Greg Dovel (pro hac vice) 

Christin Cho (pro hac vice) 

DOVEL & LUNER, LLP 

201 Santa Monica Blvd., Suite 600 

Santa Monica, California 90401 

Tel: 310-656-7066 

Email: greg@dovel.com 

 christin@dovel.com 

Michael Wilson (VSB No. 48927) 

MICHAEL WILSON PLC 

12733 Storrow Rd. 

Henrico, Virginia 23233 

Tel: 804-614-8301 

Email: mike@mgwilsonlaw.com 

Counsel for Plaintiff 

UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF VIRGINIA 

Richmond Division 

__________________________________________ 

In re ) Chapter 11 

 ) 

TOYS “R” US, INC., et al.,

1

 ) Case No. 17-34665 (KLP) 

 ) 

Debtors. ) (Jointly Administered)

__________________________________________) 

TRU CREDITOR LITIGATION TRUST, ) 

 ) 

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

 ) 

v. ) 

 ) 

DAVID A BRANDON, et al., ) 

 ) 

Defendants. ) 

__________________________________________) 

THE TRUST’S OPPOSITION TO DEFENDANTS’ 

MOTION FOR SUMMARY JUDGEMENT

 

 

1

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

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

11 Cases and (II) Granting Related Relief [Docket No. 78]. The location of Debtors’ service 

address is One Geoffrey Way, Wayne, NJ 07470. 

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i

Table of Contents

I. Introduction......................................................................................................................... 1

A. The Court has not approved Defendants’ conduct.................................................. 2

B. Defendants fail to apply the summary judgment standard...................................... 3

C. Defendants’ fail to apply the correct legal principles. ............................................ 4

D. Defendants’ motion ignores and fails to address most of the Trust’s 

theories.................................................................................................................... 6

E. Defendants’ motion ignores and fails to address most of the Trust’s 

evidence. ................................................................................................................. 8

F. Defendants do not seek partial summary judgment of part of a claim. .................. 9

II. The Director Defendants are liable for breaches of fiduciary duties in approving 

the DIP financing and failing to implement an immediate wind-down............................ 11

A. The Defendants’ fiduciary duties.......................................................................... 12

B. When evaluating whether to authorize DIP financing and attempting a 

turnaround strategy, the Directors knew and understood the requirements 

of their fiduciary duties......................................................................................... 16

C. The Director Defendants abdicated their duty and entirely failed to assess 

the Company’s ability to comply with the financial covenants in the DIP 

financing. .............................................................................................................. 22

D. Defendants’ deposition testimony confirms their breach of fiduciary duty. ........ 27

E. Brandon and Short knew that the Company could not comply with the 

financial covenants................................................................................................ 36

F. The Director Defendants abdicated their duty and entirely failed to assess 

the risks of the turnaround strategy or to consider the alternative of an 

immediate wind-down. ......................................................................................... 41

G. Defendants knew that attempting a turnaround was an implausible “Hail 

Mary.” ................................................................................................................... 44

1. The Directors knew that the Company was losing money, and that 

its sales, market share, and margins were trending down......................... 46

2. The Directors knew that the Company’s outdated business model 

could not compete..................................................................................... 48

3. The Directors knew that the Company did not have a viable 

turnaround plan and could not come up with one..................................... 51

H. The Director Defendants’ breaches of duty were exacerbated by conflicts 

of interest. ............................................................................................................. 58

1. The six Sponsor Directors had conflicts of interest.................................. 58

2. Brandon and Short had conflicts of interest.............................................. 62

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3. Defendant Directors failed to eliminate the conflicts by assigning 

the decision to independent directors........................................................ 64

I. The facts establish Defendants’ breaches of the fiduciary duties of good 

faith, loyalty, and due care.................................................................................... 67

1. Breach of the duty of good faith. .............................................................. 67

2. Breach of the duty of loyalty. ................................................................... 71

3. Breach of the duty of care......................................................................... 74

4. Defendants cannot establish that their actions meet the entire 

fairness standard........................................................................................ 74

J. Defendants’ breaches caused harm to the Company. ........................................... 76

1. Extended operating losses......................................................................... 77

2. Increased professional fees. ...................................................................... 78

3. Excess financing costs. ............................................................................. 78

4. Adequate protection payments.................................................................. 79

5. Extraordinary expenses............................................................................. 79

III. Defendants’ arguments concerning Defendants’ unlawful approval of the DIP 

financing and turnaround fail for multiple reasons........................................................... 79

A. The law of the case doctrine does not protect Defendants’ unlawful 

conduct.................................................................................................................. 79

1. Defendants’ “by its own terms” premise fails. ......................................... 80

2. The Court’s plan confirmation orders bar application of preclusion 

doctrines to claims against the Defendants............................................... 80

3. Law of the case does not apply because new evidence is available 

that was not presented to the Court........................................................... 84

a. False and misleading information about the DIP financing 

negotiations and terms. ................................................................. 85

b. False and misleading information about the DIP budget 

projections..................................................................................... 87

c. False and misleading information about the Directors’ 

assessment of the DIP financing................................................... 88

d. False and misleading information about the turnaround 

plan................................................................................................ 89

e. False and misleading information reiterated at the final 

hearing........................................................................................... 91

4. The Court’s order approving DIP financing did not address the 

issues asserted against Defendants............................................................ 95

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B. Judicial estoppel does not protect Defendants’ unlawful conduct........................ 96

1. The Trust is not a successor to the UCC and Mattel and is not 

bound by their prior statements................................................................. 96

2. The Court’s confirmation order bars application of preclusion 

doctrines, including estoppel. ................................................................... 98

3. The Trust has not engaged in bad faith or an attempt to 

intentionally mislead the court.................................................................. 98

4. Because the Trust’s position is based on facts not known to the 

UCC or Mattel, judicial estoppel cannot apply....................................... 101

5. Defendants do not assert, and could not assert, collateral estoppel........ 102

C. The exculpatory provision does not protect the Defendants against any of 

the Trust’s claims................................................................................................ 103

D. The business judgment rule does not protect Defendants’ conduct.................... 106

1. The business judgment rule does not apply because Defendants 

failed to inform themselves of all material information that was 

reasonably available to them................................................................... 107

2. The business judgment rule does not apply because Defendants 

failed to act with requisite care. .............................................................. 108

3. The business judgment rule does not apply because Defendants 

abdicated their duties. ............................................................................. 109

4. The business judgment rule does not apply because Defendants 

were not disinterested directors. ............................................................. 110

E. Defendants’ arguments regarding their breaches of the duty of loyalty fail....... 110

1. Defendants ignore the facts and evidence............................................... 110

3. Under controlling Delaware law, Defendant Brandon’s substantial 

financial interest in continued employed constituted a conflict of 

interest..................................................................................................... 114

4. Defendant Short was both a member of the Board and an officer, 

and he actively participated in the decision-making............................... 116

F. Defendants’ arguments regarding their breaches of the duty of good faith 

and the duty of care fail. ..................................................................................... 117

1. The presence of advisors does not shield Defendants’ wrongful 

conduct.................................................................................................... 117

2. Defendants’ failed contention that the Board reviewed alternatives. ..... 121

3. Defendants’ failed Monday morning quarterbacking contention. .......... 121

4. Defendants’ failed contention that everyone supported the DIP 

financing. ................................................................................................ 122

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5. Delaware law did impose a duty on Defendants to liquidate the 

Company................................................................................................. 126

IV. Defendants breached their fiduciary duties in approving the executive bonus plan....... 127

A. Defendants knew that their fiduciary duties required them to preclude a 

director with a conflict of interest from making the decisions, to assess all 

reasonable alternatives, and to obtain all material information reasonably 

available. ............................................................................................................. 129

B. While Brandon had a glaring conflict of interest in personally benefiting 

from an executive bonus plan, it was Brandon who controlled the bonus 

plan’s development and made each of the key decisions—who would 

receive a bonus, how much the bonus payments would be, and when the 

bonus would be paid. .......................................................................................... 132

C. When the compensation committee was presented with the plan Brandon 

had developed, it failed to guard against conflicts of interest, consider all 

reasonable alternatives, or consider critical material information...................... 139

1. The compensation committee Directors abdicated their duties to 

preclude Brandon from controlling the development of the bonus 

plan.......................................................................................................... 140

2. The compensation committee Directors abdicated their 

responsibility to evaluate reasonable alternatives and inform 

themselves of all material information reasonably available to 

them......................................................................................................... 143

D. When the full board was presented with the plan Brandon had developed, 

it failed to guard against conflicts of interest, consider all reasonable 

alternatives, or consider critical material information. ....................................... 149

1. The full board abdicated their duties to preclude Brandon from 

controlling the development of the bonus plan....................................... 149

2. The Board knowingly failed to obtain critical information they 

knew was available and knowingly failed to analyze alternatives. ........ 150

E. The Directors breached their fiduciary duties by knowingly authorizing an 

illegal fraudulent transfer that was designed to evade creditors. ........................ 152

1. There was a “transfer” by paying bonuses to executives........................ 154

2. Defendants authorized the transfer with actual intent to hinder and 

defraud creditors. .................................................................................... 155

3. Defendants made the transfer in contemplation of a case under title 

11 and with intent to defeat the provisions of title 11............................. 159

F. The Directors breached their fiduciary duties of loyalty, good faith, and 

care...................................................................................................................... 159

1. The Directors breached their duty of loyalty. ......................................... 159

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a. Directors breached their duty of loyalty by authorizing an 

illegal fraudulent transfer............................................................ 160

b. Brandon breached his duty of loyalty because he was an 

interested director........................................................................ 161

c. Director Defendants breached their duty of loyalty by 

allowing Brandon—an interested director—to control the 

bonus process.............................................................................. 161

2. The Directors breached their duty of good faith..................................... 162

a. The Directors abdicated their duties by failing to obtain an 

analysis of comparable compensation or alternative 

compensation plans..................................................................... 164

b. The Directors abdicated their duty to ensure that the 

process of developing the bonus was not controlled by an 

interested director........................................................................ 165

c. Brandon and the compensation committee Directors made a 

decision that they knew was beyond the bounds of reason 

and not in the best interests of the Company. ............................. 166

3. The directors breached their duty of care. .............................................. 167

G. Defendants cannot meet their burden of proving the bonus payments were 

entirely fair.......................................................................................................... 168

H. Defendants’ breaches of fiduciary duty caused losses to Toys “R” Us.............. 169

V. Defendants’ arguments concerning Defendants’ unlawful approval of the 

executive bonuses fail for multiple reasons.................................................................... 169

A. Estoppel does not apply to the Trust’s claims. ................................................... 169

B. Defendants’ conduct is not protected by the business judgment rule................. 172

1. The business judgment rule does not apply because Defendants did 

not act with the requisite care or adequately inform themselves............ 173

2. The business judgment rule does not apply because Defendants 

breached their duties of good faith and loyalty....................................... 174

C. Defendants’ specific arguments concerning the business judgment rule are 

contrary to the law and the facts. ........................................................................ 175

1. The business judgment rule does not automatically shield all 

executive compensation decisions. ......................................................... 175

2. Defendants’ arguments on the fiduciary duties of due care and 

good faith fail.......................................................................................... 176

a. Defendants’ “employee attrition” argument fails. ...................... 176

b. Defendants’ argument based on the participation of 

advisors fails. .............................................................................. 177

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c. Defendants’ arguments on the duty of good faith fail. ............... 181

3. Defendants’ “lack of self-dealing” arguments fail.................................. 182

a. Defendant’ “majority of the board” argument fails. ................... 182

b. Defendants’ “independent compensation committee” 

argument fails.............................................................................. 185

c. Defendants’ “conflicts of interest” argument fails...................... 186

4. Defendants’ “rational business purpose” argument fails........................ 187

D. The exculpatory provision does not protect the Defendants against any of 

the Trust’s claims................................................................................................ 188

VI. The Director Defendants are liable for breaches of fiduciary duties in paying 

advisory fees to Sponsors................................................................................................ 189

A. Defendants’ fiduciary duties applied to their decisions to allow payment of 

advisory fees to the Sponsors.............................................................................. 190

B. Defendants’ decision to allow the Company to make payments to Bain, 

KKR, and Vornado violated their fiduciary duty of loyalty. .............................. 194

C. Defendants’ decision to allow the Company to make payments to Bain, 

KKR, and Vornado violated their fiduciary duty of good faith.......................... 198

1. The advisory fee agreements were objectively unreasonable in 

their terms and not in the best interests of the Company........................ 198

2. The advisory fee payments were not justified by the amount, 

quality, or value of the services provided and therefore were 

objectively unreasonable and not in the best interests of the 

Company................................................................................................. 200

a. The Directors had insufficient evidence that advisory 

services were actually provided by Sponsors to the 

Company 2014-2017................................................................... 201

b. The Directors had insufficient evidence of the value of 

advisory services provided by Sponsors to the Company 

2014-2017. .................................................................................. 203

3. The Director Defendants abdicated their fiduciary duties to 

consider material information and alternatives....................................... 204

a. The Directors did not consider what services were provided 

or the value of those services...................................................... 205

b. The Directors did not consider whether the services were 

duplicative of other services already being provided to 

Toys “R” Us................................................................................ 206

c. The Directors did not consider whether payment was 

required to ensure that services were provided by the 

Sponsors and Sponsor directors.................................................. 208

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4. The Directors abdicated their fiduciary duty to ensure that 

decisions were made by disinterested directors. ..................................... 210

C. Defendants’ decision to allow the Company to make payments to Bain, 

KKR, and Vornado violated their fiduciary duty of care.................................... 211

D. Defendants cannot demonstrate that their actions meet the entire fairness 

standard............................................................................................................... 211

E. The Director Defendants’ breach of their fiduciary duties caused harm to 

Toys “R” Us........................................................................................................ 212

F. Defendants’ arguments fail................................................................................. 213

1. Defendants’ “solvency justifies payments” argument fails. ................... 213

2. Defendants’ “even if insolvent, no breach of fiduciary duty 

argument” fails........................................................................................ 215

3. Defendants’ “acquiescence” argument fails. .......................................... 217

VII. Defendants are liable for fraudulent concealment. ......................................................... 218

A. The law of fraudulent concealment..................................................................... 219

1. Choice of law: The tort claims of each Trade Vendor are governed 

by the law of the state where that vendor is located, not by New 

York law.................................................................................................. 219

a. There is an actual conflict between the tort laws of different 

states............................................................................................ 220

b. The law of the Trade Vendors’ home states governs the 

Trust’s tort claims. ...................................................................... 221

c. The states with most relevant vendors include California, 

Connecticut, Georgia, Rhode Island, Florida, and Illinois. ........ 223

2. Elements of fraudulent concealment....................................................... 226

3. Liability of directors and officers for concealments or 

representations of other officers or employees. ...................................... 227

a. Intended to influence vendors..................................................... 227

b. Failing to stop fraudulent conduct. ............................................. 228

B. The information concealed and suppressed by Defendants was actionable. ...... 229

1. The concealments.................................................................................... 229

2. The concealments are actionable as facts capable of empirical 

verification. ............................................................................................. 233

3. The concealments are actionable statements that imply the 

existence of facts that justify a belief in the truth of the statement 

and imply the maker knows of nothing that would make the 

statement improbable.............................................................................. 234

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4. The concealments are actionable statements because Defendants 

possessed superior knowledge or special information on the 

subject. .................................................................................................... 236

C. The concealed information was “material.”........................................................ 239

1. Whether Trade Vendors will be paid for goods that they ship was 

of paramount importance to the Trade Vendors. .................................... 240

2. The continued availability of the DIP financing was directly 

relevant to whether Trade Vendors would be paid for goods that 

they shipped. ........................................................................................... 241

3. Each of the concealed facts was highly material to a Trade 

Vendor’s decision to ship goods on credit.............................................. 242

4. The vendors testified that the concealed facts would have been 

relevant to their decision-making, and would have caused them to 

act differently.......................................................................................... 244

D. Defendants were under a duty to disclose the concealed facts to the Trade 

Vendors............................................................................................................... 245

1. Defendants had a duty to disclose subsequently acquired 

information that made their earlier statements untrue or 

misleading............................................................................................... 245

a. Defendants’ representations in September 2017......................... 246

b. The information acquired by Defendants made the earlier 

representations false or misleading............................................. 255

2. Because Defendants continued to make representations, they had a 

duty to disclose all material facts............................................................ 258

3. Defendants were under a duty to disclose because they possessed 

superior knowledge and knew that Trade Vendors were acting on 

the basis of mistaken facts. ..................................................................... 276

a. Defendants had superior knowledge of material facts................ 277

b. Information about those material facts was not readily 

available to the Trade Vendors. .................................................. 279

c. Defendants knew that the Trade Vendors were acting on 

the basis of mistaken knowledge. ............................................... 280

4. Defendants had a relationship of trust and confidence with Trade 

Vendors that created a duty to disclose................................................... 283

E. Defendants’ concealment was intended to induce action by the Trade 

Vendors............................................................................................................... 286

F. Trade Vendors were unaware of the concealed facts and would have acted 

differently............................................................................................................ 289

G. Trade Vendors were damaged by Defendants’ concealment of facts................. 290

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H. All Defendants are liable for the fraudulent concealments and 

representations. ................................................................................................... 291

1. Defendants intended that that the concealment would be passed on 

and influence Trade Vendors.................................................................. 291

2. Defendants failed to stop fraudulent conduct. ........................................ 295

VIII. Defendants are liable for fraudulent misrepresentation.................................................. 296

A. Law of fraudulent misrepresentation. ................................................................. 296

B. The representations from Defendants were actionable....................................... 297

1. The representations. ................................................................................ 297

2. The representations are actionable as facts capable of empirical 

verification. ............................................................................................. 302

3. The representations are actionable statements that imply the 

existence of facts that justify a belief in the truth of the statement 

and imply the maker knows of nothing that would make the 

statement improbable.............................................................................. 305

4. The representations are actionable statements because Defendants 

possessed superior knowledge or special information on the 

subject. .................................................................................................... 307

C. The representations were material. ..................................................................... 309

D. Defendants knew the representations were false or misleading when made. ..... 315

F. Defendants intended the representations to induce the Trade Vendors to 

ship goods on credit. ........................................................................................... 325

G. Trade Vendors acted in reliance on Defendants’ statements.............................. 329

H. Trade Vendors’ reliance was reasonable. ........................................................... 331

I. Trade Vendors suffered losses............................................................................ 332

J. All Defendants liable. ......................................................................................... 333

IX. Defendants are liable for negligent concealment, negligent misrepresentation, and 

negligence. ...................................................................................................................... 334

A. The Trust’s evidence proves each element of its claims for negligent 

misrepresentation and concealment. ................................................................... 334

B. The Trust’s evidence proves each element of its claim for negligence. ............. 335

X. Each of Defendants’ arguments on the Trust’s tort claims fails..................................... 337

A. The Trust has standing to pursue claims assigned to it by the Trade 

Vendors............................................................................................................... 337

1. Fourth Circuit precedent governs issues of federal bankruptcy law....... 337

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2. Under binding Fourth Circuit precedent, the Trust has standing to 

pursue claims assigned to it by the Trade Vendors................................. 338

B. Defendants’ “30(b)(6) testimony contradicts” argument fails............................ 341

C. Defendants’ “Critical Vendor Agreements” argument fails. .............................. 344

1. Critical Vendor Agreements did not obligate Trade Vendors to 

ship goods to Toys “R” Us on credit. ..................................................... 344

2. Each Critical Vendor testified that they would have acted 

differently had they learned of concealed facts, establishing 

reliance and causation............................................................................. 345

3. Defendants’ “fraudulent inducement” argument is a red herring. .......... 348

D. Defendants’ “actionable misstatements” arguments fail. ................................... 348

1. Statements made in September and October are actionable. .................. 348

2. Defendants’ “advisors approved” argument fails. .................................. 350

3. Forward looking and aspirational or promissory statements are 

actionable ................................................................................................ 353

4. Defendants “cannot identify specific statements” argument fails. ......... 355

E. Defendants’ “scienter” arguments fail................................................................ 357

1. The Trust has ample evidence of Defendants’ intent.............................. 357

2. Defendants’ cited securities law cases are inapposite............................. 358

3. Defendants’ March board minutes argument fails.................................. 358

4. Defendants’ “public disclosure” argument fails. .................................... 360

5. Defendants’ argument that vendors testified that Defendants had 

no intent to deceive is irrelevant as a matter of law, and grossly 

mischaracterizes the facts. ...................................................................... 361

F. Defendants’ “reliance” argument fails................................................................ 363

G. Defendants’ “reasonable reliance” arguments fail.............................................. 366

1. Defendants’ “SEC filings” argument fails.............................................. 366

2. Defendants’ “DIP financing agreements” argument fails....................... 368

3. Defendants’ “no risk” and “guaranteed” argument mischaracterizes 

the Trust’s contentions and attacks a straw man..................................... 369

4. Reasonable reliance cannot be adjudicated on summary judgment........ 370

H. Defendants’ “causation” argument fails. ............................................................ 371

1. The Trust has ample evidence of causation. ........................................... 371

2. Defendants’ cited cases are inapposite. .................................................. 372

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3. Proximate causation is a question of fact not amenable to 

resolution at summary judgment............................................................. 373

I. Defendants’ “duty to disclose” arguments fail. .................................................. 374

1. Defendants’ proof of “swindling” argument fails................................... 374

2. Defendants’ “trust and confidence” argument fails................................ 375

3. Defendants’ “the UCC knew” argument fails......................................... 376

4. Statements made in September and October created a duty to 

correct those statements when they became false................................... 378

5. Defendants’ no duty to update with “real-time confidential 

information” argument fails.................................................................... 379

6. Defendants’ negligent misrepresentation arguments fail........................ 382

a. The Trust has evidence of each of the elements of negligent 

misrepresentation ........................................................................ 382

b. There is no requirement that Defendants and vendors be in 

a “special or privity-like relationship.”....................................... 383

c. The single New York Trade Vendor satisfies the special 

relationship test. .......................................................................... 384

J. Defendants’ argument regarding reliance on omitted information fails............. 386

1. The Trust has never asserted a claim based on the mere fact that 

the DIP financing contained covenants................................................... 387

2. Defendants intentionally withheld the holiday sales results data, 

and then lied about what holiday sales meant for the Company’s 

ability to pay. .......................................................................................... 388

3. Trade Vendors did not have, and could not obtain, any of the 

concealed facts regarding the Company’s covenant breaches................ 390

K. Defendants’ arguments based on the Trade Vendors’ 30(b)(6) testimony 

fail. ...................................................................................................................... 393

L. Defendants’ argument on the negligence claim fails.......................................... 393

M. Defendants’ “received more than they lost” argument fails. .............................. 393

1. Toys “R” Us would not have had to liquidate on December 13, 

2017, if Defendants had decided to not engage in fraud......................... 394

2. Trade Vendors would have received payments after December 13, 

2017, if Defendants had not engaged in fraud. ....................................... 395

3. Defendants’ payment offset argument fails for multiple additional 

reasons..................................................................................................... 396

XI. Conclusion. ..................................................................................................................... 398

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Table of Authorities

Cases

Abu Dhabi Inv. Auth. v. Citigroup, Inc.,

2013 U.S. Dist. LEXIS 30214, at n.9 (S.D.N.Y. Mar. 4, 2013) ............................................. 222

Adickes v. S. H. Kress & Co.,

398 U.S. 144 (1970).................................................................................................................... 6

ADT Holdings, Inc. v. Harris,

No. 2017-0328-JTL, 2017 Del. Ch. LEXIS 163 (Ch. Sep. 7, 2017)....................................... 363

AFA Protective Sys. v. AT&T,

57 N.Y.2d 912 (1982)............................................................................................................. 386

Alexander v. Azar,

396 F. Supp. 3d 242 (D. Conn. 2019)....................................................................................... 11

Alley Sports Bar, LLC v. SimplexGrinnell, LP,

58 F. Supp. 3d 280 (W.D.N.Y. 2014)............................................................................. 384, 385

Am. Canoe Ass’n v. Murphy Farms, Inc.,

326 F.3d 505 (4th Cir. 2003) ........................................................................................ 81, 84, 85

Ams. Mining Corp. v. Theriault,

51 A.3d 1213 (Del. 2012)....................................................................................................... 177

Anschutz Corp. v. Merrill Lynch & Co.,

690 F.3d 98 (2d Cir. 2012) ..................................................................................................... 220

Antipodean Domestic Partners, LP v. Clovis Oncology, Inc.,

2018 NY Slip Op 30809(U) (Sup. Ct. 2018).......................................................................... 221

Apollo Capital Fund LLC v. Roth Capital Partners, LLC,

158 Cal. App. 4th 226 (2007) ......................................................................................... 236, 307

Aronson v. Lewis,

473 A.2d 805 (Del. 1984)............................................................................... 106, 109, 172, 174

Art Inst. of Phila. Llc v. Nelson,

Nos. Chapter 7, 20-50627 (CTG), 2022 Bankr. LEXIS 68 (Bankr. D. Del. Jan. 12, 2022)... 338

Asahi Kasei Pharma Corp. v. Actelion Ltd.,

222 Cal. App. 4th 945 (2013) ......................................................................... 228, 295, 296, 333

Ayers v. United States DOD,

819 F. App’x 180 (4th Cir. 2020)............................................................................................. 81

B.L.M. v. Sabo & Deitsch,

55 Cal. App. 4th 823 (1997) ................................................................................................... 221

Barrie House Coffee Co. v. Teampac, LLC,

No. 13 CV 8230 (VB), 2016 U.S. Dist. LEXIS 85527 (S.D.N.Y. June 30, 2016)................. 347

Basho Techs. Holdco B, Ltd. Liab. Co. v. Georgetown Basho Inv’rs, Ltd. Liab. Co.,

No. 11802-VCL, 2018 Del. Ch. LEXIS 222 (Ch. July 6, 2018). ...................................... passim

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xiii

Bass v. Janney Montgomery Scott, Inc.,

210 F.3d 577 (6th Cir. 2000) .................................................................................................. 370

Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart,

833 A.2d 961 (Del. Ch. 2003) .................................................................................................. 73

Beckwith v. Dahl,

205 Cal. App. 4th 1039 (2012) ........................................................................ 286, 325, 357, 360

Blankenheim v. E. F. Hutton & Co.

217 Cal. App. 3d 1463 (1990) ................................................................................................ 332

Boeken v. Philip Morris, Inc.,

127 Cal. App. 4th 1640 (2005) ................................................................................................ 331

Boles v. Filipowski (in re Enivid, Inc.),

345 B.R. 426 (Bankr. D. Mass. 2006) ...................................................................................... 15

Bradley v. United States,

161 F.3d 777 (4th Cir. 1998) .................................................................................................. 338

Brehm v. Eisner (In re Walt Disney Co. Derivative Litig.),

906 A.2d 27 (Del. 2006).................................................................................................... passim

Bridgeport Holdings Inc. Liquidating Tr. v. Boyer (In re Bridgeport Holdings, Inc.),

388 B.R. 548 (Bankr. D. Del. 2008).................................................................................. passim

Brinckerhoff v. Enbridge Energy Co.,

159 A.3d 242 (Del. 2017).................................................................................................. passim

Bullard v. Blue Hills Bank,

575 U.S. 496 (2015).................................................................................................................. 81

Burns v. Bd. of Cty. Comm'rs,

330 F.3d 1275 (10th Cir. 2003) .............................................................................................. 343

Campbell-Ewald Co. v. Gomez,

577 U.S. 153 (2016)................................................................................................................ 343

Capiccioni v. Brennan Naperville, Inc.,

339 Ill. App. 3d 927 (2003) .................................................................................................... 372

Caplin v. Marine Midland Grace Trust Co.,

406 U.S. 416 (1972)................................................................................................................ 340

Caviness v. DeRand Res. Corp.,

983 F.2d 1295 (4th Cir. 1993) ........................................................................................ 372, 373

Cede & Co. v. Technicolor,

634 A.2d 345 (Del. 1993).................................................................................................. passim

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

2004 U.S. Dist. LEXIS 6904 (S.D.N.Y. Apr. 20, 2004)......................................................... 276

Chaffin v. GNI Grp., Inc.,

Civil Action No. 16211-NC, 1999 Del. Ch. LEXIS 182 (Ch. Sep. 3, 1999).................... 74, 198

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xiv

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

219 Cal. App. 4th 924 (2013) ................................................................................................. 185

Chase v. Dep't of Pub. Safety & Corr. Servs.,

Civil Action No. ELH-18-2182, 2020 U.S. Dist. LEXIS 68944 (D. Md. Apr. 20, 2020)........ 84

Cinerama, Inc. v. Technicolor,

663 A.2d 1134 (Del. Ch. 1994) ................................................................................................ 75

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

2021 U.S. Dist. LEXIS 189502 (S.D.N.Y. Sept. 30, 2021).................................................... 361

Cody v. Micale, Civil Action No. 7:19-MC-4,

2019 U.S. Dist. LEXIS 98333 (W.D. Va. June 10, 2019)........................................................ 81

Cohen v. S & S Constr. Co.,

151 Cal. App. 3d 941 (1983) ............................................................................................. passim

Cole v. Daoud,

2016 U.S. Dist. LEXIS 39749 (E.D. Va. Feb. 17, 2016)........................................................ 370

Collins v. Pond Creek Mining Co.,

468 F.3d 213 (4th Cir. 2006) .................................................................................................. 103

Collins v. Throckmorton,

425 A.2d 146 (Del. 1980)................................................................................................... 8, 191

Comm. on Children’s Television, Inc. v. Gen. Foods Corp.,

35 Cal. 3d 197 (1983) ..................................................................................................... 227, 291

Connick v. Suzuki Motor Co.,

174 Ill. 2d 482 (1996) ............................................................................................................. 284

Cooper v. Equity Gen. Ins. Co.,

219 Cal. App. 3d 1252 (1990) ................................................................................................ 297

Cooper v. Jevne,

56 Cal. App. 3d 860 (1976) ............................................................................................ 235, 305

Coughlan v. Jachney,

473 F. Supp. 3d 166 (E.D.N.Y. 2020) .................................................................................... 347

Coyne v. Gen. Elec. Co.,

2010 U.S. Dist. LEXIS 70879 (D. Conn. July 15, 2010) ....................................................... 381

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

846 A.2d 963 (Del. Ch. 2000) .......................................................................................... 13, 163

Curley v. AMR Corp.,

153 F.3d 5 (2d Cir. 1998) ....................................................................................................... 220

Daiuto v. Evolve Guest Controls, LLC,

No. 17-CV-1279 (NGG) (JO), 2020 U.S. Dist. LEXIS 38689 (E.D.N.Y. Mar. 4, 2020) ...... 221

Dent v. Ramtron Int'l Corp.,

No. 7950-VCP, 2014 Del. Ch. LEXIS 110 (Del. Ch. June 30, 2014) .............................. 13, 163

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Desimone v. Barrows,

924 A.2d 908 (Del. Ch. 2007) ................................................................................................ 159

Devan v. Zamoiski Se., Inc. (In re Merry-Go-Round Enters.),

272 B.R. 140 (Bankr. D. Md. 2000) ........................................................................................... 6

Eaton v. Weichert Workforce Mobility, Inc.,

No. X10UWYCV186040244S, 2021 Conn. Super. LEXIS 73 (Super. Ct. Feb. 3, 2021) ..... 373

Edgar v. Mite Corp.,

457 U.S. 624 (1982)................................................................................................................ 336

Elantech Devices Corp. v. Synaptics,

No. C 06-01839 CRB, 2007 U.S. Dist. LEXIS 82017 (N.D. Cal. Oct. 26, 2007).................... 10

Emerald Partners v. Berlin,

726 A.2d 1215 (Del. 1999)............................................................................................. 103, 104

Engalla v. Permanente Med. Grp., Inc., 

15 Cal. 4th 951 (1997)........................................................................................................ passim

Ernst & Ernst v. Hochfelder,

425 U.S. 185 (1976)................................................................................................................ 358

Fairview Dev. Corp. v. Aztex Custom Homebuilders, LLC,

No. CV-07-0337-PHX-SMM, 2009 U.S. Dist. LEXIS 16501 (D. Ariz. Mar. 2, 2009)......... 275

Ferris Ave. Realty, LLC v. Huhtamaki, Inc.,

No. PB 07-1995, 2011 R.I. Super. LEXIS 25 (Super. Ct. Feb. 18, 2011)...................... 334, 383

Ferry v. Black Diamond Video, Inc.,

No. 15-7723 (RBK/AMD), 2016 U.S. Dist. LEXIS 76893 (D.N.J. June 13, 2016) .............. 375

Fin. One Pub. Co. v. Lehman Bros. Special Fin., Inc.,

414 F.3d 325 (2d Cir. 2005) ................................................................................................... 220

First Bank v. Robertson Grading, Inc.,

328 Ga. App. 236 (2014) ........................................................................................................ 384

Fla. Rock & Tank Lines v. Moore,

258 Ga. 106 (1988)................................................................................................................. 228

Flatiron Acquisition Vehicle, LLC v. CSE Mortg. LLC,

No. 1:17-cv-8987-GHW, 2019 U.S. Dist. LEXIS 43682 (S.D.N.Y. Mar. 17, 2019)............. 221

Frances T. v. Village Green Owners Assn.,

42 Cal. 3d 490 (1986) ..................................................................................... 228, 295, 333, 337

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

No. 12108-VCL, 2017 Del. Ch. LEXIS 67, at *102............................................... 191, 213, 216

Friedman v. Dolan,

No. 9425-VCN, 2015 Del. Ch. LEXIS 178 (Ch. June 30, 2015) ........................................... 185

Fringer v. Kersey Homes, Inc.,

No. 9780-VCG, 2018 Del. Ch. LEXIS 203, (Ch. June 25, 2018) .......................................... 158

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Gaines Serv. Leasing Corp. v. Carmel Plastic Corp.,

432 N.Y.S.2d 760 (Civ. Ct. 1980) .......................................................................................... 276

Geernaert v. Mitchell,

31 Cal. App. 4th 601 (1995) ........................................................................................... 228, 294

Geruschat v. Ernst & Young, LLP (In re Earned Capital Corp.),

331 B.R. 208 (Bankr. W.D. Pa. 2005).............................................................................. 96, 103

Giulietti v. Giulietti,

65 Conn. App. 813 (2001) .............................................................................................. 228, 292

Gold v. Univ. of Bridgeport Sch. of Law,

19 Conn. App. 379 (1989) ...................................................................................................... 296

Graves v. Lioi,

930 F.3d 307 (4th Cir. 2019) .................................................................................................... 84

Grede v. Bank of N.Y. Mellon,

598 F.3d 899 (7th Cir. 2010) .................................................................................................. 341

Greenberg v. Life Ins. Co.,

177 F.3d 507 (6th Cir. 1999) .................................................................................................. 371

Greenwald v. Odom,

314 Ga. App. 46 (2012) .......................................................................................................... 239

Grobow v. Perot, 

539 A.2d 180 (Del. 1988)....................................................................................................... 115

Grumman Allied Indus. v. Rohr Indus.,

748 F.2d 729 (2d Cir. 1984) ................................................................................................... 376

Guessous v. Fairview Prop. Invs., LLC,

828 F.3d 208 (4th Cir. 2016) .................................................................................................. 215

Guinness PLC v. Ward,

955 F.2d 875 (4th Cir. 1992) .................................................................................................. 100

Gutter v. Wunker,

631 So. 2d 1117 (Fla. Dist. Ct. App. 1994)............................................................................ 258

Guttman v. Jen-Hsun Huang,

823 A.2d 492 (Del. Ch. 2003) ................................................................................................ 152

Guvenoz v. Target Corp.,

30 N.E.3d 404 (Ill. App. 2015)............................................................................................... 315

Hampshire Grp., Ltd. v. Kuttner,

No. 3607-VCS, 2010 Del. Ch. LEXIS 144 (Ch. July 12, 2010)..................................... 152, 159

Harrison v. Westinghouse Savannah River Co.,

176 F.3d 776 (4th Cir. 1999) .............................................................................................. 5, 233

Hooper v. Barnett Bank of W. Fla.,

474 So. 2d 1253 (Fla. Dist. Ct. App. 1985)............................................................................ 284

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Hughes v. Ester C Co.,

317 F.R.D. 333 (E.D.N.Y. 2016)............................................................................................ 223

Huls v. Clifton, Gunderson & Co.,

179 Ill. App. 3d 904 (1989) .................................................................................................... 289

Hutto v. Davis,

454 U.S. 370 (1982)................................................................................................................ 338

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

152 A.D.2d 451 (App. Div. 1st Dept. 1989)........................................................................... 347

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

2015 U.S. Dist. LEXIS 131211 (S.D.N.Y. Sep. 29, 2015)..................................................... 347

In re Activision Blizzard, Inc. Stockholder Litig.,

124 A.3d 1025 (Del. Ch. 2015) .............................................................................................. 339

In re Agfeed USA, LLC,

558 B.R. 116 (Bankr. D. Del. 2016)....................................................................................... 176

In re Answers Corp. S'holder Litig.,

2012 Del. Ch. LEXIS 162 (Ch. July 19, 2012)......................................................................... 64

In re Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart,

833 A.2d 961 (Del. Ch. 2003) ................................................................................................ 115

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

2016 Del. Ch. LEXIS 154, (Del. Ch. Oct. 10, 2016).............................................................. 180

In re Convergent Techs. Sec. Litig.,

948 F.2d 507 (9th Cir. 1991) .................................................................................................. 382

In re Duane Reade Inc. Sec. Litig.,

2003 U.S. Dist. LEXIS 21319 (S.D.N.Y. Nov. 24, 2003)...................................................... 382

In re Escalera Res. Co.,

563 B.R. 336 (Bankr. D. Colo. 2017)..................................................................................... 338

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

773 F. App’x 9 (2nd Cir. 2019) .............................................................................................. 381

In re HH Liquidation, LLC, 

590 B.R. 211 (Bankr. D. Del. 2018)....................................................................................... 120

In re Hutchinson,

27 B.R. 247 (Bankr. E.D.N.Y. 1983)...................................................................................... 275

In re Massey Energy Co. Derivative & Class Action Litig.,

No. 5430-VCS, 2011 Del. Ch. LEXIS 83 (Ch. May 31, 2011).............................................. 152

In re McCurnin,

590 B.R. 729 (Bankr. E.D. Va. 2018)............................................................................. 338, 341

In re Mindbody, Inc.,

2020 Del. Ch. LEXIS 307 (Ch. Oct. 2, 2020)................................................... 72, 105, 115, 160

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In re Munford, Inc.,

98 F.3d 604 (11th Cir. 1996) .................................................................................................. 181

In re Nat'l Century Fin. Enters.,

846 F. Supp. 2d 828 (S.D. Ohio 2012) ................................................................................... 371

In re Oracle Corp. Derivative Litig.,

No. 2017-0337-SG, 2018 Del. Ch. LEXIS 92 (Ch. Mar. 19, 2018)......................................... 58

In re Reading Co.,

711 F.2d 509 (3d Cir. 1983). .......................................................................................... 190, 213

In re Refco Inc. Sec. Litig.,

No. 07 MDL 1092 (JSR), 2011 U.S. Dist. LEXIS 33554 ...................................................... 371

In re Rodgers,

115 B.R. 678 (Bankr. C.D. Cal. 1990).................................................................................... 275

In re Smoot,

265 B.R. 128 (Bankr. E.D. Va. 1999)..................................................................................... 155

In re Triangle Capital Corp. Sec. Litig.,

988 F.3d 743 (4th Cir. 2021) .......................................................................................... 358, 361

In re Tribune Co.,

464 B.R. 126 (Bankr. D. Del. 2011)....................................................................................... 341

In re Walt Disney Co. Derivative Litig.,

825 A.2d 275, (Del. Ch. 2003) .......................................................................................... passim

In re Walt Disney Co. Derivative Litig.,

907 A.2d 693 (Del. Ch. 2005). ............................................................................................... 192

In re Xura, Inc. Stockholder Litig.,

2018 Del. Ch. LEXIS 563 (Ch. Dec. 10, 2018)................................................................ 72, 183

Jacobs v. N.C. Admin. Office of the Courts,

780 F.3d 562 (4th Cir. 2015) ...................................................................................................... 4

John S. Clark Co. v. Faggert & Frieden, P.C.,

65 F.3d 26 (4th Cir. 1995) ........................................................................................ 99, 101, 171

Johnson v. Waterfront Servs. Co.,

391 Ill. App. 3d 985 (2009) .................................................................................................... 332

Jolley v. Chase Home Fin., LLC,

213 Cal. App. 4th 872, 892 Cal. Rptr. 3d 546 (2013)........................................................ passim

Jones v. ConocoPhillips Co.

