1 

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF VIRGINIA 

Richmond Division 

In re Toys “R” Us, Inc., et al.1 Case No. 17-34665-KLP 

 Debtors. Chapter 11 

 Jointly Administered 

TRU Creditor Litigation Trust, 

 Plaintiff, 

v. Adv. Pro. No. 20-03038-KLP 

David A. Brandon, Paul E. Raether, 

Nathaniel H. Taylor, Joseph Macnow, 

Wendy A. Silverstein, Richard Goodman, 

Michael Short, Richard Barry, David A. Brandon, 

Joshua Bekenstein, and Matthew S. Levin, 

 Defendants. 

MEMORANDUM OPINION 

(Amended to correct technical error) 

Before the Court is the Defendants’ Motion for Summary Judgment2 (the “Motion”). 

Plaintiff, TRU Creditor Litigation Trust (the “Trust”), commenced this suit against 

Defendants, former directors and officers of Toys “R” Us, alleging various breaches of 

fiduciary duty, fraudulent misrepresentation and concealment, negligent misrepresentation 

and concealment, and negligence. In the Motion, the Defendants contend that the suit is 

barred by the law of the case, estoppel principles, contractual mandates, and insufficient 

1 The Debtors in these cases, along with the last four digits of each Debtor’s tax identification number, are set 

forth in the Order (I) Directing Joint Administration of Chapter 11 Cases and (II) Granting Related Relief. ECF 

78. All references to “ECF” are to docket entries in the lead case unless otherwise noted. References to the docket 

in this adversary proceeding are prefaced by “AP ECF.” 

2At the inception of this adversary proceeding, the Defendants filed a motion to dismiss the complaint. AP ECF 2. 

The Court deferred ruling on that motion, stating that it would consider the motion to be a motion for summary 

judgment that would be considered at the appropriate time. After the initial motion for dismissal was filed, the 

Trust amended the Complaint, and thereafter the Defendants filed the instant Motion, which the Court considers 

to be an expanded restatement of the original motion to dismiss. Thus, because this Memorandum Opinion 

resolves issues raised in the motion to dismiss as well and because the original Complaint was amended twice 

after the motion to dismiss was filed, the Court finds the motion to dismiss to be moot. See Pettaway v. Nat’l 

Recovery Sys., 955 F.3d 299, 303-04 (2d. Cir. 2020). 

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evidence. In response, the Trust asserts that the Defendants are not entitled to summary 

judgment because they have failed to apply the appropriate standard of review, 

failed to apply the correct legal principles, failed to properly address the Trust’s theories of 

recovery, and failed to acknowledge the Trust’s evidence. 

After considering the applicable statutory and procedural authority, the case law, the 

pleadings, and the arguments of counsel, the Court has determined that the Motion should 

be granted in part and denied in part. This Memorandum Opinion sets forth the Court's 

findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of 

Bankruptcy Procedure.3

Background 

 On September 18 and 19, 2017, Toys “R” Us, Inc. and twenty-four affiliated entities 

(collectively, “TRU” or “the Debtors”) filed voluntary Chapter 11 petitions for relief in the 

United States Bankruptcy Court for the Eastern District of Virginia (the “Court” or 

“Bankruptcy Court”). The cases were jointly administered pursuant to Bankruptcy Rule 

1015(b), Fed. R. Bankr. P. 1015(b), the lead case being In re: Toys R Us, Inc., et al., Case No. 

17-34665-KLP.4 At the time of the bankruptcy filing, the Debtors and other related nonfiling entities conducted the business of selling toys, childcare items, and related products on 

a global basis. 

 On March 22, 2018, the Court entered an Order authorizing TRU to wind down U.S. 

operations, authorizing U.S. store closings, establishing administrative claims procedures, 

and granting related relief.5 On July 17, 2018, in connection with its wind-down, TRU filed 

with the Court a settlement agreement (the “Settlement Agreement”) by and among 

3 Findings of fact shall be construed as conclusions of law and conclusions of law shall be construed as findings of 

fact when appropriate. See Fed. R. Bankr. P. 7052. See also infra note 16. 4 ECF 78. 

5 ECF 2344. 

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multiple parties. The Settlement Agreement resolved numerous issues relating to the 

liquidation of TRU’s U.S. businesses.6 The parties to the Settlement Agreement agreed to 

release all claims against each other. Further, the Settlement Agreement provided that a 

Non-Released Claims Trust (the “Trust”) would be established for the purpose of 

administering all remaining non-released claims, including claims held by TRU and its 

creditors against TRU’s directors and officers. The Court entered an order approving the 

Settlement Agreement on August 8, 2018.7

On December 17, 2018, the Bankruptcy Court confirmed the Third Amended Chapter 

11 Plan of TRU (the “Plan”).8 On April 30, 2019, the Debtors filed the Non-Released Claims 

Trust Agreement.9 Section 2.3(a) of that agreement provides in part that: 

The TRU Creditor Litigation Trust shall be the successor-in-interest to the 

Debtors with respect to any Non-Released Claims that were or could have been 

commenced or asserted by, or on behalf of, any of the Debtors or their estates 

prior to the applicable Effective Date, shall be deemed substituted for each such 

Debtor as the party in any such litigation and shall have the right to proceed in 

the name, right and stead of the Debtors with respect to all such Non-Released 

Claims. 

In furtherance of its duty to pursue the non-released claims, the Trust initiated this 

litigation against the Defendants. It originally filed its complaint (the “Complaint”) in the 

Supreme Court of the State of New York, County of New York.10 The case was subsequently 

removed to the U.S. District Court for the Southern District of New York and then 

transferred, upon Defendants’ motion, to the District Court for the Eastern District of 

6 ECF 3814. 

7 ECF 4083. 

8 The Court entered two confirmation orders, one for the so-called Toys Delaware and Geoffrey Debtors and one 

for the so-called Taj and TRU, Inc. Debtors. An order entered on November 21, 2018 [Docket No. 5746] confirmed 

the Fourth Amended Chapter 11 Plan of the Toys Delaware and Geoffrey Debtors and an order entered on 

December 17, 2018 [Docket No. 5979] confirmed the Third Amended Chapter 11 Plan of the Taj and TRU, Inc. 

Debtors. 

9 ECF 6925. 

10 See AP ECF 10. 

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Virginia (the “District Court”). The District Court then referred the case to this Court by 

Order dated May 5, 2020.11

The Complaint, as amended on April 30, 2021,12 asserts breach of fiduciary duty 

claims on behalf of TRU and direct claims on behalf of TRU’s trade vendors against 

Defendants. Specifically, the Trust alleges that Defendants breached their fiduciary duties 

to TRU by (i) taking on DIP financing at the start of the Bankruptcy Proceeding (Complaint 

¶¶ 169-201, 226-232); (ii) authorizing pre-petition retention payments to 114 company 

executives before the commencement of the Bankruptcy Proceeding (Id. ¶¶ 56-89, 213-217); 

and (iii) authorizing the payment of advisory fees to TRU’s private equity shareholders from 

the fourth quarter of 2014 through the first quarter of 2017. (Id. ¶¶ 45-55, 207-225).13 These 

claims (the “Fiduciary Breach Claims”) comprise Counts 1-4 of the Complaint. 

The Trust further alleges that to induce trade vendors to ship goods and provide 

services to TRU on credit after the commencement of the bankruptcy cases, the Defendants 

misrepresented facts concerning TRU’s ability to make payments for those goods and 

services. The Trust alleges that because of these misrepresentations, goods and services 

ordered by TRU on credit from trade vendors were delivered to TRU but were not paid for 

during the period from December 2017 through March 14, 2018. The Trust claims that the 

total amount due to vendors for those goods exceeds $600 million (Id. ¶¶ 90-135). It also 

alleges that TRU continued its misrepresentations to trade vendors, both fraudulently and 

negligently concealing and omitting material facts concerning TRU’s ability to pay for goods 

and services ordered on credit, upon which misrepresentations the trade vendors reasonably 

relied. (Id. ¶¶ 136-168, 233-265). These claims are referred to as the “Vendor Claims.” 

11 Case No. 3:20-cv-00311-DJN, ECF 15. See also AP ECF 1. 12 AP ECF 146. 

13 Id. 

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On December 13, 2021, the Defendants filed the Motion,13 to which the Trust filed a 

lengthy opposition. The matter has been extensively briefed and oral arguments were held 

on February 23, 2022. 

