bankr. LEXIS 2230, at *33. 

He found that none of the asserted affirmative defenses at issue had been pled on 

the face of the complaint and therefore denied several motions to dismiss. 

The facts in this case are similar to those presented in Garrett v. Cape Fox. 

Here, as in that case, the existence of a release was not clearly pled in the 

Complaint. The Court recognizes that the Complaint refers to the Non-Released 

Claims Trust Agreement, but only to establish the identity of the Plaintiff. Nothing 

in the Complaint “show[s] that plaintiff’s potential rejoinder to the affirmative 

defense was foreclosed by the allegations in the complaint,” as required by Garrett 

v. Cape Fox. The Complaint in this case concerned itself only with establishing the 

claim of the Trust to the return of an allegedly preferential transfer. The 

applicability of the Release has been put into question by the Defendant, and in the 

pleadings, the parties have spent much time arguing over whether the terms of the 

Settlement Agreement and Plan and the surrounding facts functioned to release the 

Defendant. 

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“The purpose of a Rule 12(b)(6) motion is to test the sufficiency of the 

complaint.” Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). A 

motion to dismiss is not a vehicle that a party may employ to require the Court to 

determine every possible issue at the outset of the case. Whether the execution of 

the Settlement Agreement and the Plan released the Defendant from any Chapter 5 

claims is not ripe for resolution at this early stage. As may be seen in the pleadings, 

there remain questions of fact and law that cannot be resolved by the Court on the 

record before it. Therefore, the Motion to Dismiss is DENIED without prejudice to 

the right of the Defendant to raise the defense of release at the appropriate time 

later in these proceedings. 

Signed: May 22, 2020 

 /s/ Keith L. Phillips 

Copies: 

Joshua David Stiff 

Adam M Carroll. 

Wolcott Rivers Gates 

200 Bendix Road 

Suite 300 

Virginia Beach, VA 23452 

Henry J. Jaffe 

Kenneth A. Listwak 

PEPPER HAMILTON LLP 

1313 N. Market Street, Suite 5100 

Wilmington, Delaware 19899-1709 

Amber D. Shubin 

Natalie Fleming Nolan

MORRISON & FOERSTER LLP 

1650 Tysons Blvd., Suite 400 

McLean, VA 22102 

Entered on Docket: May 26 2020

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Jennifer L. Marines 

Erica J. Richards 

MORRISON & FOERSTER LLP 

250 West 55th Street 

New York, New York 10019 

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