198 Cal. App. 4th 1187 (2011) ....................................................................................... 258, 276

JPMorgan Chase Bank, N.A. v. Ballard,

213 A.3d 1211 (Del. Ch. 2019) .............................................................................................. 154

Kahn v. Stern,

183 A.3d 715 (Del. 2018).................................................................................................. passim

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Kahn v. Tremont Corp.,

694 A.2d 422 (Del. 1997)............................................................................................... 177, 185

Kalnit v. Eichler,

264 F.3d 131 (2d Cir. 2001) ................................................................................................... 358

Kaufman v. I-Stat Corp.

165 N.J. 94 (2000) .................................................................................................................. 384

Kibler v. Wooters,

No. 1351-VCN, 2007 Del. Ch. LEXIS 83 (Ch. June 6, 2007) ............................................... 158

Kilroy v. Alpharetta Fitness, Inc.,

295 Ga. App. 274 (2008) ........................................................................................................ 363

Kimmell v. Schaefer,

89 N.Y.2d 257 (1996)............................................................................................................. 385

Konstantinidis v. Chen,

626 F.2d 933 (D.C. Cir. 1980)................................................................................................ 102

Kopley Grp. V., Ltd. P’ship v. Sheridan Edgewater Props.,

376 Ill. App. 3d 1006 (2007) .................................................................................................. 296

Kurtz v. Foy,

65 A.D.3d 741 (App. Div. 3rd Dept.)..................................................................................... 222

Leal v. Meeks (In re Cornerstone Therapeutics, Inc.),

115 A.3d 1173 (Del. 2015)..................................................................................................... 104

Lennon v. Christoph,

No. 94 C 6152, 1997 U.S. Dist. LEXIS 1231 (N.D. Ill. Feb. 4, 1997)................................... 364

Leslie v. Frederique,

Civil Action No. 1:17cv1061 (TSE/JFA), 2020 U.S. Dist. LEXIS 158925 (E.D. Va. Aug. 31, 

2020)........................................................................................................................................... 6

Lewis Tree Serv. v. Lucent Techs., Inc.,

211 F.R.D. 228 (S.D.N.Y. 2002)............................................................................................ 222

Logan v. JKV Real Estate Servs. (In re Bogdan),

414 F.3d 507 (4th Cir. 2005) .......................................................................... 338, 339, 340, 341

Lucas v. Icahn,

616 F. App’x 448 (2d Cir. 2015) ............................................................................................ 361

LVNV Funding, LLC v. Harling,

852 F.3d 367 (4th Cir. 2017) .............................................................................................. 80, 81

Macomber v. Travelers Prop. & Cas. Corp.,

261 Conn. 620 (2002)............................................................................................................. 258

Malpiede v. Townson,

780 A.2d 1075 (Del. 2001)..................................................................................................... 105

Mark Andrew of the Palm Beaches, Ltd. v. GMAC Commercial Mortgage Corp.,

265 F. Supp. 2d 366 (S.D.N.Y. 2003) .................................................................................... 222

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Martineau v. Wier,

934 F.3d 385 (4th Cir. 2019) .................................................................................................... 99

Mata v. Brooks Petroleum Co.,

No. 12-02-00075-CV, 2003 Tex. App. LEXIS 3511 (Tex. App. Apr. 23, 2003)................... 365

McPadden v. Sidhu,

964 A.2d 1262 (Del. Ch. 2008) ......................................................................................... passim

Medivox Prods. v. Hoffmann-LaRoche, Inc.,

107 N.J. Super. 47 (Super. Ct. 1969)...................................................................................... 315

Medtronic Sofamor Danek, Inc. v. Michelson,

2004 U.S. Dist. LEXIS 26385 (W.D. Tenn. May 20, 2004) .................................................. 378

Megaris Furs v. Gimbel Bros.,

172 A.D.2d 209 (App. Div. 1st Dept. 1991)........................................................................... 347

Mest v. Cabot Corp.,

449 F.3d 502 (3d Cir. 2006) ................................................................................................... 343

Miller v. Greystone Bus. Credit II, L.L.C. (In re USA Detergents, Inc.),

418 B.R. 533 (Bankr. D. Del. 2009)............................................................................... 105, 189

Mills Acquisition Co. v. MacMillan, Inc.,

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

Mindspirit, LLC v. Evalueserve Ltd.,

2019 U.S. Dist. LEXIS 167060 (S.D.N.Y. Sep. 2019)........................................................... 336

Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive Risk Assurance Co.,

867 F.3d 449 (4th Cir. 2017) .................................................................................................... 99

Mirkin v. Wasserman,

5 Cal. 4th 1082 (1993)............................................................................................................ 358

Mizrahi v. Adler,

2014 N.Y. Misc. LEXIS 2934 (N.Y. Sup. Ct. June 30, 2014)................................................ 370

Murphy v. Kuhn,

90 N.Y.2d 266 (1997)............................................................................................................. 386

Neptuno Treuhand-Und Verwaltungsgesellschaft MBH v. Arbor,

295 Ill. App. 3d 567 (1998) .................................................................................................... 286

New Hampshire v. Maine,

532 U.S. 742 (2001)................................................................................................................ 171

Nielsen Co. (US), LLC v. Success Sys.,

2012 U.S. Dist. LEXIS 115774 (S.D.N.Y. Aug. 13, 2012)............................................ 229, 295

Nissan Motor Acceptance Cases,

63 Cal. App. 5th 793 (2021) ........................................................................... 246, 258, 272, 276

O'Brien v. Ed Donnelly Enters.,

575 F.3d 567 (6th Cir. 2009) .................................................................................................. 343

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OCM Principal Opportunities Fund, L.P. v. CIBC World Mkts. Corp.,

157 Cal. App. 4th 835 (2007) .................................................................................................. 331

Official Emp't-Related Issues Comm. of Enron Corp. v. Arnold (In re Enron Corp.),

Nos. 01-16034-AJG, 03-3522, 03-3721, 2005 Bankr. LEXIS 3261, (Bankr. S.D. Tex. Dec. 9, 

2005)....................................................................................................................................... 158

Padula v. Lilarn Props. Corp.,

84 N.Y.2d 519 (N.Y. 1994) .................................................................................................... 221

Parnes v. Bally Entm't Corp.,

722 A.2d 1243 (Del. 1999)....................................................................................... 13, 130, 163

Persson v. Smart Inventions, Inc.,

125 Cal. App. 4th 1141 (2005) ....................................................................... 239, 245, 258, 314

PhotoMedex, Inc. v. Irwin,

601 F.3d 919 (9th Cir. 2010) .......................................................................................... 237, 307

Pim Brands LLC v. Cabot Acquisition, LLC,

2008 N.J. Super. Unpub. LEXIS 3075 ................................................................................... 384

PMC, Inc. v. Kadisha,

78 Cal. App. 4th 1368 (2000) ......................................................................................... 228, 295

Polonetsky v. Better Homes Depot, Inc.,

97 N.Y.2d 46 (2001)....................................................................................................... 229, 295

Prakashpalan v. Engstrom, Lipscomb & Lack,

223 Cal. App. 4th 1105 (2014) ............................................................................... 227, 289, 290

Puma v. Marriott,

283 A.2d 693 (Del. Ch. 1971) ................................................................................................ 186

Pursuit Partners, LLC v. UBS AG,

No. X05CV084013452S, 2009 Conn. Super. LEXIS 2313 (Super. Ct. Sep. 8, 2009)........... 276

Quadrant Structured Prods. Co. v. Vertin,

102 A.3d 155 (Del. Ch. 2014) ................................................................................................ 213

R.I. Indus.-Recreational Bldg. Auth. v. CAPCO Steel, LLC,

No. PC 14-6055, 2015 R.I. Super. LEXIS 90................................................................. 246, 284

Rales v. Blasband,

634 A.2d 927 (Del. 1993).................................................................................................. passim

Ray Communs., Inc. v. Clear Channel Communs., Inc.,

673 F.3d 294 (4th Cir. 2012) ............................................................................................. passim

Revak v. SEC Realty Corp.,

18 F.3d 81 (2nd Cir. 1994) ..................................................................................................... 373

Rich ex rel. Fuqi Int'l, Inc. v. Yu Kwai Chong,

66 A.3d 963 (Del. Ch. 2013) .................................................................................................. 172

Roselink Inv’rs, L.L.C. v. Shenkman,

386 F. Supp. 2d 209 (S.D.N.Y. 2004) .................................................................................... 336

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

2010 U.S. Dist. LEXIS 120627 (E.D. Va. Nov. 15, 2010)....................................................... 97

Sack v. Low,

478 F.2d 360 (2d Cir. 1973) ................................................................................................... 221

Sadiq Marafi v. Hind El Achchabi,

No. FSTCV186036789, 2020 Conn. Super. LEXIS 1333 (Super. Ct. Nov. 2, 2020)............ 329

Sama v. Mullaney (In re Wonderwork, Inc.),

611 B.R. 169 (Bankr. S.D.N.Y. 2020)............................................................................ 183, 184

Schnelling v. Crawford (In re James River Coal Co.),

360 B.R. 139 (Bankr. E.D. Va. 2007)..................................................................................... 341

Schrager v. N. Cmty. Bank,

328 Ill. App. 3d 696 (2002) ............................................................................ 284, 332, 334, 382

Schultz v. Boy Scouts of Am.,

65 N.Y.2d 189 (N.Y. 1985). ................................................................................................... 222

Seidman v. Clifton Sav. Bank,

No. A-4033-07T2, 2009 N.J. Super. Unpub. LEXIS 2267 (Super. Ct. App. Div. Aug. 19, 

2009)....................................................................................................................................... 181

Sejman v. Warner-Lambert Co.,

845 F.2d 66 (4th Cir. 1988) ...................................................................................................... 84

Semi-Tech Litig., LLC v. Bankers Trust Co.,

272 F. Supp. 2d 319 (S.D.N.Y. 2003) (same)......................................................................... 341

Sher v. JPMorgan Chase Funding (In re Thornburg Mortg., Inc.),

610 B.R. 807 (Bankr. D. Md. 2019) ....................................................................................... 155

Silvercreek Mgmt. v. Citigroup, Inc.,

346 F. Supp. 3d 473 (S.D.N.Y. 2018) .................................................................................... 386

Sinclair Oil Corp. v. Levien,

280 A.2d 717 (Del. 1971)........................................................................................... 7, 191, 213

Sloan v. GM LLC,

No. 16-cv-07244-EMC, 2020 U.S. Dist. LEXIS 71982 (N.D. Cal. Apr. 23, 2020)....... 289, 329

Smith v. North Carolina,

528 F.2d 807 (4th Cir. 1975) .............................................................................................. 84, 95

Southern Cal. etc. Assemblies of God v. Shepherd of Hills etc. Church,

77 Cal. App. 3d 951 (1978) ............................................................................................ 235, 305

Staples v. Billing,

Civil Action No. 11339 Del. Ch. LEXIS 10, at *37 (Ch. Jan. 31, 1994). .............................. 217

Stegeman v. United States,

425 F.2d 984 (9th Cir. 1970) .................................................................................................. 153

Stone v. Ritter,

911 A.2d 362 (Del. 2006).................................................................................................. passim

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Strauss v. Long Island Sports, Inc.,

60 A.D.2d 501 (App. Div. 2nd Dept. 1978) ........................................................................... 358

Sutherland v. Sutherland,

No. 2399-VCN, 2010 Del. Ch. LEXIS 88 (Ch. May 3, 2010) ............................................... 164

Tenax Corp. v. Tensar Corp.,

743 F. Supp. 1204 (D. Md. 1990)........................................................................................... 363

Testo v. Ruggiero,

NO. CV90 27 19 97 S, 1993 Conn. Super. LEXIS 1719 (Super. Ct. July 13, 1993)..... 289, 329

Thomas v. FTS USA, LLC,

No. 3:13cv825, 2016 U.S. Dist. LEXIS 82679 (E.D. Va. June 24, 2016)...................... 100, 342

Tolan v. Cotton,

572 U.S. 650, 657 (2014)............................................................................................................ 4

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

2008 U.S. Dist. LEXIS 19535 (E.D. La. Mar. 13, 2008) ....................................................... 340

Torralbo v. Davol, Inc.,

2017 U.S. Dist. LEXIS 218339 (C.D. Cal. Oct. 19, 2017)..................................................... 383

Trenwick America Litigation Trust v. Ernst & Young, L.L.P.,

906 A.2d 168 (Del. Ch. 2006) ........................................................................................ 339, 340

United States Liab. Ins. Co. v. Haidinger-Hayes, Inc.,

1 Cal. 3d 586 (1970) ............................................................................................................... 335

United States v. Colon Ledee,

772 F.3d 21 (1st Cir. 2014)..................................................................................................... 153

United States v. Taylor,

166 F.R.D. 356 (M.D.N.C. 1996)........................................................................................... 343

United States v. West,

22 F.3d 586 (5th Cir. 1994) .................................................................................................... 153

Valeant Pharm. Int'l v. Jerney,

921 A.2d 732 (Del. Ch. 2007) ........................................................................................ 160, 175

Vandashield LTD v. Isaacson,

2015 NY Slip Op 31782(U) n.18 (Sup. Ct. 2015).................................................................. 221

Varacallo v. Mass. Mut. Life Ins. Co.,

332 N.J. Super. 31 (Super. Ct. App. Div. 2000)..................................................................... 372

Vedula v. Azar,

Civil Action No. TDC-18-0386, 2020 U.S. Dist. LEXIS 166284 (D. Md. Sep. 11, 2020)...... 11

Vehicle Mkt. Research, Inc. v. Mitchell Int'l, Inc.,

839 F.3d 1251 (10th Cir. 2016) .............................................................................................. 343

Walker v. Action Indus.,

802 F.2d 703 (4th Cir. 1986) .................................................................................................. 381

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xxiv

Wall Sys. v. Pompa,

324 Conn. 718 (2017)............................................................................................................. 364

Warhanek v. Bidzos,

2013 U.S. Dist. LEXIS 133099 (D. Del. Sept. 18, 2013)....................................................... 185

Weinberger v. Uop,

457 A.2d 701 (Del. 1983). ...................................................................................................... 192

West v. JPMorgan Chase Bank, N.A.,

214 Cal. App. 4th 780 (2013) ................................................................................................. 383

Westport Ins. Corp. v. Atchley, Russell, Waldrop & Hlavinka, L.L.P.,

267 F. Supp. 2d 601 (E.D. Tex. 2003).................................................................................... 338

White v. Panic,

793 A.2d 356 (Del. Ch. 2000) ................................................................................................ 175

Whiteley v. Philip Morris, Inc.,

117 Cal. App. 4th 635, 681 Cal. Rptr. 3d 807, 845 (2004)................................................ passim

Wigod v. Wells Fargo Bank, N.A.,

673 F.3d 547 (7th Cir. 2012) .................................................................................................. 334

Xura, Inc. Stockholder Litig.,

2018 Del. Ch. LEXIS 563 (Ch. Dec. 10, 2018)...................................................................... 115

Zazzali v. Hirschler Fleischer, P.C.,

482 B.R. 495 (D. Del. 2012)................................................................................................... 340

Zinkand v. Brown,

478 F.3d 634 (4th Cir. 2007) .............................................................................................. 98, 99

Statutes

11 U.S.C. § 548........................................................................................................................... 154

18 U.S.C. § 152(7)...................................................................................................................... 153

353 B.R. at 827. .......................................................................................................................... 111

6 Del. C. § 1304 .................................................................................................................. 154, 155

6 Del. C. § 1304(b) ..................................................................................................................... 158

8 Del. C. § 102(b)(7)........................................................................................................... 104, 188

8 U.S.C. § 152(7)................................................................................................................ 154, 159

Rules

Fed. R. Civ. P. 56(a) ..................................................................................................................... 10

Fed. R. Civ. P. Rule 8 ......................................................................................................... 102, 103

Treatises

Collier on Bankruptcy (14th ed. 1968) ....................................................................................... 153

Restatement (Second) of Torts § 546.......................................................................................... 372

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Restatement (Second) of Torts § 551.......................................................................................... 374

Restatement (Second) of Torts § 920.......................................................................................... 396

Regulations

17 C.F.R. § 243........................................................................................................................... 379

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I. Introduction.

Defendants directed Toys “R” Us to file a chapter 11 bankruptcy on September 18, 2017. 

They controlled the company for another six months and then announced that the Company was 

liquidating its U.S. business and selling off all remaining assets. This sudden liquidation 

surprised employees, vendors, and the Unsecured Creditors’ Committee. 2

The result was nearly $800 million in unpaid administrative claims. 3

 That number was 

shocking. It was “the largest administrative insolvency in the history of this country.” 4

Administrative claimants include the employees and vendors who provide goods and 

services to a company after it files for bankruptcy protection. Because the bankruptcy code gives 

administrative claimants priority to be paid, the amount of unpaid administrative claims at the 

end of the case should be (and almost always is) zero. But the Toys “R” Us bankruptcy resulted 

in hundreds of millions of dollars in claims from administrative claimants, and no money to pay 

them. 

$800 million. Administrative losses this large cannot be explained by innocent mistake. 

They cannot be explained by reasonable decisions that just didn’t happen to work out. So how 

did it happen? That question is answered by the evidence compiled by the Trust in this case. 

The documents and testimony provide overwhelming evidence that those losses were the direct 

result of Defendants’ bad faith actions, knowing abdication of duties, fraudulent transfers, and 

fraudulent misrepresentations and concealments. The misconduct began before the petition date, 

and continued throughout the case.

2 Bk. Dkt. 4033 (UCC Statement in Support of Settlement Agreement) ¶9 (the UCC “was 

surprised and disappointed to learn of the Debtors’ plan for a wind-down”).

3 Bk. Dkt. 4030 (Ad Hoc Vendor Group’s Statement in Support of Debtor’s Motion re 

Settlement) at 3 (“approximate $800 million of administrative claims that were owed by the 

Debtors”).

4 Ex. 86 (Greenspan depo.) 133:9-17; Ex. 70 (Greenspan) ¶319.

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Defendants’ motion for summary judgment fails in every respect. It fails to apply the 

correct standard of review, fails to apply the controlling legal principles, fails to address the 

Trust’s theories of wrongdoing, and fails to address the Trust’s evidence. 

A. The Court has not approved Defendants’ conduct. 

Defendants repeatedly imply, or outright assert, that the Court “approved” their conduct, 

such as by approving the DIP financing. Defendants’ assertions and implications are absolutely 

false, as we demonstrate in Part III, Section A.3, below. The Court was never told the truth and 

by no means approved Defendants’ conduct.

The first-day declarations from Defendant David Brandon and Defendant Michael Short 

represented to the Court that Toys “R” Us had secured over $3 billion in new financing, without 

milestones, giving it a 16-month runway to successfully reorganize in Chapter 11, with $1 billion 

to spend on capital improvements, to fund a turnaround plan. For example, Brandon testified, 

“of critical importance, the debtor-in-possession financing also provides the Company with 

hundreds of millions of dollars of new money that is available for immediate and direct 

investment in the Company’s stores and operations.” 5 Brandon testified: “Investment in Growth 

Begins Today” and “This turnaround begins today.” 6 Brandon testified: “the Company has 

developed a four-pillared business plan designed to improve the customer experience, operations 

and drive sales,” and that to “execute on all four of the strategic pillars, the Debtors have 

identified a comprehensive set of key initiatives,” which he spelled out in detail in his 

declaration. 7

5 Brandon declaration (Bk. Dkt. 20) at 6-7, ¶13. 

6 Brandon declaration (Bk. Dkt. 20) at p. 30, ¶69. 

7 Brandon declaration (Bk. Dkt. 20) ¶¶70-78.

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All of these statements were—at best—highly misleading. The Court was not told the 

following facts:

• The Directors had made no assessment of the Company’s ability to comply with the 

financial covenants in the DIP financing, and had not even asked to receive such an 

assessment from management or the financial advisors.

• The DIP budget and forecast provided to the Court was based on a manipulated 

revenue projection that would be virtually impossible to achieve.

• Even using the unrealistic DIP budget, the Company’s projected liquidity was over 

$150 million below the amount that Alvarez & Marsal had concluded was necessary

for the Company.

• Bandon and Short had concluded that the January revised budget covenant in the DIP 

financing “just isn’t going to work” and the $175 million liquidity covenant “doesn’t 

work.”

• The Company was not commencing the turnaround “today” or “immediately” as 

Brandon had testified. The Company did not have a turnaround plan, and had no 

prospects for coming up with one.

• The amount of money from the DIP financing budgeted for capital improvements for 

turnaround was only $125 million, a small fraction of what would be required by a 

transformative turnaround plan, and it was not available “immediately,” but would 

only be available if budget covenant 6.16 were satisfied by January 31, 2018, which

was highly unlikely.

To call these facts “material” is an understatement. These facts and the others detailed 

below explain how and why the Toys “R” Us bankruptcy resulted in $800 million in unpaid 

administrative claims, “the largest administrative insolvency in the history of this 

country.” Quite simply, it was the fault of these Defendants.

B. Defendants fail to apply the summary judgment standard.

Every argument in Defendants’ motion for summary judgment is constructed on a 

foundation that (1) includes only evidence favoring the Defendants and that ignores evidence 

favoring the Trust, and (2) draws all inferences in favor of the Defendants and against the Trust. 

That has it backwards. A defendant’s summary judgment motion is required to credit all 

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evidence favoring the plaintiff, to ignore defendant’s conflicting evidence, and to draw all 

inferences in favor of the plaintiff and against defendant.

The “fundamental principle ... at the summary judgment stage” is that “reasonable 

inferences should be drawn in favor of the nonmoving party” and “a court must view the 

evidence in the light most favorable to the opposing party.” Tolan v. Cotton, 572 U.S. 650, 657, 

660 (2014) (internal quotes omitted); Jacobs v. N.C. Admin. Office of the Courts, 780 F.3d 562, 

570 (4th Cir. 2015) (“As in Tolan, the district court ‘neglected to adhere to the fundamental 

principle that at the summary judgment stage, reasonable inferences should be drawn in favor of 

the nonmoving party.’ 134 S. Ct. at 1868. Rather, the court incorrectly drew all inferences in 

favor of the [defendant], not [plaintiff]. We therefore reverse the district court's 

determination....”).

C. Defendants’ fail to apply the correct legal principles.

Defendants consistently fail to address the governing legal principles found in controlling 

law. Here are two examples.

Actionable misstatements example.

Defendants assert that “statements cannot give rise to tort liability” if they were 

“forward-looking aspirational or promissory statements.” Mot. 39. That assertion is refuted by 

the controlling law. 

First, “it is well settled that an opinion may be actionable when it is made by a party who 

... possesses, or assumes to possess, superior knowledge or special information regarding the 

subject matter.” Jolley v. Chase Home Fin., LLC, 213 Cal. App. 4th 872, 892 (2013) (internal 

quotes omitted) (holding that statements by a party with superior knowledge that it “was ‘highly 

probable,’ and ‘likely,’ and ‘look[ed] good’—that a modification of the loan agreement would be 

approved” were actionable as fraud).

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Second, a statement that is an opinion or prediction of future events or actions is 

actionable if it “impl[ies] facts which justify a belief in the truth of the opinion.” Cohen v. S & S 

Constr. Co., 151 Cal. App. 3d 941, 946 (1983) (internal quotes omitted). “A statement about the 

future may imply a representation concerning an existing or past fact.” Restatement (Second) of 

Torts § 525, comment e. Similarly, “a statement that is in the form of a prediction or promise as 

to the future course of events may justifiably be interpreted as a statement that the maker knows 

of nothing which will make the fulfillment of his prediction or promise impossible or 

improbable.” Restatement (Second) of Torts § 525, comment f; Harrison v. Westinghouse 

Savannah River Co., 176 F.3d 776, 792 (4th Cir. 1999) (“opinion ... carries with it an implied 

assertion ... that the speaker knows no facts which would preclude such an opinion” (internal 

quotes omitted)). 

Duty to disclose example. 

As another example, Defendants assert that “statements cannot give rise to tort liability 

because they were true when made.” Mot. 39. That assertion is wrong. A person has a duty to 

disclose “subsequently acquired information that he knows will make untrue or misleading a 

previous representation that when made was true or believed to be so.” Restatement (Second) of 

Torts § 551(c). A person who makes “a representation which when made was true or believed to 

be so” and then “remains silent after he has learned that it is untrue” is “legally in the same 

position as if he knew that his statement was false when made.” Restatement (Second) of Torts § 

551, comment h.

The Restatement applies this principle in an illustration that is remarkably similar to the 

facts of the present case. In that example, the “president of a mercantile corporation makes a 

true statement of its financial position,” that he intends will be relied on by trade vendors. 

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Restatement (Second) of Torts § 551, Illustration 2. The president then learns that the 

“corporation’s financial position becomes seriously impaired” but does nothing to inform the 

vendors. Id. When later the “corporation receives goods on credit from” a trade vendor, the 

president “is subject to liability in deceit” for any losses suffered by the vendor. Id.

D. Defendants’ motion ignores and fails to address most of the Trust’s theories.

Because Defendants are the moving party, Defendants “bear[] the burden of proving that 

judgment as a matter of law is appropriate. In order to meet that burden, the moving party must 

demonstrate that no genuine issues of material fact exist.” Leslie v. Frederique, Civil Action No. 

1:17cv1061 (TSE/JFA), 2020 U.S. Dist. LEXIS 158925, at *15 (E.D. Va. Aug. 31, 2020)

(internal citation omitted). 

Defendants made no attempt to address all material theories for any of the Trust’s claims, 

and therefore failed to meet their initial burden of showing the absence of a genuine issue. 

Adickes v. S. H. Kress & Co., 398 U.S. 144, 160 (1970) (“where the evidentiary matter in support 

of the motion does not establish the absence of a genuine issue, summary judgment must be 

denied even if no opposing evidentiary matter is presented” (emphasis in original, internal quotes 

omitted); Ray Communs., Inc. v. Clear Channel Communs., Inc., 673 F.3d 294, 299-300 (4th Cir. 

2012) (“where the movant fails to fulfill its initial burden of providing admissible evidence of the 

material facts entitling it to summary judgment, summary judgment must be denied, even if no 

opposing evidentiary matter is presented, for the non-movant is not required to rebut an 

insufficient showing” (internal quotes omitted); Devan v. Zamoiski Se., Inc. (In re Merry-GoRound Enters.), 272 B.R. 140, 144 (Bankr. D. Md. 2000) (“However, if the evidence provided by 

a movant is insufficient to establish the absence of a genuine issue of material fact, or to establish 

that the movant is entitled to judgment as a matter of law, summary judgment must be denied 

even if no opposing evidentiary matter is presented” (internal quotes omitted)).

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For each of the Trust’s claims, the Trust has multiple theories of wrong doing and has 

identified multiple wrongful acts. Defendants’ have elected to address in their motion only a 

fraction of those theories. Accordingly, Defendants have not met their initial burden and cannot 

obtain summary judgment. Here are two examples of theories that Defendants failed to address. 

Minority shareholders:

The Trust asserts a breach of fiduciary duty claim based on Defendants allowing 

payments of purported “advisory fees” to KKR, Bain, and Vornado, who were the majority 

shareholders. One of the Trust’s theories of liability is based on the presence of minority 

shareholders, because payments that are “in essence self-dealing” by majority shareholders, to 

“the exclusion of and detrimental” to “minority stockholders,” are presumed to violate fiduciary 

duties. Sinclair Oil Corp. v. Levien, 280 A.2d 717, 721 (Del. 1971). Defendants’ motion 

entirely ignores this theory. It fails even to mention the minority shareholders.

Larian:

One of the Trust’s theories of fraud arises from an email exchange on February 3, 2018, 

between Isaac Larian, who was the head of toymaker MGA, and Defendants Brandon and Barry. 

Larian emailed Brandon and Barry to ask about a rumor that Toys “R” Us was now “leaning 

towards a liquidation” with options that included shrinking to “a 200 store chain” or “liquidate 

the whole thing.” 8

That rumor was true. Just five days earlier, Brandon had told the Directors that the 

Company did not have the funding “to emerge from chapter 11 and continue operating the 

8 Ex. 167 (Larian Post); Ex. 147 (2'3'18 Brandon to Larian re Silver post [TRUTrust0000272792]). 

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current business plan,” and that the two remaining “likely outcomes” were “shrink and rethink 

the business” and “total liquidation of the enterprise.” 9

But Brandon and Barry did not tell Larian the truth. Brandon responded that the rumor 

was not “accurate information about decisions being made in the boardroom of TRU,” and that 

the Company was “working on the best plan for emergence.” 10

Brandon certainly understood that he was engaged in deception. Brandon testified that he 

understood Larian was “concerned about the rumor” that “Toys ‘R’ Us was considering a 

liquidation,” and was seeking “to verify whether there was any credibility contained in this 

blog.” 11 And Brandon testified, “my response to him was coaching him that that was not an 

appropriate source of useful information for him and he should not take it as fact.” 12

Defendants’ motion makes no mention of this episode.

E. Defendants’ motion ignores and fails to address most of the Trust’s evidence.

It is understandable that Defendants would want to ignore the powerful evidence 

compiled by the Trust that proves Defendants’ wrong-doing. But by not even attempting to 

address that evidence, Defendants cannot obtain summary judgment. Here is an example.

In support of the Trust’s claim for breach of fiduciary duty claim based on Defendants 

allowing payments to the majority shareholders, the Trust contends, as one theory, that Toys ‘R’ 

Us was insolvent, which means the directors “owe[] a fiduciary duty” to “the company’s 

creditors to preserve assets.” Collins v. Throckmorton, 425 A.2d 146, 149 (Del. 1980). 

Defendants assert that their “expert conducted a detailed solvency analysis” and that “no 

other evidence in the record” supports a conclusion of insolvency. Mot. at 28. This assertion 

9 Ex. 140 (1’28’18 minutes) at 2. 

10 Ex. 147 (2’3’18 Brandon to Larian re Silver post [TRU-Trust0000272792]) at 2. 

11 Ex. 88 (Brandon) 435:8-14, 436:9-17. 

12 Ex. 88 (Brandon) 434:21-435:6

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simply pretends that the contrary evidence does not exist. The Trust’s expert, Ron Greenspan, 

demonstrated the flaws in the analysis of Defendants’ expert. 13 And Greenspan cited and 

quoted evidence demonstrating that Defendants’ themselves concluded that Toys “R” Us was 

insolvent. 14

For example, in April 2015, when KKR, Bain, and Vornado were in discussions to hire 

Brandon as CEO, Brandon conducted a summary valuation of Toys ‘R’ Us and concluded that 

.” 15 In response, a Bain representative remarked to two of the Defendant 

Directors, “

.” 16 “The inability to realize any value above the debt is the 

definition of insolvency.” 17 

F. Defendants do not seek partial summary judgment of part of a claim. 

Defendants have elected to take an all or nothing approach, seeking summary judgment 

on the entirety of each claim, and not requesting, in the alternative, partial summary judgment on 

particular identified theories within each claim.

For each of the Trust’s claims, the Trust has multiple theories of wrong doing and 

identifies multiple wrongful acts. For each of the breach of fiduciary duty claims, the Trust 

asserts multiple breaches of duty, each of which is based on multiple wrongful acts. And for 

each of the fraud claims, the Trust asserts multiple theories of fraudulent and negligent 

13 Ex. 70 (Greenspan) ¶¶395-401. 

14 Ex. 70 (Greenspan) ¶¶399-401; Ex. 70 (Greenspan) ¶¶163-165. 

15 Ex. 70 (Greenspan) ¶400; Ex. 13 (4’8’15 Saghir to Taylor Levin re Brandon 

[DEFS_0049061]). 

16 Ex. 70 (Greenspan) ¶400; Ex. 13 (4’8’15 Saghir to Taylor Levin re Brandon 

[DEFS_0049061]) at 1. 

17 Ex. 70 (Greenspan) ¶400. 

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concealment and misrepresentation, and for each theory identified multiple acts of concealment 

and misrepresentation.

A party may move for summary judgment on a claim in its entirety or may move for 

partial summary judgment as to part of a claim. “A party may move for summary judgment, 

identifying each claim or defense—or the part of each claim or defense—on which summary 

judgment is sought.” Fed. R. Civ. P. 56(a). 

But to move for partial summary judgment, the party’s motion must expressly identify 

“the part of each claim ... on which summary judgment is sought.” Id.; Elantech Devices Corp. 

v. Synaptics, No. C 06-01839 CRB, 2007 U.S. Dist. LEXIS 82017, at *28-29 (N.D. Cal. Oct. 26, 

2007) (denying motion for summary judgment because, while the court would have granted 

summary judgment as to certain products, the party “did not move for partial summary 

judgment; instead, its motion seeks judgment on all [products] without distinction”).

Defendants have not moved for summary judgment on part of a claim, nor have they 

attempted to meet the requirement of “identifying ... the part of each claim ... on which 

summary judgment is sought.” Fed. R. Civ. P. 56(a). Defendants did not request that the Court 

grant partial summary judgment as to any of the theories asserted by the Trust within a claim. 

Defendants assert only: “None of these claims can survive summary judgment.” Mot. 1. And 

“Defendants thus request that this Court grant summary judgment and dismiss the Trust’s 

claims.” Mot. 102. Defendants have therefore moved for summary judgment on the entirety of 

each claim, but have not asked the Court, in the alternative, to grant partial summary judgment as 

to particular theories that form part of a claim.

To grant summary judgment on the entirety of one of the Trust’s claims, the Court would 

have to assess each theory and wrongful act asserted, and find that the claim fails as to all such 

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theories and acts. By contrast, the Court can deny Defendants’ motion as to a claim by 

concluding that the Trust has evidence sufficient to create a genuine issue for at least one of the 

asserted wrongful acts and theories of wrongdoing. Vedula v. Azar, Civil Action No. TDC-18-

0386, 2020 U.S. Dist. LEXIS 166284, at *49-50 (D. Md. Sep. 11, 2020) (holding that “there is 

sufficient evidence to create a genuine issue of material fact” on one theory supporting a claim 

and therefore the “Court need not address [plaintiff’s] alternative theory”).