Jurisdiction 

The Court has subject matter jurisdiction over this Adversary Proceeding pursuant 

to 28 U.S.C. §§ 157(a) and 1334 and the General Order of Reference from the United States 

District Court for the Eastern District of Virginia dated August 15, 1984. The District Court 

has determined that none of the counts set forth in the Complaint constitute core 

proceedings under 28 U.S.C. § 157(b)(2) and that the Trust is entitled to a jury trial on all 

counts; however, the District Court has not withdrawn the reference pursuant to 28 U.S.C. 

§ 157(d), pending the parties’ decision on whether to jointly consent to having the trial 

conducted by the Bankruptcy Court.14,15 Venue is appropriate in this Court pursuant to 28 

U.S.C. § 1408. 

Standard of Review 

Rule 56 of the Federal Rules of Civil Procedure, Fed. R. Civ. P. 56, made applicable 

by Rule 7056 of the Federal Rules of Bankruptcy Procedure, Fed. R. Bankr. P. 7056, governs 

summary judgment in an adversary proceeding. Summary judgment is proper under Rule 

56(c), “if the pleadings, depositions, answers to interrogatories, and admissions on file, 

together with the affidavits, if any, show that there is no genuine issue as to any material 

fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. 

13AP ECF 315. 

14 The District Court has scheduled a status conference on July 8, 2022, at which “the Court will discuss the 

parties' positions on whether they each consent to Bankruptcy Court jurisdiction for the trial of any claims that 

survive summary judgment or if a party instead will move to withdraw the reference to the Bankruptcy Court.” 

Case No. 3:20-cv-00311-DJN, ECF 63. 

15 Should the reference be withdrawn before entry of this Memorandum Opinion and accompanying Order, or 

should it otherwise be determined that this Court does not have the authority to issue a final order in this 

proceeding, this Memorandum Opinion shall constitute proposed findings of fact and conclusions of law pursuant 

to 28 U.S.C. §157(c)(1). 

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Catrett, 477 U.S. 317, 322 (1986). A moving party, in this case the Defendants, has the 

burden of showing that there is no genuine issue of material fact. Anderson v. Liberty Lobby, 

Inc., 477 U.S. 242, 256 (1986). In addition, “reasonable inferences should be drawn in favor 

of the nonmoving party” and the “court must view the evidence in the light most favorable to 

the opposing party.” Tolan v. Cotton, 572 U.S. 650, 657, 660 (2014) (quotations omitted). 

Analysis 

I. Fiduciary Duty Claim Relating to DIP Financing (against Defendants 

Brandon, Short, Bekenstein, Levin, Raether, Taylor, Macnow and Silverstein) 

 Defendants maintain that the Court’s final order approving the DIP financing and 

finding that the financing was an exercise of the Debtor’s prudent business judgment 

consistent with their fiduciary duties is the binding law in this case. On October 24, 2017, 

over a month after conducting first day hearings and approving DIP financing on an interim 

basis, the Court held a final hearing on the Debtors’ motion for authorization to obtain 

postpetition financing. No party opposed the proposed financing or its terms, and it was 

approved by the Court on a final basis. The Court subsequently entered an order (the “Final 

DIP Order”) authorizing the Debtors to access the financing on the terms set forth therein.16

 The Final DIP Order concluded that the financing was “necessary and vital to the 

preservation and maintenance of the going concern values of the DIP Loan Parties and to a 

successful reorganization . . . .”17 The Final DIP Order also found that the terms of the 

financing were “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.”18

16 ECF 711. 

17 ECF 711 ¶5(b). 

18 ECF 711 ¶5(d). 

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The Defendants emphasize that the Final DIP Order specifically provides that it 

“shall be binding upon all parties in interest in these Chapter 11 Cases, including . . . 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.”19 According to the Defendants, the Trust, as the 

successor in interest to the Debtors in connection with the claims asserted in the Complaint, 

is included and, therefore, bound by this language. The Final DIP Order was not challenged 

or appealed. 

In support of their position, Defendants cite the case of LNV Corp. v. Ad Hoc Group of 

Second Lien Creditors (In re La Paloma Generating Co.), No.16-12700 (JTD), 2020 WL 

224569 (Bankr. D. Del. Jan. 13, 2020), for the proposition that the law of the case doctrine 

bars the relitigation of matters already decided. In La Paloma, the court stated that the 

“doctrine applies to factual findings made in a main bankruptcy proceeding and is binding 

on parties to a subsequent adversary proceeding.” Id. at *3. Defendants argue that the 

Court’s factual finding that they, on behalf of the Debtors, exercised prudent business 

judgment consistent with their fiduciary duties has been decided and can no longer be 

challenged. 

 In addition, the Defendants assert that the Trust should be estopped from arguing 

that the DIP financing was improper after its nominal predecessor, the Official Committee 

of Unsecured Creditors (the “UCC”), previously argued in favor of granting its approval. IN 

support, among other cases, the Defendants cite Ryan, Inc. v. Circuit City Stores, Inc., Civil 

Action No. 3:10CV496–HEH, 2010 WL 4735821, at *5 (E.D. Va. Nov. 15, 2010) (quoting with 

approval Wheeling-Pittsburgh Steel Corp. v. West Penn Power Co. (In re Wheeling-Pittsburgh 

Steel Corp.), 72 B.R. 845, 850 (Bankr. W.D. Pa. 1987) (“It cannot be supposed that the 

19 ECF 711 ¶27. 

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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.”). 

 In response to the Defendants’ contentions, the Trust asserts that the Final DIP 

Order was interlocutory in nature rather than an appealable final order. The Trust argues 

that the Court’s plan confirmation orders (the “Confirmation Orders”) and the language 

establishing the duties and authority of the Trust take precedence over, or supersede, the 

Final DIP Orders.20 And, the Trust points out, the Confirmation Orders expressly preserve 

the claims assigned to the Trust that it is now asserting against the Defendants.21

 The Trust also argues that the law of the case doctrine does not apply because certain 

material facts were not before the Court when it approved the DIP financing. In particular, 

the Trust alleges that the declarations of Defendants Brandon and Short that were provided 

in support of the financing motion, as well as the pleadings and arguments relying on those 

declarations, were false and misleading, and omitted important facts. The Trust cites Smith 

v. North Carolina, 528 F.2d 807, 810 (4th Cir. 1975), for the proposition that the existence of 

this new evidence is sufficient to defeat the operation of the law of the case doctrine. 

 Finally, the Trust parses the language of the orders approving the DIP financing, 

claiming that they did not address whether greater value would be preserved by an 

immediate wind-down but only that the “DIP Loan Parties” exercised prudent business 

judgment. The Trust maintains that because the Court received no evidence regarding the 

actions that the specific directors took prior to approving the DIP financing, the Court did 

not actually rule on whether the Defendants complied with their fiduciary duties. 

20 See note 8, supra. 21 In both Confirmation Orders, the Court expressly ordered that all claims against the Defendants were 

preserved, that the Trust had the authority to prosecute those claims without further order from the Court, and 

that no doctrine of preclusion applied to the claims. 

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 Responding to the Defendants’ estoppel defense, the Trust asserts that it is not bound 

by the positions taken by the UCC (or Mattel, a vendor who assigned its claim to the Trust 

whom the Defendants also argue is estopped due to its prior stance) because it is not the 

UCC’s (or Mattel’s) successor but rather is the successor to the Toys “R” Us corporations. 

According to the Trust, because those entities, the Toys Delaware and Geoffrey Debtors and 

the Taj and TRU, Inc. Debtors, would not be estopped from asserting claims against the 

Defendants for breaching their fiduciary duties to the debtor corporations, neither would the 

Trust. 

 In the first step of its analysis, the Court must determine whether the Final DIP 

Order was an interlocutory rather than an appealable final order. On this point, it is 

undisputed that the Final DIP Order was not appealed, nor was leave to appeal sought, 

within the allowable 14-day appeal period after October 24, 2017, its date of entry.22

 Courts in our jurisdiction, and elsewhere, recognize that “[i]n the bankruptcy context, 

the concept of finality ‘has traditionally been applied in a more pragmatic and less technical 

way . . . than in other situations.’” First Owners’ Ass’n of Forty Six Hundred v. Gordon Props, 

LLC, 470 B.R. 364, 369 (E.D. Va. 2012), (quoting A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 

994, 1009 (4th Cir.1986).23 This is because bankruptcy cases typically consist of various 

contested matters, motions, applications, adversary proceedings and other sub-issues that 

must be disposed of by court order during the pendency of, and after, the underlying lead 

22 Rule 8002(a)(1) of the Federal Rules of Bankruptcy Procedure, Fed. R. Bankr. P. 8002(a)(1), provides that “a 

notice of appeal must be filed with the bankruptcy clerk within 14 days after entry of the judgment, order, or 

decree being appealed.” If an appeal is not filed in a timely fashion, “the ability to appeal is lost, and the order, 

judgment, or decree becomes final.” 10 Collier on Bankruptcy ¶8002.01 (16th ed.). 