As the 2010 Advisory Committee Notes expressly clarified, when denying a motion for 

summary judgment, “[t]he statement on denying summary judgment need not address every 

available reason.” Accordingly, to deny this motion, the Court is not required to assess each of 

the theories and wrongs asserted. Alexander v. Azar, 396 F. Supp. 3d 242, 248 (D. Conn. 2019)

((“[The Court’s] role is not to provide the parties with a roadmap for trial. I explained why I 

found that there existed a triable issue of fact [and] decline to expound upon my reasoning 

further.”).

Defendants’ motion should be denied as to all claims asserted by the Trust. 

II. The Director Defendants are liable for breaches of fiduciary duties in approving the 

DIP financing and failing to implement an immediate wind-down.

As of August 2017, Toys “R” Us met all of the criteria for a business that needed to wind 

down: it had been losing money for years, had a broken business model, had no plausible path 

for a turnaround, and sales and margins were in an accelerating spiral downward. But rather than 

directing an orderly liquidation of the Company, the Defendant Directors voted to pledge all of 

the Company’s remaining assets to DIP financing in support of a purported “Turnaround Plan” 

that would commence “immediately.” 18

18 Brandon declaration (Bk. Dkt. 20) at pp. 6-7, 30, 44, ¶¶13, 69, 103; Ex. 70 (Greenspan) ¶¶50-

51. 

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Defendants failed, however, to assess whether the Company could comply with the 

financial covenants in the DIP financing, which was required to avoid a precipitous default and 

forced liquidation. Worse still, Defendants not only knew that the Company lacked sufficient 

capital and time to conduct a turnaround, they knew the purported “Turnaround Plan” did not 

exist. This was a “Hail Mary” with no plausible chance of succeeding. It wiped out the 

previously unencumbered assets, incurred over $500 million in costs for financing costs, 

restructuring professional fees, and operating losses, and resulted in $800 million in unpaid 

Administrative Claims. Defendants entirely abdicated their fiduciary duties. 

A. The Defendants’ fiduciary duties. 

Under Delaware law 19 a claim for “breach of fiduciary duty has only two formal 

elements: (i) the existence of a fiduciary duty and (ii) a breach of that duty.” Basho Techs. 

Holdco B, Ltd. Liab. Co. v. Georgetown Basho Inv’rs, Ltd. Liab. Co., No. 11802-VCL, 2018 Del. 

Ch. LEXIS 222, at *55 (Ch. July 6, 2018). In addition, to recover damages plaintiff must show 

that “a sufficiently convincing causal linkage exists between the breach of duty” and the claimed 

losses. Id. at *57.

The “plaintiff bears the initial burden of proving that the defendant breached her duty of 

loyalty or her duty of care, thereby rebutting one of the business judgment rule’s presumptions 

and triggering further review of the decision under the entire fairness test.” Id. at *56-*57. 

Having shown a breach of duty, the burden shifts to the defendant: “the defendant fiduciaries 

19 Because this case was filed in and transferred from the Southern District of New York, New 

York’s choice-of-law rules apply. See Ferens v. John Deere Co., 494 U.S. 516, 519 (1990). 

Under New York’s choice-of-law rules, breach of fiduciary duty claims brought by a 

company against its directors and officers are governed by the substantive law of the state of 

incorporation. See, e.g., RAL Capital Ltd. v. CheckM8, Inc., 2017 N.Y. Misc. LEXIS 3593 

(Sup. Ct. N.Y. Cty. Sept. 21, 2017). Because the breach of fiduciary duty claims were 

assigned to the Trust by Delaware corporations (Toys “R” Us, Inc. and Toys “R” Us, 

Delaware, Inc.), the claims are governed by the substantive law of Delaware. 

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bear the burden of proof to show that they in fact acted in a manner that was entirely fair to their 

beneficiaries.” Id. at *57.

Delaware law imposes three fundamental fiduciary duties: the duty of good faith, the duty 

of loyalty, and the duty of care. 20 Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006) (“good faith 

may be described colloquially as part of a ‘triad’ of fiduciary duties that includes the duties of 

care and loyalty”). 

Duty of good faith. A breach of the duty of good faith may be shown in several distinct 

ways, including by subjective bad faith, by objectively unreasonable decision, or by knowing 

abdication. First, bad faith may be shown by evidence of “‘subjective bad faith,’ that is, 

fiduciary conduct motivated by an actual intent to do harm.” Brehm v. Eisner (In re Walt Disney 

Co. Derivative Litig.), 906 A.2d 27, 64 (Del. 2006). 

Second, bad faith may be shown by evidence that a decision is “so far beyond the bounds 

of reasonable judgment that it seems essentially inexplicable on any ground other than bad 

faith.” Parnes v. Bally Entm't Corp., 722 A.2d 1243, 1246 (Del. 1999) (internal quote omitted); 

Dent v. Ramtron Int'l Corp., No. 7950-VCP, 2014 Del. Ch. LEXIS 110, at *15 (Del. Ch. June 30, 

2014) (same); Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 981 (Del. Ch. 2000)

(same). 

Proving an unreasonable judgment does not require a plaintiff to establish “facts that rule 

out any possibility other than bad faith.” Kahn v. Stern, 183 A.3d 715, 715 (Del. 2018). It 

20 Although Delaware cases customarily analyze the duty of good faith as a separate duty, the 

duty of good faith derives from, and is a component of, the duty of loyalty. A “director 

cannot act loyally towards the corporation unless she acts in good faith.” Stone v. Ritter, 911 

A.2d 362, 369-70 (Del. 2006). Therefore, “the fiduciary duty of loyalty is not limited to 

cases involving a ... conflict of interest,” and it “also encompasses cases where the fiduciary 

fails to act in good faith.” Id.

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requires only “facts that support a rational inference of bad faith.” Id. Bad faith may be shown 

by “facts supporting an inference that [the fiduciary] did not reasonably believe that the ... 

transaction was in the best interests of” the company. Brinckerhoff v. Enbridge Energy Co., 159 

A.3d 242, 260 (Del. 2017), quoted with approval by Kahn v. Stern, 183 A.3d 715, 715 & n.5 

(Del. 2018). Establishing that a director “did not reasonably believe” a transaction was in the 

best interests of the company does not require proof of the director’s subject belief; instead “the 

use of the qualifier ‘reasonably’ imposes an objective standard of good faith.” Brinckerhoff, 159 

A.3d at 260.

Third, a breach of the duty of good faith occurs “[w]here directors fail to act in the face 

of a known duty to act, thereby demonstrating a conscious disregard for their responsibilities.” 

Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006); Brehm v. Eisner (In re Walt Disney Co. 

Derivative Litig.), 906 A.2d 27, 67 (Del. 2006) (breach of the duty of good faith if a director 

“intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard 

for his duties”). 

This is sometimes referred to as breach by “abdication of directorial duty.” Cede & Co. 

v. Technicolor, 634 A.2d 345, 363-64 (Del. 1993). This type of bad faith occurs if directors 

“adopt[ed] a ‘we don’t care about the risks’ attitude concerning a material corporate decision.” 

In re Walt Disney Co. Derivative Litig., 825 A.2d 275, 289 (Del. Ch. 2003), aff’d Brehm v. 

Eisner (In re Walt Disney Co. Derivative Litig.), 906 A.2d 27, 63 (Del. 2006) (holding that bad 

faith may be shown by evidence demonstrating a “conscious[] and intentional[] disregard[] [of] 

responsibilities, adopting a ‘we don't care about the risks’ attitude”). 

Bad faith by abdication is shown if the facts “imply that the defendant directors knew that 

they were making material decisions without adequate information and without adequate 

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15

deliberation, and that they simply did not care if the decisions caused the corporation and its 

stockholders to suffer injury or loss.” In re Walt Disney Co. Derivative Litig., 825 A.2d 275, 289 

(Del. Ch. 2003); Bridgeport Holdings Inc. Liquidating Tr. v. Boyer (In re Bridgeport Holdings, 

Inc.), 388 B.R. 548, 564 (Bankr. D. Del. 2008) (“t]he D&O Defendants breached their duty of 

loyalty and acted in bad faith by consciously disregarding, i.e., abdicating, their duties to the 

Company”); Boles v. Filipowski (in re Enivid, Inc.), 345 B.R. 426, 452 (Bankr. D. Mass. 2006)

(directors and officers “breached their duty of good faith ... by approaching the operation of [the 

company] with a level of indifference or egregiousness that amounted to bad faith”) (applying 

Delaware law); Bridgeport Holdings Inc. Liquidating Tr. v. Boyer (In re Bridgeport Holdings, 

Inc.), 388 B.R. 548, 564-65 (Bankr. D. Del. 2008) (fiduciaries are liable “if they fail to obtain 

information as a result of their ‘knowing abdication of their directorial duties’” (quoting 

Desimone v. Barrows, 924 A.2d 908, 933 (Del. Ch. 2007)).

Duty of loyalty. A breach of the duty of loyalty exists if a director acts while under the 

influence of a conflict of interest and a director is “independent only when the director’s decision 

is based entirely on the corporate merits of the transaction and is not influenced by personal or 

extraneous considerations.” Cede & Co. v. Technicolor, 634 A.2d 345, 362 (Del. 1993). 

“A director is considered interested” in a corporate decision, and not independent, if the 

director “will receive a personal financial benefit from a transaction” or “where a corporate 

decision will have a materially detrimental impact on a director, but not on the corporation.” 

Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993). “In such circumstances, a director cannot be 

expected to exercise his or her independent business judgment without being influenced by the 

adverse personal consequences resulting from the decision.” Rales v. Blasband, 634 A.2d 927, 

936 (Del. 1993).

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The Delaware Supreme Court has “consistently defined the duty of loyalty of officers and 

directors” in “unyielding terms.” Cede & Co. v. Technicolor, 634 A.2d 345, 361 (Del. 1993). It 

“has established a rule that demands of a corporate officer or director, peremptorily and 

inexorably, the most scrupulous observance of his duty.” Id. (internal quotes omitted). 

Any potential for influence by outside interests is prohibited. “The rule that requires an 

undivided and unselfish loyalty to the corporation demands that there be no conflict between 

duty and self-interest.” Id. As a result, “there is no safe-harbor for divided loyalties in 

Delaware.” In re Walt Disney Co. Derivative Litig., 907 A.2d 693, 751 (Del. Ch. 2005). A 

director is “independent only when the director’s decision is based entirely on the corporate 

merits of the transaction and is not influenced by personal or extraneous considerations.” Cede 

& Co. v. Technicolor, 634 A.2d 345, 362 (Del. 1993). “By contrast, a director who receives a 

substantial benefit from supporting a transaction cannot be objectively viewed as disinterested or 

independent.” Id.

Duty of care. “The fiduciary duty of due care requires that directors of a Delaware 

corporation both: (1) use that amount of care which ordinarily careful and prudent men would 

use in similar circumstances; and (2) consider all material information reasonably available.” 

Bridgeport Holdings Inc. Liquidating Tr. v. Boyer (In re Bridgeport Holdings, Inc.), 388 B.R. 

548, 568 (Bankr. D. Del. 2008) (internal quotes omitted). A breach of the duty of care occurs if 

a director’s actions or inactions amount to “gross negligence,” which is “conduct that constitutes 

reckless indifference or actions that are without the bounds of reason.” McPadden v. Sidhu, 964 

A.2d 1262, 1274 (Del. Ch. 2008).

Defendant Directors breached each of these three fiduciary duties.

B. When evaluating whether to authorize DIP financing and attempting a 

turnaround strategy, the Directors knew and understood the requirements of 

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their fiduciary duties.

The Defendants were well aware of the requirements of their fiduciary duties. They had 

long experience as corporate directors and officer, including years of experience in evaluating 

large-scale financing, and charting the course for large companies. 21 As Defendant Brandon 

stated at the time, “this board obviously has significant understanding of its fiduciary duties.” 22

Moreover, Kirkland and Ellis gave the Directors detailed presentations on the 

requirements of their fiduciary duties in early August 2017. 23

As Defendants have admitted, Defendants’ fiduciary duties required them to consider and 

assess “all reasonable alternatives” before coming to a decision. 24 They were required to 

“evaluate each alternative to determine which restructuring alternative will maximize the value 

of the Company.” 25 Defendants were expressly advised that they needed “to demonstrate that 

they carefully evaluated each restructuring alternative.” 26

Defendants knew that while they were not required to eliminate business risk, “the risks 

that are undertaken must be reasonable, and the course of action must be reasonably 

achievable.” 27

21 Ex. 70 (Greenspan) ¶12; Ex. 65 (2017 TRU 10k) at p. 113-14, pdf 118-19.

22 Ex. 25 (8’3’17 Brandon talking points for BOD [TRU-Trust0000124186]) at 2, bullet 7. 

23 Ex. 25 (8’3’17 Brandon talking points for BOD [TRU-Trust0000124186]) at 2, bullet 7 

(“K&E advises that it is important for the record that there be a comprehensive discussion on 

fiduciary duties”); Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]), attached to 

Ex. 28 (8’9’17 Kunath email [DEFS_0064533]); Ex. 23 (7'31'17 Contingency Prep Overview 

[DEFS_0123896]), attached to Ex. 31 (8’17’17 Khalil email [DEFS_0123842]); Ex. 83 

(Macnow depo.) 193:21-194:13; Ex. 82 (Goodman depo.) 15:10-13, 16:4-15.

24 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10. 25 Ex. 23 (7'31'17 Contingency Prep Overview [DEFS_0123896]) at slide 20, bullet 3.

26 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 7.

27 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 8.

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The Defendants were expressly advised that, when “an entity is potentially or arguably 

insolvent,” the Board should not “authorize a transaction that could be analogized to a ‘Hail 

Mary’ pass for the benefit of shareholders if creditor recoveries are threatened.” 28

Defendants also knew their fiduciary duties required that, before deciding on a course of 

action, they were required to “inform themselves of all material information that was reasonably 

available” and “carefully consider that information.” 29

The Defendants knew that, to comply with their fiduciary duties, they could rely on 

advice from others, including professional advisors, but could “not simply rubber stamp 

whatever advice they receive.” 30 They knew that “directors and officers should not be merely 

passive recipients of advice.” 31 They were required to examine the assumptions underlying the 

proposal, to independently consider its reasonableness. “Directors and officers should 

independently evaluate assumptions and information presented by advisors.” 32

Defendants knew that to “comply with the duty of loyalty, a company’s directors must 

exercise disinterested and independent judgment.” 33 They knew “that in a situation where a 

decision would implicate an actual or potential conflict of interest, the board should delegate 

decision-making authority to disinterested directors or managers.” 34

28 Ex. 23 (7'31'17 Contingency Prep Overview [DEFS_0123896]) at slide 20, bullet 6.

29 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10. 

30 Ex. 70 (Greenspan) ¶277; Ex. 77 (Raether depo.) 319:23-320:1, 320:9-22; Ex. 80 (Silverstein) 

202:111-203:2 (“no, it’s not my job to rubber stamp anything,” “I don’t think it’s any board of 

directors’ job to rubber stamp anything”).

31 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10.

32 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10. 

33 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 11. 

34 Ex. 77 (Raether) 157:3-8; Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at 

slide 15. 

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In sum, they knew that the job of the Directors was to kick the tires, to make sure that 

management and the advisors had thoroughly and correctly evaluated the situation, and to come 

to their own independent judgment that the selected path would maximize value and avoid 

enhancing losses. 35

The Director Defendants not only understood the general outlines of fiduciary duty law, 

they also knew and understood the information they would need and the assessment they would 

need to make when authorizing the Company to take on DIP financing and pursue a turnaround. 

“An important factor in deciding whether a company should take on DIP financing is to 

assess the risk of defaulting on the financial covenants.” 36 A default that requires “immediate 

repayment of the outstanding balance and termination of borrowing ability” will cause “a large 

and sudden reduction in the company’s liquidity.” 37 “Such a sudden event can trigger a cascade 

of negative consequences and force an unplanned liquidation of the company not allowing for 

the maximization of the value of the company’s assets.” 38

For these reasons, the Director Defendants knew that their fiduciary duties required them 

to assess whether TRU could safely comply with financial covenants in the DIP financing, and to 

assess the likely harms and losses from an event of default. 39 For example, Defendant Raether 

testified that before the Directors could authorize the Company to take on DIP financing the 

Directors were required “to assess whether Toys ‘R’ Us, going forward, would be able to comply 

with the financial covenants in the DIP financing.” 40 He also testified that it was “important” 

35 Ex. 70 (Greenspan) ¶277.

36 Ex. 70 (Greenspan) ¶52. 

37 Ex. 70 (Greenspan) ¶52. 

38 Ex. 70 (Greenspan) ¶52; Ex. 78 (Levin depo.) 283:10-24; Ex. 78 (Levin depo.) 285:2-11; Ex. 

80 (Silverstein depo.) 116:6-117:10, 118:18-119:1.

39 Ex. 70 (Greenspan) ¶¶54-57. 

40 Ex. 77 (Raether depo.) 137:24-138:5. 

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and “part of your fiduciary duty” for the Director to “examine the DIP budget” and assess 

whether the Company would have “the ability to pay the money back.” 41

“To assess whether TRU could safely comply with financial covenants in the DIP 

financing required comparing the requirements of each covenant with a forecast of the 

company’s future performance over the life of the financing.” 42 “To understand the reliability 

of such a forecast, and to comply with a director’s fiduciary duty to independently evaluate 

assumptions and information presented by advisors, the Director would need to understand, and 

then evaluate the reliability of, the key assumptions underlying the forecast.” 43 This would

include information on assumed sales growth/decline, assumed margin growth/decline, and 

projected overhead and other costs and capital expenditures. 44 In addition, because projections 

cannot “perfectly anticipate what will actually occur,” the covenant assessment also requires a 

“sensitivity analysis.” 45 This “sensitivity analysis would make use of a financial model (e.g., a 

spreadsheet) that allows varying the key inputs to determine the resulting effects.” 46 The 

analysis would “assess the downside case and determine the risks that events would go less well 

than forecast in the base case, resulting in worse financial performance and a potential default in 

the covenants.” 47

Defendants do not dispute, and in fact have admitted, that their fiduciary duties required 

them to perform the assessment described above. 48

41 Ex. 77 (Raether depo.) 123:17-124:18.

42 Ex. 70 (Greenspan) ¶54. 

43 Ex. 70 (Greenspan) ¶54. 

44 Ex. 70 (Greenspan) ¶54. 

45 Ex. 70 (Greenspan) ¶56. 

46 Ex. 70 (Greenspan) ¶56. 

47 Ex. 70 (Greenspan) ¶56. 

48 See, e.g., Ex. 78 (Levin depo.) 15:10-16:21, 20:4-9, 20:23-21:11, 21:23-22:8, 133:25-135:1, 

135:7-16, 286:3-17, 286:22-287:15, 288:10-17, 288:25-291:4, 291:21-293:16, 294:12-295:9, 

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For example, Defendant Raether testified that it was “incumbent upon the directors ... to 

understand the terms of the DIP financing and the company’s ... operating forecast such that it 

could comply with the covenants that were present in that DIP financing.” 49

Raether further testified that “[t]o understand whether Toys ‘R’ Us’s projections going 

forward were reasonable,” it would be “necessary” for a director “to have some understanding 

about the assumptions underlying the projections,” including “the relative increase or decrease in 

same-store-sales.” 50 In fact, he said “you wouldn’t waste time ... on a forecast ... looking at it 

or analyzing it if you didn’t have the assumptions that lay behind” the forecast. 51

Raether also testified that, in “determining whether taking on DIP financing was 

reasonable,” a director would also need to examine a “sensitivity analysis,” meaning adjusting 

the key assumptions “to see how it impacts the projections.” 52 The sensitivity analysis provides 

information about a “range of outcomes,” including one or more less favorable outcomes that 

would allow an assessment of whether the Company would “be in compliance with the 

covenants that were in the DIP financing agreement.” 53

295:25-297:9; Ex. 79 (Taylor depo.) 188:12-25, 190:15-25, 192:6-14, 193:3-9, 193:10-21, 

194:25-195:19, 196:18-197:5, 197:18-24, 198:18-199:14, 200:1-201:7, 207:20-208:7, 210:12-23, 

211:11-18, 213:11-16, 214:24-215:11, 215:13-19, 215:21-216:1, 216:5-11, 247:20-248:9; Ex. 80 

(Silverstein depo.) 163:13-164:8, 186:25-187:13, 188:13-20, 190:2-12, 190:17-191:9, 191:18-

192:17; Ex. 83 (Macnow depo.) 65:5-16, 193:21-194:13, 195:13-196:12, 196:21-197:9, 203:3-

204:7, 207:2-9; Ex. 82 (Goodman depo.) 15:10-13, 16:4-15, 16:21-25, 17:4-18:7, 22:2-23:21, 

24:6-13, 27:17-28:3, 28:20-29:2, 41:1-11, 43:6-12, 49:11-15, 50:2-10.

49 Ex. 77 (Raether) 124:19-125:12.

50 Ex. 77 (Raether) 125:25-126:11. 

51 Ex. 77 (Raether) 181:22-182:11, 492:25-493:25.

52 Ex. 77 (Raether) 128:3-19. 

53 Ex. 77 (Raether) 128:20-129:17, 496:14-497:1.

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Raether testified that Directors must be presented with “a set of sensitivity analyses such 

that we can determine with a high degree of confidence that the company will be able to perform 

and meet its obligations,” and “if not, the directors should not approve ... financing.” 54

As another example, Defendant Taylor testified that if the Directors “authorized the 

company to take on DIP financing without assessing the ability of the company to comply with 

the financial covenants” then the Board “would not have” “complied with our fiduciary 

duties.” 55 Taylor testified that “to comply with your fiduciary duties” he was “required to 

investigate the assumptions underlying information provided” from advisors. 56 He testified that 

he would need to see assumptions on “sales” and “costs” and “a comprehensive discussion of the 

key elements of the income statement and balance sheet on a go-forward basis.” 57

And Taylor testified that “part of a board’s duty is to contemplate a likely range of 

outcomes,” including “scenarios above and below the forecast,” and “an analysis of the 

downside risk of not being able to comply with the financial covenants.” 58

C. The Director Defendants abdicated their duty and entirely failed to assess the 

Company’s ability to comply with the financial covenants in the DIP 

financing.

Although the Director Defendants knew they had a fiduciary duty to assess the risk of 

covenant compliance, they entirely abdicated that duty. This was not a “situation where the 

Directors attempted such an analysis, but did not do an adequate analysis,” amounting to mere 

54 Ex. 77 (Raether) 136:12-137:18. 

55 Ex. 79 (Taylor) 247:20-248:9. 

56 Ex. 79 (Taylor) 211:11-18.

57 Ex. 79 (Taylor) 199:2-14. 

58 Ex. 79 (Taylor) 200:1-22, 216:5-11.

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negligence. 59 “The record shows a complete absence of any effort by the Directors to assess the 

covenants, risks of default, and consequences of a default.” 60

As discussed in greater detail below, the Board never even bothered to ask for (much less 

examine) a forecast with identified assumptions, a comparison of the forecast to the covenants, 

or a sensitivity analysis assessing a downside case. In fact, they voted to approve the DIP 

financing without even bothering to find out what covenants were required, and without even 

obtaining a conclusory representation from management or the advisors that the Company could 

reasonably comply with the covenants. Defendants’ conduct was a classic example of adopting a 

“we don’t care about the risks” attitude.

Before voting to approve DIP financing, the seven non-management Defendant Directors 

(Raether, Taylor, Bekenstein, Levin, Silverstein, Macnow, Goodman) received two forecasts of 

the Company’s projected performance upon entering bankruptcy, neither of which could be used 

to assess covenant compliance. On August 17, 2017, Taylor, Levin, and Silverstein received a 

“Preliminary DIP Sizing Forecast” dated August 17, 2017. 61 This forecast was “preliminary” 

and “could not reliably have been used to assess the financial covenants” because it “was 

prepared several weeks before any DIP proposals had been received.” 62 None of the Defendants 

contend it was usable (or that it in fact was used). For example, Defendant Levin testified that 

the August 17 forecast was not sufficient “to reach a conclusion as to whether or not Toys ‘R’ Us 

59 Ex. 70 (Greenspan) ¶84. 

60 Ex. 70 (Greenspan) ¶84.

61 Ex. 32 (8’17’17 Lal to Finegan [REV01587062]) (“attached is a prelim DIP sizing that we 

used for discussion with Dave and Mike this AM”); Ex. 70 (Greenspan) ¶63. 

62 Ex. 70 (Greenspan) ¶63. 

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is going to be able to comply with its financial covenants” and “I couldn’t use this model” “to 

make an assessment of whether Toys ‘R’ Us could comply.” 63

Defendants have good reason for distancing themselves from this August 17 forecast: it 

demonstrated that the DIP loans were far too risky. To allow for variability, the Company 

needed a reasonable liquidity cushion (the advisors determined the liquidity cushion should be at 

least $200 million). 64 The August 17 forecast projected total liquidity would fall to $2 million. 

65 A “projected margin of only $2 million for a multi-billion-dollar organization created a high 

risk of default,” and “[a]ny sensitivity analysis would have shown a default.” 66

The only other forecast the non-management Director Defendants received was a 

“Summary DIP Budget and Forecast,” in an appendix to the September 13 board materials. 67 

This “summary” forecast included a forecast for “Adjusted EBITDA,” but “did not include a 

breakdown of projected sales, margin, or costs, nor did it include the underlying assumptions on 

which sales, margin, and costs were projected, or a justification for those assumptions.” 68

None of the Defendants contends the limited information in the Summary DIP Budget 

and Forecast could be used (or was used) to assess projected covenant compliance. For example, 

Defendant Raether testified that “you would need more information than just this page to 

63 Ex. 78 (Levin depo.) 309:12-310:12, 311:23-312:6; Ex. 78 (Levin depo.) 308:10-22.

64 Ex. 70 (Greenspan) ¶112; Ex. 37 (8'31'17 attach DIP sizing [TRU-Trust0000373909]) at 3 

(“maintains a minimum cushion of $200 million ... through the forecast period. This cushion 

will allow for a day-to-day operating buffer, and intra-month liquidity troughs”); id. at 2 

(“maintain liquidity of at least $200 million through the period”); Ex. 42 (9’15’17 Lal 144 not 

sufficient [LZ-TRU0079112]) (“$144MM ... does not provide sufficient cushion”). 

65 Ex. 30 (8’17’17 attach to Levin Silverstein Sunrise_Draft DIP Sizing [DEFS_0123956]) at 3; 

Ex. 70 (Greenspan) ¶64.

66 Ex. 70 (Greenspan) ¶64.

67 Ex. 70 (Greenspan) ¶¶69-73; Ex. 41 (9’13’17 Brandon agenda plus attach [DEFS_0004126]). 

68 Ex. 41 (9’13’17 Brandon agenda plus attach [DEFS_0004126]) at pdf p.15; Ex 70 (Greenspan) 

¶71. 

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determine whether the operating cash flow at the top ... is reasonable,” including information on 

sales, SG&A, working capital, same store sales assumptions, and a sensitivity analysis with a 

downside case. 69 Raether explained: “Without the assumptions, you’re just looking at a piece of 

paper with a bunch of numbers on it that don’t mean anything because you have to understand 

what the assumptions are, and you have to determine whether you think those assumptions are 

reasonable or not.” 70 Raether testified “you wouldn’t waste time ... on a forecast ... looking at 

it or analyzing it if you didn’t have the assumptions that lay behind” the forecast. 71

In fact, the September 13 board materials “did not include any assessment or 

commentary” on the various financial covenants that had been proposed by lenders as of that 

date. 72 And the materials did not include any commentary on the likelihood of achieving the 

forecast, any alternative downside scenarios, any sensitivity analysis, or a financial model that 

would have permitted a Director to perform an analysis of covenants. 73 For example, Levin 

testified “I wouldn’t have been able to do an assessment of whether Toys ‘R’ Us would be able 

to comply with the cash flow covenants under the DIP financing.” 74

The Director Defendants also received materials for the board meetings held on 

September 15, 2017, and September 18, 2017 (the day of the vote). But those “materials did not 

include any analysis of the financial covenants or any information on a financial forecast.” 75

69 Ex. 77 (Raether) 186:9-20, 188:25-189:13, 190:6-20, 197:9-16. 

70 Ex. 77 (Raether depo.) 181:22-182:11. 

71 Ex. 77 (Raether depo.) 181:22-182:11; see Ex. 78 (Levin depo.) 319:8-22, 321:12-17, 325:16-

326:1, 328:19-329:7.

72 Ex. 70 (Greenspan) ¶73; Ex. 41 (9’13’17 Brandon agenda plus attach [DEFS_0004126]) at pdf 

6, 9. 

73 Ex. 41 (9’13’17 Brandon agenda plus attach [DEFS_0004126]); Ex. 70 (Greenspan) ¶72.

74 Ex. 78 (Levin depo.) 328:19-329:7.

75 Ex. 70 (Greenspan) ¶¶76, 78; Ex. 43 (9'15'17 to BOD re DIP and attach [DEFS_0004093]); 

Ex. 54 (9'18'17 Sussberg to board with financing [DEFS_0004108]).

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Before casting their vote directing the Company to take on DIP financing, none of the 

Defendants prepared an analysis assessing covenant compliance nor did they review an analysis 

of covenant compliance prepared by the Company’s management or its restructuring advisors. 76 

The materials provided to the Directors “did not include any alternative downside scenarios, any 

sensitivity analysis, or a financial model that would have permitted a director to perform an 

analysis of covenants.” 77

In fact, on September 18, when the Directors approved the DIP financing and the 

Company filed its bankruptcy petition and first day motions, the three financial covenants for the 

DIP Term loan were unknown (as discussed in greater detail below). 78 When the Board voted to 

authorize the financing, the lenders for the DIP Term loan had not yet even provided a proposal

for the required financial covenants. 79 Consequently, it was not possible on September 18 for 

either management or the advisors to have prepared any analysis (much less an adequate 

sensitivity analysis) to assess covenant compliance for financial covenants. 

“The record shows a complete absence of any effort by the Directors to assess the 

covenants, risks of default, and consequences of a default.” 80 The “Board did not request ... the 

terms of each financial covenant” or a “financial forecast that could be used to assess the risks of 

the financial covenants.” 81 The Company’s “advisors did not conduct (and were not asked by 

the Directors to conduct) an analysis of whether the Company could comply with the financial 

covenants and avoid a default-induced sudden liquidation.” 82 There is no record “suggesting 

76 Ex. 70 (Greenspan) ¶¶85, 283. 

77 Ex. 70 (Greenspan) ¶85.

78 Ex. 70 (Greenspan) ¶¶93-108.

79 Ex. 70 (Greenspan) ¶¶93-95, 97-99. 

80 Ex. 70 (Greenspan) ¶84.

81 Ex. 70 (Greenspan) ¶85.

82 Ex. 70 (Greenspan) ¶283.

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that any of the Directors requested or received an analysis of risks associated with the financial 

covenants in the DIP financing, or any of the information needed to determine whether such an 

analysis had been adequately performed by the advisors and management.” 83

D. Defendants’ deposition testimony confirms their breach of fiduciary duty.

In their depositions, the Director Defendants “were not able to identify any materials they 

received or analyzed that provide sufficient information for them to assess the covenants, risks of 

default, or consequences of default.” 84 Here are some examples.

Bekenstein

Defendant Bekenstein, the co-chair of Bain Capital, admitted that he failed to take any 

steps to satisfy his fiduciary duty to assess the Company’s ability to comply with financial 

covenants in the DIP financing.

 9 Q. In 2017, before Toys "R" Us filed for

10 bankruptcy, did you conduct any assessment to

11 determine whether Toys "R" Us would likely be

12 able to comply with its financial covenants

13 under the DIP financing?

15 A. No.

Ex. 81 (Bekenstein) 21:9-15.

Bekenstein admitted that he has no proof whatsoever on the subject: 85

2 Q. Do you have any information you can

3 provide the jury on your -- the subject of your

4 analysis of the DIP budget and forecast?

6 A. No, I cannot.

Ex. 81 (Bekenstein) 66:2-6. 

Raether

83 Ex. 70 (Greenspan) ¶85. 

84 Ex. 70 (Greenspan) ¶86. 

85 Ex. 81 (Bekenstein depo.) 29:5-30:13, 31:1-24, 32:22-33:2, 49:17-50:1, 54:3-55:11, 56:23-

57:4, 60:5-19, 61:6-12, 63:21-64:1, 64:15-18, 65:5-24, 66:2-6.

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Defendant Raether was head of the portfolio management committee at KKR, having 

joined KKR in 1980. 86 Raether testified that he produced in discovery his complete files of 

board materials for the Company and that he had not destroyed or thrown away any such 

materials, or any of his own notes or analysis. 87 Raether testified that, in preparing for his 

deposition, he did not “see any documentation that would substantiate” that he had “obtained the 

necessary information” to assess the DIP financing. 88

At his deposition, Raether was presented with each set of the materials he received for 

each of the board meetings, as well as his own handwritten notes from each of the meetings. In 

each case, Raether confirmed that he did not receive the information needed to make an 

assessment of the covenants: 89

September 6 materials. 90

September 13 materials. 91

September 15 materials. 92

September 18 materials. 93

86 Ex. 77 (Raether depo.) 13:8-10; Ex. 65 (2017 TRU 10K) at 113, pdf 118.

87 Ex. 77 (Raether) 159:7-14, 163:5-13, 431:9-12, 497:24-498:9. 

88 Ex. 77 (Raether) 197:9-17.

89 Ex. 70 (Greenspan) ¶86. 

90 Ex. 155 (9’6’17 Raether board materials [DEFS_0124536]); Ex. 77 (Raether) 76:17-78:6; 

392:17-21, 397:20-398:8, 499:24-500:5, 503:9-21, 504:13-25, 507:1-10. 

91 Ex. 175 (9’13’17 Raether board materials [DEFS_0124585]); Ex. 77 (Raether) 507:11-18, 

514:2-515:13, 516:2-6, 519:23-520:19; Ex. 77 (Raether) 186:9-20, 188:25-189:13, 190:6-20, 

197:9-16.

92 Ex. 43 (9’15’17 to BOD re DIP and attach [DEFS_0004093]); Ex. 77 (Raether) 525:16-

526:11. 

93 Ex. 53 (9'18'17 Raether board materials [DEFS_0124607]); Ex. 77 (Raether) 527:11-15, 

531:5-11; 531:23-532:9. 

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29

For example, upon reviewing the collection of materials for the September 18, 2018, 

board meeting, Raether testified: 

5 Would you agree, sir, that in your

6 September 18, 2017 materials, you were not

7 provided the terms of the financial covenants for

8 the DIP financing?

10 A. There -- they are not in the document

11 that we just went through, no. 

23 Would you agree that in your

24 September 18, 2017 board materials, you did not

25 receive any information regarding a forecast for

1 Toys "R" Us and whether it could comply with the

2 financial covenants?

3 A. There is no forecast in the materials

4 that we have just gone through.

5 Q. Would you agree, sir, that in your

6 September 18th materials, you received no

7 information constituting a sensitivity analysis

8 for Toys "R" Us?

9 A. Not in this material, no.

Ex. 77 (Raether) 531:5-11; 531:23-532:9.

After reviewing at his deposition all of the board materials that Raether had maintained in 

his file, Raether testified as follows:

23 Would you agree, sir, that in the

24 board materials that were in your file, the board

25 materials that we reviewed, that there was no

Page 533

1 identification of the terms of the financial

2 covenants that were agreed to for the DIP lenders?

3 A. In the materials that we just

4 reviewed, there were not.

5 Q. Would you agree that in the materials

6 we reviewed there was no forecast for Toys "R" Us

7 assessing how it -- whether it could comply with

8 the financial covenants?

9 A. There was no forecast that would

10 indicate whether we could comply.

11 There was a forecast of cash flow, but

12 it did not tie to the covenants that were

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30

13 ultimately agreed to in those materials.

14 Q. Would you agree that there was no

15 sensitivity analysis in those materials?

16 A. I would agree there was no sensitivity

17 analyses in the materials we reviewed. 

Page 534

24 We've looked at the materials for

25 September 2008 -- for September 2017 that were in

1 your files or that were presented to the board.

2 In those materials, can you point the

3 jury to any information that would have allowed

4 you to adequately assess whether Toys "R" Us could

5 comply with financial covenants of the proposed

6 DIP financing?

7 A. Not in the materials that we reviewed.

Ex. 77 (Raether) 532:33-533:17; 534:24-535:7.

In addition, Defendant Raether testified that he could not recall that any of the advisors or 

management had determined that the Company had a sufficient liquidity cushion for the DIP 

financing:

21 Before you voted on September 18th to

22 approve the DIP financing, had any of the advisers

23 or management of Toys "R" Us told you that they'd

24 done an assessment of Toys "R" Us' forecast going

25 forward and determined that there was a sufficient

Page 552

1 minimum liquidity for the financial covenants that

2 were agreed to?

3 A. I don't recall that specifically, no.

4 Q. Did you ever see any information

5 suggesting to you that Toys "R" Us had sufficient

6 cushion for the financial covenants that were

7 agreed to?

8 A. I don't recall seeing any specific

9 information, no.

10 Q. Did you receive an assurance from

11 anyone before you voted on September 18th that the

12 forecast showed that Toys "R" Us had a sufficient

13 cushion to comply with the financial covenants

14 that were agreed to?

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15 A. I don't recall.

Ex. 77 (Raether) 551:21-552:15).

Silverstein

Defendant Silverstein had been a senior executive of Vornado since 1998, serving as 

executive vice-president, head of capital markets, and co-head of acquisition. 94 Silverstein was 

asked whether she was “provided a sensitivity analysis, “provided a downside case analysis,” 

“told about the budget covenant,” “provided information about what the DIP term loan covenants 

were,” “provided any information about revenue growth assumptions” or “assumed sales 

projections, assumed profit margins, cost projections,” or did “anything to assess the other 

covenants,” and to all of these questions answered “I don’t recall.” 95 And she could not “point 

to any material” she received “that provided details that would allow you to analyze the 

reasonableness of the DIP budget.” 96

Macnow

Defendant Macnow was the “chief financial officer, and chief administrative officer” of 

Vornado, and he was “in charge of all of the financial affairs of Vornado.” 97 He testified that he 

does not recall “any forecasting that was done to determine whether or not Toys ‘R’ Us could 

meet the financial covenants of the DIP financing.” 98 And Macnow failed even to request that 

management or the advisors provide a risk assessment:

9 Q. Did you ask Toys "R" Us

10 management or any of their advisors to do

94 Ex. 80 (Silverstein depo.) 6:25-7:16.

95 Ex. 80 (Silverstein) 182:1-7, 184:25-185:5, 232:10-19, 194:20-195:6, 227:16-19.

96 Ex. 80 (Silverstein) 226:2-7; see Ex. 80 (Silverstein depo.) 126:12-15, 150:21-151:22, 161:5-

20, 181:16-182:7, 182:19-183:11, 184:15-185:5, 194:20-195:6, 199:10-23, 208:4-15, 208:20-24, 

211:24-212:9, 226:2-7, 232:25-233:13.

97 Ex. 83 (Macnow depo.) 7:19-8:11.

98 Ex. 83 (Macnow depo.) 65:17-21, 86:19-23.

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11 a risk assessment on the DIP financing?

13 A. I did not.

Ex. 83 (Macnow depo.) 101:9-13, 101:15-103:8.

Goodman

Defendant Goodman was a “retired executive.” 99 Goodman was asked at his deposition 

to examine the materials provided to the Board, and he admitted that the materials did not 

identify the financial covenants for the DIP financing. 100

12 Q. Is there any discussion of

13 covenants in this document?

14 A. No.

Ex. 82 (Goodman depo.) 173:12-14.

Goodman testified that he did not remember anything about what was said on the subject 

of the DIP financing. 101 

20 Q. In as much detail as you can

21 recall, can you tell me what was said in

22 the board meetings on the subject of

23 whether Toys "R" Us should take on the

24 3 billion dollars in debtor-in-possession

25 financing?

Page 86

2 A. I don't remember the discussions.

3 Q. Is there anything you can recall

4 about those meetings?

5 A. About the specific -- about a

6 specific meeting? No.

Ex. 82 (Goodman depo.) 85:20-86:6.

Goodman testified that, as a director, he knew his fiduciary duties required that he 

“maintain thorough records” of his decision-making process, and document “the reasons for 

99 Ex. 82 (Goodman depo.) 7:3-9. 

100 Ex. 82 (Goodman depo.) 103:11-104:1, 158:20-159:16, 163:8-164:10.

101 Ex. 82 (Goodman depo.) 86:21-87:6.

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making those decisions.” 102 Goodman testified, however, that he did not make any such record, 

beyond what is in the minutes of the board meetings, and that “[t]he only thing that’s in the 

minutes is the words, ‘Discussion ensued.’” 103

12 Q. So those minutes of the board

13 meetings, that's the only written record

14 that you're aware of, of what was said in

15 those board meetings, is that right?

16 A. It's the only written record,

17 yes.

18 Q. And sitting here today, you don't

19 have a recollection of anything

20 specifically that was said in any of those

21 board meetings, is that right?

22 A. That's correct.

Ex. 82 (Goodman depo.) 87:12-22.

Levin

Defendant Levin had been with Bain for 28 years, including as a partner for 15 years. He 

testified: “I don’t recall doing my own independent analysis” “to assess whether Toys ‘R’ Us 

would be able to comply with its financial covenants.” 104 He testified that he reviewed “the 

document I got on August 17,” and “that would be what I recall I did.” Id. As discussed above, 

the August 17 document was an early forecast projecting insufficient liquidity. And Levin 

testified that the August 17 forecast was not sufficient “to reach a conclusion as to whether or not 

Toys ‘R’ Us is going to be able to comply with its financial covenants” and “I couldn’t use this 

model” “to make an assessment of whether Toys ‘R’ Us could comply.” 105

Taylor

102 Ex. 82 (Goodman depo.) 41:1-11, 45:16-46:7, 50:2-10. 

103 Ex. 82 (Goodman depo.) 87:3-6, 178:5-179:5. see Ex. 82 (Goodman depo.), 103:11-104:1, 

104:7-105:16, 108:3-10.

104 Ex. 78 (Levin) 325:5-15. 

105 Ex. 78 (Levin depo.) 309:12-310:12, 311:23-312:6; Ex. 78 (Levin depo.) 308:10-22.

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Defendant Taylor was a partner, investor, and senior executive at KKR. He testified that 

he did not perform any financial analysis “myself as an individual” on “the subject of whether 

Toys ‘R’ Us should take on DIP financing,” nor did he “ask anyone at KKR to perform any 

financial analysis.” 106 He reviewed only “the analysis that our advisers provided or the 

company provided.” 107

But Taylor admitted that the information in the materials provided to the Board did not 

contain “an assessment of the ability of Toys ‘R’ Us to comply with its financial covenants” and 

would not have been “sufficient for a board member to make an assessment.” 108

20 Q. In this presentation that we just looked

21 at, was there anywhere in writing an analysis by any

22 of the financial advisers or management about the

23 likelihood that Toys "R" Us could comply with its

24 financial covenants?

1 THE WITNESS: I don't see in writing a

2 discussion of that topic.

Ex. 79 (Taylor) 242:20-243:2.

Taylor further testified that he does not recall receiving any such analysis from the 

advisors or management.

Page 201

20 Q. Did you ever receive any written materials

21 that provided an analysis from the advisers

22 regarding the ability to comply with the financial

23 covenants for the DIP financing?

24 A. I don't recall.

Page 202

11 Did you ever have any discussions with

12 anyone from Toys "R" Us management or a Toys "R" Us

13 employee concerning the DIP financing before the

14 board voted to take on the DIP financing?

106 Ex. 79 (Taylor) 187:2-15. 

107 Id. 108 Ex. 79 (Taylor) 236:5-23. 

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15 A. I don't have a specific conversation that

16 comes to mind or recall. It doesn't mean it didn't

17 happen, but I don't recall it.

Ex. 79 (Taylor depo.) 201:20-24, 202:11-17.

Taylor also testified that he does not recall getting any of the key information he would 

need to make an assessment of whether the Company would comply with the financial 

covenants: 

20 Q. If you, Nate Taylor, were going to

21 undertake to make an assessment of whether

22 Toys "R" Us could comply with the financial

23 covenants under the DIP financing that it was

24 expecting to enter, one of the things you would need

25 are the terms of the covenants; right?

1 A. Correct.

2 Q. Another thing you would need would be the

3 forecast; right?

4 A. Correct.

5 Q. You would also need to know some of the key

6 assumptions underlying the forecast; right?

7 A. Correct.

22 Were you provided the terms of the

23 financial covenant so that you could do your own

24 analysis of whether they were reasonable or whether

25 they were risky? 

1 A. I don't recall.

4 Q. Were you provided the forecast for

5 Toys "R" Us together with the key assumptions so

6 that you could do your own analysis?

8 THE WITNESS: I don't recall.

21 Q. Were you provided with any scenarios?

23 THE WITNESS: I don't recall.

Ex. 79 (Taylor depo.) 207:20-208:7, 208:22-209:1, 209:4-8, 209:21-23. 109

109 see Ex. 79 (Taylor depo.) 225:8-14, 201:25-202:8, 202:11-17, 206:5-12, 209:21-23, 245:4-24, 

217:5-9, 217:10-13, 217:14-19, 231:6-17, 237:1-9, 242:20-243:2, 248:18-249:6, 221:14-18, 

223:5-19, 251:17-25, 252:2-16, 252:17-253:2, 256:22-257:3, 257:4-11, 257:13-16, 257:17-258:1, 

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E. Brandon and Short knew that the Company could not comply with the 

financial covenants.

The conduct of Brandon and Short was even worse than the other Defendant Directors: 

Brandon and Short had access to the Company’s internal forecast and knew that the Company 

could not comply with the financial covenants. 

To begin, Short knew that the forecast used to prepare the DIP budget was being 

manipulated and was based on sales projections that were far above trend. As of September 

2017, the Company had a well-established trend of declining revenues and margins. For 

example, the Company “had experienced U.S. same store sales declines of 2.2% in the second 

half of 2016, which worsened to 6.5% in the first half of 2017,” and margin rates that were down 

over 2 percentage points. 110 Using a same store sales rate consistent with the existing trend 

would result in forecasting a $290 million liquidity shortfall, even with the maximum available 

DIP financing. 111

The first DIP financing forecast prepared (dated August 17, 2017) was purportedly 

“based on the latest thinking” from management, and projected sales declines of only -0.6% for 

2018 (much better than the existing trend). 112 But even these unrealistic assumptions resulted in 

forecasting insufficient liquidity. 113

But rather than acknowledging that the DIP financing path would not work, Short went 

back to the drawing board and produced new projections that dramatically inflated the projected 

259:2-10, 263:7-14, 269:12-270:4, 274:2-11, 277:10-18, 279:13-24, 281:21-282:2, 282:12-24, 

282:25-283:6, 210:12-15, 210:16-23, 211:11-18. 

110 Ex. 70 (Greenspan) ¶¶82, 120; Ex. 9 (2'28'17 2016 Financial Update [DEFS_0125708]) at 3; 

Ex. 16 (6’20’17 June BOD Financial Update [TRU-Trust0000373950]) at 5; Ex. 5 (2’7’18 

weekly board update [DEFS_0125623]) at 3.

111 Ex. 70 (Greenspan) ¶¶131-132. 

112 Ex. 70 (Greenspan) ¶118; Ex. 30 (8'17'17 attach to Levin Silverstein Sunrise Draft DIP Sizing 

[DEFS_0123956]) at 4.

113 Ex. 70 (Greenspan) ¶¶63-64, 118.

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revenues and margins. This resulted in a DIP forecast projecting sales growth for 2018 of a 

positive 4.0%. 114 The revised forecast stated that “[t]he Company has recently updated its 

forecast based on its Turnaround Plan,” and that this sale growth was “[b]ased on management’s 

Turnaround Scenario.” 115 Short admitted that he knew that “the actual same-store sales growth 

for the first half of 2017 had been minus 6.5 percent.” 116 And he admitted that he knew that this 

revised forecast was “based on an assumption that same-store sales do better” than “the 

trend.” 117

But Brandon and Short also knew (as demonstrated in detail below), that there was no 

“Turnaround Plan,” that it was “highly unlikely the Company could come up with a viable 

turnaround plan,” and that, “if developed, such a plan would take years to implement and 

produce meaningful results.” 118 Consequently, there “was nothing presented ... to substantiate 

that results .... would deviate from the exiting sales trends,” which projected lower sales, not 

greater sales. 119 Accordingly, Brandon and Short knew that the projections used for the forecast 

could not reasonably be achieved.

Worse still, Brandon and Short knew that even the manipulated revenue forecast 

projected that the Company could not comply with financial covenants for the DIP Term loan. 

Commencing on the evening of September 18, 2018 (after the Board vote to approve the DIP 

114 Ex. 44 (9’15’18 attach to Finnegan [TRU-Trust0000377785]) at 4, attached to Ex. 45 

(9’15’18 Finnegan DIP budget cleansed [TRU-Trust0000377782]); Ex. 87 (Short depo.) 505:2-7.

115 Ex. 44 (9’15’18 attach to Finnegan [TRU-Trust0000377785]) at 4, attached to Ex. 45 

(9’15’18 Finnegan DIP budget cleansed [TRU-Trust0000377782]).

116 Ex. 87 (Short depo.) 503:24-504:2. 

117 Ex. 87 (Short depo.) 504:3-10.

118 Ex. 70 (Greenspan) ¶118. 

119 Ex. 70 (Greenspan) ¶118. 

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financing), Brandon and Short participated in negotiations for two new financial covenants, a 

$175 million liquidity covenant, and a January revised budget covenant. 120

The $175 million liquidity covenant “would be $175 million on top of the $125 million 

excess availability covenant in the ABL/FILO DIP loan.” 121 Even using the far-too-optimistic 

revenue forecast based on a purported Turnaround Plan, the new $175 million liquidity covenant 

resulted in “a cushion of less than $50 million” which “created grave risk of default.” 122 Short 

knew that the advisors “had determined that a $200 million liquidity cushion” was required. 123 

With a $50 million liquidity cushion, “a small bump in the road of projected better operations 

would erase that cushion and cause a default in the liquidity covenant.” 124 Therefore, “any 

downside case analysis, would have demonstrated that the $175 million minimum liquidity 

covenant could not be satisfied.” 125

A Lazard employee wrote an email stating that he had explained to Mike Short “last 

night” that the $175 million covenant “basically left him with $50m liquidity cushion in trough 

month,” “which gives them angst.” 126 After the effect of the $175 million liquidity covenant 

120 Ex. 70 (Greenspan) ¶¶97-108; Ex. 48 (9’18’17 2244 pm [LZ-TRU0092221]); Ex. 47 (9’18’17 

2228 pm Dobleman [TRU-Trust0000138093]); Ex. 49 (9’18’17 2319 pm Dobleman [TRUTrust0000072139]); Ex. 46 (9’18’17 11PM draft [TRU-Trust0000138218]) at 67; Ex. 48 

(9’18’17 2244 pm [LZ-TRU0092221]) at 4; Ex. 50 (9’18’17 2427 am Short re covenants [TRUTrust0000336078]); Ex. 56 (9’20’17 0612 am Kilkenney [TRU-Trust0000075262]); Ex. 57 

(9’20’17 0652 am [TRU-Trust0000075725]). 

121 Ex. 70 (Greenspan) ¶103; Ex. 56 (9’20’17 0612 am Kilkenney [TRU-Trust0000075262]).

122 Ex. 70 (Greenspan) ¶111.

123 Ex. 70 (Greenspan) ¶112; Ex. 37 (8’31’17 attach DIP sizing [TRU-Trust0000373909]) at 3; 

Ex. 42 (9’15’17 Lal 144 not sufficient [LZ-TRU0079112]).

124 Ex. 70 (Greenspan) ¶111.

125 Ex. 70 (Greenspan) ¶133.

126 Ex. 70 (Greenspan) ¶115; Ex. 59 (9’21’17 Kurtz re negotiations [LZ-TRU0086423]) at 1.

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was explained to Short, he wrote an email on the morning of September 20, 2017, to “Agree” 

that the new covenant “doesn’t work.” 127 

 The January revised budget covenant (covenant 6.16), was even harsher than the $175 

million liquidity covenant. It required the Company to present a reforecast in January 2018 

based on actual results through the holiday season demonstrating that the Company would 

achieve “liquidity not less than that contemplated by the existing Budget” (i.e., the DIP 

budget).128 As Josh Sussberg of Kirkland & Ellis testified, the language of 6.16 was “ 

.” 129 

“The effect of this covenant was zero cushion from achieving the DIP budget,” and that 

virtually assured a default in January 2018. 130 Normally “a retailer would not trigger a default 

on customary minimum liquidity covenants in January, when they are typically flush with cash 

after the holidays.” But covenant 6.16 was structured so that it would trigger a default in January 

based on projections of future liquidity. 131 “Given the inherent uncertainties of any retail 

operation in bankruptcy, and especially a DIP budget projecting the reversal of adverse sales and 

margin trends, ... to have a covenant which had zero cushion” meant that a “default on the DIP 

loan was likely if not inevitable.” 132 “In fact, the Budget covenant was structured so that any 

downside case necessarily would require a reforecast and likely covenant breach.” 133 

127 Ex. 70 (Greenspan) ¶104; Ex. 57 (9’20’17 0652 am [TRU-Trust0000075725]). 

128 Notice of Filing of NA DIP (Bk. Dkt. 158) at pdf 505. 

129 Ex. 84 (Sussberg) 97:14-25; id. at 96:11-16, 99:22-100:15. 

130 Ex. 70 (Greenspan) ¶136. 

131 Ex. 70 (Greenspan) ¶136. 

132 Ex. 70 (Greenspan) ¶136. 

133 Ex. 70 (Greenspan) ¶137. 

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 When the January revised budget covenant was first presented on the evening of 

September 18, Dave Brandon and Mike Short discussed it with Josh Sussberg (from Kirkland). 

Sussberg then wrote: “Just spoke to Dave and Mike” and “[t]his just isn’t going to work.” 134

Because the $175 million liquidity covenant and January revised budget covenant were 

unacceptably onerous, the Company management and advisors attempted at the last minute to 

find an alternative Term DIP loan lender that would not require these covenants. 135 They 

reached out on September 20 to the lead ABL/FILO DIP lender, JP Morgan, to see if it would be 

willing to step up and provide the $450 million Term DIP Loan as well as the ABL/FILO 

loan. 136 JP Morgan initially appeared willing to do so, with a Company employee reporting on 

the evening of September 20: “All systems go on their end.” 137

But within a few hours, after JP Morgan assessed the loan documentation and the 

collateral package that was offered, they declined to make the DIP Term loan. 138 When JP 

Morgan was unable to do so, the Company had to accept a Term DIP loan that included both the 

January revised budget covenant (6.16) and the $175 million minimum liquidity covenant 

(7.18). 139 Short signed the DIP Term loan September 22, 2017. 140

Just like the other Director Defendants, Brandon and Short never prepared, or received 

from advisors, any downside case analysis, much less a downside analysis demonstrating that the 

Company would be able to satisfy the financial covenants. Worse yet, Brandon and Short knew 

134 Ex. 48 (9’18’17 2244 pm [LZ-TRU0092221]) at 4.

135 Ex. 70 (Greenspan) ¶116. 

136 Ex. 70 (Greenspan) ¶105; Ex. 58 (9’21’17 Bhandari re negotiations [TRU-Trust0000041548]) 

at 4-5; Ex. 59 (9’21’17 Kurtz re negotiations [LZ- TRU0086423]) at 7-8.

137 Ex. 58 (9’21’17 Bhandari re negotiations [TRU-Trust0000041548]) at 4-5; Ex. 59 (9’21’17 

Kurtz re negotiations [LZ- TRU0086423]) at 7-8; Ex. 70 (Greenspan) ¶105.

138 Ex. 70 (Greenspan) ¶¶106-107.

139 Ex. 70 (Greenspan) ¶108; Notice of Filing of NA DIP (Bk. Dkt. 158) at 505, 522.

140 Notice of Filing of NA DIP (Bk. Dkt. 158).

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that the revenue forecast could not be achieved because it was based on a purported “Turnaround 

Plan” that did not exist. And they knew that even that unrealistic forecast did not project a 

sufficient liquidity cushion for the $175 million minimum liquidity covenant or the January 

budget covenant. Accordingly, they knew the Company was virtually certain to default. 141

It “was virtually inevitable that TRU would default on its covenants,” and “[t]here was 

nothing about the default and the performance that wasn’t in plain sight at the time this was 

done.” 142

F. The Director Defendants abdicated their duty and entirely failed to assess the 

risks of the turnaround strategy or to consider the alternative of an 

immediate wind-down.

As Defendants admit, their fiduciary duties required them to consider and assess all 

reasonable alternatives before settling on the plan to max out DIP financing and attempt a 

turnaround.

For “any retail business experiencing such deteriorating performance and losses that it 

needed to consider filing bankruptcy in 2017, the option of an orderly wind-down of the business 

should have been evaluated.” 143 After all, in the ten years preceding September 2017, only 16% 

of large retail bankruptcies resulted in successful reorganizations. 144

Moreover, the Directors knew that the circumstances facing Toys “R” Us were far worse 

than the average retail bankruptcy, which statistically only had a 1 in 6 chance of successful 

reorganization. As demonstrated below, Defendants knew that the Company “was losing money, 

had declining sales, was based on a failed business model, and had not identified a business 

141 Ex. 86 (Greenspan depo.) 131:24-133:22.

142 Ex. 86 (Greenspan depo.) 131:24-133:22.

143 Ex. 70 (Greenspan) ¶141. 

144 Ex. 70 (Greenspan) ¶141. 

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model that would turn around the business.” 145 As demonstrated in detail below, the Directors 

had known for more than a year that the Company “met all of the criteria” for a business that 

should be shut down. 146

But even as the Company’s situation became more acute in 2017, “the Board never once 

considered the option of winding down the U.S. business.” 147 None of the correspondence or 

board minutes for the entire period contain any contemplation or consideration of a wind-down 

or liquidation of the U.S. business. 148

The Defendants contemplated the future of Toys “R” Us and the options for bankruptcy 

for more than three months (from June 20, 2017, through September 18, 2017), including at nine 

meetings of the Board of Directors. Throughout, the Defendants never once considered the 

option of liquidating the U.S. business, or asked for any analysis of such a liquidation.149 

Defendants do not dispute that the Directors gave no consideration to any restructuring 

alternative other taking on DIP financing. For example, Defendant Raether testified:

1 Q. Did management or the advisors

2 consider the alternative of a structured

3 wind-down of the company in Chapter 11, rather

4 than taking on DIP financing?

5 A. Not that I recall.

145 Ex. 70 (Greenspan) ¶142. 

146 Ex. 70 (Greenspan) ¶142. 

147 Ex. 70 (Greenspan) ¶143. 

148 Ex. 70 (Greenspan) ¶¶140-156.

149 Ex. 16 (6’20’17 June BOD Financial Update [TRU-Trust0000373950]); Ex. 21 (7’26’17 

Brandon Sprayregen [TRU-Trust0000060190]) (“We are off to the races.... Understand the gig 

and that we just want to do this once!”); Ex. 18 (7’27’17 Brandon Sussberg [TRUTrust0000060195]) (“The mission is important! Thanks in advance for all you are going to do to 

help us get through it successfully.”); Ex. 22 (7’29’17 Brandon Boggs [TRUTrust0000021126]); Ex. 25 (8’3’17 Brandon talking points [TRU-Trust0000124186]); Ex. 26 

(8’9’17 BOD minutes [TRU-Trust0000374087]); Ex. 29 (8’12’17 BOD minutes [TRUTrust0000029163]); Ex. 36 (8’30’17 BOD minutes [DEFS_0053984]) at 3; Ex. 39 (9’6’17 

agenda BOD [TRU-Trust0000126713]); Ex. 40 (9’13’17 board minutes [TRUTrust0000165899]); Ex. 52 (9’18’17 BOD minutes [DEFS_0023490]).

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Ex. 77 (Raether) 114:1-5.

10 Did you consider whether there would

11 be advantages to Toys "R" Us if it was to start

12 an immediate structured wind-down rather than

13 taking on the $3 billion in DIP financing?

14 A. I have no recollection of any

15 discussion of that kind.

Ex. 77 (Raether) 116:10-15.

For example, Defendant Macnow testified:

11 Q. At the time that the DIP

12 financing was being considered, did the

13 Toys "R" Us board consider liquidating

14 Toys "R" Us instead?

15 A. No.

Ex. 83 (Macnow depo.) 36:11-15, 38:12-20.

For example, Defendant Taylor testified:

14 Q. Did the Toys "R" Us board of directors

15 consider any alternative other than taking on DIP

16 financing when discussing what to do if the company

17 went into bankruptcy?

18 A. I don't recall.

Ex. 79 (Taylor) 221:14-18.

This was not a situation where the Directors conducted a cost-benefit analysis assessing 

the option of commencing a wind-down versus attempting a turnaround and then merely used 

poor judgment. The Directors entirely abandoned and abdicated their fiduciary duties. They 

made no effort whatsoever to consider the wind-down alternative.

At no point did any of the Defendants “ask for an assessment of a winddown or sale of

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down scenario, versus the DIP financing ‘Hail Mary’ they were considering.” 150 In fact, the 

Defendants did not receive an assessment of either (i) the likely results and sensitivity analysis 

for a wind-down scenario, or (ii) the likely results and sensitivity analysis for maxing out the DIP 

financing and attempting a turnaround. 151 They “conducted no such comparison.” 152

As Defendant Macnow testified:

11 Q. Was there a liquidation analysis

12 done for Toys "R" Us prior to its Chapter

13 11 filing?

14 A. Not that I recall.

6 Q. Prior to approving the Chapter

7 11 filing in the DIP financing, did the

8 board of directors request a liquidation

9 analysis be made?

10 A. Not that I'm aware of.

Ex. 83 (Macnow depo.) 183:11-14, 184:6-10.

Their actions reflected a “we don’t care about the risks attitude.” In re Walt Disney Co. 

Derivative Litig., 825 A.2d 275, 289 (Del. Ch. 2003), aff’d Brehm v. Eisner (In re Walt Disney 

Co. Derivative Litig.), 906 A.2d 27, 63 (Del. 2006) (holding that bad faith may be shown by 

evidence demonstrating a “conscious[] and intentional[] disregard[] [of] responsibilities, 

adopting a ‘we don't care about the risks’ attitude”). 

G. Defendants knew that attempting a turnaround was an implausible “Hail 

Mary.”

The Director Defendants “had ample warning that the Company’s U.S. business met all 

the criteria for a business that needed to be shut down: it was losing money, had declining sales, 

was based on a failed business model, had no viable turnaround plan, had no reasonable prospect 

150 Ex. 70 (Greenspan) ¶157.

151 Ex. 70 (Greenspan) ¶157; Ex. 79 (Taylor) 225:8-14; Ex. 83 (Macnow depo.) 53:25-54:3, 

183:11-14, 183:25-184:18.

152 Ex. 70 (Greenspan) ¶157.

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of developing a viable turnaround plan, and had insufficient capital or time to implement a 

turnaround plan.” 153 Because there was no question that the U.S. business needed to be 

shuttered, the Directors should have ordered wind-down planning to commence no later than 

August 2017, thereby enabling a liquidation of U.S. stores to take advantage of the Holiday 

season, allowing a less-rushed sales process for disposing of international subsidiaries, and 

avoiding more than $500 million dollars in losses for the Company. But Defendants failed even 

to order planning for a liquidation until mid-February when covenant defaults forced a 

liquidation commencing in March 2018.

This was not merely poor judgment. Defendants took the path that advantaged their 

personal interests to the detriment of the Company. Defendants in fact knew that the turnaround 

strategy was highly improbable, and that delaying liquidation would generate large losses. But 

those losses would be borne by the Company’s creditors, not by the three controlling 

shareholders. And the only way for those shareholders to have a chance at generating value was 

by attempting a Hail Mary turnaround. Defendants entirely abdicated and abandoned their 

fiduciary duty to consider reasonable alternatives, acted in bad faith, and breached their duty of 

loyalty.

“If an existing business is losing money and trending downward, it does not make sense 

to continue in business unless the business can be turned around.” 154 Under those 

circumstances, “continuing operations that lose money does not preserve value; it does the 

opposite by destroying value.” 155 In that case, “the best alternative is to commence an orderly 

153 Ex. 70 (Greenspan) ¶158. 

154 Ex. 70 (Greenspan) ¶159. 

155 Ex. 70 (Greenspan) ¶159. 

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winddown or sale, i.e., a winddown performed in a manner that will maximize the value of the 

assets that can be distributed to the stakeholders.” 156

Moreover, as shown below, all of these criteria were present, and the Defendants knew it. 

1. The Directors knew that the Company was losing money, and that its 

sales, market share, and margins were trending down.

As of the summer of 2017, the Directors were well aware that the Company’s domestic 

operation was losing money, that the long-term trends were lower market share, sales, and profit 

margins, and that the downward trend was even worse in the first half of 2017. 157 

Defendants received regular financial updates and each of them personally signed the 

annual financial reports. 158 As Defendants knew, for many years the Company had been 

recording net losses. 159

And 2017 was no different. The Company lost money in the first half of 2017 and was 

projected to continue losing money while in bankruptcy. 160 In fact, for FY 2017, the Company 

lost an additional $437,515,000 from operations (i.e. without even including the large bill for 

restructuring expenses). 161

156 Ex. 70 (Greenspan) ¶159. 

157 Ex. 70 (Greenspan) ¶160; Ex. 78 (Levin depo.) 126:22-127:7; Ex. 96 (Levin depo. notes re 

2017 situation) (as of June 2007, “information that the board knew about Toys ‘R’ Us’s 

situation” as of “June ’17” included “market share lower,” “sales lower,” “gross profit margins 

lower,” and “company losing money”); Ex. 77 (Raether depo.) 48:22-24, 565:24-566:6, 566:12-

15.

158 Ex. 65 (Form 10-K 2017) at 151; Ex. 69 (Form 10-K 2016); Ex. 68 (Form 10-K 2015); Ex. 67 

(Form 10-K 2014); Ex. 66 (Form 10K 2013); Ex. 9 (2’28’17 2016 Financial Update 

[DEFS_0125708]); Ex. 15 (6’20’17 BOD minutes [DEFS_0053970]); Ex. 17 (6’20’17 Raether 

board materials [DEFS_0126153]); Ex. 74 (Q2 2017 – internal analytics [DEFS_0002784]).

159 Ex. 70 (Greenspan) ¶166; Ex. 65 (Form 10-K 2017) at pdf 28. As of the beginning of 2017, 

the net losses for Toys “R” Us Delaware (the entity running the U.S. operation) totaled “more 

than $4 billion.” Ex. 70 (Greenspan) ¶162; Ex. 6 (2’2’18 Goulding projections 

[DEFS_0003098]) at pdf 6-7. 

160 Ex. 70 (Greenspan) ¶¶166-167; Ex. 77 (Raether depo.) 577:24-578:1-9. 

161 Ex. 70 (Greenspan) ¶¶166-167.

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Defendants knew that, for years, “the Company’s U.S. market share had declined for both 

toys and baby products. 162 That trend continued in 2017, and at the June 20, 2017, meeting of 

the Board of Directors, Barry told the Directors that “Amazon has overtaken TRU,” which now 

put the Company behind Walmart, Target, and Amazon. 163

As Brandon put it, because of “consumer demand” shifting “toward online marketplaces 

and competition from one-stop retailers such as Walmart and Target, the Company’s revenue has 

trended downwards over the past five years.” 164 For years “domestic same store sales had 

declined,” and the profits earned on each sale had also declined as the domestic gross margin rate 

continued to shrink. 165

Defendants knew that the downward trends were even worse in the first half of 2017. For 

Q1 2017, domestic same store sales were down 6.2%. 166 And margin rates were down an 

additional 1.70 percentage points. 167 In fact, every sub-category was down, including toys, 

baby, brick & mortar, and dotcom. 168 “This showed vividly not only the problems with the 

traditional brick and mortar stores, but also the failure of TRU’s online strategy,” because “the 

online sales of its competitors were increasing whereas TRU’s were declining.” 169

162 Ex. 70 (Greenspan) ¶168; Ex. 9 (2’28’17 2016 Financial Update [DEFS_0125708]) at 4; Ex. 

77 (Raether depo.) 330:20-25, 331:14-332:7. 

163 Ex. 15 (6’20’17 BOD minutes [DEFS_0053970]) at 2.

164 Brandon declaration (Bk. Dkt. 20) at 37, ¶86. 

165 Ex. 70 (Greenspan) ¶169; Ex. 65 (Form 10-K 2017) at pdf 33.

166 Ex. 70 (Greenspan) ¶170; Ex. 16 (6’20’17 June BOD Financial Update [TRUTrust0000373950]) at 5; Ex. 17 (6’20’17 Raether Board materials [DEFS_0126153]) at pdf 26. 

167 Ex. 70 (Greenspan) ¶171; Ex. 17 (6’20’17 Raether board materials [DEFS_0126153]) at pdf 

30; id. at pdf 26.

168 Ex. 16 (6’20’17 June BOD Financial Update [TRU-Trust0000373950]) at 6.

169 Ex. 70 (Greenspan) ¶1270. 

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And Defendants knew that the downward trend further accelerated in Q2 2017. 170 

Domestic same store sales were down 6.8%, and the domestic gross margin rate was down 3.10 

percentage points. 171

2. The Directors knew that the Company’s outdated business model 

could not compete.

The Defendants knew full well that the root cause of the Company’s poor performance 

was that it was operating “an outdated business model that could not succeed against the 

competition.” 172

The Toys “R” Us business model “succeeds or fails based on the holiday season, when a 

disproportionate share of toys is sold.” 173 But Defendants knew that the Company faced 

competition that assured it could not succeed during the holiday season.

“During the Holiday season, mass merchandisers such as Walmart and Target” would 

“use aggressive pricing policies and enlarged toy-selling areas ... to increase sales and build 

traffic for other store departments.” 174 Toys “R” Us “could not follow the same strategy and cut 

toy prices to near cost because it did not have those large number of other departments that 

would benefit from store traffic.” 175

Defendants knew that Toys “R” Us also faced increasing competition from Amazon and 

other on-line retailers. 176 As with Walmart and Target, price-cutting on toys by Amazon during 

170 Ex. 70 (Greenspan) ¶173. 

171 Ex. 70 (Greenspan) ¶173; Ex. 74 (Q2 2017 – internal analytics [DEFS_0002784]) at pdf 40; 

Ex. 77 (Raether depo.) 201:21-202:6, 203:2-18, 567:3-8, 568:2-8, 568:13-569:8, 569:23-570:9, 

570;18-23.

172 Ex. 70 (Greenspan) ¶174.

173 Ex. 70 (Greenspan) ¶175; Brandon declaration (Bk. Dkt. 20) at 6 (“The Company’s overall 

annual financial performance is driven by sales during this period.”). 

174 Ex. 70 (Greenspan) ¶178; Ex. 65 (Form 10-K 2017) at 11, pdf 15, ¶4; Ex. 65 (Form 10-K 

2017) at 7, pdf 10, ¶2; Ex. 77 (Raether depo.) 564:4-11, 564:18-565:3.

175 Ex. 70 (Greenspan) ¶180; Ex. 80 (Silverstein) 277:17-278:7.

176 Ex. 70 (Greenspan) ¶181; Ex. 80 (Silverstein) 280:21-281:6. 

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the holiday season would drive traffic to its many other departments. 177 Toys “R” Us could not 

compete successfully against Amazon’s combination of broad selection, low prices, well-honed 

e-commerce platform, and next-day delivery (free for Prime members). Id. 

Competition from Walmart, Target, and Amazon had not only been “devastating Toys 

“R” Us for years,” the Defendants knew that this competition “was increasing every year, and 

was more intense in 2017 than the year before.” 178 Defendant Levin testified that as of June 

2017, “the board knew” that “Amazon, Walmart, Target” were “serious competitors,” and that 

the “competition was intensifying.” 179 Defendant Macnow testified that the Company was 

“undergoing disruption” and facing “severe competition” from Amazon, Walmart, and Target 

that was “increasing.” 180

As the Directors learned at the June 20, 2017, meeting of the Board, “Amazon was 

engaged in real-time dynamic pricing, with an automated system that would monitor market 

prices and instantly implement price-cuts in real time.” 181 In addition, “Walmart, the largest toy 

retailer, had acquired an e-commerce platform, ... that allowed it to also compete with dynamic 

pricing.” 182 Barry explained to the Directors that “the resulting effects are ... lower traffic 

levels, sales and margins,” for Toys “R” Us. 183

177 Ex. 70 (Greenspan) ¶182. 

178 Ex. 70 (Greenspan) ¶¶184, 187. 

179 Ex. 70 (Greenspan) ¶160; Ex. 78 (Levin depo.) 126:22-127:7; Ex. 96 (Levin depo. notes re 

2017 situation). 

180 Ex. 83 (Macnow depo.) 28:8-18, 29:13-19.

181 Ex. 70 (Greenspan) ¶184; Ex. 15 (6’20’17 BOD minutes [DEFS_0053970]) at point 4.

182 Id. 183 Ex. 15 (6’20’17 BOD minutes [DEFS_0053970]) at point 4; Ex. 77 (Raether depo.) 203:2-18, 

204:9-23; Ex. 80 (Silverstein depo.) 276:10-277:1; Ex. 83 (Macnow depo.) 96:21-97:15, 98:6-

99:1.