23 As the Fourth Circuit stated in Robins, “[t]he special or unique reason for this relaxed rule of appealability in 

bankruptcy is that ‘[b]ankruptcy cases frequently involve protracted proceedings with many parties 

participating. To avoid the waste of time and resources that might result from reviewing discrete portions of the 

action only after a plan of reorganization is approved, courts have permitted appellate review of orders that in 

other contexts might be considered interlocutory.” A.H. Robins Co., Inc. v. Piccinin, 788 F.2d 994, 1009 (quoting

In Re Amatex, 755 F.2d 1034, 1039 (3d Cir. 1985)). 

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bankruptcy cases. To address the need for finality of certain issues in the context of the 

larger case that may remain pending for months if not years, courts, including the Fourth 

Circuit Court of Appeals, have held that orders in a bankruptcy case “may be immediately 

appealed if they finally dispose of discrete disputes within the larger case.” See Gold v. 

Guberman (In re Computer Learning Centers, Inc.), 407 F.3d 656, 660 (4th Cir.2005) 

(quoting In re Saco Local Dev. Corp., 711 F.2d 441, 444 (1st Cir.1983)). 

Section 364(e) of the Bankruptcy Code provides that a reversal on timely appeal of an 

order authorizing the extension of postpetition credit to a debtor in possession “does not 

affect the validity of any debt so incurred, or any priority or lien so granted, to an entity that 

extended such credit in good faith, whether or not such entity knew of the pendency of the 

appeal, unless such authorization and the incurring of such debt, or the granting of such 

priority or lien, were stayed pending appeal.” 11 U.S.C. § 364(e). Congress, when it enacted 

§ 364(e), recognized that parties, in particular those extending postpetition credit to debtors 

in bankruptcy, should be entitled to rely on the approval of the bankruptcy court when 

disbursing loan proceeds to a debtor in bankruptcy. Since this provision protects a lender 

who relies upon the bankruptcy court’s order when extending credit before the order becomes 

final (and even while an appeal is pending), it is difficult to envision that finality would not 

be afforded after the 14-day appeal period has run. Moreover, § 364(e) suggests that the 

immediate, timely appeal of an order authorizing debtor-in-possession financing is necessary 

to avoid its finality, since the provision would be unnecessary if Congress had intended that 

finality does not occur until a confirmation order is entered. Instead, the language of the 

statute contemplates that an appeal would stem from the “authorization under [§ 364] to 

obtain credit or incur debt,” in this case the Final DIP Order, rather than a subsequent 

confirmation order that may be entered months or years later, if at all. 

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The Trust’s position, that the Final DIP Order was interlocutory and only became 

final upon entry of the Confirmation Orders, disregards the intent of Congress and Fourth 

Circuit precedent that together compel the conclusion that a bankruptcy court order 

approving postpetition debtor-in-possession financing on a permanent basis should be 

considered final and subject to immediate appeal.24 The Final DIP Order finally disposed of 

a discrete issue by authorizing and establishing the terms of the Debtors’ postpetition 

debtor-in-possession financing. Nothing in the Final DIP Order indicates that it was 

intended to be anything other than the granting of final approval of the DIP financing or 

that its finality was contingent on entry of a confirmation order. Accordingly, the Court finds 

that the Final DIP Order was a final and not an interlocutory order. Having not been timely 

challenged or appealed, it remains final.25

In the Final DIP Order, the Court found as a matter of fact that the DIP Financing 

was an exercise of the Debtors’ “prudent business judgment consistent with [their] fiduciary 

duties.” The Court also ordered that its provisions “shall be binding upon all parties in 

interest in these Chapter 11 Cases, including, without limitation . . . the Debtors and their 

respective successors or assigns . . . 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.” Defendants assert these findings are “the law of the case” that neither have been 

nor could be altered by subsequent orders. The Trust counters that the law of the case 

24 Final approval of the DIP financing did not occur until the Court entered the Final DIP Order. ECF 711. The 

order approving interim DIP financing in connection with first day hearings was intended to be temporary in 

order to provide parties with an opportunity to educate themselves, whether through discovery or otherwise, on 

the terms, conditions, and feasibility of the proposed financing. 

25 The Trust’s reliance on Bullard v. Blue Hills Bank, 575 U.S. 496, 502 (2015), is misplaced. Bullard dealt 

exclusively with chapter 13 plan confirmation, did not address debtor-in-possession financing, and has no bearing 

on this case other than to affirm that “orders in bankruptcy cases [are] immediately appealable ‘if they finally 

dispose of discrete disputes within the larger case.’” 575 U. S. at 501 (quoting Howard Delivery Service, Inc. v. 

Zurich American Ins. Co., 547 U.S. 651, 657, n.3 (2006)). In this case, the Final DIP Order “altered the status quo 

and fixed the rights and obligations of the parties” Bullard, 575 U.S. at 502. Among other provisions, the Final 

DIP Order permitted secured parties’ liens to be primed to enable the Debtors to obtain postpetition financing on 

a superpriority basis. 

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doctrine doesn’t apply because the Defendants misrepresented the facts and omitted 

important evidence in connection with the Court’s approval of the financing. 

The District Court recently, and extensively, discussed the law of the case doctrine: 

Under the law of the case doctrine, “when a court decides upon a rule of law, 

that decision should continue to govern the same issues in subsequent states in 

the same case.” TFWS, Inc. v. Franchot, 572 F.3d 186, 191 (4th Cir. 

2009); Sejman v. Warner-Lambert Co., 845 F.2d 66, 68 (4th Cir. 

1988) (“Accordingly, when a decision of an appellate court establishes ‘the law 

of the case,’ it must be followed in all subsequent proceedings in the same case 

in the trial court or on a later appeal ....”). Unlike res judicata or stare 

decisis involving issues of preclusion following a final judgment, the law of the 

case doctrine “regulates judicial affairs prior to the entry of final 

judgment.” Hill v. Pitt & Greene Elec. Membership Corp., 161 F.3d 2, 1998 WL 

482784, at *1 (4th Cir. 1998) (Table). In short, previous legal rulings apply in 

subsequent proceedings. U.S. ex rel. Oberg v. Pennsylvania Higher Educ. 

Assistance Agency, 804 F.3d 646, 665-66 (4th Cir. 2015). The doctrine “applies 

both to questions actually decided as well as to those decided by necessary 

implication.” Sejman, 845 F.2d at 69 (internal quotations omitted); see 

also CSX Transportation, Inc. v. S.C. Dep't of Revenue, 959 F.3d 622, 629 (4th 

Cir. 2020) (summarily rejecting an argument raised by the appellee, because 

the appellate court had answered the same question in previous appeal). 

This prudential doctrine exists, because “[c]learly, courts could not perform 

their duties satisfactorily and efficiently if a question once considered and 

decided were to be litigated anew in the same case upon any and every 

subsequent appeal.” Sejman, 845 F.2d at 68-69 (quoting Great Western Tel. Co. 

v. Burnham, 162 U.S. 339, 344, 16 S.Ct. 850, 40 L.Ed. 991 (1896)). Moreover, 

“[p]erpetual litigation of any issue — jurisdiction or nonjurisdictional — delays, 

and therefore threatens to deny, justice.” Christianson v. Colt Indus. Operating 

Corp., 486 U.S. 800, 816 n.5, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988). 

Mar-Bow Value Partners, LLC v. McKinsey Recovery & Transformation Servs U.S., LLC, 469 

F.Supp.3d 505, 524-26 (E.D. Va. 2020). 

Mar-Bow is consistent with this Court’s finding that the Final DIP Order was a final, 

appealable order. One could imagine the uncertainty that would ensue if final orders 

authorizing DIP financing, which typically are entered near the beginning of a bankruptcy 

case, were to remain subject to challenge throughout the pendency of the case until 

confirmation, which usually portends the closing of the bankruptcy case. 

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The Fourth Circuit has held that application of the law of the case doctrine is not 

mandatory;26 however, the Supreme Court has cautioned that while a “court has the power 

to revisit prior decisions of its own . . . as a rule courts should be loathe [sic] to do so in the 

absence of extraordinary circumstances.” Christianson v. Colt Indus. Operating Corp., 486 

U.S. 800, 817 (1988).27 This policy, as espoused by the Supreme Court, recognizes the need 

for parties to be able to rely on the terms of a final order that establishes important rights 

and duties, such as an order approving the terms of debtor-in-possession financing. 

 The District Court in Mar-Bow observed that the Fourth Circuit recognizes three 

exceptions to the law of the case doctrine; “(1) a subsequent trial produces substantially 

different evidence, (2) controlling authority has since made a contrary decision of law 

applicable to the issue, or (3) the prior decision was clearly erroneous and would work 

manifest injustice.” 469 F. Supp. 3d at 525 (quoting TFWS, Inc. v. Franchot, 572 F.3d 186, 

191 (4th Cir. 2009)). The Trust has not offered a subsequent, contrary, and controlling 

decision of law, nor has it mounted a clearly erroneous/manifest injustice argument; rather, 

it relies on the first exception—that there is new evidence that “defeats the operation of the 

law of the case.” See Smith v. North Carolina, 528 F.2d at 810. 

 In In re La Paloma Generating Company, LLC, a first lien lender moved to dismiss a 

counterclaim brought by a group of second lien creditors who alleged that the first lien 

creditor breached the covenants of good faith and fair dealing under an intercreditor 

26 See CNF Constructors, Inc. v. Donohoe Constr. Co., 57 F.3d 395, 398 n.1 (4th Cir. 1995) (quoting United States 

v. Houser, 804 F.2d 565, 567–69 (9th Cir.1986)) that “the law of the case doctrine is discretionary and not 

mandatory”). 

27 Courts would be unable to perform their duties “satisfactorily and efficiently ... if a question once considered 

and decided ... were to be litigated anew in the same case upon any and every subsequent appeal.” Sejman v. 

Warner-Lambert Co., 845 F.2d 66, 68–69 (4th Cir. 1988) (quoting Great Western Tel. Co. v. Burnham, 162 U.S. 

339, 344 (1896)). That being said, “the law of the case doctrine is not an ‘inexorable command’ but rather a 

prudent judicial response to the public policy favoring an end to litigation.” Id. (quoting White v. Murtha, 377 

F.2d 428 (5th Cir. 1967)). See also Messenger v. Anderson, 225 U.S. 436, 444 (1012)(“the phrase ‘law of the case,’ 

as applied to the effect of previous orders on the later action of the court rendering them in the same case, merely 

expresses the practice of courts generally to refuse to reopen what has been decided”). 

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agreement by taking certain actions that the second lien creditors claimed intentionally 

impaired their rights as unsecured creditors. Specifically, the second lien creditors asserted 

that the first lien creditor excluded them from negotiations with the debtors regarding 

potentially avoidable liens and coerced the debtors into a settlement “designed to trample on 

the Second Lien Lenders’ rights under the Intercreditor Agreement.” Id. at *2. That 

settlement had been incorporated in the debtor’s chapter 11 plan and had led to prior 

litigation in which the bankruptcy court held that the first lien creditor was entitled to 

enforce its rights under the intercreditor agreement by proceeding against the collateral 

“however it sees fit . . . .” Id. The first lien creditor subsequently brought the new adversary 

proceeding against the second lien creditors to further enforce its rights under the 

intercreditor agreement, which resulted in the second lien creditors’ counterclaim. The 

bankruptcy court dismissed the counterclaim. Referring to its earlier decision, the court held 

that its prior factual findings “are law of the case, and therefore binding.” Id. 

The law of the case doctrine “bars the re-litigation ‘of matters once decided during the 

course of a continuing lawsuit.’ ” In re Radnor Holdings Corporation, 564 B.R. 467, 

482 (Bankr. D. Del. 2017) (citing Casey v. Planned Parenthood, 14 F.3d 848, 856 (3d 

Cir. 1994)). The doctrine applies to “ ‘subsequent rulings by the same judge in the 

same case or a closely related one [and] to rulings by different judges at the same 

level.’ ” Id. The doctrine applies to factual findings made in a main bankruptcy 

proceeding and is binding on parties to a subsequent adversary proceeding. Id.

2020 WL 224569, at *3. The court dismissed the second lien creditors’ counterclaim after 

determining that they had “not cited any new facts or law that would render the Court’s 

prior ruling . . . ‘clearly erroneous.’” Id. 

 The Trust places great reliance on Smith v. North Carolina, 528 F.2d 807, 810 (4th 

Cir. 1975), in which the Fourth Circuit found that the district court did not violate the law of 

the case doctrine on remand after the Fourth Circuit had vacated the district court’s decision 

to grant habeus corpus relief for lack of sufficient evidence. On remand, the district court, 

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again, granted the requested relief. The circuit court found that additional evidence was 

before the district court when it granted the same relief despite having been reversed and, 

therefore, the law of the case (the appellate court’s order reversing the district court) was not 

applicable. Unlike the present case, however, Smith v. North Carolina did not involve a 

second proceeding where a final order establishing the law of the case already existed; 

rather, it involved a single proceeding that resulted in an appeal, a remand and then 

another appeal. Smith v. North Carolina, therefore, is distinguishable from the present case. 

 Another case cited by the Trust, Graves v. Lioi, 930 F.3d 307, 318 (4th Cir. 2019), also 

fails to support the Trust’s position. In Graves, the court rejected the law of the case doctrine 

in connection with a summary judgment proceeding when the trial court had previously 

denied a motion to dismiss. The Fourth Circuit affirmed the granting of summary judgment 

for the defendants after pointing out the procedural differences between motions to dismiss 

and summary judgment as well as the ability to develop evidence during discovery. Graves 

involved the progression from review of a motion to dismiss to review of a motion for 

summary judgment where the court was “presented with a different record at a new stage of 

the case.” Id. Here, the “case” was limited to resolving the motion to approve the DIP 

financing and the “progression” was from approval of the financing on an interim basis to 

approval on a final basis. The interim order approving the DIP financing, like the Graves

order denying the motion to dismiss, was not the law of the case, because the opportunity to 

conduct discovery and present additional evidence at the final hearing may have led to a 

different result. The final order granting summary judgment in Graves is similar to the 

Final DIP Order. Either order, if not appealed, would establish the law of the case. 

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 Having reviewed the cases cited by both parties, the Court finds that Paloma is more 

applicable to the case at bar. In contrast, Smith and Graves, both non-bankruptcy cases, are 

easily distinguishable. 

 The Debtors commenced their cases on September 19, 2017. On that same day, the 

Debtors filed their motion seeking interim and final authority to obtain postpetition 

financing (the “DIP Financing Motion”).28 During a hearing conducted later that day, the 

Court granted the DIP Financing Motion on an interim basis and scheduled a final hearing 

for October 10, 2017.29. The Interim DIP Financing Order was entered on September 20, 

2017.30 

 The Interim DIP Financing Order included various factual findings including that 

the incurrence of indebtedness was “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.”31 In addition, the Court factually found that the 

terms of the financing were “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. . . . .”32 The Interim DIP Financing Order also 

provided that the terms and conditions of the financing were the best available under the 

circumstances.33 These findings are antithetical to the facts now being alleged by the Trust. 

 The Interim DIP Order provided that “[t]he Debtors shall promptly serve copies of 

this Interim Order (which shall constitute adequate notice of the Final Hearing, including, 

without limitation, notice that the Debtors will seek approval at the Final Hearing of a 

28 ECF 29. 

29 ECF 86. 

30 ECF 98. 

31 ECF 98, ¶5(b). 

32 ECF 98, ¶5(d). 

33 ECF 98, ¶5(c). 

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waiver of rights under sections 506(c) and 552(b) of the Bankruptcy Code) to the parties 

having been given notice of the Interim Hearing, to any party that has filed a request for 

notices with this Court and to the Creditors’ Committee after the same has been appointed, 

or such Creditors’ Committee’s counsel, if the same shall have been appointed.”34 The final 

hearing that was originally scheduled to take place on October 10 was subsequently 

adjourned to October 24, 2017.35

 The docket reflects that twelve objections and joinders to the objections to the DIP 

financing were filed prior to the October 24th hearing.36 The UCC filed a response indicating 

that it supported 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 

business.”37 The UCC added that it had negotiated several improvements to the Interim DIP 

Order: 

[F]rom 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. The Committee 

is pleased to report that those efforts have borne fruit, and the parties have 

reached agreement on modified – and substantially improved – terms for both 

the North American and International DIP Facilities. These terms, coupled 

with additional negotiated protections in the critical and foreign vendor and 

other first day orders, will maintain a level playing field among various partiesin-interest during the case, thereby protecting and preserving the rights of 

unsecured creditors and maximizing the value available to unsecured creditors, 

including those providing support postpetition. 