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At the June 20, 2017, board meeting, the Directors were expressly told that because of 

“fierce competition” “customer spending is down across all tiers.” 184 They were presented with 

the results of a consumer survey demonstrating that consumers were “switching to the 

convenience and pricing” of “Amazon, Target, and Walmart.” 185 And the Board was told that 

the Company faced “unrelenting competition from big box retailers (who use toys as lossleaders) and Amazon (who doesn’t always have a current profit motive),” but the Company 

“cannot engage in price wars and remain profitable.” 186

In addition to the structural problems with the Toys “R” Us business model, the 

Company’s infrastructure was itself substandard. 187 At the June 20, 2017, board meeting, the 

Directors were reminded that “the current stores are old, dated, and stuck in the 1990’s and in 

need of significant transformation.” 188 The Company’s e-commerce platform was also out of 

date. As Brandon stated in an email to board members in June of 2017, “We are years behind 

everyone else who is a large player in e- commerce and digital marketing right now.” 189 

Moreover, “there was nothing presented to the Board to indicate that these adverse competitive 

pressures would abate, and the upcoming holiday season would not be as bad or worse than the 

prior year.” 190

The Directors do not dispute that they were well aware of all of these facts. Director 

Levin admitted that as of June 2017 “the board knew” that the “stores were old, stuck in the 

1990’s”, the Company was “years behind in e-commerce,” “Amazon, Walmart, Target,” were 

184 Ex. 70 (Greenspan) ¶185; Ex. 17 (6’20’17 Raether board materials [DEFS_0126153]) at 12. 

185 Ex. 70 (Greenspan) ¶185; Ex. 17 (6’20’17 Raether board materials [DEFS_0126153]) at 17. 

186 Ex. 70 (Greenspan) ¶185; Ex. 51 (9’18’17 attach Brandon chapt. 11 [DEFS_0027298]) at 5.

187 Ex. 70 (Greenspan) ¶189. 

188 Ex. 15 (6’20’17 BOD minutes [DEFS_0053970]) at point 5. 

189 Ex. 14 (6’7’17 Brandon to Levin [DEFS_0005889]) at ¶8; Ex. 80 (Silverstein) 288:2-19. 

190 Ex. 70 (Greenspan) ¶188. 

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“serious competitors,” and the “competition was intensifying.” 191 As Brandon put it, the 

business model of Amazon, Walmart, and Target was “impossible to compete with for a 

company such as Toys ‘R’ Us.” 192 

3. The Directors knew that the Company did not have a viable 

turnaround plan and could not come up with one. 

Because the Company was operating a fundamentally flawed business model, to survive 

it would need a turnaround plan that included “a transformational change in its business 

model.” 193 Defendants knew that a turnaround required a turnaround plan along with sufficient 

capital and time. 194 For example, Defendant Silverstein testified:

18 Q. And for Toys "R" Us to turn around and

19 start improving its -- it's going to need what

20 we could call a turnaround plan. Right?

21 A. I think it needed more than -- I think

22 it needed capital and a turnaround plan.

23 Q. Well, it would need a turnaround plan,

24 the capital to fund the turnaround plan, and it

25 would need time to implement the turnaround

1 plan. Right?

2 A. Generally, I -- that's correct, yes.

Ex. 80 (Silverstein) 284:18-285:2.

But when Toys “R” Us filed for bankruptcy, Defendants knew that the Company “had 

not yet developed a turnaround plan” and in fact did not even intend to attempt to develop such a 

191 Ex. 78 (Levin depo.) 126:22-127:7; Ex. 96 (Levin depo. notes re 2017 situation); Ex. 78 

(Levin depo.) 113:2-13, 114:1-6, 114:19-115:21, 116:3-8, 117:21-118:10, 121:9-122:12, 123:23-

124:19, 136:11-137:1, 142:13-143:9; see, e.g., Ex. 83 (Macnow depo.) 28:8-18, 29:13-19; 96:21-

97:15, 98:6-99:1; Ex. 80 (Silverstein depo.) 276:10-277:1, 288:2-19; Ex. 77 (Raether depo.) 

203:2-18, 204:9-23; Ex. 81 (Bekenstein depo.) 149:19-150:5, 154:12-155:2, 156:1-17, 158:1-6, 

159:12-16.

192 Ex. 70 (Greenspan) ¶188; Brandon declaration (Bk. Dkt. 20) at 24, ¶54.

193 Ex. 70 (Greenspan) ¶¶192- 193 (quoting Ex. 33 (Cornershop Advisers presentation, August 

22, 2014 [DEFS_0126325])).

194 Ex. 77 (Raether depo.) 359:10-121. 

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plan until January 2018, after the Holiday season.” 195 Defendants restructuring expert, Mr. 

Kost, acknowledged that the Company had not yet formulated “a business plan that would 

provide the foundation for a Plan of Reorganization and successful emergence from chapter 11,” 

and that the plan was to focus “attention on formulating a business plan” “[f]ollowing a 

successful holiday season.” 196

Kost testified: 

4 Q. Based on your view of the record,

5 were the defendants aware that as of

6 September 2018 Toys R Us did not possess a

7 turnaround plan that would allow it to emerge

8 from bankruptcy?

9 A. I -- I think from the record it's

10 pretty clear that there was not a specific

11 business plan or plan of reorganization

12 developed at the time they filed. It was more

13 of a free fall bankruptcy.

Ex. 91 (Kost depo) 146:4-13. 197

For example, Defendant Raether testified:

17 Q. I understand there were discussions.

18 I want to know if you were actually presented

19 with here's our proposed plan, something in

20 writing?

21 A. I don't believe there was ever a

22 finalized plan.

23 Q. How about a draft plan in writing;

24 did you ever get that?

25 A. I don't recall.

Ex. 77 (Raether depo.) 473:17-25. 198

195 Ex. 70 (Greenspan) ¶¶210. Ex. 64 (12'21'17 Transcript - Q3 2017 Earnings Call [TRUTrust0000323034]) at 4, ¶4 (“our business planning process ... will be initiated in earnest in 

January”).

196 Ex. 72 (Kost) ¶36; Ex. 91 (Kost depo) 139:6-140:7.

197 See id. 163:16-21, 210:10-12, 211:8-16, 213:21-214:11.

198 Ex. 77 (Raether depo.) 368:5-13, 377:6-10; see Ex. 80 (Silverstein) 293:1-5.

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And Defendant Bekenstein testified:

24 Q. In September of 2017 as Toys "R" Us

25 prepared to enter Chapter 11 bankruptcy, did

1 Toys "R" Us management present the board of

2 directors with a specific plan for turning

3 Toys "R" Us around?

5 A. I don't recall specifically in 2017

6 whether they presented a specific plan at that

7 time.

19 Q. So after Toys "R" Us enters

20 bankruptcy, September 2017, did the management

21 ever present the board with a specific

22 turnaround plan?

23 A. I don't recall.

12 Q. Do you have any evidence that

13 Toys "R" Us did have a plan?

14 A. You haven't presented me a document,

15 and all I have in front of me is this computer

16 screen and 29 exhibits, so I don't think it was

17 in one of those 29 exhibits.

18 Q. Well, I don't want you to limit

19 yourself to those 29 exhibits. Think back

20 using your memory, any particular approach you

21 want to take, but I want to know if you can

22 identify any evidence that Toys "R" Us had a

23 plan of reorganization.

1 A. I don't recall specifically.

Ex. 81 (Bekenstein) 177:24-178:7, 178:19-23, 198:12-199:1.

In fact, at the January 10, 2018, meeting of the Board of Directors, Brandon presented an 

update stating that even at that point—four months after entering bankruptcy—a key element of 

their “go forward plan” was coming up with a plan: “Create a Model and Pricing Strategy that 

allows [the Company] to Be Price Competitive.” 199

199 Ex. 70 (Greenspan) ¶¶213, 216-17; Ex. 3 (1’10’18 BOD minutes [TRU-Trust0000374746]) at 

2; Ex. 2 (1’9’18 Business Update [REV00328049]) at slide 15.

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The Defendants also knew it was highly improbable that the Company could ever come 

up with a viable turnaround plan. The flawed business model “was not a new problem for the 

Company that had never been tackled.” 200 The Defendants knew that Company had been 

“under heavy assault from Amazon, Walmart, Target” and others “for at least five years, going 

back to the 2012 Holiday season.” 201

In those five years, management, including new management in 2015 under David 

Brandon, had attempted solutions, including “an extensive cost-cutting program spanning 2015 

and 2016,” “modifications to its inventory management processes,” a “Store of the Future” 

experiment “to test innovative concepts,” “an increased focus on beacon brands, which include 

Star Wars, Lego, Barbie, Nerf,” a “new brand campaign architecture, which focuses on Brand 

Equity, Product Authority and Value,” “various in-store activations,” and “an increased focus on 

feature shops and driving trends at the front of the stores with feature shops.” 202

None of those initiatives addressed the fundamental problem of the Company’s broken 

business model, and none of them stemmed the margin erosion and loss of market share to 

Amazon, Walmart, and Target. 203 In addition, the Company “had hired highly regarded 

200 Ex. 70 (Greenspan) ¶222. 

201 Ex. 70 (Greenspan) ¶¶222-224; Ex. 66 (Form 10-K 2013) at 4-5, 9; pdf 8-9; 12; Ex. 67 (Form 

10-K 2014) at 9, 12-13, pdf 21, 25-26; Ex. 68 (Form 10-K 2015) at 5, 10, pdf 9, 14; Ex. 69 

(Form 10-K 2016) at 10, pdf 14; Form 10-K 2016 at 6, 11, pdf 13, 19; Ex. 63 (11’30’15 Brandon 

report to Board [DEFS_0124903]) at 2 (“I am sure this is all a theme you have heard before: a 

major big-box retailer is using toys as a ‘loss leader’ to drive traffic, Amazon and on-line 

business continues to steal traffic from bricks and mortar, our stores are bigger than they need to 

be...even on Black Friday”); id. at 3 (“The negative trend of traffic/sales in the bricks and mortar 

stores continues”).

202 Ex. 70 (Greenspan) ¶195; Brandon declaration (Bk. Dkt. 20) at 23-24, ¶53; Ex. 10 (3'16'15 

KKR PMC discussion [DEFS_0126308]) at 2; Ex. 61 (10’14’15 BOD minutes 

[DEFS_0125435]) at 3, point 5, ¶5; Ex. 60 (9’28’16 BOD minutes [DEFS_0125682]) at 3-4.

203 Ex. 70 (Greenspan) ¶224; Ex. 80 (Silverstein) 290:6-11.

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consultants, including AlixPartners,” but none of them could come up with a solution. 204 The 

Company’s Directors had long and broad business experience, and yet “none of them came 

forward with a solution, or even a plan for finding a solution.” 205

In addition, the remedies available in bankruptcy “could not be expected to solve the 

problem with the Company’s business model.” 206 For example, because the Company owned or 

had ground leases on over 60% of its real estate, the Company had no ability to renegotiate lease 

rates for the majority of its stores. 207 For the rest of the leases, most were already near market 

rates, which meant that rejecting and renegotiating leases would result in insignificant 

savings. 208

Likewise, reducing the number of stores was not the answer. The Company had already 

closed 71 of its most unprofitable stores. 209 When the Company modeled the business with a 

smaller number of stores, whether 250, 400, or 650 stores, the models showed that a “smaller 

operation would continue to lose money.” 210 For example, the “forecast for 632 stores” was an 

EBITDA loss of $300.8 million, and the forecast for operating 411 stores was a loss of $329.8 

million. 211

In addition to not having a turnaround plan, the Defendants also knew that the Company 

had “insufficient capital and time to conduct a turnaround.” 212 The U.S. business was a large 

204 Ex. 70 (Greenspan) ¶224.

205 Ex. 70 (Greenspan) ¶224.

206 Ex. 70 (Greenspan) ¶197. 

207 Ex. 70 (Greenspan) ¶¶198-201. 

208 Ex. 70 (Greenspan) ¶¶198-203.

209 Ex. 70 (Greenspan) ¶205. 

210 Ex. 70 (Greenspan) ¶¶206-08. 

211 Ex. 70 (Greenspan) ¶¶207-09; Ex. 8 (2’14’18 BOD update [TRU-Trust0000362575]); Ex. 7 

(2’4’18 BOD minutes [TRU-Trust0000363548]) at 3, point 3; Ex. 4 (2’4’18 Raether board notes 

[DEFS_0124477]) at 3.

212 Ex. 70 (Greenspan) ¶¶226-229. 

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enterprise that Brandon estimated would require over $1 billion and at least four years to 

implement a turnaround. 213 But the Company had neither the time nor the capital. If the 

Company were to come up with a transformational turnaround plan and start implementing it in 

January 2018 (or even in September 2017), this “left insufficient time for such a plan to affect 

the Company’s course during the bankruptcy proceeding.” 214 As for capital, even with all of the 

DIP borrowing, the DIP budget only allocated $125 million toward store remodels and other 

efforts to improve performance. 215 And the Company had no remaining assets to pledge to raise 

additional capital and was not projected to generate excess cash from operations. 216

In sum, as the Directors considered the future of the Company in the summer of 2017, 

they knew the following: it had a money-losing business model; it had no turnaround plan; it had 

tried for years to come up with a solution to the broken business model but had failed; conditions 

were getting worse, not better; and the Company lacked the capital for a transformational 

turnaround and was now out of time. Therefore, Defendants knew that “it was implausible that 

the company would come up with a viable turnaround plan” and “highly improbable that such a 

plan would emerge in time.” 217 It had such “a low probability of success” that it was “akin to a 

‘Hail Mary’ pass at the end of a football game.” 218 This “had been apparent, quite frankly, for 

some period of time, but certainly it was apparent by the time you got into summer and late 

summer of 2017.” 219

213 Ex. 70 (Greenspan) ¶227-28; Brandon Decl. (Bk. Dkt. 20) at 31-34, ¶¶72-78.

214 Ex. 70 (Greenspan) ¶227. 

215 Ex. 70 (Greenspan) ¶228; Ex. 38 (9’3’17 Goulding for DIP discussion [TRUTrust0000027886]) at pdf 8, note E.

216 Ex. 70 (Greenspan) ¶¶113, 229; Ex. 85 (Kurtz depo.) 108:11-109:15, 111:7-22. 

217 Ex. 70 (Greenspan) ¶¶225, 229; Ex. 86 (Greenspan depo.) 148:11-150:8.

218 Ex. 70 (Greenspan) ¶27.

219 Ex. 86 (Greenspan depo.) 124:5-20.

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Given the facts known to Defendants, there was no objectively plausible reason to keep 

going and not liquidate. As Defendant Bekenstein testified:

24 Q. Well, we've got a business that we've

25 identified on this sheet that is losing money,

1 sales are trending downward, there's no

2 reasonable path to turn the business around.

3 Can you tell the jury why it would still make

4 sense for this company to keep going rather

5 than liquidate?

8 A. It really depends on the situation.

9 Maybe there are situations where it still makes

10 sense to operate.

11 Q. Can you give the jury one example of

12 that?

15 A. Again, there's so many possibilities

16 out there in the world that I'm not -- that's

17 it. I'm not able to tell you the specifics,

18 but sure, there's got to be reasons why it

19 might make sense.

20 Q. Because there are so many

21 possibilities out there, surely you can

22 identify one for the jury, can't you?

24 A. Yeah, I don't -- I could try to be

25 creative but I'm just guessing and so I

1 don't -- I'm not -- I can't at this moment come

2 up with why that's the case. But I'm sure

3 there are.

11 Q. Mr. Bekenstein, if we've got a

12 business that's losing money, sales are

13 trending downward, there's no reasonable path

14 to turn the business around, can you identify

15 for us any situation where it would make sense

16 to keep going and not liquidate the business?

19 A. Again, as I said, I can’t right this

20 moment come up with that situation for you.

21 Q. Your answer was "I can't right this

22 moment come up with that situation"; right?

23 A. I don't recall if those are the exact

24 words I used, but it sounds close.

25 Q. And I've asked you that question in

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1 various ways several different times; right?

3 A. I think so.

4 Q. If you come up with that situation

5 any time today, would you let me know?

6 A. Yes.

Ex. 81 (Bekenstein) 76:24-78:3, 78:11-20, 78:31-79:6.

H. The Director Defendants’ breaches of duty were exacerbated by conflicts of 

interest. 

Each of the Defendant Directors had conflicting personal interests in deciding whether 

the Company should commence an immediate wind-down or, instead, max out DIP financing to 

continue operating and gamble on a turnaround. 

1. The six Sponsor Directors had conflicts of interest.

“A plaintiff may establish that a director lacks independence by alleging with 

particularity that the director is sufficiently loyal to, beholden to, or otherwise influenced by 

an interested party to undermine the director's ability to judge the matter on its merits.” In re 

Oracle Corp. Derivative Litig., No. 2017-0337-SG, 2018 Del. Ch. LEXIS 92, at *47 (Ch. Mar. 

19, 2018) (internal quotes omitted). Each of the six Sponsor Directors had a personal interest in, 

and was beholden to, the Sponsor company that appointed them to the Board. 

“Bekenstein and Levin were appointed to the Board as a consequence of their respective 

relationships with Bain.” 220 Bekenstein was a Managing Director and Co-Chairman of Bain 

Capital, having joined Bain at its inception in 1984. 221 Levin was a Senior Advisor of Bain in 

the private equity business, having been a Managing Director of Bain from 2000. 222

220 Ex. 65 (2017 TRU 10-K) at 114, pdf 119. 

221 Ex. 70 (Greenspan) ¶23; Ex. 65 (2017 TRU 10k) at 113, pdf 118. 

222 Ex. 70 (Greenspan) ¶23; Ex. 65 (2017 TRU 10k) at 113, pdf 118.

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“Raether and Taylor were appointed to the Board as a consequence of their respective 

relationships with KKR.” 223 Raether was head of the portfolio management committee at KKR, 

having joined KKR in 1980. 224 Raether’s corner office at KKR was located near the office of 

Henry Kravis, a founder of KKR. 225 Taylor was an investor and partner in KKR and had been 

at KKR since 2005. 226

Silverstein and Macnow “were appointed to the Board as a consequence of their 

respective relationships with Vornado.” 227 Macnow had served as Executive Vice PresidentFinance and Chief Administrative Officer of Vornado since 2013, had been the CFO of Vornado 

for over 20 years, and had joined Vornado in 1985. 228 Silverstein had been a senior executive of 

Vornado since 1998, serving as executive vice-president, head of capital markets, and co-head of 

acquisition, and reported directly to Steve Roth, the founder and CEO of Vornado. 229 

Silverstein was paid by Vornado “to sit on the board of Toys ‘R’Us on behalf of Vornado.” 

Each of the Sponsor Directors not only had a personal interest in advancing the equity 

interests of their respective Sponsor, they also had a personal financial interest in the outcome as 

a result of their beneficial ownership or indirect ownership in shares of Toys “R” Us. 230 For 

example, Bekenstein was “a partner in Bain Capital Partners” which had invested in Toys “R” 

Us, and as result, Bekenstein “would hope that the equity value would increase” so that the 

“personal investment that [Bekenstein] made would grow in value.” 231 As another example, 

223 Ex. 65 (2017 TRU 10-K) at 114, pdf 119.

224 Ex. 77 (Raether depo.) 13:8-10; Ex. 65 (2017 TRU 10K) at 113, pdf 118.

225 Ex. 77 (Raether depo.) 14:4-5, 17:2-10. 

226 Ex. 65 (2017 TRU 10K) at 113, pdf 118; Ex. 79 (Taylor) 4:16-17, 7:5-11.

227 Ex. 65 (2017 TRU 10-K) at 114, pdf 119. 

228 Ex. 65 (2017 TRU 10K) at 113, pdf 118. 

229 Ex. 80 (Silverstein depo.) 6:25:7-16.

230 Ex. 65 (2017 10-k) at pp. 140-41, pdf 145-46. 

231 Ex. 81 (Bekenstein) 10:6-24; 12:25-13:20. 

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Silverstein owned stock and stock options in Vornado valued at between 

232 

Each of the Sponsor Directors signed the 2017 10k, which expressly admitted that the 

Sponsors had control of the Company “through their ownership of 98%” of the voting shares. 233

And they further admitted that “the Sponsors may have an interest in pursuing ... financings or 

other transactions that, in their judgment, could enhance their equity investments, even though 

such transactions might involve risks to [Toys ‘R’ Us] as a company.” 234 

It was precisely this conflict of interest that the Sponsor Directors faced in deciding 

between commencing an immediate wind-down versus taking on DIP financing and attempting a 

turnaround. A wind-down meant that the Sponsors’ equity interests would have no value, 

“because an orderly sale of assets ... would not realize value that would exceed the 

liabilities.” 235 In fact, the Sponsor Directors knew, and acknowledged at the time, that the 

Company was insolvent and their equity interests had no value. 236 

“The only possibility for realizing substantial equity value was a restructuring that 

produced a viable operating enterprise with a value above liabilities.” 237 As demonstrated 

232 Ex. 80 (Silverstein depo.) 13:16-14:25; Ex. 80 (Silverstein depo.) 9:19-11:22. 

233 Ex. 65 (2017 TRU 10-k) at p. 20, pdf 24. 

234 Ex. 65 (2017 TRU 10-k) at 20, pdf 24. 

235 Ex. 70 (Greenspan) ¶27. 

236 Ex. 79 (Taylor) 170:10-21 (testifying that KKR’s internal valuation of “KKR’s investment in 

Toys ‘R’ Us” as of September 2017 showed that “our equity had no value”); Ex. 79 (Taylor) 

167:2-24 (testifying that KKR calculated that Toys “R” Us had debt of $4.7 billion but an 

enterprise value of $3.4 billion to $3.7 billion); Ex. 79 (Taylor depo.) 169:4-18 (“the total value 

of Toys ‘R’ Us is less than the debt”); Ex. 78 (Levin depo.) 239:6-25, 240:13-241:3 (“the equity 

investment in Toys ‘R’ Us has a value of zero”); Ex. 70 (Greenspan) ¶¶163-165; 399-401; Ex. 75 

(Vornado 2013 annual report) at 10 n.7, 57; Ex. 76 (Vornado 2014 annual report) at 36; Ex. 62 

(11’4’14 Vornado write down [DEFS_0111323]); Ex. 13 (4’8’15 Saghir to Taylor Levin re 

Brandon [DEFS_0049061]) at 2; Ex. 1 (1’4’16 Taylor Raether equity calculation 

[DEFS_0125987]). 

237 Ex. 70 (Greenspan) ¶27. 

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above, “such a turnaround had a low probability of success and was akin to a ‘Hail Mary’ pass at 

the end of a football game.” 238 But that Hail Mary was the only potential path to equity value 

for the Sponsors. As Defendant Silverstein testified:

5 Q. If the company had a very successful

6 Christmas selling season, was able to reinvent

7 itself and emerge from bankruptcy with -- as a

8 very profitable company, it might have resulted

9 in value for the equity holders. Right?

10 A. It might have, yes.

11 Q. Was that your hope at that time?

12 A. I -- hope is -- hope always springs

13 eternal.

Ex. 80 (Silverstein) 120:5-13.

Therefore, commencing an immediate wind-down of the Company would have been 

detrimental to the Sponsors by eliminating any prospect of obtaining value from their equity 

interests. And maxing out DIP financing and attempting a turnaround had the potential (however 

remote) to create value for the equity, and it had no cost or risk for the Sponsors. 

By contrast, the Company would bear the hundreds of millions of dollars in fees and 

operating losses for pursuing the DIP financing and turnaround strategy, and the Company would 

bear 100% of the risk that it breached a financial covenant and suffered a precipitous unplanned 

liquidation. 

But “a planned and orderly liquidation” would have allowed the Company to take 

advantage of the holiday season and “liquidate inventories when demand was at a peak,” while 

“supplementing inventory of hot toys as appropriate to capture additional margins.” 239 

238 Ex. 70 (Greenspan) ¶27. 

239 Ex. 70 (Greenspan) ¶330; id. ¶244. 

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“Additionally, the Company would have had more time to sell real estate assets, and to market 

the international businesses,” thereby improving recoveries for creditors. 240 

And most importantly, the Company would have avoided hundreds of millions of dollars 

in losses including excess professional fees, DIP financing fees, and operating losses. Even 

Defendants’ own economic expert agrees that commencing an immediate wind-down would 

have saved at least $400 million. 241 Those losses were borne entirely by the Company with zero 

contribution from the Sponsors.

The Sponsor Directors had an additional personal interest served by commencing a 

turnaround strategy when entering bankruptcy. “By maintaining control of the Board and the 

company through the Chapter 11 process, and using the Debtor’s exclusive right to file a Chapter 

11 Plan, these interested directors could seek to obtain releases from liability for themselves and 

for Bain, KKR, and Vornado in any such Chapter 11 Plan.” 242 “This would shield the private 

equity companies from potentially needing to repay the hundreds of millions of dollars in 

sponsor fees and other payments they received while they owned TRU, as well as being 

responsible for other claims.” 243

2. Brandon and Short had conflicts of interest.

Both Brandon had Short had a direct financial interest “in the outcome of deciding 

whether the Company” should stay in business and attempt the turnaround, or instead “should 

commence a wind-down of U.S. operations.” 244 Brandon and Short could continue to receive 

their salaries for as long as the Company continued in operation; an earlier liquidation of the 

240 Ex. 70 (Greenspan) ¶330.

241 Ex. 91 (Kost depo) 438:1-8. 

242 Ex. 70 (Greenspan) ¶28. 

243 Ex. 70 (Greenspan) ¶28.

244 Ex. 70 (Greenspan) ¶¶19, 21.

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Company would have eliminated their jobs and their salaries. 245 In addition, by pursing a 

turnaround strategy, both Brandon and Short could receive a pre-bankruptcy bonus, while “a 

strategy of winding down the U.S. business would not have allowed” either to receive such a 

bonus. 246 For Brandon, this meant receiving a $3,750,000 annual salary and a bonus of 

$2,812,500. 247 For Short, this meant a salary of $700,000 and a bonus of $600,000. 248

Brandon also had a conflict of interest because he was not independent of Bain and had a 

personal interest in serving the interests of Bain. Bain had been handing Brandon lucrative and 

prestigious corporate positions for Bain-controlled companies for almost 20 years. 249 When 

Bain acquired Domino’s they brought Brandon in to become the CEO in 1999. 250 And Bain 

appointed Brandon to the board of Burger King in 2003 to serve as the Bain sponsor-appointed 

director. 251 Throughout his tenure at Toys “R” Us, Brandon was simultaneously paid as the 

Chairman of Domino’s. 252 And even while serving as CEO of Toys “R” Us, Brandon continued 

to do important business favors for Bain, for example, assisting Bain in its efforts to acquire the 

Jimmy John’s fast-food restaurant company. 253 As Brandon put it, “I’ve done this for you guys 

100 times!” 254 After Brandon’s successful intervention, Defendant Bekenstein wrote to 

Brandon: “Thanks so much Dave!!!! ... THANKS!!!!” 255

245 Id. 246 Ex. 70 (Greenspan) ¶¶19, 21. 

247 Ex. 70 (Greenspan) ¶19. 

248 Ex. 70 (Greenspan) ¶21.

249 Ex. 70 (Greenspan) ¶¶30-31. 

250 Ex. 70 (Greenspan) ¶30. 

251 Id. 252 Ex. 70 (Greenspan) ¶30-31. 

253 Ex. 70 (Greenspan) ¶¶32-34; Ex. 19 (7’12’16 Brandon Bekenstein [TRU-Trust0000322854]).

254 Id. 255 Ex. 70 (Greenspan) ¶¶33-34; Ex. 20 (7’20’16 Brandon Bekenstein [TRU-Trust0000322857]).

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In addition, Brandon had a conflict of interest based on enhancing his personal pride and 

avoiding personal shame. “Bad faith can be the result of any emotion that may cause a director 

to intentionally place his own interests, preferences or appetites before the welfare of the 

corporation, including . . . shame or pride.” In re Answers Corp. S'holder Litig., 2012 Del. Ch. 

LEXIS 162, at *3-4 (Ch. July 19, 2012) (cleaned up); In re Walt Disney Co. Derivative Litig., 

907 A.2d 693, 754-56 (Del. Ch. 2005) (same), aff’d 906 A.2d 27 (Del. 2006). When Brandon 

was considering whether to take on the role of CEO of Toys “R” Us, his “big issue” was 

“making sure he can convince himself he can make this a win.” 256 Before Toy “R” Us, Brandon 

had “done two very successful transformations in his business career (and made a lot money in 

both), so this will be his capstone.” 257 As Brandon stated, “I did not move to NYC and take this 

on to ‘preside over a funeral.’” 258 Therefore, Brandon had a conflicting “personal interest in not 

being at the helm of an important company when it went under.” 259

3. Defendant Directors failed to eliminate the conflicts by assigning the 

decision to independent directors.

The Defendant Directors were not only well aware of the conflicts of interest, they were 

also aware of their obligation to eliminate the conflicts by recusing themselves and placing the 

decision in the hands of independent directors who did not have conflicts. As described above, 

Defendants knew “that in a situation where a decision would implicate an actual or potential 

conflict of interest, the board should delegate decision-making authority to disinterested directors 

or managers.” 260 Defendants failed to do so. 

256 Ex. 12 (4’4’15 Levin to Silverstein [DEFS_0080838]). 

257 Ex. 12 (4’4’15 Levin to Silverstein [DEFS_0080838]).

258 Ex. 35 (8’25’15 Brandon Levin Taylor [TRU-Trust0000322852]).

259 Ex. 70 (Greenspan) ¶20.

260 Ex. 77 (Raether) 157:3-8; Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at 

slide 15. 

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Throughout the summer of 2017, the Board had one additional director, Defendant 

Goodman, on the board of Toys “R” Us, Inc., and no other directors on the board of Toys “R” Us 

Delaware. The Directors did not delegate decision-making authority to Goodman and, instead, 

the full board retained and exercised decision-making authority to authorize DIP financing and 

the chapter 11 strategy. 261 Moreover, as discussed in detail above, just like his fellow board 

members, Goodman did not undertake the task of assessing the DIP financing, a wind-down 

strategy, or a turnaround strategy. 

The Defendants appointed two additional directors to Toys Delaware on August 23, and 

two additional directors to Toys Inc. on September 13, a few days before the September 18, 

2017, vote approving the DIP financing. 262 But those last-minute appointments did not nothing 

to eliminate the conflicts. 263 

Independent directors can “guard against conflicts of interest” if they are either 

“delegated the power to make certain decisions or empowered by the board to investigate 

261 Ex. 52 (9'18'17 BOD minutes [DEFS_0023490]).

262 Ex. 34 (8'23'17 BOD minutes [TRU-Trust0000333026]); Ex. 40 (9'13'17 board minutes 

[TRU-Trust0000165899]).

263 Many purportedly independent directors are so-called “Super-Repeaters”—they have close 

connections to private-equity sponsors and law firms that represent private-equity sponsors, and 

they serve on multiple boards for companies going into bankruptcy. Ex 71 (Jared A. Ellias, 

Ehud Kamar, & Kobi Katiel, The Rise of Bankruptcy Directors (June 14, 2011)). These 

purportedly independent directors have a “structural bias because they are part of a small 

community of repeat private-equity sponsors and law firms.” Id. at 1. In bankruptcy cases 

where a Super-Repeater director is added to the board, “unsecured creditors recover on average 

21% less,” as compared to cases that do not include a Super-Repeater. Id. at 1. 

All four of the purportedly “independent” directors added to the Toys “R” Us boards were 

suggested by Kirkland, and three of the four—Alan Miller, Alan Carr, and Neal Goldman—

appear on the list of “Super Repeaters.” Id. at 49. As discussed in text, the purportedly 

“independent” directors did not get an opportunity to exercise decision-making, because the 

decision on whether to take on DIP financing and forego an immediate liquidation was never 

delegated to the newly added directors.

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potential conflicts and exclude certain directors from decision-making processes.” 264 But the 

Defendants did not delegate decision-making authority to Goodman and, instead, the full board 

retained and exercised decision-making authority to authorize DIP financing and the chapter 11 

strategy. 265 The Boards of Directors “never delegated” to the independent directors “decisionmaking authority on approving the strategy of taking on DIP financing and delaying 

liquidation.”266

Furthermore, the independent directors “could not properly investigate the conflicts of the 

sponsor directors with respect to the DIP financing because they were only given the authority to 

investigate conflicts in the same board meeting where the DIP financing strategy was 

approved.” 267 At the September 18, 2017, board meeting, the Boards passed a resolution giving 

the independent directors “the authority to investigate and determine... whether any matter 

arising in or related to the Chapter 11 cases constitutes a Conflict Matter.” 268 None of the 

independent directors “asked that the decision to take on DIP financing and delay liquidation be 

designated a conflict matter,” or requested that they control the decisions. 269 And the Director 

Defendants never recused themselves from decision-making and each of them personally 

participated in the board meeting and the vote to authorized DIP financing. 270

Furthermore, the independent directors themselves abdicated their fiduciary duties; if 

anything, the abdication of duty by the independent directors was worse than that by the 

Defendant Directors. The independent directors “were given the same type of limited 

264 Ex. 70 (Greenspan) ¶39. 

265 Ex. 52 (9'18'17 BOD minutes [DEFS_0023490]). 

266 Ex. 70 (Greenspan) ¶40.

267 Ex. 70 (Greenspan) ¶40. 

268 Ex. 53 (9’18’17 Raether board materials [DEFS_0124607]) at 20. 

269 Ex. 70 (Greenspan) ¶40.

270 Ex. 52 (9'18'17 BOD minutes [DEFS_0023490]).

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information as the rest of the Board when making the decision to approve the DIP financing.” 271

This information did not provide a basis for assessing compliance with the financial 

covenants.272 In fact, the independent directors were given a summary forecast dated August 26, 

2017, that “showed that the Company would default on any liquidity covenant, because the 

Company would have negative liquidity by September of 2018.” 273

I. The facts establish Defendants’ breaches of the fiduciary duties of good faith, 

loyalty, and due care.

When the Delaware law of fiduciary duties—as recited in controlling cases from the 

Delaware Supreme Court—is applied to the facts set forth above, it establishes that the Director 

Defendants breached each of their fiduciary duties, including the duties of good faith, loyalty, 

and due care.

1. Breach of the duty of good faith.

As discussed above, a breach of the duty of good faith occurs “[w]here directors fail to 

act in the face of a known duty to act, thereby demonstrating a conscious disregard for their 

responsibilities.” Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006). As shown above, the Trust has 

powerful evidence that the Defendant Directors knew of their duty to act, but failed to act. 

Moreover, those facts are not only supported by admissible evidence, they are admitted by 

Defendants.

The Directors were well aware of their fiduciary duties both in general and specifically as 

it applied to deciding the future of a company facing insolvency or restructuring. It is undisputed 

that Kirkland expressly explained to the Directors their duties. Moreover, all of the Directors 

271 Ex. 70 (Greenspan) ¶42. 

272 Ex. 70 (Greenspan) ¶¶42-47.

273 Ex. 70 (Greenspan) ¶¶45-47; Ex. 24 (8’26’17 Preliminary DIP Sizing Forecast [TRUTrust0000063629]) at 9.

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were sophisticated corporate executives, with years of experience in charting a corporation’s 

future and assessing corporate debt obligations. And all of the Directors were well aware of their 

obligation to assess whether the Company could reasonably be expected to comply with the 

financial covenants in the DIP financing. 

As Raether testified, for a Toys “R” Us director, it was an “important” “part of your 

fiduciary duty” to assess whether the Company would have “the ability to pay the money back,” 

and it was “incumbent upon the directors ... to understand the terms of the DIP financing and the 

company’s ... operating forecast such that it could comply with the covenants that were present 

in that DIP financing.” 274 Raether testified that directors must be presented with “a set of 

sensitivity analyses such that we can determine with a high degree of confidence that the 

company will be able to perform and meet its obligations,” and “if not, the directors should not 

approve ... financing.” 275

But the Directors entirely abdicated their duty to make that assessment. As shown above, 

the Directors did not assess the ability to comply with the covenants. They didn’t even receive, 

much less analyze, a sensitivity analysis or downside case projection. They didn’t even receive, 

much less analyze, the key assumptions underlying the forecast. In fact, they approved the 

financing without even knowing the terms of the financial covenants, and never received any 

analysis of the Company’s ability to comply with those covenants. 

These facts demonstrate “that the defendant directors knew that they were making 

material decisions without adequate information and without adequate deliberation,” and 

274 Ex. 77 (Raether) 123:17-125:12; Ex. 77 (Raether) 137:24-138:5.

275 Ex. 77 (Raether) 136:12-137:18.

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therefore violated their duty of good faith. In re Walt Disney Co. Derivative Litig., 825 A.2d 

275, 289 (Del. Ch. 2003). 

The evidence also demonstrates that the Directors knew that it would violate their 

fiduciary duties “to authorize a transaction that could be analogized to a ‘Hail Mary’ pass for the 

benefit of shareholders if creditor recoveries are threatened.” 276 And they also knew that, in 

deciding whether to proceed with an attempted turnaround, their fiduciary duties required them 

to assess all reasonable alternatives, and to gather all information reasonably available before 

making a decision. But Defendants entirely abdicated that duty. Defendants did nothing to 

assess the alternative of conducting an immediate wind-down. They did not ask the advisors and 

management to assess the value that would be generated by an immediate wind-down. And they 

did nothing to assess the “Hail Mary” turnaround strategy. They did not receive, or even ask for, 

any assessment of the probability that the turnaround could be achieved, or the costs to the 

Company if the strategy were to fail.