Id. Following additional negotiations with the UCC and the objecting parties, the Debtors 

filed a revised proposed final financing order.38 On October 24, 2017, the Court heard and 

34 ECF 711, ¶42. 

35 ECF 267. 

36 ECF 680. 

37 ECF 659, p. 1. 

38 ECF 677. 

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granted final approval of the DIP financing and entered the Final DIP Financing Order, 

substantially in the form of the proposed final financing order.39 

The Trust does not allege that the Debtors failed to comply with the requirements of 

Bankruptcy Rule 4001 in connection with their financing motion.40 Neither does the Trust 

contend that the Court failed to apply the proper standard when it approved the financing.41

Instead, the Trust asserts that “the Court was not provided sufficient disclosures or updated 

information . . . .”42 In its 400-page opposition to the Motion, the Trust repeatedly states that 

certain facts “were not brought to the attention of the Court.”43 It is significant, however, 

that the Trust does not contend that parties in interest, including those who filed objections, 

did not have the opportunity to conduct discovery, examine witnesses or offer evidence in 

opposition, including those facts that the Trust alleges were not brought to the Court’s 

attention.44

 Having considered the Trust’s offerings, the Court finds that there is no “new 

evidence” that, in the view of the Court, was not available through discovery and that could 

have been offered prior to the entry of the Final DIP Order. The Court has reviewed the 

39 ECF 711. 

40 Bankruptcy Rule 4001(c)(1), Fed. R. Bankr. P. 4001(c)(1), requires that a motion for authority to obtain credit 

shall include “a copy of the credit agreement and a proposed form of order” as well as “a concise statement of the 

relief requested . . . .” 

41 See, e.g., In re L.A. Dodgers LLC, 457 B.R. 308, 313 (Bankr. D. Del. 2011) (“[C]ourts will almost always defer to 

the business judgment of a debtor in the selection of the lender.”); Trans World Airlines, Inc. v. Travellers Int’l, 

AG (In re Trans World Airlines, Inc.), 163 B.R. 964, 974 (Bankr. D. Del. 1994) (noting its prior approval of a 

postpetition loan and receivables facility because such facility “reflect[ed] sound and prudent business 

judgment”); In re Ames Dep’t Stores, Inc., 115 B.R. 34, 40 (Bankr. S.D.N.Y. 1990) (“cases consistently reflect that 

the court’s discretion under section 364 is to be utilized on grounds that permit reasonable business judgment to 

be exercised so long as the financing agreement does not contain terms that leverage the bankruptcy process and 

powers or its purpose is not so much to benefit the estate as it is to benefit a party-in-interest”). 

42 AP ECF 343, p. 91. 

43 See, e.g., AP ECF 343, ¶ 3(A)(3)(e). 44 In its opposition, the Trust refers to deposition testimony to support its contention that material information 

was withheld: “if someone had gone through the 700 pages of loan documentation in docket 158 and read the 

language of the January revised budget covenant . . . ‘they likely would not have appreciated their significance 

without knowing the background . . . .’” P. 92 (quoting Ex. 70 (Greenspan deposition) ¶¶298-303 (emphasis 

added). This suggests that it was not necessarily a lack of disclosure but rather the failure of creditors and other 

parties in interest to thoroughly vet the proposed financing prior to the October 24, 2017, hearing that resulted 

in the omission of evidence that the Trust now contends should have been presented. 

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allegations in the Complaint alleging breach of fiduciary duty in connection with the 

Defendants’ authorization of the DIP financing. Those allegations of gross negligence, bad 

faith, conflicts of interest, reckless indifference, and an abdication of their fiduciary duties 

fall short of claiming that the Defendants committed a fraud on the Court.45 Nevertheless, 

the Trust now seeks to have the Court reverse the factual findings that were an essential 

component of a final order entered over four years ago and which concluded that the 

Defendants, acting on behalf of the Debtors, exercised sound business judgment consistent 

with their fiduciary duties and did so on the basis of all evidence that could have been 

presented prior to the entry of the Final DIP Order. The Court refuses to exercise its 

discretion to set aside its prior order and finds that law of the case doctrine is applicable.46 

45 Should the Trust take the position that the evidence establishes that there has been a fraud upon the Court 

that would go unremedied were the Court to dismiss this count of the Complaint, Judge Novak’s opinion in MarBow again offers guidance: 

Of course, the Court has the inherent authority to remedy a fraud on the court. Chambers v. 

NASCO, Inc., 501 U.S. 32, 44, 111 S.Ct. 2123, 115 L.Ed.2d 27 (1991); Universal Oil Prods. Co. v. 

Root Refining Co., 328 U.S. 575, 580-81, 66 S.Ct. 1176, 90 L.Ed. 1447 (1946); Hazel-Atlas Glass 

Co. v. Hartford-Empire Co., 322 U.S. 238, 246, 64 S.Ct. 997, 88 L.Ed. 1250 (1944). Even a party 

who lacks standing to prosecute may bring the fraud to the Court's attention and suggest that it 

vacate a prior judgment based on a fraud perpetuated on the court. Kupferman v. Consol. 

Research & Mfg. Corp., 459 F.2d 1072, 1074 n.1 (2d Cir. 1972). . . . Indeed, the U.S. Trustee can 

raise concerns . . . . Finally, the Bankruptcy Court has the inherent authority to sua 

sponte remedy a fraud on the court. 

Mar-Bow Value Partners, LLC, 469 F. Supp. 3d at 534. 46 The Supreme Court has instructed that: 

A fundamental precept of common-law adjudication, embodied in the related doctrines 

of collateral estoppel and res judicata, is that a ‘right, question or fact distinctly put in 

issue and directly determined by a court of competent jurisdiction . . . cannot be disputed 

in a subsequent suit between the same parties or their privies . . ..’ Southern Pacific R. 

Co. v. United States, 168 U.S. 1, 48-49, 18 S.Ct. 18, 27, 42 L.Ed. 355 (1897). Under res 

judicata, a final judgment on the merits bars further claims by parties or their privies 

based on the same cause of action. . . . Under collateral estoppel, once an issue is actually 

and necessarily determined by a court of competent jurisdiction, that determination is 

conclusive in subsequent suits based on a different cause of action involving a party to 

the prior litigation. . . . Application of both doctrines is central to the purpose for which 

civil courts have been established, the conclusive resolution of disputes within their 

jurisdictions. . . . To preclude parties from contesting matters that they have had a full 

and fair opportunity to litigate protects their adversaries from the expense and vexation 

attending multiple lawsuits, conserves judicial resources, and fosters reliance on 

judicial action by minimizing the possibility of inconsistent decisions. 

Montana v. United States, 440 U.S. 147, 153–54 (1979) (citations omitted). This rationale also applies to the Law 

of the Case Doctrine. 

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The essential facts necessary to establish a breach of fiduciary duty and associated 

claims in connection with securing the DIP financing have already been decided in favor of 

the Defendants. These facts were not changed, nor could they be, by subsequent 

confirmation orders because they had already become the law of the case as a result of the 

Final DIP Order. For that reason, the Court will grant the Motion as to the count alleging 

breach of fiduciary duty for authorizing the DIP financing.47

II. Fiduciary Duty Claim Relating to the Prepetition Bonus Payments (against 

Defendants Brandon, Short, Bekenstein, Levin, Raether, Taylor, Macnow, 

Silverstein and Goodman).

The Trust alleges that Defendants breached their fiduciary duty by approving 

payment of retention bonuses to 117 TRU executives and management-level employees 

before the Debtors filed for bankruptcy. The Trust contends that the bonuses resulted in 

fraudulent transfers under both bankruptcy48 and criminal law.49 

Defendants counter that the Trust is estopped from asserting this claim because the 

UCC subsequently negotiated a reduction in the amount of the bonuses along with a deferral 

of the payments. Alternatively, Defendants argue that (1) the undisputed facts establish 

that they are protected by the business judgment rule, and (2) they are protected by the 

47 As the Court has found that the law of the case applies, consideration of the issue of estoppel with respect to 

the fiduciary duty claim as to the DIP financing is unnecessary. 

48 See 11 U.S.C. § 548(a)(1)(A) (“The trustee may avoid any transfer (including any transfer to or for the benefit of 

an insider under an employment contract) of an interest of the debtor in property, or any obligation (including 

any obligation to or for the benefit of an insider under an employment contract) incurred by the debtor, that was 

made or incurred on or within 2 years before the date of the filing of the petition, if the debtor voluntarily or 

involuntarily-(A) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud 

any entity to which the debtor was or became, on or after the date that such transfer was made or such obligation 

was incurred, indebted . . . .”). 

49 See 18 U.S.C. § 152(7) (“A person who (7) in a personal capacity or as an agent or officer of any person or 

corporation, in contemplation of a case under title 11 by or against the person or any other person or corporation, 

or with intent to defeat the provisions of title 11, knowingly and fraudulently transfers or conceals any of his 

property or the property of such other person or corporation . . . shall be fined under this title, imprisoned not 

more than 5 years, or both.”) 

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internal affairs doctrine and the exculpatory clause contained in TRU’s Amended and 

Restated Certificate of Incorporation.50. 

Unlike the action taken by the Defendants in securing the postpetition DIP 

financing, the prepetition executive bonus plan was not subject to court approval, for which 

creditors and interested parties would have been given an opportunity to be heard. The 

Trust has documented extensive evidence and supporting case law in support of its 

contention that each of the Defendants breached the duties of loyalty, good faith, and care. It 

argues that this evidence establishes, prima facie, that the Defendants were not 

disinterested, failed to consider material information reasonably available to them, failed to 

consider reasonable alternatives, and abdicated the decision-making process to Defendant 

Brandon, the CEO of TRU, who was the recipient of the largest bonus. 

The presumption of the protection otherwise afforded the Defendants by the business 

judgment rule is rebutted by a showing of the breach of the duties of loyalty, care, or good 

faith. See Brehm v. Eisner (In re Walt Disney Co. Derivative Litig.), 906 A.2d 27, 52 (Del. 

2006) (“Those presumptions can be rebutted if the plaintiff shows that the directors 

breached their fiduciary duty of care or of loyalty or acted in bad faith.”); Cede & Co. v. 

Technicolor, Inc., 634 A.2d 345, 371(Del. 1993). If that is shown, the burden then shifts to 

the Defendants to establish that the transaction “was the product of both fair dealing and 

fair price.” Basho Techs. Holdco B, LLC v. Georgetown Basho Inv’rs, LLC, C.A. No. 11802-

50 The parties agree that Delaware law governs the breach of fiduciary duty claims. See TRU’s Amended 

Certificate of Incorporation, AP ECF 322, Ex. 126, Art. Eight (“A director . . . shall not be liable to the corporation 

. . . for breach of fiduciary duty as a director, except to the extent that exculpation 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 but “such provision shall not eliminate or limit the liability of a director (i) For any breach of the director's 

duty of loyalty to the corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve 

intentional misconduct or a knowing violation of law; (iii) under § 174 of this title; or (iv) for any transaction from 

which the director derived an improper personal benefit.”). See also 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.”). 

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VCL, 2018 WL 3326693, at *35 (Del. Ch. July 6, 2018); In re Walt Disney Co. Derivative 

Litigation, 906 A.2d 27 at 52 (“the burden then shifts to the director defendants to 

demonstrate that the challenged act or transaction was entirely fair to the corporation and 

its shareholders.”). The extensive evidence submitted by the Trust, if proven, is sufficient to 

establish a breach of the Defendants’ fiduciary duties and rebut the presumption associated 

with the business judgment rule. The Defendants have not shown that the undisputed 

evidence demonstrates that the transaction was the product of fair dealing and fair price. 

These issues are a question for the trier of fact. Thus, the issue is ineligible to be determined 

on summary judgment. 

 Defendants’ argument that the Trust is estopped from litigating the retention 

payments is similarly unavailing. Defendants maintain that the UCC told the Court that the 

payments were “addressed” through adjustments to the Senior Employee Incentive Program 

(“SEIP”) approved by the Court with the UCC’s support. A review of the order approving the 

SEIP does not support a finding that the retention payments claim was resolved, released, 

or even addressed. Moreover, contrary to the statements made by the UCC’s counsel, the 

UCC’s subsequent pleading in support of the Settlement Agreement51 made clear that 

claims against the Defendants were preserved, as did the Confirmation Orders.52 

The Court also rejects the Defendants’ contention that the exculpatory provision in 

TRU’s certificate of incorporation bars the Trust’s duty of care claim. The evidence 

submitted by the Trust, if proven, is sufficient to establish a prima facie case that the 

Defendants violated their duties of loyalty and good faith in addition to their duty of care. 

51 ECF 4033, ¶ 20. 

52 ECF 5746 (Delaware order) ¶48; ECF 5979 (Toys, Inc. order). Judicial estoppel “requires a showing of (1) clear 

inconsistency and (2) that the party estopped obtained an unfair advantage from that inconsistency.” In re USA 

Detergents, Inc., 418 B.R. 533, 544 (Bankr. Del. 2009). 

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The Trust has also alleged that the Defendants were grossly negligent53 and has offered 

evidence in support of that allegation. When directors are grossly negligent or breach 

multiple duties, including the duty of loyalty, then the exculpatory provision does not 

immunize directors for their breach of the duty of care. Miller v. Greystone Business Credit 

II, L.L.C. (In re USA Detergents, Inc.), 418 B.R. 533, 54 (Bankr. D. Del. 2009) (“exculpation is 

only available where the cause of action only states a due care violation and not a claim 

which alleges gross negligence or breaches of multiple duties”). See also supra n.51. 

Material questions of fact remain to be decided in connection with the retention 

payments claim. For this reason, summary judgment will be denied as to the count relating 

to the prepetition retention payments.

III. Fiduciary Duty Claim Relating to the Advisory Fees (against Defendants 

Brandon, Beckenstein, Levin, Raether, Taylor, Macnow, and Silverstein) 

In the Complaint, the Trust alleges that the Defendants breached their fiduciary 

duties of loyalty and good faith by authorizing the payment of advisory fees to TRU’s private 

equity sponsors from the fourth quarter of 2014 through the first quarter of 2017, causing 

TRU and its creditors to lose $17,863,110.54 The Complaint states that “TRU had been 

insolvent since at least 2014” and “the officers and directors of TRU each had a fiduciary 

duty to protect the value of TRU for TRU’s creditors, and not merely to focus on advancing 

the interests of the majority equity holders—Bain, KKR, and Vornado (the “Sponsors”).”55 

The Complaint further alleges that “in 2005, Bain, KKR, and Vornado had required that 

TRU enter an Advisory Agreement that required TRU to pay quarterly advisory fees of 

millions of dollars to each Sponsor for advisory services, regardless of the actual amount, 

quality, or redundancy of any advice that the Sponsors provided TRU. Moreover, the 

53 Complaint, ¶ 86. 

54 Complaint, ¶¶ 5, 55, 212. 

55 Complaint, ¶¶ 45, 46. 

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Advisory Agreement did not actually require any Sponsor to perform any advisory 

services.”56 According to the Complaint, “[b]etween 2005 and 2017, TRU paid Bain, KKR, 

and Vornado more than $250,000,000 in ‘Advisory Fees’ as TRU sank further into debt.”57 

The Defendants assert that they are entitled to summary judgment because the 

undisputed evidence demonstrates that TRU was solvent when the fees were paid and that 

payments to a company’s owners when the company is solvent could never equate a breach 

of the directors’ fiduciary duties.58 The Defendants also argue that the payments were 

contractually required, thus precluding a claim that authorizing the payments was a breach 

of their fiduciary duties. 

The Trust has pointed to “[n]umerous pieces of evidence [that] indicate that Toys “R” 

Us was not solvent at all times during its payment of the advisory fees.”59 “Insolvency is a 

question of fact . . . .” Heilig-Meyers Co. v. Wachovia Bank, N.A. (In re Heilig-Meyers Co.), 

328 B.R. 471, 475 (E.D. Va. 2005), quoting In re Roblin Indus., Inc. 78 F.3d 30, 35 (2d Cir. 

1996). Defendants contend that the Court should disregard the Trust’s evidence of 

insolvency, finding it “insufficient as a matter of law to create a genuine, triable dispute,”60 

and instead accept their expert’s opinion finding that TRU was solvent when each of the 

advisory fee payments was made. However, the Defendant’s expert’s opinion is but one piece 

of evidence that must be assessed by the trier of fact. The Trust has offered competing 

evidence of insolvency, including the report of the Trust’s expert witness who challenges the 

conclusions of the Defendant’s expert. The Court views the Trust’s evidence as sufficient to 

56 Complaint, ¶ 47. 

57 Complaint, ¶ 48 

58 See Motion, p. 37-29. 59 Opposition, p. 191. 

60 AP ECF 380, p. 57. 

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establish a genuine dispute and finds that there is a triable issue of fact concerning 

insolvency. Thus, the Debtors’ prepetition solvency is an issue to be determined at trial. 