This evidence establishes that the Directors “adopt[ed] a ‘we don’t care about the risks’ 

attitude concerning a material corporate decision” and thereby breached their fiduciary duties. In 

re Walt Disney Co. Derivative Litig., 825 A.2d 275, 289 (Del. Ch. 2003), aff’d Brehm v. Eisner 

(In re Walt Disney Co. Derivative Litig.), 906 A.2d 27, 63 (Del. 2006) (holding that bad faith 

may be shown by evidence demonstrating a “conscious[] and intentional[] disregard[] [of] 

responsibilities, adopting a ‘we don't care about the risks’ attitude”). 

In addition, as shown above, the Trust has powerful evidence “supporting an inference 

that [Defendants] did not reasonably believe that the ... transaction was in the best interests of” 

276 Ex. 23 (7'31'17 Contingency Prep Overview [DEFS_0123896]) at slide 20, bullet 6; Ex. 70 

(Greenspan) ¶13. 

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the Company. Brinckerhoff v. Enbridge Energy Co., 159 A.3d 242, 260 (Del. 2017), quoted with 

approval by Kahn v. Stern, 183 A.3d 715, 715 & n.5 (Del. 2018). Moreover, those facts are not 

only supported by admissible evidence, they are admitted by Defendants.

All of the Director Defendants knew that U.S. business of the Company met all the 

criteria for a business that needed an immediate wind-down. They all knew that it had been 

losing money for years, that sales, margins, and market share were declining, that the pace of the 

money losses and the decline in sales, margins, and market share was accelerating, that their 

business model could not compete with Amazon, Walmart, and Target, that competition was 

intensifying, that they had not been able to come up with a viable turnaround plan and had no 

plausible path for coming up with a plan, and that they lacked the time and capital to implement 

a turnaround. They also knew that having the Company max out its DIP financing and continue 

in operation would cost hundreds of millions of dollars in additional operating losses and 

restructuring costs. 

In addition, Brandon and Short knew that the financial covenants in the DIP Term loan 

were too dangerous and would result in a default. Brandon and Short knew the forecast was 

based on unrealistic sales projections, they knew that even with those projections the Company 

had an insufficient liquidity cushion, and both had concluded that the covenants were too 

dangerous. Short agreed that the $175 million liquidity covenant “doesn’t work,” and both 

agreed that the January budget covenant “just isn’t going to work.” 277

Applying an “objective standard of good faith,” these facts support an “an inference that 

[the Defendants] did not reasonably believe that” maxing out DIP financing and attempting a 

277 Ex. 70 (Greenspan) ¶¶100, 104; Ex. 57 (9’20’17 0652 am [TRU-Trust0000075725]); Ex. 48 

(9’18’17 2244 pm [LZ-TRU0092221]) at 4. 

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turnaround “was in the best interests of” the Company, and therefore they breached their 

fiduciary duty of good faith. Brinckerhoff v. Enbridge Energy Co., 159 A.3d 242, 260 (Del. 

2017). 

2. Breach of the duty of loyalty. 

“A director is considered interested” in a corporate decision, and not independent, if the 

director “will receive a personal financial benefit from a transaction” or “where a corporate 

decision will have a materially detrimental impact on a director, but not on the corporation.” 

Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993). 

As demonstrated above, the value of the equity interests of the Sponsors would be zero if 

the Company commenced an immediate wind-down, and the equity could have value only if a 

successful turnaround occurred. Therefore, commencing an immediate wind-down of the 

Company would have been detrimental to the Sponsors by eliminating any prospect of obtaining 

value from their equity interests. But maxing out DIP financing and attempting a turnaround had 

the potential to create value for the equity. As demonstrated above, “such a turnaround had a 

low probability of success and was akin to a ‘Hail Mary’ pass at the end of a football game.” 278 

But that Hail Mary was the only potential path to equity value for the Sponsors. And most 

importantly for the Sponsors, attempting a turnaround had zero cost or risk for the Sponsors. 

By contrast, the Company would bear the hundreds of millions of dollars in fees and 

operating losses for pursuing the DIP financing and turnaround strategy, and the Company would 

bear 100% of the risk that it breached a financial covenant and suffered a precipitous unplanned 

liquidation. 

278 Ex. 70 (Greenspan) ¶27. 

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This was the very circumstance that the Directors acknowledge was a conflict of interest: 

“the Sponsors may have an interest in pursuing ... financings or other transactions that, in their 

judgment, could enhance their equity investments, even though such transactions might involve 

risks to [Toys ‘R’ Us] as a company.” 279 “Common sense dictates that, in light of these 

consequences, the [Sponsor-appointed Directors] have a disqualifying financial interest that 

disables them from impartially considering” whether to authorize the Company to commence an 

immediate wind-down. Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993).

In addition, as demonstrated above, the Sponsor Directors had another interest not shared 

with the Company. “By maintaining control of the Board and the company through the Chapter 

11 process, and using the Debtor’s exclusive right to file a Chapter 11 Plan, these interested 

directors could seek to obtain releases from liability for themselves and for Bain, KKR, and 

Vornado in any such Chapter 11 Plan.” 280 “This would shield the private equity companies 

from potentially needing to repay the hundreds of millions of dollars in sponsor fees and other 

payments they received while they owned TRU, as well as being responsible for other 

claims.”281

Brandon and Short each had conflicts of interest because they would financially benefit if 

the Company continued operations rather than commencing an immediate wind-down. 

“Delaware law also recognizes that management’s prospect of future employment can give rise 

to a disabling conflict.” In re Mindbody, Inc., 2020 Del. Ch. LEXIS 307, at *36 (Ch. Oct. 2, 

2020); In re Xura, Inc. Stockholder Litig., 2018 Del. Ch. LEXIS 563, at *31 (Ch. Dec. 10, 2018)

(“Continued employment in itself is a material interest.”). 

279 Ex. 65 (2017 TRU 10-k) at 20, pdf 24. 

280 Ex. 70 (Greenspan) ¶28. 

281 Ex. 70 (Greenspan) ¶28.

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Moreover, Brandon and Short were not disinterested from any decisions affecting the 

Sponsors because each of the Sponsors “certainly has the ability to affect [the officer/director’s] 

employment and compensation.” Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. 

Stewart, 833 A.2d 961, 977-78 (Del. Ch. 2003) (holding that an officer/director had a conflict 

because she “has a material interest in her own continued employment,” and further holding that 

she was not disinterested in decisions affecting the 94% shareholder because the shareholder 

“certainly has the ability to affect [the officer/director’s] employment and compensation”), aff’d

845 A.2d 1040 (Del. 2004); Rales v. Blasband, 634 A.2d 927, 937 (Del. 1993) (“Because of their 

alleged substantial financial interest in maintaining their employment positions, there is a 

reasonable doubt that these two directors are able to consider impartially an action that is 

contrary to the interests of the Rales brothers.”).

By demonstrating that each of these Directors had a personal interest in the outcome of 

the decision that was not shared by the Company, the Trust has met its burden on a claim for 

breach of the duty of loyalty. The Delaware Supreme Court has “consistently defined the duty of 

loyalty of officers and directors” in “unyielding terms.” Cede & Co. v. Technicolor, 634 A.2d 

345, 361 (Del. 1993). Any potential for influence by outside interests is prohibited and “there is 

no safe-harbor for divided loyalties in Delaware.” In re Walt Disney Co. Derivative Litig., 907 

A.2d 693, 751 (Del. Ch. 2005). A director is “independent only when the director’s decision is 

based entirely on the corporate merits of the transaction and is not influenced by personal or 

extraneous considerations.” Cede & Co. v. Technicolor, 634 A.2d 345, 362 (Del. 1993). 

Having met the Trust’s burden of proving conflicting interests by a majority of the Board, 

the burden shifts to the Defendants to demonstrate that the decision was entirely fair to the 

Company. “Absent approval of the transaction by a disinterested director majority, the burden of 

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proof falls upon the defendants to establish that the transaction was entirely fair to the 

shareholders.” Chaffin v. GNI Grp., Inc., Civil Action No. 16211-NC, 1999 Del. Ch. LEXIS 

182, at *16 (Ch. Sep. 3, 1999). “When faced with such divided loyalties, directors have the 

burden of establishing the entire fairness of the transaction.” Mills Acquisition Co. v. 

MacMillan, Inc., 559 A.2d 1261, 1280 (Del. 1989).

3. Breach of the duty of care.

A breach of the duty of care occurs if a director actions or inactions amount to “gross 

negligence,” which is “conduct that constitutes reckless indifference or actions that are without 

the bounds of reason.” McPadden v. Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008).

The evidence establishing Defendants’ breach of the duty of good faith also establishes 

“conduct that constitutes reckless indifference.” Accordingly, each of the Defendant Directors 

breached their duties of care.

4. Defendants cannot establish that their actions meet the entire fairness 

standard.

Because the Trust has made out a prima facie case that Defendants breached their 

fiduciary duties, the burden shifts to the Defendants to meet the “entire fairness” test, i.e. to 

establish that their actions were entirely fair to the corporation.

Under Delaware law, directors start with the protection of the business judgement rule, 

which creates a presumption that “in making a business decision the directors of a corporation

acted on an informed basis, in good faith, and in the honest belief that the action taken was in the 

best interests of the company.” Brehm v. Eisner (In re Walt Disney Co. Derivative Litig.), 906 

A.2d 27, 52 (Del. 2006) (internal quotes omitted). Plaintiff can overcome that presumption by 

showing that a director breached any of the three fundamental fiduciary duties. “Those 

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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.” Brehm, 906 A.2d at 52. 

Once “the plaintiff shows that the directors breached their fiduciary duty of care or of 

loyalty or acted in bad faith,” “the burden then shifts to the director defendants to demonstrate 

that the challenged act or transaction was entirely fair to the corporation.” Brehm, 906 A.2d at 

52 (emphasis added). “A breach of either the duty of loyalty or the duty of care rebuts the 

presumption that the directors have acted in the best interests of the shareholders, and requires 

the directors to prove that the transaction was entirely fair.” Cede & Co. v. Technicolor, 634 

A.2d 345, 371 (Del. 1993); Basho Techs. Holdco B, Ltd. Liab. Co. v. Georgetown Basho Inv’rs, 

Ltd. Liab. Co., No. 11802-VCL, 2018 Del. Ch. LEXIS 222, at *5 (Ch. July 6, 2018) (holding that 

the defendant directors “bore the burden of proving that the Series G financing was entirely 

fair”); Mills Acquisition Co. v. MacMillan, Inc., 559 A.2d 1261, 1280 (Del. 1989) (“[w]hen faced 

with such divided loyalties, directors have the burden of establishing the entire fairness of the 

transaction”); Cinerama, Inc. v. Technicolor, 663 A.2d 1134, 1137 (Del. Ch. 1994) (if the 

plaintiff “establishes director negligence ... he or she has established a prima facie case of 

liability,” and then “the burden shifts to the director defendants to show that the transaction was 

‘entirely fair’ to the shareholders or the corporation”), aff’d 663 A.2d 1156 (Del. 1995).

Under the entire fairness standard “the defendants must establish ... that 

the transaction was the product of both fair dealing and fair price.” Basho Techs. Holdco B, Ltd. 

Liab. Co. v. Georgetown Basho Inv’rs, Ltd. Liab. Co., No. 11802-VCL, 2018 Del. Ch. LEXIS 

222, at *80-81 (Ch. July 6, 2018) (internal quotes omitted). The “fair dealing” aspect concerns 

the process by which the transaction was approved. Id. at *82. The “fair price” aspect concerns 

the economic value. Id. A “fair price” means “obtaining the highest value reasonably available 

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to the shareholders under all the circumstances.” Mills Acquisition Co. v. MacMillan, Inc., 559 

A.2d 1261, 1280 (Del. 1989).

In their motion for summary judgment, Defendants make no attempt to meet their burden 

of proving entire fairness. “Where the movant fails to fulfill its initial burden of providing 

admissible evidence of the material facts entitling it to summary judgment, summary 

judgment must be denied, even if no opposing evidentiary matter is presented, for the nonmovant is not required to rebut an insufficient showing.” Ray Communs., Inc. v. Clear Channel 

Communs., Inc., 673 F.3d 294, 299-300 (4th Cir. 2012). 

Moreover, Defendants could not possibly establish that maxing out DIP financing rather 

than conducting an orderly wind-down was entirely fair to the Company. As for “fair dealing,” 

the Trust has powerful evidence (described above) that Defendants did not undertake an 

adequate process for approving DIP financing or considering an immediate wind-down; in fact, 

they entirely abdicated their duties. And as for “fair price,” the evidence is undisputed that the 

course of action adopted by the Directors caused at least $400 million in losses that would have 

been avoided. 282

Defendants “did not demonstrate fairness as to process or price,” and therefore cannot 

prove entire fairness. Basho, 2018 Del. Ch. LEXIS 222, at *92 (Ch. July 6, 2018).

J. Defendants’ breaches caused harm to the Company.

The “Defendants authorizing the Company to take on the maximal amount of DIP 

financing, in particular the DIP Term Loan, and to delay liquidation planning until mid-February 

2018, resulting in a sudden liquidation, was a substantial factor in, and the proximate cause of, 

harms and losses to the Company.” 283

282 Ex. 91 (Kost depo) 438:1-8; Ex. 70 (Greenspan) ¶¶319-328.

283 Ex. 70 (Greenspan) ¶319. 

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Defendants’ restructuring and damages expert, Robert Kost, agreed with the Trust’s 

experts that the Company had over $400 million in “losses that could have been avoided as a 

result of an earlier wind down.” 284 He testified:

1 Q. So there's 350 million in critical vendor

2 payments, $47 million in interest, bonuses that

3 would have been avoided, operating losses of up

4 to $180 million would have been avoided;

5 altogether that's certainly going to exceed

6 $400 million, right?

7 A. The total of that would be probably

8 higher than 400 million, yes.

Ex. 91 (Kost depo) 438:1-8.

The harms and losses caused to the Company include at least five categories.

1. Extended operating losses. 

“Delaying the liquidation of the U.S. business extended the operations, which were losing 

money. The path followed by the Defendants resulted in a liquidation announcement in midMarch 2018, followed by liquidation sales proceeding in the following months. If the Company, 

instead, had announced a wind-down of the U.S. business in conjunction with the holiday season, 

this would have reduced the period of operations by at least three months.” 285 “For example, an 

announcement on December 15 would have moved the timeline up 3 months and avoided three 

months of operating losses.... An earlier announcement, for example at the time of the filing, 

would have shaved off an additional two months.” 286 This “would have avoided $48 to $85 

million per month in operating losses.” 287

284 Ex. 91 (Kost depo.) 437: 8-14. 

285 Ex. 70 (Greenspan report) ¶320.

286 Ex. 70 (Greenspan) ¶322. 

287 Ex. 70 (Greenspan) ¶322.

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2. Increased professional fees.

“In addition, extending operations and the bankruptcy increased the professional fees, 

including the fees of advisors for the debtors, as well as the UCC and other parties whose fees 

were paid out of the Debtor’s estate.” 288 Even an announcement of a wind-down on December 

15 “would have cut out three months of professional fees that were devoted to such activities 

such as negotiations with lenders for covenant relief and emergence planning.” 289 This would 

have avoided “more than $20 million in professional fees.” 290

3. Excess financing costs.

“If the Company would have followed a path of an orderly wind down of U.S. operations, 

it would not have taken on the Term DIP loan. DIP financing for U.S. operations during the 

wind-down may have been needed, but such financing could have been provided by a scaled 

down version of the ABL/FILO DIP facility.... As a result, the $450 million Term DIP loan 

would not have been needed.” 291

“The Company had to pay substantial amounts for the Term DIP loan including financing 

fees to the lender, interest payments, fees for the lender’s professionals and the Company’s 

professionals to negotiate and document the loans. Those costs and losses would have been 

avoided by not taking on the Term DIP loan.” 292 These losses “include more than $47 million 

in interest payments.” 293

288 Ex. 70 (Greenspan) ¶321. 

289 Ex. 70 (Greenspan) ¶322. 

290 Id.

291 Ex. 70 (Greenspan) ¶323. 

292 Ex. 70 (Greenspan) ¶324. 

293 Id.

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4. Adequate protection payments.

“To obtain the Term DIP loan, the Company had to agree to adequate protection 

payments for the B2, B3, and B4 lenders. Those payments would have been avoided by not 

taking on that loan.” 294 Those payment are estimated “to be at least $32 million.” 295

5. Extraordinary expenses.

“If the Company had embarked on a path of an orderly wind-down, it would not have 

made sense to pay the large retention bonuses.” 296 Likewise, the “critical/foreign vendor 

payments for pre-petition goods and services ... would have been avoided if the Company 

pursued an orderly wind-down.” 297 These extraordinary expenses that would have been avoided 

total almost $400 million. 298

III. Defendants’ arguments concerning Defendants’ unlawful approval of the DIP 

financing and turnaround fail for multiple reasons.

We address and rebut each of Defendants’ contentions concerning the breach of fiduciary 

duty claims based on approving DIP financing and failing to commence an immediate winddown.

A. The law of the case doctrine does not protect Defendants’ unlawful conduct.

Defendants assert “the Trust’s breach of fiduciary duty claim relating to TRU’s decision 

to obtain DIP financing ... is barred by the law of the case doctrine.” Mot. 1. Defendants point 

out that the Court entered an order in October 2017 finding that a DIP loan was “necessary and 

vital to the preservation and maintenance of the going concern values of the DIP Loan Parties,” 

and that the terms “reflect the DIP Loan Parties’ exercise of prudent business judgment 

294 Ex. 70 (Greenspan) ¶325.

295 Id. 296 Ex. 70 (Greenspan) ¶328. 

297 Ex. 70 (Greenspan) ¶327, id. ¶¶252-53.

298 Ex. 70 (Greenspan) ¶¶327-28.

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consistent with their fiduciary duties.” Mot. 6 (quoting ECF No. 711 ¶¶ 5(b), (d)). Defendants 

assert that the Court’s order “constitutes law of the case in this adversary proceeding and cannot 

be disturbed.” Mot. 6. Defendants assert that because the final DIP order stated that it was 

“binding upon ... the Debtors and their respective successors and assigns,” and “was never 

challenged on any appeal,” it follows that the “Final DIP Order is binding on the Trust by its 

own terms,” and will “prevent the Trust from litigating its findings now.” Mot. 7. Defendants’ 

argument fails at four different levels.

1. Defendants’ “by its own terms” premise fails.

Defendants cite no authority—not a single case—to support their argument that the DIP 

approval order “by its own terms” suffices to “prevent the Trust from litigating its findings.” 

Mot. 7. And Defendants cannot cite such a case, because a party is not precluded from litigating 

in a later proceeding issues that were addressed in an earlier order unless a preclusion doctrine 

applies (e.g. res judicata or law of the case). LVNV Funding, LLC v. Harling, 852 F.3d 367, 371 

(4th Cir. 2017) (“In bankruptcy, we look to res judicata principles developed in our own case law 

to determine whether an earlier federal judgment, including the judgment of a bankruptcy court, 

bars a claim asserted in a later action.” (internal quotes and cites omitted)). As a matter of law, 

the DIP approval order cannot “by its own terms” preclude litigation of an issue in a subsequent 

proceeding.

2. The Court’s plan confirmation orders bar application of preclusion 

doctrines to claims against the Defendants.

The availability of preclusion is controlled by the Court’s plan confirmation order, which 

declared that no preclusion doctrine shall apply to claims against the Defendants. 

As between the DIP approval order and the Court’s plan confirmation order, the latter 

governs. The DIP approval order was an interlocutory order, not an appealable final order. “A 

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final order ends litigation and leaves nothing for the court to do but execute the judgment. An 

interlocutory order decides some intervening matter that requires other action to enable the court 

to adjudicate the cause on the merits.” Cody v. Micale, Civil Action No. 7:19-MC-4, 2019 U.S. 

Dist. LEXIS 98333, at *5 (W.D. Va. June 10, 2019) (internal cites and quotes omitted); Ayers v. 

United States DOD, 819 F. App’x 180, 181 (4th Cir. 2020) (“For an otherwise interlocutory 

bankruptcy court order to be reviewable on appeal, it must finally resolve an adversary 

proceeding, controversy, or entire bankruptcy proceeding on the merits and leave nothing for the 

court to do but execute its judgment.”). 

“An interlocutory order is subject to reconsideration at any time prior to the entry of a 

final judgment.” Am. Canoe Ass’n v. Murphy Farms, Inc., 326 F.3d 505, 515 (4th Cir. 2003)

(quoting Fayetteville Investors v. Commercial Builders, Inc., 936 F.2d 1462, 1469 (4th Cir. 

1991)). By contrast, “only plan confirmation—or case dismissal—alters the status quo and fixes 

the rights and obligations of the parties.” Bullard v. Blue Hills Bank, 575 U.S. 496, 502 (2015). 

Therefore, this Court’s “plan confirmation order is a ‘final determination’ as to those matters it 

actually addresses.” LVNV Funding, LLC v. Harling, 852 F.3d 367, 371 (4th Cir. 2017).

The Court entered two parallel plan confirmation orders, one for Toys Delaware and one 

for Toys Inc.299 In both plan 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 these claims. 

299 The Court entered an order on November 21, 2018 [Docket No. 5476] confirming the Fourth 

Amended Chapter 11 Plan of Toys Delaware (the “Delaware Plan”) [Docket No. 5602], and 

an order on December 17, 2018 [Docket No. 5979] confirming the Third Amended Chapter 

11 Plan of Toys, Inc. (the “Toys Inc. Plan”) [Docket No. 5940].

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The Court’s confirmation order expressly preserved the claims assigned to the Trust and 

asserted against the Defendants. The Court’s order and the plan defined the term “D&O Party” 

to mean “all current and former directors, officers, or managers (including Sponsor-affiliated 

directors, officers, and managers) of the” debtors. 300 And if defined “D&O Claims” to mean 

“all claims or Causes of Action” held by the debtors or their creditors “against any D&O 

Party.”301 The Court ordered that “all claims or Causes of Action against such parties are 

preserved ... and vested in the Non-Released Claims Trust.” 302

The Court further ordered, “For the avoidance of doubt, the claims preserved under the 

Delaware–Geoffrey Plan and assigned to the Non-Released Claims Trust include, without 

limitation, all Non-Released Claims including D&O Claims,” and the Trust “shall have the right 

to prosecute” such claims without further “action, order, or approval of the Bankruptcy 

Court.” 303

Even more significant, the Court’s confirmation order included an express provision 

stating “No preclusion doctrine .... shall apply.” 

No preclusion doctrine, including the doctrines of res judicata, collateral estoppel, 

issue preclusion, claim preclusion, estoppel (judicial, equitable or otherwise), or 

laches, shall apply to such Causes of Action upon, after, or as a consequence of 

the Confirmation or Consummation. 304

300 Dkt. 5602 at 7. 

301 Id. 302 Dkt 5476 (order confirming 4th Amend Chap 11 plan) at 19 (emphasis added).

303 Dkt. 5746 at 25, ¶49 (emphasis added).

304 Dkt. 5979 at p. 25, ¶50; Dkt. 5476 at ¶48 (expressly approving “Article IV.K.” in the Plan, 

which governs “Preservation of Rights of Action”); Dkt. 5602 at 33 (“No preclusion doctrine” 

provision in the plan).

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The Toys Inc. Plan and the Court’s order confirming that plan contained similar 

provisions as the Toys Delaware plan and confirmation order. 305

The Court had good reason for barring the application of preclusion doctrines for claims 

against the Defendants. It would waste resources and unduly burden the Trust if the Trust had to 

litigate preclusion issues arising from facts and circumstances that were known to and under the 

control of Defendants and hidden or obscured from other stakeholders. And it would obviously 

be unjust to employ estoppel to protect the positions and statements taken by the Toys “R” Us 

corporations when they were controlled by Defendants, even if the Trust is asserting claims as 

the successor to those corporations. 

And in fact the Court’s confirmation order expressly declared that it “shall be ... deemed 

binding upon ... all Entities that are parties to or are subject to the settlements, compromises, 

[and] releases ... described in the [Plan],” which means it is binding upon each of the 

Defendants. 306 The Court further ordered that each of the provisions in the plan governing “the 

treatment of Claims” “is an integral, integrated, and inextricably linked part of the Settlement 

Agreement.” 307 Accordingly, the “no preclusion doctrine” provision cannot be disregarded or 

voided without undoing the entire Settlement Agreement. 

The Court’s confirmation orders expressly declared that no preclusion doctrine shall 

apply to the claims asserted by the Trust against the Defendants. Those orders eliminated any 

305 Docket No. 5979 (confirmation order) at p. 25, ¶50; Docket No. 5940 (Toys Inc. Plan) at 35 

(“No preclusion doctrine, including the doctrines of res judicata, collateral estoppel, issue 

preclusion, claim preclusion, estoppel (judicial, equitable or otherwise), or laches, shall apply to 

such Causes of Action upon, after, or as a consequence of the Confirmation or Consummation.”).

306 Dkt. 5746 ¶141. 

307 Dkt. 5746 ¶34. 

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potential preclusive effect from law of the case based on the earlier, interlocutory order 

approving the DIP financing.

3. Law of the case does not apply because new evidence is available that 

was not presented to the Court.

The law of the case doctrine cannot apply because critical evidence was not before the 

Court when it approved the DIP financing. “[T]his Court’s articulation of the law-of-the-case 

doctrine ... acknowledges that different facts will lead to a different legal analysis to which the 

doctrine cannot apply.” Graves v. Lioi, 930 F.3d 307, 318 (4th Cir. 2019) (“when a court is 

presented with a different record at a new stage of the case, the law-of-the-case doctrine will no 

longer constrain the court's review”).

Accordingly, in the face of “substantially different evidence,” the “law of the case 

doctrine” does not apply. Smith v. North Carolina, 528 F.2d 807, 810 (4th Cir. 1975); Chase v. 

Dep't of Pub. Safety & Corr. Servs., Civil Action No. ELH-18-2182, 2020 U.S. Dist. LEXIS 

68944, at *34 (D. Md. Apr. 20, 2020) (“because different facts will lead to a different legal 

analysis, the doctrine does not apply where the factual milieu has expanded since the court’s 

initial ruling” (internal quotations and citations omitted)); Am. Canoe Ass’n v. Murphy Farms, 

Inc., 326 F.3d 505, 516 (4th Cir. 2003) (applying law of the case was “an abuse of discretion” 

when party “presented evidence ... that had not previously been considered”); Sejman v. 

Warner-Lambert Co., 845 F.2d 66, 69 (4th Cir. 1988) (law of the case does not apply if “a 

subsequent trial produces substantially different evidence”).

For example, the Fourth Circuit in Smith held that the law of the case doctrine only 

precludes a contrary finding based on “identical evidence,” and “in this case there was new

evidence” and that “defeats the operation of the law of the case.” Smith v. North Carolina, 528 

F.2d 807, 810 (4th Cir. 1975). And in American Canoe, the Fourth Circuit held that “the district 

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court abused its discretion” in precluding a party’s argument based on law of the case because 

the party “presented evidence going to the ... issue that had not been previously considered by 

the district court.” Am. Canoe Ass’n v. Murphy Farms, Inc., 326 F.3d 505, 516 (4th Cir. 2003).

The Court was provided declarations from Defendant Brandon and Defendant Short. But 

in these declarations, and in the motion papers and arguments that relied on these declarations, 

the Court, “was given false information and misleading information, was not told important 

facts, and was given inadequate information about certain facts regarding both the proposed DIP 

financing and the Company’s prospects for a turnaround.” 308

a. False and misleading information about the DIP financing 

negotiations and terms.

The testimony from Brandon and Short provided to the Court at the first day hearing 

painted the picture that the Company had firm commitments for all of the DIP loans, with all 

material terms finalized favorably for the Company. 309 For example, Defendant Short submitted 

a declaration stating that the Debtors had “firm commitments for approximately $3,125 million 

of combined postpetition financings.” 310 And the Court was told that DIP financing had been 

negotiated with multiple competing lenders with a “spirited competition” for the DIP Term loan 

that allowed the Company “to improve the terms relative to the initial proposal.” 311

The motion papers filed on September 19, 2017, purported to provide “a summary of the 

material terms” for the DIP financing facilities, including the financial covenants. 312 Defendant 

Short testified that “the facts set forth in each First Day Motion are true and correct.” 313 The 

308 Ex. 70 (Greenspan) ¶285. 

309 Ex. 70 (Greenspan) ¶286. 

310 Short decl. (Bk. Dkt. 30) at ¶126. 

311 Ex. 70 (Greenspan) ¶286; Sept. 19, 2017, hearing (Dkt 192) at 72, 76-77; Brandon declaration 

(Bk. Dkt. 20) at 42, ¶99.

312 Bk. Dkt. 29 at 8, 19, 29; Ex. 70 (Greenspan) ¶289.

313 Dkt. 30 at ¶7. 

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only item highlighted at the hearing as still under negotiation was contract language governing 

the filing of liens on leaseholds. 314

This portrait of the negotiations and the resulting terms was highly misleading, for the 

reasons described in greater detail above and reiterated in summary form as follows: The Court 

was not told that material financial covenants had not yet been finalized and that the negotiations 

were not trending in favor of the Company. The Court was not told that the DIP Term lenders 

had just added, the night before the First Day hearing, a new requirement for a $175 million 

minimum liquidity covenant, and were insisting on a January revised budget covenant that would 

require the Company to assess liquidity in light of the Holiday results and demonstrate that it 

could still meet the liquidity levels in the original DIP budget. The summary of material terms 

given to the Court made no mention of the January revised budget covenant, it made no mention 

of the $175 million minimum liquidity covenant, and it failed even to disclose that the amount of 

the required cash flow variance had not been agreed upon. 315

Moreover, the summary of material terms stated “Milestones: None,” 316 but failed to 

disclose “that covenant 6.16 required the borrowers to complete a specific act by a specified 

date”—i.e. demonstrate budget compliance by January 31, 2018. And it failed to disclose that 

the DIP Term loan lenders “insisted on including the Revised Budget Covenant 6.16 in lieu of 

the deleted milestones.” 317

Defendant Short, however, was “one of the chief people ... involved in negotiating” the 

covenants and “had ultimate responsibility for deciding what covenants to accept.” 318 Short 

314 Ex. 70 (Greenspan) ¶287; Sept. 19, 2017, hearing (Dkt 192) at 147-49.

315 Bk. Dkt. 29 at 8, 19, 29; Ex. 70 (Greenspan) ¶289. 

316 Bk. Dkt. 29 at 28.

317 Ex. 70 (Greenspan) ¶¶262, 289; Ex. 11 (3’2’18 Geier re 6.16 [TRU-Trust0000302970]). 

318 Ex. 87 (Short depo.) 205:14-17, 227:15-23. 

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knew about the new $175 million minimum liquidity covenant and specifically described it in an 

email on the evening of September 18, 2017, as a “new ask,” i.e. a new covenant from the DIP 

Term lenders. 319 Short also knew on the evening of September 18, that “the budget covenant 

that was ultimately agreed to” was proposed by the lenders as a covenant “tied to missing the 

DIP budget.” 320

The Court was provided none of this information at the hearing on September 19, 2017.

b. False and misleading information about the DIP budget 

projections.

The Court was provided a financial projection (DIP budget). 321 The Court was told that 

this financial projection was reliable, and that the Company could comfortably satisfy the 

financial covenants with no concerns for liquidity. 322 Defendant Short declared that “the Budget 

and projections provide an accurate reflection of the funding requirements for the North 

American and international operations over the identified period and are reasonable and 

appropriate under the circumstances.” 323 Short also declared that the DIP financing “will ensure 

that the Debtors have the necessary liquidity to continue to operate without material 

disruption.”324 And Brandon declared the “DIP Facilities ... will provide them with sufficient 

liquidity to stabilize operations, implement their holiday business plan, and negotiate a 

consensual plan of reorganization with their lenders.” 325

319 Ex. 87 (Short depo.) 243:4-18 (“she mentions the B lenders would like a liquidity covenant” 

and “your response to her, ‘Is this a new ask?’”).

320 Ex. 87 (Short depo.) 244:21-245:7.

321 Dkt. 29 at 145. 

322 Ex. 70 (Greenspan) ¶290; Dkt. 29 at 145.

323 Short decl. (Bk. Dkt. 30) at ¶129. 

324 Short decl. (Bk. Dkt. 30) at ¶130. 

325 Brandon declaration (Bk. Dkt. 20) at p. 42, ¶99. 

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Once again, critical facts were not disclosed to the Court regarding the financial 

projections and the Company’s projected liquidity. The Court was provided a DIP budget and 

forecast but was not provided the same store sales and profit margin assumptions used for the 

forecast, and was not told that “those assumptions were above trend, and, therefore, high risk and 

unrealistic.” 326 As described in greater detail above, none of the Company’s advisors had 

offered the opinion that the Company was likely to be able to comply with the January revised 

budget covenant or the $175 million minimum liquidity covenant. In fact, the Company and its 

advisors had concluded that the Company needed a liquidity cushion of $200 million, and that 

the $175 million minimum liquidity covenant would result in a cushion of less than $50 million, 

even using the unrealistic DIP budget projection. 327 The Court was not told that Bandon and 

Short and the Company’s advisors had concluded that the January revised budget covenant “just 

isn’t going to work.” 328 And the Court was not told that Short concluded that the $175 million 

liquidity covenant “doesn’t work.” 329 The Court was not told that Defendants Brandon and 

Short had concluded that the January revised budget covenant and the $175 million minimum 

liquidity covenant were too risky and, as a result, that they were seeking to find a new lender as 

of the first-day hearing date, or that they had sought to find a new lender, but could not do so, as 

of the final hearing date.

c. False and misleading information about the Directors’ 

assessment of the DIP financing.

The Court was told that the Directors were “very highly sophisticated financial people” 

who were “restructuring professionals in their prior lives and understand the process very 

326 Ex. 70 (Greenspan) ¶292. 

327 Ex. 70 (Greenspan) ¶291. 

328 Ex. 70 (Greenspan) ¶100; Ex. 48 (9’18’17 2244 pm [LZ-TRU0092221]) at 4.

329 Ex. 70 (Greenspan) ¶104; Ex. 57 (9’20’17 0652 am [TRU-Trust0000075725]).

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well.”330 That part was true. But the Court was also told that “the board is fully informed as to 

all of the aspects, terms, and conditions of this DIP financing,” that the Directors were “very 

involved,” and were kept “very closely advised and updated” on the DIP financing, and provided 

“a lot of feedback and direction.” 331 None of that was true. 

The Court was not told that the Directors had not been kept closely advised, did not even 

know the terms of the financial covenants, did not receive any analysis of the Company’s ability 

to comply with the covenants, did not seek out any of the needed information or advice to assess 

the covenants, and did not provide any material feedback and direction apart from rubberstamping the result. 332

d. False and misleading information about the turnaround plan.

The Court was told that the Company had a turnaround plan, that it was implementing the 

plan immediately, and that the DIP financing provided the funding needed for that turnaround.333 

Brandon in his first-day declaration stated: “In addition, and of critical importance, the debtor-inpossession financing also provides the Company with hundreds of millions of dollars of new 

money that is available for immediate and direct investment in the Company’s stores and 

operations.” 334

Brandon further stated in his declaration that the DIP financing includes “significant 

capital to immediately invest in operations” and “the DIP Financing ... includes approximately 

$1.0 billion of new money commitments that will allow the Debtors to make significant 

operational investments and drive in-store sales.” 335

330 Sept. 19, 2017, hearing (Dkt 192) at 85-86. 

331 Id. 332 Ex. 70 (Greenspan) ¶295.

333 Ex. 70 (Greenspan) ¶¶304-09. 

334 Brandon declaration (Bk. Dkt. 20) at 6-7, ¶13. 

335 Brandon declaration (Bk. Dkt. 20) at ¶¶69, 103.

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Brandon declared: “Investment in Growth Begins Today” and “This turnaround begins 

today.” 336 Brandon stated that “the Company has developed a four-pillared business plan 

designed to improve the customer experience, operations and drive sales,” and that to “execute 

on all four of the strategic pillars, the Debtors have identified a comprehensive set of key 

initiatives,” which he spelled out in detail in his declaration. 337

In reliance on Brandon’s declaration, the Court was told at the first day hearing: “we’re 

going to reinvest in operations, and that's going to begin today.” 338 And at the final hearing on 

October 25, 2017, the Court was told that the Company was “in the process of implementing all 

... four pillars to the company’s go-forward plan” using the “significant amount of new money, 

massive liquidity, available to implement the business plan that we talked about.” 339

All of these statements about the Company’s purported “turnaround plan” were highly 

misleading. As discussed in detail above, the Company did not have a turnaround plan, and had 

no prospects for coming up with a viable turnaround plan. The Company was not commencing 

the turnaround “today” or “immediately” and was not using the DIP financing for “immediate 

and direct investment in the Company’s stores and operations,” as Brandon had testified. As 

explained above, the plan was to get through the Holiday season and then in January attempt to 

come up with a plan. 340 The Court was not told that the amount of money from the DIP 

financing budgeted for capital improvements for turnaround was only $125 million, a small 

fraction of what would be required by a transformative turnaround plan. 341 And the Court was

336 Brandon declaration (Bk. Dkt. 20) at p. 30, ¶69. 

337 Brandon declaration (Bk. Dkt. 20) ¶¶70-78.

338 Sept. 19, 2017, hearing (Dkt 192) at 33. 

339 Oct. 25, 2017, hearing trans. (Bk. Dkt. 749) at 14-15.

340 Ex. 70 (Greenspan) ¶311. 

341 Ex. 70 (Greenspan) ¶311. 

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not told that this $125 million in capital was not available “immediately,” but instead was 

budgeted to be available commencing after February 2, 2018, and that this capital would only be 

available if budget covenant 6.16 were satisfied, which was highly unlikely. 342

e. False and misleading information reiterated at the final 

hearing.