The Defendant’s contention that TRU’s contractual obligation to pay the advisory fees 

precludes the Trust’s claim for breach of fiduciary duties must also fail. The Trust has 

submitted evidence that the contractual obligations imposed by the Advisory Fee Agreement 

at issue were amended several times between 2005 and 2015, and it points to the failure of 

the Defendants to renegotiate or terminate the agreement prior to the disputed payments 

having been made. See Frederick Hsu Living Tr. v. ODN Holding Corp., C.A. No. 12108-

VCL, 2017 WL 1437308, at *24 (Del. Ch. Apr. 14, 2017) (“the fact that a corporation is bound 

by its valid contractual obligations does not mean that a board does not owe fiduciary duties 

when considering how to handle those contractual obligations.”). 

Payment of the advisory fees was not endorsed by court order, as the payments were 

made prior to the bankruptcy filings. The evidence offered by the Trust supports a finding 

that the Defendants were not constrained by their contractual obligations to the Sponsors 

and had other options available. Again, questions of fact remain to be decided.61 Accordingly, 

granting summary judgment to the Defendants with respect to their approval of the 

payment of advisory fees is not appropriate.

IV. The Vendor Claims

Defendants advance multiple theories in support of their contention that they are 

entitled to summary judgment on the Vendor Claims. First, Defendants challenge the 

61 Defendants have also raised an estoppel argument, claiming that because the shareholders who were not 

Sponsors did not object to the payment of the advisory fees, they “acquiesced” to the payments. Under the 

doctrine of acquiescence, “accepting the benefits of the transaction, even though the corporation’s conduct is a 

breach of some duty owed to the shareholder, may also serve to bar the shareholder’s right to equitable relief.” 

Kahn v. Household Acquisition Corp., 591 A.2d 166, 177 (Del. Ch. 1991). Here, the Trust has presented evidence 

supporting its contention that neither TRU nor its minority shareholders received a benefit from the payment of 

the advisory fees. Whether the minority shareholders, or any predecessor to the Trust, “knowingly and 

deliberately permit[ted]” the payments has also not been undisputedly established. See Papaioanu v. Comm’rs of 

Rehoboth, 186 A.2d 745, 749-50 (Del. Ch. 1962). Acquiescence is therefore a question for the trier of fact. 

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Trust’s standing to pursue the claims of any individual trade vendors. Second, Defendants 

argue that vendors who signed critical vendor agreements during the Chapter 11 

proceedings were contractually obligated to ship goods to TRU, despite the risk of nonpayment, in exchange for payments on their prepetition claims. Finally, Defendants assert 

that the undisputed evidence shows that the Trust cannot carry its burden of proof to 

establishing the elements necessary to establish tort claims for any of the individual Trade 

Vendors.

The Trust’s Standing to Pursue the Vendor Claims.

There is no dispute that each of the Trade Vendors assigned its claims against the 

Defendants to the Trust, including the exclusive right to pursue the claims.62 The Fourth 

Circuit has held that “a trustee has the requisite standing to sue [for] the cause of action he 

acquired for the estate from the [creditors] after commencement of [a] bankruptcy case.” 

Logan v. JKV Real Est. Servs. (In re Bogdan), 414 F.3d 507, 512 (4th Cir.2005). This Court, 

applying Logan, previously held that a trustee who received an unconditional assignment of 

a claim from a creditor stands in the place of the creditor and is entitled to pursue the claim 

on behalf of the estate. Matson v. S. Anna, Inc. (In re McCurnin), 590 B.R. 729, 740 (Bankr. 

E.D. Va. 2018). Thus, under Fourth Circuit and this Court’s precedent, the Trust has 

standing to pursue the claims assigned to it by the Trade Vendors.63

62 “[T]he creditors of the Debtors . . . hereby irrevocably transfer, assign, and deliver to the TRU Creditor 

Litigation Trust all assets constituting the Non-Released Claims Trust Assets.” TRU Trust Agreement, ECF 

6925, § 2.5(a). “[N]o Person or creditor . . . other than the TRU Creditor Litigation Trust . . . shall be permitted to 

assert . . . any Claim or Cause of Action that is transferred to the TRU Creditor Litigation Trust pursuant to this 

Agreement or the Plans.” Id. § 2.5(f). 63 The result would be the same if, as the Defendants urge, the Court were to apply Delaware law. See In re 

Activision Blizzard, Inc. Stockholder Litig., 124 A.3d 1025, 1050-51 (Del. Ch. 2015) (“Delaware has a 

longstanding rule that claims are freely assignable and can be asserted by the acquirer.”).

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Critical Vendor Agreement. 

Defendant’s assertion that the critical vendor agreements executed by fifteen of the 

trade vendors “obligated them to ship regardless of what was said to them”64 is belied by the 

language of the agreements themselves, which stated that that the “supplier shall supply 

goods and/or perform services to the company” based on “Customary Trade Terms.”65 The 

“Customary Trade Terms” were defined as “trade terms at least as favorable to the Debtors 

as those practices and programs, product mix, availability, and other programs, in place in 

the 180 days prior to the Petition Date . . . .”66 The Trust has offered evidence that 

customary trade terms existing in the 180 days prior to the bankruptcy filings included the 

ability to require payment in advance of shipping and other restrictions, such as reducing 

the time for payment, that could have protected the trade vendors despite having agreed to 

the language in the critical vendor agreements. The Trust has also offered evidence that 

each “critical” vendor would have acted differently had it been aware of the alleged 

“concealed facts.”67 The contractual language in the form agreements approved by the Court 

would not necessarily have required the vendors to continue to continue to ship on credit 

during the pendency of the bankruptcy cases even in the face of a catastrophic downturn in 

the Debtors’ business. For that reason, execution of the critical vendor agreements does not 

mandate granting summary judgment. 

Sufficiency of Evidence to Establish Elements of the Vendor Claims. 

Much of the Motion is devoted to attempting to persuade the Court that the Trust is 

unable to offer sufficient evidence to establish all the necessary elements to support its 

64 Motion, AP ECF 315, pp. 34-35. 

65 See Debtors’ Motion for Entry of Interim and Final Orders (I) Authorizing The Debtors to Pay Certain 

Prepetition Claims of Critical Vendors and (II) Granting Related Relief, ECF 6, Ex. C (Form of Trade 

Agreement), p. 2. 

66Id.

67 See Trust’s Opposition, pp. 344-46. 

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claims for intentional or negligent misrepresentation, fraudulent concealment, or negligence 

on the part of each of the individual vendors. In response, much of the Trust’s 400-page 

Opposition is dedicated to identifying evidence refuting the Defendants’ insufficient and 

“undisputed” evidence contentions. 

Initially, the parties disagree over which state’s laws govern the tort claims, although 

they concur that because the case was transferred from the Southern District of New York, 

New York’s choice of law principles apply. See Ferens v. John Deere Co., 494 U.S. 516, 532 

(1990) (“[W]e believe that applying the law of the transferor forum effects the appropriate 

balance between fairness and simplicity.”). Under New York’s choice of law rules, “the first 

question to resolve in determining whether to undertake a choice of law analysis is whether 

there is an actual conflict of laws.” Curley v. AMR Corp., 153 F.3d 5, 12 (2d Cir. 1998). In 

Curley, the Second Circuit held that if “the applicable law from each jurisdiction provides 

different substantive rules, a conflict of laws analysis is required.” Id. Here is where the 

parties diverge, with the Trust asserting that the law of New York and the law in the states 

where the vendors are located provide different substantive rules. By way of example, the 

Trust points to the differences between New York and California law; New York law 

requires a “special relationship” between the parties in order to state a claim for negligent 

misrepresentation,68 but California law does not.69

 Defendants’ position is that New York substantive law is applicable because “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 

68 See Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 114 (2d Cir. 2012). 69 See B.L.M. v. Sabo & Deitsch, 55 Cal. App. 4th 823, 843 (1997). 

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misrepresentation. . . . .”70 In the Defendants’ view, “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).”71 Defendants argue that the law of each state where the vendors 

are located is inapplicable because the substantive tort laws of New York and the states 

“that have a significant interest in the . . . claims” are similar. Yet, the Motion falls short of 

adequately explaining why only New Jersey or Virginia, as opposed to the states where 

other vendors are located, have an interest in the asserted claims. 

Although neither party has presented a comprehensive analysis of the tort laws in 

each state where the vendors are located, it is sufficient to note that the laws of California, 

where many of the vendors are located, are substantively different from those of New York. 

At this stage of the proceedings, it would also be fair to assume that the parties would not be 

advocating their respective positions so vigorously were the substantive laws in the various 

states where vendors are located and those in New York substantially the same. 

Accordingly, the Court finds that there is an actual conflict of laws that requires further 

analysis. 

The next step in the analysis requires the Court to determine which jurisdiction’s law 

to apply. Curley again provides guidance: 

In tort actions, if there is a conflict of laws, New York courts apply an “interests 

analysis,” under which the law of the jurisdiction having the greatest interest 

in the litigation is applied. AroChem Int'l, Inc. v. Buirkle, 968 F.2d 266, 270 

(2d Cir.1992); see also Babcock v. Jackson, 12 N.Y.2d 473, 481, 240 N.Y.S.2d 

743, 191 N.E.2d 279 (1963). “In deciding which state has the prevailing 

interest, we look only to those facts or contacts that relate to the purpose of the 

particular laws in conflict. ‘Under this formulation, the significant contacts 

are, almost exclusively, the parties [sic] domiciles and the locus of the tort.’ 

“ AroChem Int'l, 968 F.2d at 270 (quoting Schultz v. Boy Scouts of America, 

Inc., 65 N.Y.2d 189, 197, 491 N.Y.S.2d 90, 480 N.E.2d 679 (1985)). “If 

70 Motion, ECF 315, p. 32 n.5. 

71 Id. 

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conflicting conduct-regulating laws are at issue, the law of the jurisdiction 

where the tort occurred will generally apply because that jurisdiction has the 

greatest interest in regulating behavior within its borders.” Cooney v. Osgood 

Mach., Inc., 81 N.Y.2d 66, 72, 595 N.Y.S.2d 919, 612 N.E.2d 277 (1993). If the 

choice of law analysis leads to the application of foreign law, a court may refuse 

to apply that law only if its application would be violative of fundamental 

notions of justice or prevailing concepts of good morals. Brink's Ltd. v. South 

African Airways, 93 F.3d 1022, 1031 (2d Cir.1996); cert. denied, 519 U.S. 1116, 

117 S.Ct. 959, 136 L.Ed.2d 845 (1997). The public policy of the forum thus 

provides an exception to application of foreign law only for law “truly 

obnoxious” to that policy. Id. 

Curley, 153 F.3d at 12 (2d Cir. 1998). The tort claims being asserted by the Trust, including 

claims based on fraud and negligent misrepresentation, are based on legal rules intended to 

prevent injuries. Antipodean Domestic Partners, LP, v. Clovis Oncology, Inc., No. 655908/16, 

2018 WL 2045541, at *28, 2018 N.Y. Slip Op 30809 (U) (N.Y. Sup. Ct. Apr. 30, 2018) 

(“negligent misrepresentation . . . is a conduct-regulating rule”); Vandashield LTD v. 

Isaacson, No. 652183/2014, 2015 WL 5545382, at *10 n.18, 2015 N.Y. Slip Op 31782(U) (N.Y. 

Sup.Ct. 2015) (fraud is “a conduct-regulating body of tort law”); Mark Andrew of the Palm 

Beaches, Ltd. v. GMAC Com. Mortg. Corp., 265 F. Supp.2d 366, 378 (S.D.N.Y. 2003) (noting 

that fraud and negligent misrepresentation are conduct-regulating), aff’d, 96 F. App’x 750 

(2d Cir. 2004). Consequently, the law of the place where the alleged torts occurred, which “is 

considered to be the place where the last event necessary to make the actor liable occurred” 

is applicable. Schultz v. Boy Scouts of Am., 65 N.Y.2d 189, 195 (N.Y. 1985). 

 For each vendor, the Trust asserts that the last event necessary to establish the 

Defendants’ liability occurred in the vendor’s home state, where the vendors relied on the 

false information allegedly provided. In cases involving fraud and negligent 

misrepresentation, reliance occurs where the victim is located. J.A.O. Acquisition Corp. v. 

Stavitsky, 745 N.Y.S.2d 634, 639 (Sup.Ct. 2001) (“fraud claims are governed by the law of 

the place of injury,” i.e., “where plaintiffs are located”); Geron v. Seyfarth Shaw LLP (In re 

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Thelen LLP), 736 F.3d 213, 220 n. 7 (2d Cir. 2013) ( “When a person sustains loss by fraud, 

the place of wrong is where the loss is sustained.”) (quoting Restatement (First) of Conflict of 

Laws § 377 n. 4). See also Lewis Tree Serv. v. Lucent Techs., Inc., 211 F.R.D. 228, 237 

(S.D.N.Y. 2002) (under New York choice of laws rules, the “fraud alleged in this lawsuit 

arose in all fifty states, and their laws would be applied to the fraud claims.”). For each 

Vendor Claim in this case, the claim should be governed by the laws of the state where the 

vendor is located. 

Operating under the mistaken assumption that the Court will concur with their 

position that New York law is applicable to each of the Vendor Claims, Defendants have 

challenged each individual vendor’s claim by pointing to alleged evidentiary deficiencies 

existing (primarily) under New York substantive law and asserting that these deficiencies 

are fatal to the Trust’s claims. In response, the Trust has extensively documented evidence 

supporting the necessary elements of each vendor’s tort claim under the appropriate state 

substantive tort law (primarily California). Having reviewed the respective submissions, the 

Court finds that the Defendants, and each of them, have failed to meet their burden of 

showing that there is no genuine material issue of fact relating to the Vendor Claims. The 

Trust, in turn, has submitted sufficient evidence from which a trier of fact may reasonably 

find in favor of the Trust on each of the claims. 

In Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986), the Supreme Court 

cautioned that “[c]redibility determinations, the weighing of the evidence, and the drawing 

of legitimate inferences from the facts are jury functions, not those of a judge . . . [who is] 

ruling on a motion for summary judgment. . . .” The Court instructed trial courts to “act . . . 

with caution in granting summary judgment” and reiterated that a trial court may “deny 

summary judgment in a case where there is reason to believe that the better course would be 

to proceed to a full trial.” Id., citing Kennedy v. Silas Mason Co., 334 U.S. 249 (1948). In this 

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case, the credibility of the witnesses, particularly the Defendants, is particularly important. 

It is therefore the view of the Court that the better course would be to proceed to trial. 

Rule 56(a) of the Federal Rules of Procedure provides that the trial court “shall grant 

summary judgment if the movant shows that there is no genuine dispute as to any material 

fact and the movant is entitled to judgment as a matter of law.” Since Defendants have 

failed to establish that there is no material fact in dispute and that they are entitled to 

judgment as a matter of law, summary judgment must be denied with respect to the Vendor 

Claims.

Conclusion

For the foregoing reasons, summary judgment will be granted in favor of the 

Defendants as to the Fourth Cause of Action in the Complaint (Breach of Fiduciary Duty for 

Authorizing the DIP Financing). For all other counts of the Complaint, including the Vendor 

Claims, summary judgment will be denied. 

A separate order shall issue. 

Signed: September 19, 2022 /s/ Keith L. Phillips 

 United States Bankruptcy Judge 

Copies: 

Robert I. Bodian 

Scott A. Rader 

Amanda B. Asaro 

Kerime S. Akoglu 

MINTZ LEVIN COHN FERRIS 

GLOVSKY and POPEO, P.C. 

Chrysler Center 

666 Third Avenue, 25th Floor 

New York, New York 10017 

James C. Cosby 

J. Brandon Sieg 

O’HAGAN MEYER, PLLC 

411 E. Franklin Street, Suite 500 

Richmond, Virginia 23219 

Entered on Docket: Sept 20 2022

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Greg Dovel 

Christin Cho 

DOVEL & LUNER, LLP 

201 Santa Monica Blvd., Suite 600 

Santa Monica, California 90401 

Michael Wilson 

MICHAEL WILSON PLC 

12733 Storrow Rd. 

Henrico, Virginia 23233 

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