For the final hearing on October 25, 2017, the Court was not provided sufficient 

disclosures or updated information on any of the above facts. 343 Instead, the Court was asked to 

“incorporate the record from the first-day hearing ... for purposes of the evidentiary record,” 

which included the declarations of Brandon and Short. 344

The text of the financial covenants was included in a 708-page filing on the bankruptcy 

docket on September 22, 2018. 345 But the new January revised budget covenant and the $175 

million minimum liquidity covenant were not brought to the attention of the Court. In the 

Debtors’ Omnibus Reply brief filed on October 24, 2017, the Court was advised of certain 

changes to the proposed final order, such as a resolution of the dispute concerning liens on leases 

(which had been discussed at the First Day hearing). 346

But the brief did not advise the Court of the financial covenants that were added to the 

Term DIP loan after the first day hearing. 347 The only change in terms for the Term DIP loan 

identified for the Court was that the B-2 and B-3 debt holders “negotiated for a slightly enhanced 

adequate-protection payment.” 348

342 Ex. 70 (Greenspan) ¶311.

343 Ex. 70 (Greenspan) ¶296. 

344 Oct. 25, 2017, hearing trans. (Bk. Dkt. 749) at 19. 

345 Notice of Filing of NA DIP (Bk. Dkt. 158). 

346 Debtors’ Corrected Omnibus Reply (Bk. Dkt. 688) at 4. 

347 Id. 348 Oct. 25, 2017, hearing trans. (Bk. Dkt. 749) at 20.

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Moreover, if someone had gone through the 700 pages of loan documentation in docket 

158 and read the language of the January revised budget covenant and the $175 million 

minimum liquidity covenant, “they likely would not have appreciated their significance without 

knowing the background and drafting history that was known to Brandon and Short.” 349

In the original credit agreement filed with the Court on September 19, 2017, the liquidity 

covenant (section 7.18) tracked a similar covenant in the ABL Credit Agreement, and it appeared 

that it “did not impose any additional limitations on liquidity beyond the $125 million block in 

the ABL agreement.” 350 But when section 7.18 was finally negotiated and agreed to on 

September 22, 2017, it actually imposed an additional requirement to maintain liquidity of $175 

million in excess of the $125 million. 351 But that effect was not immediately obvious from 

reading the language of the covenant (and, in fact, it even deceived Defendant Short when he 

first encountered the proposal). 352

Even more troubling was the January revised budget covenant, section 6.16, which 

certainly required additional information to appreciate its significance. “For someone who was 

not aware of the history of negotiations for covenant 6.16, its wording was deceptively 

innocuous.” 353 The required action was merely to “propose revisions to the budget” and it 

contained phrases “that suggested leeway.” 354

But the Court (and other stakeholders such as the UCC) were not told that the lenders for 

the DIP Term loan (the “B4 lenders”) had “insisted on 6.16 to serve as a substitute for specific 

349 Ex. 70 (Greenspan) ¶¶298-303. 

350 Bk. Dkt. 29 at pdf 479; Ex. 70 (Greenspan) ¶299. 

351 Ex. 70 (Greenspan) ¶299; Notice of Filing Final NA DIP Agreements (Bk. Dkt. 158) at 673.

352 Ex. 70 (Greenspan) ¶300; Ex. 59 (9’21’17 Kurtz re covenant negotiations [LZ-TRU0086423]) 

at 1.

353 Ex. 70 (Greenspan) ¶301. 

354 Ex. 70 (Greenspan) ¶301; Notice of Filing Final NA DIP Agreements (Bk. Dkt. 158) at 656. 

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milestones to give them a chance to pull the plug if the Company’s Holiday sales did not perform 

as forecast.” 355 “This budget covenant was required by the B4 lenders after case-related 

milestones were eliminated from the DIP agreements. The B4 lenders demanded this covenant to 

have visibility into holiday results in the face of potential investment of their DIP funds into goforward business initiatives.” 356

Moreover, covenant 6.16 allowed the Company to meet the revised budget requirement 

through “reductions ... to SG&A, capital expenditures and/or other cash outlays.” 357 But only 

insiders with access to the Company’s internal financial information knew that the Company did 

not have cost-cutting or capital reductions “as an available tool to offset large revenue 

shortfalls.” 358 The Court (and the UCC) were not told that if the Company did not achieve the 

holiday sales levels set forth in the (unrealistic and far too optimistic) DIP budget, significant 

budget cuts would not be available to bring the budget back in line to achieve the liquidity levels 

required by covenant 6.16. 359 For Brandon and Short, the default on the covenant was “virtually 

inevitable” and “[t]here was nothing about the default ... that wasn’t in plain sight” for them. 360 

But that information was not shared with the Court or the UCC.

Defendant Short had actively participated in the negotiations that led to 6.16, and he was 

well aware of its requirements and dangers. 361 But the Court and the UCC were not told about 

the history or purpose of covenant 6.16 and received no explanation of its significance.

355 Ex. 70 (Greenspan) ¶302. 

356 Ex. 11 (3’2’18 Geier re 6.16 [TRU-Trust0000302970]).

357 Notice of Filing Final NA DIP Agreements (Bk. Dkt. 158) at 656. 

358 Ex. 70 (Greenspan) ¶¶126-129. 

359 Ex. 70 (Greenspan) ¶303. 

360 Ex. 86 (Greenspan depo.) 131:11-13, 131:24-133:22. 

361 Ex. 87 (Short depo.) 205:14-17, 227:15-23; Ex. 70 (Greenspan) ¶303; Ex. 55 (9’19’17 1737 

pm Bhandari [TRU-Trust0000074218]) at point 4 (covenant 6.16 was being negotiated in a 

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Defendant Short admitted that he knew that the DIP Term Loan covenants had been 

negotiated “after the court hearing on the 19th” but that he did not “ask anyone to notify the 

court that a new covenant had been negotiated and added to the ... term DIP loan.” 362

Moreover, at the October 24, 2015 hearing the Court was again not told the facts 

described above:

• The Directors had not performed their fiduciary duties, and had made no assessment of 

the Company’s ability to comply with the financial covenants, and had not even asked 

to receive such an assessment from management or the financial advisors.

• That DIP budget and forecast provided to the Court was based on a manipulated 

revenue projection that would be virtually impossible to achieve.

• Even using the unrealistic DIP budget, projected liquidity (taking into account the new 

$175 million liquidity covenant) that was more than $150 million less than the amount 

that Alvarez & Marsal concluded was necessary.

• Bandon and Short had concluded that the January revised budget covenant “just isn’t 

going to work” and the $175 million liquidity covenant “doesn’t work.” 

• The Company did not have a turnaround plan, and had no prospects for coming up with 

a viable turnaround plan, and the Company was not commencing the turnaround 

“today” or “immediately” as Brandon had testified. 

“conversation between Mike and Randy at Marathon”); Ex. 84 (Sussberg) 96:11-16, 97:6-25, 

99:22-100:15, 102:8-103:10.

362 Ex. 87 (Short depo.) 256:9-257:2.

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• The amount of money from the DIP financing budgeted for capital improvements for 

turnaround was only $125 million, a small fraction of what would be required by a 

transformative turnaround plan, and that the amount was not available “immediately,” 

but would only be available if budget covenant 6.16 were satisfied by January 31, 2018, 

which was highly unlikely. 

To call these facts “material” is an understatement. These facts explain how and why the 

Toys “R” Us bankruptcy resulted in $800 million in unpaid administrative claims, “the largest 

administrative insolvency in the history of this country.” 363

Therefore, “in this case there was new evidence” and that “defeats the operation of the 

law of the case.” Smith v. North Carolina, 528 F.2d 807, 810 (4th Cir. 1975). 

4. The Court’s order approving DIP financing did not address the issues 

asserted against Defendants.

Finally, the Defendants’ law of the case argument also fails because the Court’s order 

approving DIP financing did not actually address the issues asserted in the claims against the 

Defendants. Furthermore, the Court found only that the DIP Loans were needed to permit “the 

orderly continuation of the operation of their businesses,” and maintenance of the Debtors as a 

“going concern.” 364 The Court did not consider, and did not issue a ruling on, whether greater 

value would be preserved by an immediate wind-down rather than by maintaining the Company 

as a going concern and attempting a highly speculative turnaround. Similarly, the Court’s order 

stated only that the “DIP Loan Parties,” i.e. the corporate entities, exercised prudent business 

363 Ex. 86 (Greenspan depo.) 133:9-17; Ex. 70 (Greenspan) ¶319; Ad Hoc Vendor Group’s 

Statement in Support of Debtor’s Motion re Settlement (Bk. Dkt. 4030) at 3 (“approximate $800 

million of administrative claims that were owed by the Debtors”).

364 Bk. Dkt. 711 at 18, ¶5(b). 

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judgment. 365 The Court received no evidence on, and did not consider, what the individual 

directors had done or not done in approving the DIP financing, and therefore the Court did not 

issue specific rulings on, whether the Director Defendants complied with their fiduciary duties. 

B. Judicial estoppel does not protect Defendants’ unlawful conduct.

Defendants assert that the “Trust is estopped from alleging that the DIP financing was a 

breach of Defendants’ fiduciary duty,” because “the Trust’s counsel and the UCC argued in 

favor of the DIP financing.” Mot. at 7-8. This argument fails for multiple reasons.

1. The Trust is not a successor to the UCC and Mattel and is not bound 

by their prior statements.

The statements and positions taken by the UCC and Mattel cannot create an estoppel 

because the Trust is not their successor. 

The Defendants assert the estoppel defense against breach of fiduciary duty claims 

assigned to the Trust from Toys Delaware and Toys Inc. These claims assert that Defendants, in 

their capacities as officers and directors of the two Toys “R” Us corporations, breached their 

fiduciary duties to the corporations. In asserting those claims, the Trust is the successor to the 

corporations and stands in the shoes of the corporations. 

Statements made by the UCC or counsel for Mattel could not possibly estop these two 

corporations—Toys Delaware and Toys Inc.—from bringing claims for breaches of fiduciary 

duty. And because the Trust is the successor in interest to the corporations, such statements 

equally cannot estop the Trust. By contrast, in the Geruschat case cited by Defendants, the 

plaintiffs were unsecured creditors of the debtor who, after plan confirmation, sought to continue 

to assert their own claims in their capacity as creditors. Geruschat v. Ernst & Young, LLP (In re 

Earned Capital Corp.), 331 B.R. 208, 224 (Bankr. W.D. Pa. 2005). 

365 Bk. Dkt. 711 at 19, ¶5(d). 

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Likewise, the Ryan case cited by Defendants does not imply, much less hold, that a party 

may be estopped based on statements of a creditor’s committee. Ryan, Inc. v. Circuit City 

Stores, Inc., 2010 U.S. Dist. LEXIS 120627, at *13-14 (E.D. Va. Nov. 15, 2010). In fact, the 

case has nothing whatsoever to do with estoppel (the case does not even mention estoppel or any 

other preclusion doctrine). The language quoted by Defendants is simply a court identifying the 

support of the committee of unsecured creditors as one reason for approving the debtor’s 

rejection of an executory contract. 

The Trust is not a successor to the UCC for any purpose and therefore is not responsible 

for, or bound by, any statements or positions taken by the UCC. The Trust is a successor to 

Mattel only as to Mattel’s fraud and other tort claims against the Defendants; not as to any 

breach of fiduciary duty claims. Therefore, for purposes of the Trust’s breach of fiduciary duty 

claims, the Trust is not a successor to either the UCC or Mattel. No estoppel can apply.

Defendants assert that estoppel of the Trust for breach of fiduciary duty may stem from 

statements made by the UCC because the Trust “is pursuing claims on behalf of the UCC’s 

constituency.” Mot. 7. That assertion is false. Four of the 37 fraud claims asserted by the Trust 

were assigned from members of the UCC, but not the breach of fiduciary duty claims against 

which Defendants assert the estoppel defense. In asserting the breach of fiduciary duty claims, 

the Trust is not a successor to any of the UCC members, and therefore cannot possibly be 

estopped in asserting the fiduciary duty claims. 

Finally, Defendants assert that the “Trust’s counsel” argued in favor of the DIP financing. 

Mot. at 7. That is false. When Mr. Eckstein appeared before the Court in October 2017, he was 

not speaking on behalf of the Trust. Mr. Eckstein was counsel for the UCC. 

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2. The Court’s confirmation order bars application of preclusion 

doctrines, including estoppel.

As discussed above, the Court’s confirmation orders require that “No preclusion doctrine, 

including the doctrines of ... estoppel (judicial, equitable, or otherwise) ... shall apply to such 

Causes of Action” (i.e. to claims asserted against the former directors and officers of Toys “R” 

Us). 366

The Court had good reason for doing so. It would waste resources and unduly burden the 

Trust if it had to litigate preclusion issues arising from facts and circumstances that were known 

to and under the control of Defendants and hidden or obscured from the other stakeholders. And 

it would obviously be unjust to employ estoppel to protect the positions and statements taken by 

the Toys “R” Us corporations when they were controlled by Defendants, even if the Trust is 

asserting claims as the successor to those corporations. 

As the Court ruled in the confirmation order, the “no preclusion doctrine” provision was 

an “integral, integrated, and inextricably linked part of the Settlement Agreement” and, therefore, 

cannot be disregarded. 367 Moreover, as the Court ruled, it was binding on the Defendants 

because they are “subject to the settlements, compromises, [and] releases ... described in the 

[Plan].” 368

3. The Trust has not engaged in bad faith or an attempt to intentionally 

mislead the court.

One of the three elements that “must be satisfied before judicial estoppel will be applied” 

is that “the party against whom judicial estoppel is to be applied must have intentionally misled 

the court to gain unfair advantage.” Zinkand v. Brown, 478 F.3d 634, 638 (4th Cir. 2007). 

366 Dkt. 5746 (Delaware order) ¶48; Dkt. 5602 (Delaware plan) at 33; Dkt. 5979 (Toys Inc. 

order); Dkt. 5940 (Toys Inc. plan) at 35.

367 Dkt 5746 ¶34. 

368 Dkt. 5746 ¶141. 

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Defendants entirely ignore this element, and they cannot prove that the Trust (“the party against 

whom judicial estoppel is to be applied”) “intentionally misled the court to gain unfair 

advantage.” Id.

This element is not optional. It is a “longstanding principle that judicial estoppel applies 

only when the party who is alleged to be estopped intentionally misled the court to gain unfair 

advantage.” Martineau v. Wier, 934 F.3d 385, 393 (4th Cir. 2019) (internal quotes omitted) 

(reversing district court’s grant of summary judgment erroneously premised on judicial 

estoppel). “The determinative factor in the application of judicial estoppel is whether the party 

who is alleged to be estopped intentionally misled the court to gain unfair advantage.” John S. 

Clark Co. v. Faggert & Frieden, P.C., 65 F.3d 26, 29 (4th Cir. 1995) (internal quotes omitted). 

As the Fourth Circuit held in Zinkand, “Without bad faith, there can be no judicial 

estoppel.” Id. (holding that “the district court made a clear error of law and consequently abused 

its discretion” by applying judicial estoppel in the absence of bad faith); Minnieland Private Day 

Sch., Inc. v. Applied Underwriters Captive Risk Assurance Co., 867 F.3d 449, 458 (4th Cir. 

2017) (holding that “the district court committed legal error in applying judicial estoppel and, 

therefore, abused its discretion”). 

Moreover, showing the required level of intent and bad faith is a high bar. “Courts must 

proceed with caution” and “intent to mislead” must be “clear.” John S. Clark, 65 F.3d at 29

(reversing district court because “it is not clear that Clark had the intent to mislead which is 

required to invoke judicial estoppel”). For example, in the only Fourth Circuit case cited by 

Defendants, the estopped party was (a) “explicitly” misleading one court by hiding a prior 

settlement agreement so that the party could appeal the claim that the agreement settled, “while 

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at the same time” (b) relying on the same settlement agreement in an enforcement proceeding 

before another court. Guinness PLC v. Ward, 955 F.2d 875, 899-900 (4th Cir. 1992).

Defendants do not assert, much less attempt to prove, bad faith or an attempt to 

intentionally mislead a court. This is fatal to Defendants’ argument because “judicial estoppel is 

an affirmative defense.” Thomas v. FTS USA, LLC, No. 3:13cv825, 2016 U.S. Dist. LEXIS 

82679, at *44 n.7 (E.D. Va. June 24, 2016). Because it is an affirmative defense, Defendants 

bear the burden of proof. 

“Where, as here, the movant seeks summary judgment on an affirmative defense, it must 

conclusively establish all essential elements of that defense.” Ray Communs., Inc. v. Clear 

Channel Communs., Inc., 673 F.3d 294, 299-300 (4th Cir. 2012). And “where the movant fails 

to fulfill its initial burden of providing admissible evidence of the material facts entitling it 

to summary judgment, summary judgment must be denied, even if no opposing evidentiary 

matter is presented, for the non-movant is not required to rebut an insufficient showing.” Id. 

Because Defendants do not mention a bad faith intentional attempt to mislead—much 

less offer undisputed evidence proving it—Defendants’ defense fails as a matter of law.

Ironically, Defendants’ assertion of judicial estoppel is itself made in bad faith. In 

opposing the motion to dismiss, the Trust called Defendants’ attention to the controlling Fourth 

Circuit law setting forth the elements of judicial estoppel. 369 And the Trust pointed out to 

Defendants that judicial estoppel was an affirmative defense for which Defendants bore the 

burden of proof. 370 It is therefore inexplicable that Defendants would proceed with a motion for 

summary judgment that entirely ignores the requirement that Defendants prove bad faith.

369 Dkt. #6 at 13-14. 

370 Id. at 15.

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In fact, the undisputed evidence demonstrates that the Trust has not engaged in a bad 

faith attempt to intentionally mislead the Court. Defendants do not assert that the Trust has no 

basis for asserting breaches of fiduciary duties by the Defendants in this case. Nor could they. 

The Trust’s allegations are well supported by overwhelming evidence, including documentary 

evidence and admissions from the Defendants themselves.

Nor do Defendants assert that the statements made by the UCC and counsel for Mattel in 

October 2017 were made in bad faith or were designed to intentionally mislead the Court. There 

is no evidence suggesting that, when the UCC and Mattel supported the DIP financing in 

October 2017, they did not believe their positions and were attempting to mislead the Court. 

This is not a circumstance where the Trust is attempting to mislead the Court in this case, 

or where the UCC and Mattel were attempting to do so in 2017. There is no credible evidence of 

bad faith. 

4. Because the Trust’s position is based on facts not known to the UCC 

or Mattel, judicial estoppel cannot apply.

Estoppel does not bar a party from asserting inconsistent positions if the later position is 

based on facts not known to it when it asserted the earlier position.

Because the “vice which judicial estoppel prevents is the cold manipulation of the courts” 

“[i]t is inappropriate, therefore, to apply the doctrine when a party’s prior position was based on 

inadvertence or mistake.” John S. Clark Co. v. Faggert & Frieden, P.C., 65 F.3d 26, 29 (4th Cir. 

1995), quoted with approval by New Hampshire v. Maine, 532 U.S. 742, 753 (2001). 

“Jurisdictions recognizing judicial estoppel also refuse to apply the doctrine when the prior 

position was taken because of a good faith mistake rather than as part of a scheme to mislead the 

court. An unintentional error is not penalized by precluding subsequent assertion of the truth. 

Because the rule looks toward cold manipulation and not unthinking or confused blunder, it has 

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never been applied where plaintiff's assertions were based on fraud, inadvertence, or mistake.” 

Konstantinidis v. Chen, 626 F.2d 933, 939 (D.C. Cir. 1980) (internal quotes omitted), cited with 

approval by approval by New Hampshire v. Maine, 532 U.S. 742, 753 (2001).

The UCC and Mattel were not aware of, and had no way of knowing, the many facts that 

have come to light as the result of the Trust’s investigation. In September and October 2017, the 

UCC and Mattel were subjected to the same misinformation, false statements, and concealed 

information that the Court received at that time (as discussed in detail above). The UCC and 

Mattel “received misleading information,” were “not told important facts,” and were “given 

inadequate information” regarding both the proposed DIP financing and the Company’s 

prospects for a turnaround. 371

The Trust’s position in this case is based on all of the evidence and facts that were known 

only to Defendants in the fall of 2017. 

5. Defendants do not assert, and could not assert, collateral estoppel.

Defendants style this defense as “estoppel,” and frame their argument in terms consistent 

with the doctrine of judicial estoppel, which is what the Defendants also asserted in their motion 

to dismiss, and pleaded in their answer. Defendants do not assert “collateral estoppel,” which 

would fail for even more reasons than judicial estoppel. 

1. Collateral estoppel is an affirmative defense and must be pleaded in an answer for 

it to be preserved. Fed. R. Civ. P. Rule 8 (“a party must affirmatively state any avoidance or 

affirmative defense, including ... estoppel ... res judicata”). Defendants failed to plead the 

affirmative defense of collateral estoppel. 372

371 Ex. 70 (Greenspan) ¶312. 

372 Dkt. 149 at 136-37.

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2. Because it is an affirmative defense, on summary judgment Defendants have the 

burden of setting forth each element and proffering undisputed evidence establishing each 

element. Ray Communs., Inc. v. Clear Channel Communs., Inc., 673 F.3d 294, 299-300 (4th Cir. 

2012). Defendants failed to do so. 

3. The defense of collateral estoppel requires proof that “the issue sought to be 

precluded is identical to one previously litigated.” Collins v. Pond Creek Mining Co., 468 F.3d 

213, 217 (4th Cir. 2006) (internal quotes omitted). Defendants cannot show that “the identical 

issue was previously adjudicated.”

4. The defense of collateral estoppel requires proof that “the party against 

whom collateral estoppel is asserted had a full and fair opportunity to litigate the issue in the 

previous forum.” Collins, 468 F.3d at 217. Defendants cannot prove that element. “It is not 

possible ... to have had a full and fair opportunity to litigate when the most essential facts were 

excluded.” Geruschat v. Ernst & Young, LLP (In re Earned Capital Corp.), 331 B.R. 208, 227 

(Bankr. W.D. Pa. 2005).

C. The exculpatory provision does not protect the Defendants against any of the 

Trust’s claims. 

Defendants assert the Defendant Directors “are immunized from the Trust’s claim that 

they breached their duty of care in approving the DIP financing in their capacity as company 

directors pursuant to the exculpatory clause” in the Company’s certificate of incorporation. Mot. 

10-11. This contention fails at four levels.

First, “the shield from liability provided by a certificate of incorporation provision 

adopted pursuant to 8 Del. C. § 102(b)(7) is in the nature of an affirmative defense.” Emerald 

Partners v. Berlin, 726 A.2d 1215, 1223 (Del. 1999). Defendants were required to plead all 

asserted affirmative defenses in their answer. Fed. R. Civ. P. 8(c) (“a party must affirmatively 

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state any avoidance or affirmative defense”). Defendants failed, however, to plead the defense 

of exculpation. 373

Moreover, because exculpation is an affirmative defense, Defendants “bear the burden of 

establishing each of its elements.” Emerald Partners v. Berlin, 726 A.2d 1215, 1223-24 (Del. 

1999). Defendants failed to set forth admissible evidence establishing each of its elements as an 

undisputed fact and, therefore, cannot prevail on summary judgment. “Where, as here, the 

movant seeks summary judgment on an affirmative defense, it must conclusively establish all 

essential elements of that defense.” Ray Communs., Inc. v. Clear Channel Communs., Inc., 673 

F.3d 294, 299-300 (4th Cir. 2012). And “where the movant fails to fulfill its initial burden of 

providing admissible evidence of the material facts entitling it to summary judgment, summary 

judgment must be denied, even if no opposing evidentiary matter is presented, for the nonmovant is not required to rebut an insufficient showing.” Id. 

Second, when the defense is available, an exculpatory provision can apply only to a claim 

for breach of the duty of care. 8 Del. C. § 102(b)(7). An exculpatory provision has no effect on 

claims for breach of the fiduciary duty of loyalty or breach of the fiduciary duty of good faith. 8 

Del. C. § 102(b)(7) (“such provision shall not eliminate or limit the liability of a director: For 

any breach of the directors’ duty of loyalty [or] ... for acts or omissions not in good faith”); Leal 

v. Meeks (In re Cornerstone Therapeutics, Inc.), 115 A.3d 1173, 1179-80 (Del. 2015) (holding 

that exculpation is not effective if “the director harbored self-interest adverse to the stockholders' 

interests, acted to advance the self-interest of an interested party from whom they could not be 

presumed to act independently, or acted in bad faith”). The exculpatory provision, therefore, 

373 Dkt. 149 at 136-38.

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does not protect Defendants against the Trust’s claims for breach of the fiduciary duty of loyalty 

and breach of the fiduciary duty of good faith. 

Third, if a director’s conduct is a breach of the duty of loyalty or the duty of good faith in 

addition to breaching the duty of care, then the exculpatory provision will not suffice, and a 

breach of the duty of care may also be asserted against the directors. Malpiede v. Townson, 780 

A.2d 1075, 1095 (Del. 2001) (“a Section 102(b)(7) charter provision bars a claim that is found to 

state only a due care violation”); Miller v. Greystone Bus. Credit II, L.L.C. (In re USA 

Detergents, Inc.), 418 B.R. 533, 545 (Bankr. D. Del. 2009) (“Because, as explained in further 

detail below, the Trustee alleges facts sufficient to sustain a cause of action for breach of the 

duties of loyalty and good faith, the Director Defendants cannot invoke the exculpation clause 

and the Court will not dismiss the claims for breach of the duty of due care.”); Bridgeport 

Holdings Inc. Liquidating Tr. v. Boyer (In re Bridgeport Holdings, Inc.), 388 B.R. 548, 568 

(Bankr. D. Del. 2008) (“In this case, the Trust has alleged facts supporting a breach of the duty 

of loyalty as well as a lack of good faith, in addition to a breach of the duty care. Since these 

questions of the D&O Defendants' loyalty or lack of good faith trigger entire fairness review, an 

exculpatory provision simply cannot justify a dismissal of the duty of care claims.”). Because 

the facts establish that Defendants breached their duties of loyalty and good faith, the 

exculpatory provision does not protect them from liability for breaching their duty of care.

Fourth, the protection of the exculpatory provision applies only to a “director of the 

corporation.” Mot. 10. The provision therefore cannot shield the actions of Brandon and Short 

in their capacities as officers of the Company. In re Mindbody, Inc., 2020 Del. Ch. LEXIS 307, 

at *71 (Ch. Oct. 2, 2020) (“an officer ... is not exculpated by the Company’s 102(b)(7) 

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provision” (internal quotes omitted)); McPadden v. Sidhu, 964 A.2d 1262, 1275 (Del. Ch. 2008)

(“an officer does not benefit from the protections of a Section 102(b)(7) exculpatory provision”).

D. The business judgment rule does not protect Defendants’ conduct.

Defendants contend that “the business judgment rule prevents the Trust from challenging

... the Board’s decision to obtain DIP financing.” Mot. 11. This contention fails for four 

reasons. 

The business judgment rule “may only be invoked by directors who are found to be not 

only ‘disinterested’ directors, but directors who have both adequately informed themselves 

before voting on the business transaction at hand and acted with the requisite care.” Cede & Co. 

v. Technicolor, 634 A.2d 345, 367 (Del. 1993) (emphasis in original). Therefore, “proving that 

the defendant breached her duty of loyalty or her duty of care” will be sufficient for “rebutting 

one of the business judgment rule’s presumptions.” Basho Techs. Holdco B, Ltd. Liab. Co. v. 

Georgetown Basho Inv’rs, Ltd. Liab. Co., No. 11802-VCL, 2018 Del. Ch. LEXIS 222, at *55 

(Ch. July 6, 2018). 

Moreover, the duty of good faith is a component of the duty of loyalty, because a 

“director cannot act loyally towards the corporation unless she acts in good faith.” Stone v. 

Ritter, 911 A.2d 362, 369-70 (Del. 2006). Therefore, demonstrating a breach of the duty of good 

faith also removes the protection of the business judgment rule. 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. If that is shown, 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.”). In 

particular, the business judgement rule cannot be invoked against a claim for abdication of 

directorial duties. Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984). 

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Defendants’ contentions fail on all counts.

1. The business judgment rule does not apply because Defendants failed 

to inform themselves of all material information that was reasonably 

available to them.

Directors and officers “have a duty to inform themselves, prior to making a business 

decision, of all material information reasonably available to them.” Cede & Co. v. Technicolor, 

634 A.2d 345, 371 (Del. 1993). “[T]he failure of the members of the board to adequately inform 

themselves represented a breach of the duty of care, which of itself was sufficient to rebut the 

presumption of the business judgment rule.” Cede & Co. v. Technicolor, 634 A.2d 345, 371 

(Del. 1993).

As described above, Defendants failed to inform themselves of critical information before 

voting to approve the DIP financing and the turnaround strategy. This information included:

• The terms of the key financial covenants for the DIP financing;

• A projection or financial model that could be used to assess available liquidity of the 

Company;

• The key assumptions underlying a financial model, including sales, margins, operating 

costs, and capital expenditures;

• A sensitivity analysis showing the results of reasonable downside cases;

• An analysis from advisors or management of the Company’s ability to comply with all 

financial covenants for the DIP financing;

• An assessment of whether the Company could plausibly come up with a viable turnaround 

plan;

• An estimate of the capital required for a turnaround and assessment of whether the DIP 

financing provided the Company with sufficient liquidity to attempt a turnaround;

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• An assessment of the timing of a turnaround and the timing of expected benefits from a 

turnaround;

• An analysis of the likely “costs and losses that would occur “from a forced liquidation 

resulting from a covenant default;”

• An analysis of the additional operating losses, costs, and expenses that the Company would 

incur by the liquidation of the U.S. business. 374

This information was reasonably available and, in fact is what is always done in similar 

circumstances. 375 And, as discussed above, Defendants knew that this was the information they 

should be gathering before arriving at a decision. Yet Defendants failed even to ask for this 

information.

In an analogous case, directors approved a leveraged buyout transaction but “failed to 

review cash projections indicating that the debtor would be left with insufficient capital after the 

LBO.” Bridgeport Holdings Inc. Liquidating Tr. v. Boyer (In re Bridgeport Holdings, Inc.), 388 

B.R. 548, 569 (Bankr. D. Del. 2008). As a consequence, “the directors did not fulfill their duty 

to inform themselves, prior to making that business decision, of all material information 

reasonably available to them.” Id. (internal quotes omitted).

Because Defendants failed to inform themselves of all material information reasonably 

available to them, the business judgment rule does not protect them. 

2. The business judgment rule does not apply because Defendants failed 

to act with requisite care.

For the business judgment rule to apply, directors and officers “must then act with 

requisite care in the discharge of their duties.” Cede & Co. v. Technicolor, 634 A.2d 345, 367 

374 See, e.g. Ex. 70 (Greenspan) ¶¶157, 272-276; 279

375 Ex. 70 (Greenspan) ¶¶54-57, 141-42, 157, 159.

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(Del. 1993). As detailed above, Defendants engaged in gross negligence and failed to exercise 

due care in approving the DIP financing, authorizing an attempted turnaround, and failing to 

consider (and then direct) an immediate wind-down. As a result, the business judgment rule 

does not apply.

3. The business judgment rule does not apply because Defendants 

abdicated their duties.

In addition, the business judgement rule cannot be invoked against a claim for abdication 

of directorial duties. “[T]he business judgment rule ... has no role where directors have ... 

abdicated their functions.” Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984); Bridgeport 

Holdings Inc. Liquidating Tr. v. Boyer (In re Bridgeport Holdings, Inc.), 388 B.R. 548, 569 

(Bankr. D. Del. 2008) (“where a loss results from director inaction, the protections of the 

business judgment rule do not apply”); In re Walt Disney Co. Derivative Litig., 907 A.2d 693, 

748 n.418 (Del. Ch. 2005) (“the business judgment rule does not apply to director inaction”).

As detailed above, the facts demonstrate that Defendants entirely abdicated their duty to 

assess the Company’s ability to comply with financial covenants in the DIP financing. This 

evidence establishes that the Directors “adopt[ed] a ‘we don’t care about the risks’ attitude 

concerning a material corporate decision” and thereby breached their fiduciary duties. In re Walt 

Disney Co. Derivative Litig., 825 A.2d 275, 289 (Del. Ch. 2003), aff’d Brehm v. Eisner (In re 

Walt Disney Co. Derivative Litig.), 906 A.2d 27, 63 (Del. 2006) (holding that bad faith may be 

shown by evidence demonstrating a “conscious[] and intentional[] disregard[] [of] 

responsibilities, adopting a ‘we don't care about the risks’ attitude”). 

In addition, the facts detailed above demonstrate that Defendants knew that the U.S. 

business met all the criteria for a business that needed an immediate wind-down, knew that 

having the Company max out its DIP financing and continue in operation would cost hundreds of 

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millions of dollars in additional operating losses and restructuring costs. They knew that their 

fiduciary duties required them to assess all reasonable alternatives, and to gather all information 

reasonably available before making a decision. But Defendants entirely abdicated that duty and

failed to act. 

Because the evidence demonstrates that Defendants abdicated their functions, the 

business judgment rule cannot protect them.

4. The business judgment rule does not apply because Defendants were 

not disinterested directors.

The business judgment rule “may only be invoked by directors who are found to be ... 

‘disinterested directors,’” and does not protect directors from a claim of breach of the duty of 

loyalty. Cede & Co. v. Technicolor, 634 A.2d 345, 367 (Del. 1993). As demonstrated above, 

Defendants Brandon, Short, and each of the six Sponsor-appointed Directors had conflicts of 

interest and were not entirely disinterested in the decision whether to commence an immediate 

wind-down or to instead max-out DIP financing and attempt a turnaround. They ignored their 

conflicts of interest, failed to delegate the decision to disinterested directors or officers, and, 

instead, controlled the decision. The business judgment rule, therefore, cannot protect their 

breaches of fiduciary duty.

E. Defendants’ arguments regarding their breaches of the duty of loyalty fail.

1. Defendants ignore the facts and evidence.

Defendants acknowledge that the “Trust alleges in its Complaint that the Sponsoraffiliated Directors authorized the Chapter 11 as a ‘longshot’ and ‘gamble’ to protect their 

equity,” Mot. 12, but Defendants do not address the Trust’s evidence supporting that theory. 

Instead, Defendants assert that a court “rejected this same type of argument,” implying that the 

court held that a protecting-the-equity theory failed as a matter of law. Mot. 12 (citing Radnor 

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Holdings Corp. v. Tennenbaum Capital Ptnrs, 353 B.R. 820, 844 (Bankr. D. Del. 2006)). 

Nothing could be further from the truth. The court in Radnor allowed the protecting-the-equity 

theory alleged in the complaint to proceed to trial, and then “conducted eight full days of trial” to 

decide whether the theory was supported by the evidence and facts. 353 B.R. at 827. The 

Radnor court found for the defendants, but the evidence in Radnor differed from the evidence 

here in every material way.

Two key premises of this theory are: (i) when the defendants directed the company to 

take on more debt, the company was insolvent and the defendants must therefore attempt a 

turnaround for the equity to have value, and (ii) the defendants did not actually have a plausible 

business plan for turning the company around. While the plaintiff in Radnor could not prove 

either premise, the Trust has powerful evidence on both.

The plaintiff in Radnor alleged a “loan to own” scheme conducted by an investment firm 

(Tennenbaum aka TCP) who appointed one of the accused directors, and who was allegedly 

conspiring with another accused director. Radnor, 353 B.R. at 827 at 830, ¶15. The other 

accused director was Mr. Kennedy, the majority shareholder and CEO. Id. at 830, ¶15. 

The court in Radnor found that all of the evidence demonstrated that the company was 

solvent when the challenged loans were made. Id. at 823-33, ¶¶32-33. And the court made a 

factual finding that Tennenbaum could not have believed the corporation was “insolvent at the 

time,” because it also “made a $25 million equity investment” in the corporation. Id. at 830 ¶15. 

By contrast, the Trust has powerful evidence, including admissions in Defendants’ own 

documents, that when the Sponsor-appointed Directors authorized Toys “R” Us to take on DIP 

financing they knew their equity had no value. And, of course, the Sponsors declined to make 

any further equity investments in Toys “R” Us. 

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In addition, the court in Radnor found that the director appointed by the investment firm 

(Tennenbaum) did not “vote in his self interest” because he “abstained from the vote” for the 

first challenged transaction and “resigned from the board” before the second transaction. Id. at 

844-45, ¶¶27-28. By contrast, in the present case the Sponsor-appointed Directors participated 

fully in the vote to approve the DIP financing. 

As for the other accused director in Radnor (Mr. Kennedy, the CEO) the court found that 

he had “(i) agreed not to receive bonus compensation for calendar 2006; (ii) made a $1 million 

preferred stock investment in the Company; and (iii) personally guaranteed $10 million of the 

Tranche C Loans.” Id. at 833, ¶39. “It would be irrational to believe that Mr. Kennedy would 

have done this if he believed that Radnor was insolvent or was headed for a bankruptcy filing.” 

Id. By contrast, in the present case CEO Brandon did not forego compensation, contribute cash 

or personal guarantees to Toys “R” Us. Instead, Brandon orchestrated the payment of executive 

bonuses three days before the bankruptcy filing, including $2,812,500 for himself.

Moreover, in Radnor, the court found that the funding was used for “new product 

initiatives that were already in place” and the “Company had already executed agreements 

regarding new products, like its polypropylene cup line, at the time.” Id. at 830, ¶16. By 

contrast, the Defendants in the present case were pretending they had a “Turnaround Plan” that 

begins immediately, when in fact they knew there was no plan. 

Finally, in Radnor there was no evidence of bad faith abdication of directorial duties, 

such as exists in the present case. The court in Radnor found there was a “good faith basis for 

the Radnor board to have continued with its business plan” and the board made “good faith 

decisions” to aid the company “in carrying out its business plan.” Id. at 844, ¶24. For example, 

the court found that “the Company’s projections were well thought out ‘bottoms up’ projections 

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and that each assumption was supportable.” Id. at 828, ¶9. And their analysis “considered a 

‘downside’ scenario’ ... should the Company not perform as expected.” Id. at 829, ¶10. By 

contrast, in the present case the Directors did not see, or ask for, any projections with supportable 

assumptions or modeling of downside scenarios, and entirely abdicated their directorial duties.

2. Because creditors had priority in bankruptcy, the interests of the 

Sponsors conflicted with those of the creditors.

Defendants contend “the Chapter 11 filing was the exact opposite of a ‘Hail Mary’ 

because as a matter of law a formal restructuring inures to the best interests of the company’s 

creditors and estate at the expense of the equity holders ... because the absolute priority rule of 

the Bankruptcy Code ensures that all creditors must first be paid in full following a Chapter 11 

filing and that a debtor’s shareholders are the last in line to be repaid.” Mot. 12-13. 

Defendants’ argument has the logic upside down: the priority of creditors over equity is 

precisely why the Sponsors’ interests conflicted with those of the creditors. The Directors knew 

that the Company’s liabilities exceeded assets, which meant an immediate wind-down and 

orderly liquidation of the U.S. business would provide value only to creditors, and the Sponsors 

would receive nothing. The Sponsors had a chance to receive value only through a Hail Mary 

attempt at a turnaround. 

But the Directors also knew that the Sponsors would not contribute a single dime to fund 

that Hail Mary attempt, which would be paid for entirely by the creditors. And those costs were 

neither trivial, nor were they a mere possibility. In voting to max out DIP financing and continue 

operations, the Defendants knew that the Company would incur costs that were “certain and 

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they’re monstrous.” 376 They included hundreds of millions of dollars in professional fees, 

interest and finance fees, and operating losses. Id. None of it paid for by the Sponsors.

3. Under controlling Delaware law, Defendant Brandon’s substantial 

financial interest in continued employed constituted a conflict of 

interest.

Defendants’ assert that Brandon did not have a conflict because Delaware law holds that 

“an executive’s ongoing receipt of salary does not constitute sufficient self-interest to obviate the 

protection of the business judgment rule.” Mot. 13-14. This argument fails on the facts and the 

law.

On the facts, Brandon’s self-interest was not limited to his ongoing salary. He also 

received a bonus of $2,812,500 as a result of the decision to attempt a turnaround, which he 

would not have received if the Company had commenced a wind-down. 377

Moreover, an executive’s ongoing salary is a sufficient self-interest to create a conflict. 

The Delaware Supreme Court, which is the controlling authority, held that a “substantial 

financial interest in maintaining their employment positions” is a sufficient personal interest to 

render corporate directors conflicted. Rales v. Blasband, 634 A.2d 927, 937 (Del. 1993). In 

Rales, the Court considered whether director Sherman, who was also the CEO, was “capable of 

acting independently” of the “Rales brothers”—two other directors with a personal interest in the 

challenged merger transaction. Rales v. Blasband, 634 A.2d 927, 937 (Del. 1993). The Court 

held that a conflict of interest exists “where a corporate decision will have a materially 

detrimental impact on a director.” Id. at 936. The CEO Sherman’s only alleged conflicting 

personal interest was that his “salary is approximately $1 million per year.” Id. The Court held 

that this interest was sufficient because “Sherman’s continued employment and substantial 

376 Ex. 86 (Greenspan depo.) 152:23-153:17. 

377 Ex. 70 (Greenspan) ¶19.

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remuneration” was dependent on the Rales brothers. Id. The Court held that Sherman cannot 

“be expected to act independently considering his substantial financial stake in maintaining his 

current offices.” Id. 

The Court then considered another director, Ehrlich, who was president of a different 

company owned by the Rales brothers with “annual compensation of approximately $300,000.” 

Id. The Court held that Ehrlich could not “act independently since it can be inferred that he is 

beholden to the Rales Brothers in light of his employment.” Id.

The Court concluded: “Because of their alleged substantial financial interest in 

maintaining their employment positions, there is a reasonable doubt that these two directors are 

able to consider impartially an action that is contrary to the interests of the Rales brothers.” 

Rales v. Blasband, 634 A.2d 927, 937 (Del. 1993).

Accordingly, under Delaware law, “[c]ontinued employment in itself is a material 

interest.” Xura, Inc. Stockholder Litig., 2018 Del. Ch. LEXIS 563, at *31 (Ch. Dec. 10, 2018); 

In re Mindbody, Inc., 2020 Del. Ch. LEXIS 307, at *36 (Ch. Oct. 2, 2020) (“Delaware law also 

recognizes that management’s prospect of future employment can give rise to a disabling 

conflict.”); In re Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 833 A.2d 961, 

977-78 (Del. Ch. 2003) (holding that an officer/director had a conflict because she “has a 

material interest in her own continued employment”), aff’d 845 A.2d 1040 (Del. 2004).

Defendants cite Grobow, but that case held only that “the allegation that all GM’s 

directors are paid for their services” was not a sufficient personal interest. Grobow v. Perot, 539 

A.2d 180, 188 (Del. 1988). But this is not a case involving payments for directorial services 

(which are typically relatively small). Brandon had a personal interest in continued employment, 

which paid him a base salary of $3,750,000 per year. 

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A disabling conflict of interest exists whenever “a corporate decision will have a 

materially detrimental impact on a director.” Rales v. Blasband, 634 A.2d 927, 937 (Del. 1993). 

Because the decision to wind down and liquidate the U.S. business would terminate Brandon’s 

large salary, it had a material detrimental impact on Brandon, and therefore, under controlling 

Delaware law, created a conflict of interest.

4. Defendant Short was both a member of the Board and an officer, and 

he actively participated in the decision-making.

Defendants’ only argument concerning Defendant Short is that he “was not even a 

member of the TRU Board” and did not influence the Board’s vote. Mot. 13. Defendants are 

wrong. The breach of fiduciary duty claims asserted by the Trust are those of both Toys 

Delaware (which operated the U.S. business), and Toys Inc., (which was the holding company 

that owned 100% of the shares of Toys Delaware). 378

The claims of Toys Delaware are particularly relevant because Toys Delaware was the 

borrower on the DIP Term loan. 379

As Defendant Short himself testified, Short was a member of the Board of Directors of 

Toys Delaware. 

11 Q. You were a member of the board of directors

12 of Toys "R" Us Delaware, Inc.; right?

13 A. Delaware, correct.

Ex. 87 (Short depo.) 278:11-13.

The board meeting authorizing the DIP financing and the bankruptcy filing was a joint 

meeting of both boards, and Short was expressly identified as participating in the meeting as a 

378 Dkt. 146 (2nd Amended Complaint) ¶23; Ex. 27 (8'9'17 fiduciary duty presentation [TRUTrust0000060755]) at 3.

379 Dkt. 158 at 440 (the party to the credit agreement is “TOYS R’ US-DELAWARE, INC., a 

Delaware corporation, as debtor and debtor-in-possession (the ‘Borrower’”)).

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board member of Toys Delaware. 380 The minutes do not identify that any director abstained 

from the vote and, instead, state that the “motion passed unanimously.” 381

Moreover, Short is also liable for conduct in his capacity as CFO of the Company. As 

detailed above, Short was personally responsible for negotiating the financial covenants. As 

Short testified, he was “the person that had ultimate responsibility for deciding what covenants to 

accept.” 382 Moreover, Short filed one of the two misleading declarations with the Court that 

were used to obtain approval of the DIP financing.

F. Defendants’ arguments regarding their breaches of the duty of good faith 

and the duty of care fail.

1. The presence of advisors does not shield Defendants’ wrongful 

conduct. 

Defendants assert that the Board “retained outside expert legal and financial advisors,” 

who “briefed” the Board “concerning the different solutions” the advisors “were pursuing with 

TRU management to solve TRU’s liquidity issues.” Mot. 15. Defendants assert that “the Board 

met at least six times, and was presented with materials prepared by TRU’s advisors” that were 

“intended to update and inform the Board on the Chapter 11 process and the status of the DIP 

financing facilities.” Mot. 15-16. Defendants conclude that the “involvement” of these advisors 

“preclude a finding of bad faith.” Mot. 16. This contention fails at four levels.

First, retaining professional advisors in connection with a decision does not satisfy a 

director’s fiduciary duties; in fact it triggers a duty to become adequately informed, to conduct an 

independent analysis, and to investigate the assumptions underlying any advice from an advisor. 

As demonstrated above, Defendants knew that their fiduciary duties required that “directors and 

380 Ex. 52 (9'18'17 BOD minutes [DEFS_0023490]) at 1.

381 Id. at 3.

382 Ex. 87 (Short depo.) 227:15-23. 

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officers should not be merely passive recipients of advice,” and instead they must “independently 

evaluate assumptions and information presented by advisors.” 383

“[T]he job of a director or senior corporate officer is not simply to rubber stamp whatever 

advice they receive.” 384 The advice a director receives “may be incorrect, because it is based on 

inadequate information, erroneous reasoning, or biased analysis.” 385 For that reason, one of a 

director’s primary roles is to serve as the final backstop to ensure that important decisions have 

been adequately vetted. Directors “must independently assess whether the advice is based on 

adequate information, is well-reasoned, and is not biased.” 386

As discussed in greater detail above, “there is no record of Defendants performing any 

independent assessment or diligence on key issues.” 387 These key issues included: the 

Company’s ability to comply with the financial covenants in the DIP financing, the projected 

costs and losses from a forced liquidation resulting from a covenant default, whether the DIP 

financing provided sufficient liquidity to attempt a turnaround, whether the Company had a 

viable turnaround plan or was likely to come upon such a plan in time, the likely results of 

proceeding with an orderly liquidation of the U.S. business rather than taking on the Term DIP 

loan.

Second, Defendants assert that they were “briefed” and “presented with materials” from 

advisors, but Defendants fail to acknowledge that those briefings and materials contained none of 

the key information Defendants needed to comply with their fiduciary duties. As discussed in 

383 Ex. 70 (Greenspan) ¶277; Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at 

slide 10.

384 Ex. 70 (Greenspan) ¶277. 

385 Ex. 70 (Greenspan) ¶277.

386 Ex. 70 (Greenspan) ¶277. 

387 Ex. 70 (Greenspan) ¶278. 

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greater detail above, the materials “did not contain any opinion from the advisors that the 

Company was likely to be able to comply with the financial covenants in the DIP financing and 

avoid a default-induced sudden liquidation; that given the requirements of the financial 

covenants, the DIP financing provided the Company with sufficient liquidity; or that the 

Company could come up with a viable turnaround plan and had sufficient capital and time to 

complete a turnaround,” and the materials “did not provide sufficient information for the 

Directors to assess the financial covenants or the viability of the DIP financing,” including the 

terms of the covenants, a financial forecast with key assumptions identified, and a sensitivity 

analysis showing reasonable downside cases. 388

Third, Defendants completely ignore the facts (compiled above) establishing Defendants’ 

bad faith and abdication of duty, including that Defendants knew what their fiduciary duties 

required them to do, they knew what information they needed to obtain and knew that they did 

not have that information, they knew what assessments they needed to perform and knew that 

they did not perform them. The presence of advisors does not erase or mitigate any of these 

facts. 

Defendants likewise ignore the facts (compiled above) establishing that Brandon, Short, 

and each of the Sponsor Directors had personal financial interests that were advantaged by 

maxing out DIP financing and attempting a Hail Mary turnaround. In fact, as presented in 

greater detail above, “the advisors did not conduct (and were not asked by the Directors to 

conduct) an analysis of whether the Company could comply with the financial covenants and 

avoid a default-induced sudden liquidation, whether the Company could come up with a viable 

388 Ex. 70 (Greenspan) ¶240. 

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turnaround plan, or whether the Company had sufficient capital and time to complete a 

turnaround.” 389

This case, therefore, is nothing like the HH Liquidation case cited by Defendants. In that 

case, there was no “evidence that Caple acted in bad faith,” “no evidence that he breached his 

fiduciary duty of loyalty,” and instead the “evidence showed that Caple did not intentionally 

abandon any of his duties to” the corporation. In re HH Liquidation, LLC, 590 B.R. 211, 279 

(Bankr. D. Del. 2018). On each of these points, the exact opposite is true for the Director 

Defendants here.

Fourth, a director or officer may not rely on expert advice if he is already aware of 

contrary facts or if contrary information “that was material and reasonably available was so 

obvious that the board’s failure to consider it was grossly negligent regardless of the expert’s 

advice or lack of advice.” Brehm v. Eisner, 746 A.2d 244, 262 (Del. 2000). As set forth in detail 

above, Defendants knew key facts that made it obvious that attempting a turnaround had only a 

miniscule chance of success, including that Defendants knew: the history of the Company’s 

losses; the downward trending market share, sales and margins; the effects of competition from 

Amazon, Walmart, and Target; the failed efforts of the Company over the last several years to 

achieve profitability and find a business model that would allow it to compete successfully; and 

that the Company lacked a business plan to compete with Amazon, Walmart, and Target. In 

addition, as detailed above, Defendant Short knew that the Company did not have a sufficient 

liquidity cushion even using the proposed DIP budget and also knew that budget was unreliable 

because it was based on unrealistic assumptions for sale growth and margins. 390

389 Ex. 70 (Greenspan) ¶283.

390 E.g., Ex. 70 (Greenspan) ¶280.

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2. Defendants’ failed contention that the Board reviewed alternatives.

Defendants assert that that the Directors did “consider alternatives to the DIP financing” 

because they first looked for “solutions that would allow TRU to avoid formal restructuring and 

bankruptcy” such as a sale-leaseback transaction to raise some additional funds. Mot. 15.

This contention attacks a straw position and completely ignores the wrong-doing that 

Defendants are charged with. Defendants are not accused of failing to consider alternative ways 

of raising some interim financing, such as by considering a sale-leaseback transaction, before 

filing bankruptcy. Instead, having failed in that endeavor, Defendants are accused of authorizing 

DIP financing while failing to assess whether the Company could avoid a covenant default 

leading to a sudden and unplanned liquidation, and failing to consider the alternative of an 

immediate wind-down. (In fact, Defendants failed even to ask the advisors or management to 

provide an analysis examining a wind-down strategy.) Pointing out that Defendants examined a 

potential sale-leaseback transaction does nothing to address Defendants’ wrongdoing.

3. Defendants’ failed Monday morning quarterbacking contention.

Defendants assert that the “Trust relies on TRU’s ultimate liquidation as proof that TRU 

should have conducted a structured wind-down instead of filing for Chapter 11 and pursuing a 

going concern reorganization.” Mot. 16. That is false. The Trust relies on evidence (much of it 

undisputed and established by Defendants’ own testimony) that Defendants knew in September 

2017 that the conditions establishing a need to shut down the business existed. Defendants knew 

the Company was losing large sums of money; that sales, margins, and market share were 

spiraling downward; that the Company did not have a turnaround plan and no plausible path to 

find a turnaround plan, and did not have the capital or time required for a turnaround. That is not 

Monday morning quarterbacking. Those facts were known months before the game started. An 

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even more apt analogy is that Defendants approved a Hail Mary pass attempt with no time on the 

clock, and without a quarterback who could throw the football.

4. Defendants’ failed contention that everyone supported the DIP 

financing.

Defendants assert that “the Trust cannot prove that Defendants’ decision to authorize DIP 

financing was so ‘egregious on its face’ to overcome the protection of the business judgment 

rule,” because (i) “the UCC itself supported this decision,” (ii) “TRU’s outside financial advisor 

... submitted an affidavit to this Court in favor of the DIP financing,” (iii) “TRU’s legal advisors 

also argued emphatically to this Court in support of the DIP financing,” and (iv) “no party – be it 

potential investors, the secured lenders, the UCC, nor any trade vendors – suggested 

contemporaneously that the company should have” commenced an immediate wind-down. Mot. 

16-18. Each branch of this argument fails as well as the entire tree.

First, Defendants’ contention that the UCC supported Defendants’ decision-making is 

simply false. As described above, the UCC had been provided “misleading information, was not 

told important facts, and was given inadequate information about certain facts regarding both the 

proposed DIP financing and the Company’s prospects for a turnaround.” 391 Moreover, the UCC 

never endorsed the Directors’ decision-making. The DIP loans were negotiated and received 

preliminary court approval “before the UCC was even formed.” 392 “The UCC cannot turn back 

the clock ... and cannot cause the Debtors’ Board to properly plan and consider alternatives 

months earlier.” 393 The UCC could only “make the best of a terrible situation perpetrated by” 

the Defendants. 394 By the time of the hearing for final approval on October 24, 2017, “it was 

391 Ex. 70 (Greenspan) ¶312.

392 Ex. 70 (Greenspan) ¶314. 

393 Ex. 70 (Greenspan) ¶314. 

394 Id. 

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clearly too late to completely change course for the case and for the first time begin planning and 

properly purchase (and avoid purchases) for an organized liquidation sale coincident with the 

holiday selling season.” 395 The UCC’s “actions should never be interpreted as endorsing what 

the Debtors did pre-petition or that any of the choices made by the Debtors were appropriate 

when made, particularly when key facts were concealed from members of the UCC.” 396

Second, Defendants’ assertion that “TRU’s outside financial advisor ... submitted an 

affidavit to this Court in favor of the DIP financing,” is highly misleading. Mot. 17. In fact, no 

affidavit in favor of the DIP financing was submitted from the Company’s outside financial 

advisory firm, which was Alvarez & Marsal. The affidavit cited by Defendants is the one that 

was submitted by David Kurtz from Lazard, who served as the Company’s investment banker.397 

Defendants fail to mention that Kurtz did not submit an affidavit to the Court stating 

Lazard had determined that the budget projections were reliable or that the Company could 

comply with the financial covenants. Instead, the Kurtz affidavit declared: “Based on 

discussions with management, I understand that the Debtors believe that the Budgets and their 

projections ... are reasonable and appropriate.” 398 And the Kurtz affidavit did not assert that 

maxing out DIP financing was a value-maximizing strategy for the Company, or was a better 

alternative than commencing an immediate wind-down. Kurtz merely opined that the DIP 

financings were “the best presently available postpetition financing option.” 399

And Defendants fail to mention that Lazard did no analysis and made no assessment of 

the Company’s ability to comply with the financial covenants, the reliability of the DIP budget 

395 Ex. 70 (Greenspan) ¶314. 

396 Ex. 70 (Greenspan) ¶314.

397 Dkt. No. 33.

398 Dkt. 33 ¶16. 

399 Dkt. 33 ¶2. 

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forecast presented to the Court, the prospects for a successful turnaround, or whether an 

immediate wind-down would produce greater value for stakeholders. 400

It was not mere oversight that no affidavit of support was submitted to the Court by 

Alvarez & Marsal, who was the Company’s financial advisor. Alvarez & Marsal had not 

performed an assessment of the Company’s ability to comply with the financial covenants. 401 In 

addition, to prepare a DIP forecast and budget, the “key underlying assumptions ... were 

provided to A&M by management, including CFO Michael Short.” 402 This included a sales 

growth assumption that had been “recently updated” by “management” to project sales that were 

far above the trend, based on a purported “Turnaround Plan,” which was in fact non-existent. 403

The only affidavits endorsing the reliability of the budget projections, the sufficiency of 

the liquidity from the DIP financing, or the existence of a turnaround plan were from Defendants 

Brandon and Short. 404

Third, that “TRU’s legal advisors ... argued emphatically ... in support of the DIP 

financing,” Mot. 17, has no relevance. Lawyers are advocates. Defendants fail to mention that 

400 See, e.g., Ex. 70 (Greenspan) ¶93; Ex. 85 (Kurtz depo.) 122:14-124:2.

401 Ex. 70 (Greenspan) ¶93; Ex. 85 (Kurtz depo.) 122:14-124:2. 

402 Ex. 70 (Greenspan) ¶282. 

403 Ex. 70 (Greenspan) ¶¶118-119; Ex. 44 (9’15’18 attach to Finnegan [TRU-Trust0000377785]) 

at 3, 4.

404 Short decl. (Bk. Dkt. 30) at ¶130 (the DIP financing “will ensure that the Debtors have the 

necessary liquidity to continue to operate without material disruption”); id. ¶129 (“the Budget 

and projections provide an accurate reflection of the funding requirements for the North 

American and international operations over the identified period and are reasonable and 

appropriate under the circumstances”); Brandon declaration (Bk. Dkt. 20) at ¶99 (the “DIP 

Facilities ... will provide them with sufficient liquidity”); id. ¶69 (“Investment in Growth Begins 

Today” and “This turnaround begins today.”); ¶¶70-78 (“the Company has developed a fourpillared business plan” with “a comprehensive set of key initiatives”); id. ¶13 (“of critical 

importance, the debtor-in-possession financing also provides the Company with hundreds of 

millions of dollars of new money that is available for immediate and direct investment in the 

Company’s stores and operations”). 

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these lawyers did not themselves testify as to any facts and, instead, relied upon the false and 

misleading affidavits of Brandon and Short.

Fourth, because the key affidavits came from Brandon and Short, all stakeholders—

including the Court, the UCC, the secured lenders, and the trade vendors—necessarily made their 

assessments based in part on information that came from the sworn affidavits of Brandon and 

Short touting the reliability of the summary DIP budget and forecast, the sufficiency of the DIP 

financing to provide liquidity through the process, and the strength of the Turnaround Plan. 

In addition, all of these stakeholders could justifiably have the expectation that the 

Company’s very experienced and knowledgeable panel of directors had performed their 

fiduciary duties, had obtained all material information reasonably available, had carefully 

examined the underlying assumptions, had examined a reasonable downside case and determined 

that the Company would comply with its financial covenants under the DIP financing, and had 

determined that the Company had a viable turnaround plan as well as adequate capital and time 

to conduct a turnaround. None of this was true.

Finally, this entire argument by Defendants fails for an even more fundamental reason. It 

does not matter if someone else thought that maxing out DIP financing and attempting a 

turnaround was a good idea. Defendants, as the Directors of the Company, had an independent 

duty and obligation to assess that course of action before authorizing it. A company’s directors 

provide the final backstop against foolish decisions arrived at without analysis or influenced by 

personal bias. Management and advisors may have a personal financial stake in the DIP 

financing strategy (advisors benefit from large fees; management benefits from bonuses and 

continued employment with large salaries and perks). For example, Lazard’s fees were 

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contingent on how much the Company borrowed and Lazard would “get a greater fee for 

arranging a greater amount of DIP financing.” 405

 For that reason, the job of directors is not to rubber stamp proposals from management 

and advisors. The Directors must check the assumptions, ask questions to identify problems 

overlooked, request that alternatives be considered, and otherwise kick the tires before saying 

yes. 

As demonstrated above, Defendants utterly abdicated their duties.

5. Delaware law did impose a duty on Defendants to liquidate the 

Company.

Defendants assert that Delaware law “imposed no duty on the Board to liquidate TRU.” 

Mot. 17. That is false. 

As shown above, Defendants admit that Delaware law imposes a fiduciary duty upon 

directors to assess all reasonable alternatives, gather all material information that is reasonably 

available before making a decision, and then choose the path that maximizes stakeholder value. 

And when a company is losing money, sales and margins are spiraling downward, and there is no 

viable option to turn the company around, then the value-maximizing path that is required by 

Delaware law is to shut the company down. 

That is why, when a retail company is facing bankruptcy, more than half the time the 

company’s directors determine that ending operations is the value maximizing path, and the 

percentage is even higher for companies with more than $50 million in liabilities. 406

Defendants quote a Delaware case stating that “Delaware law imposes no absolute 

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

405 Ex. 79 (Taylor) 147:5-9, 148:4-7; Ex. 73 (Lazard Summary of Agreed Terms 

[DEFS_0053419]).

406 Ex. 70 (Greenspan) ¶141.

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liquidate.” Trenwick Am. Litig. Tr. v. Ernst & Young, L.L.P., 906 A.2d 168, 204-05 (Del. Ch. 

2006) Of course there is no “absolute obligation,” because in some cases (a minority of retail 

bankruptcies) the value maximizing path is to attempt a turnaround. What Defendants do not, 

and cannot, quote is any Delaware case holding that directors are always justified in attempting a 

turnaround. As Trenwick itself holds, directors are justified in taking on additional debt and 

pursuing a turnaround only if they have arrived at the decision “acting with due diligence and 

good faith.” Id. And if not, the directors are subject to “causes of action for breach of fiduciary 

duty.” Id.

IV. Defendants breached their fiduciary duties in approving the executive bonus plan.

In approving extraordinary retention bonuses days before bankruptcy, Defendants 

breached their fiduciary duties in multiple ways. 

The fiduciary duties of directors and officers require that they comply with the law and 

do not engage in illegal acts. They must not authorize the company to take any action in 

violation of the law. In approving a retention bonus plan for top executives just four days before 

filing for bankruptcy, the Director Defendants knowingly violated the law. 

The Defendants knew that the bankruptcy laws required creditor oversight and court 

approval of executive bonuses, and altogether prohibited paying retention bonuses to “insider” 

executives (unless they met criteria that did not apply to any of the Company’s executives). Any 

plan to pay retention bonuses could not include Defendant Brandon (CEO), Defendant Short 

(CFO), or other top officers such as Defendant Barry (Chief Merchant) and Tim Grace (the head 

of HR and Chief Talent Officer). But Defendants approved a plan four days before bankruptcy 

that paid each of these executives, and others, millions in retention bonuses. Because 

Defendants knew these bonuses would not be permitted in bankruptcy, and knew that the cash 

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paid for executives would otherwise be paid to creditors, Defendants knowingly evaded the 

bankruptcy restrictions and knowingly hindered and defrauded the creditors, thereby engaging in 

a fraudulent transfer. In doing so, they violated the law and their duty of loyalty. 

Further, the fiduciary duties of directors and officers require that they avoid conflicts of 

interest. They must not participate in decisions in which they have a personal interest, and they 

must prohibit other directors and officers with a personal interest from participating in decisionmaking. Determining whether, how much, and when to pay extraordinary bonuses to executives 

cannot be controlled by the executives themselves. It must be delegated to directors with no 

personal interest in decision-making on bonuses. 

The Director Defendants allowed Brandon, who had an obvious conflict of interest 

because he stood to gain millions from the bonus plan, to develop a bonus program and control 

its implementation from start to finish. Brandon made each of the key decisions in the bonus 

plan—who would receive a bonus, how much the bonus would be, and when it would be paid—

and orchestrated the presentation of that plan to the other directors. Brandon breached his 

fiduciary duty of loyalty by controlling a plan that would pay him millions. And by entirely 

failing to police Brandon or his influence, the other directors abdicated their responsibilities in 

violation of their duty of good faith. 

In addition, directors have a fiduciary duty to inform themselves of all reasonably 

available material information before making executive compensation decisions, and to consider 

reasonable alternatives. For executive compensation decisions, the key information that is 

always available and that must be obtained is a comparison of compensation received by 

executives in comparable positions. 

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The Director Defendants knowingly failed to obtain this information. The compensation 

committee failed to obtain comparable compensation analysis for 109 of 114 executives. And 

the full board failed to obtain any analysis of comparable compensation for any executive. 

Moreover, none of the Defendants considered any alternatives to the plan that was created and 

controlled by Brandon. This knowing abdication of the Defendants’ responsibilities constitutes a 

violation of the duty of good faith. 

A. Defendants knew that their fiduciary duties required them to preclude a 

director with a conflict of interest from making the decisions, to assess all 

reasonable alternatives, and to obtain all material information reasonably 

available. 

As discussed above in greater detail, a “director is considered interested” in a corporate 

decision, and not independent, if the director “will receive a personal financial benefit from a 

transaction” or “where a corporate decision will have a materially detrimental impact on a 

director.” Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993). 

The Delaware Supreme Court has “consistently defined the duty of loyalty of officers and 

directors” in “unyielding terms.” Cede & Co. v. Technicolor, 634 A.2d 345, 361 (Del. 1993). It 

“has established a rule that demands of a corporate officer or director, peremptorily and 

inexorably, the most scrupulous observance of his duty.” Id. (internal quotes omitted). 

Any potential for influence by personal interests is prohibited. “The rule that requires an 

undivided and unselfish loyalty to the corporation demands that there be no conflict between 

duty and self-interest.” Id. A director is “independent only when the director’s decision is based 

entirely on the corporate merits of the transaction and is not influenced by personal or extraneous 

considerations.” Cede & Co. v. Technicolor, 634 A.2d 345, 362 (Del. 1993). 

Directors violate their duty of loyalty to a company when they allow an interested 

director to control and dominate a transaction. When “[a] board's own lack of oversight in 

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structuring and directing [a transaction] afforded management the opportunity to indulge in the 

misconduct which occurred,” the directors on the board have breached their duty of loyalty. Mills 

Acquisition Co. v. MacMillan, Inc., 559 A.2d 1261, 1279 (Del. 1989). A “board’s virtual 

abandonment of its oversight functions in the face of [a director’s] patent self-interest [is] a 

breach of its fundamental duties of loyalty and care.” Id. at 1284, n.32.

Moreover, as demonstrated in detail above, Defendants knew what their fiduciary duties 

required. As Defendants have admitted, Defendants knew “that in a situation where a decision 

would implicate an actual or potential conflict of interest, the board should delegate decisionmaking authority to disinterested directors or managers.” 407

In addition, Defendants would breach their duty of good faith “[w]here directors fail to 

act in the face of a known duty to act, thereby demonstrating a conscious disregard for their 

responsibilities.” Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006). 408 For example, they would 

breach their duty of good faith if “the defendant directors knew that they were making material 

decisions without adequate information and without adequate deliberation.” In re Walt Disney 

Co. Derivative Litig., 825 A.2d 275, 289 (Del. Ch. 2003).

And they would also breach that duty by authorizing a decision “so far beyond the 

bounds of reasonable judgment that it seems essentially inexplicable on any ground other than 

bad faith.” Parnes v. Bally Entm't Corp., 722 A.2d 1243, 1246 (Del. 1999) (internal quote 

omitted). This may be shown by “facts supporting an inference that [the fiduciary] did not 

reasonably believe that the ... transaction was in the best interests of” the company. 

407 Ex. 77 (Raether) 157:3-8; Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at 

slide 15. 

408 Ex. 77 (Raether depo.) 156:11-18. 

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Brinckerhoff v. Enbridge Energy Co., 159 A.3d 242, 260 (Del. 2017), quoted with approval by

Kahn v. Stern, 183 A.3d 715, 715 & n.5 (Del. 2018). 

And finally, Defendants also had a fiduciary duty of care, which is breached by director 

actions or inactions that amount to “gross negligence,” which is “conduct that constitutes 

reckless indifference or actions that are without the bounds of reason.” McPadden v. Sidhu, 964 

A.2d 1262, 1274 (Del. Ch. 2008).

As Defendants have admitted, these fiduciary duties required them to consider and assess 

“all reasonable alternatives” before coming to a decision. 409 And the Directors were expressly 

advised that there were multiple “design options for compensation programs during 

restructuring” that needed to be considered. 410

Defendants were also expressly advised that the bankruptcy act placed limitations on 

bonuses to executives and prohibited paying retentions bonuses to top executives, unless certain 

narrow conditions applied. They knew that “compensation payable to ‘insiders’ (senior 

management) is subject to stringent bankruptcy rules and much greater scrutiny.” 411

The Defendants knew that, to comply with their fiduciary duties, they could rely on 

advice from others, including professional advisors, but could not simply rubber stamp whatever 

advice they receive. 412 They knew that “directors and officers should not be merely passive 

recipients of advice.” 413 They were required to examine the assumptions underlying a proposal, 

409 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10; Ex. 77 (Raether 

depo.) 154:24-155:6.

410 Ex. 23 (7’31’17 Contingency Prep Overview [DEFS_0123896]) at slide 58. 

411 Ex. 23 (7’31’17 Contingency Prep Overview [DEFS_0123896]) at slide 57.

412 Ex. 77 (Raether depo.) 319:23-320:1, 320:9-22. 

413 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10; Ex. 77 (Raether 

depo.) 155:17-156:1.

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and to independently consider its reasonableness. “Directors and officers should independently 

evaluate assumptions and information presented by advisors.” 414

Defendants also knew their fiduciary duties required that, before deciding on a course of 

action, they were required to “inform themselves of all material information that was reasonably 

available” and “carefully consider that information.” 415 In particular, they knew that in 

authorizing a bonus plan, “amounts of compensation must be reasonable compared to reasonable 

peer group.” 416 They knew, therefore, that key material information they needed was 

information about what comparable executives were paid. 417

Defendants, therefore, certainly knew what their fiduciary duties required. But they 

entirely abdicated those duties in authorizing the executive bonus plan.

B. While Brandon had a glaring conflict of interest in personally benefiting 

from an executive bonus plan, it was Brandon who controlled the bonus 

plan’s development and made each of the key decisions—who would receive 

a bonus, how much the bonus payments would be, and when the bonus would 

be paid.

Defendant Brandon had an obvious and glaring conflict of interest in decisions regarding 

whether to implement an executive bonus plan and the design of that plan. Because of this 

conflict, Defendants knew that their fiduciary duties required that bonus plan decision-making 

should not be controlled by, or significantly influenced by, Brandon. Instead, that decision 

making must be delegated to independent directors who obtained all material information 

reasonably available—in particular information on compensation paid to comparable 

executives—and who assessed all reasonable alternatives, and who then exercised reasoned 

414 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10. 

415 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10; Ex. 77 (Raether 

depo.) 155:9-12. 

416 Ex. 23 (7'31'17 Contingency Prep Overview [DEFS_0123896]) at slide 59.

417 Ex. 79 (Taylor depo.) 75:10-76:13, 78:7-14; Ex. 78 (Levin depo.) 38:7-21, 39:10-15; Ex. 82 

(Goodman depo.) 317:19-318:1.

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judgment in selecting a bonus plan design in the best interests of the Company. But the evidence 

demonstrates that nothing like that happened here.

On July 15, 2017, Brandon sent an email to Tim Grace, Toys “R” Us’ Global Chief 

Talent Officer, reminding Grace that he was “dealing with a reality,” which is that Grace had 

“put us all in a room and explained” that for Company executives, “particularly in leadership 

roles,” both salaries and annual bonus percentages “were over indexed to market,” and that this 

“was costing [Toys ‘R’ Us] millions of dollars in out-of-market, excess compensation.” 418 

Brandon said that because “[o]utside stats and comparisons are not going to help us,” he and 

Grace would “have to be creative and design something that works for us.” 419

Brandon and Grace continued to discuss the bonus plan via email and also in many faceto-face meetings. 420 In fact, Brandon’s office was only “12 steps away from” Grace’s office. 421

After these initial discussions between Brandon and Grace, on July 24, 2017, Brandon 

contacted Bryan Marsal to retain Alvarez & Marsal as a restructuring advisor. Even though 

AlixPartners, another advisory firm, had previously been retained by Toys “R” Us, Brandon 

wanted to work with Alvarez & Marsal because of his pre-existing “relationship and my 

preference to work with you and your firm.” 422 Brandon personally recommended Alvarez & 

Marsal as the advisors for Toys “R” Us to the Board. 423

Brandon had Alvarez & Marsal present to him an overview of compensation for a 

company considering restructuring, including the recommended steps for implementing a bonus 

418 Ex. 99 (7’15’17 Brandon to Grace [TRU-Trust0000011727]).

419 Id.

420 Ex. 88 (Brandon depo.) 27:22-28:6. 

421 Ex. 88 (Brandon depo.) 28:7-29:1.

422 Ex. 100 (7’24’17 Brandon to Marsal [TRU-Trust0000123945]). 

423 Ex. 88 (Brandon depo.) 67:15-22. 

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plan, and a range of options for bonus plans. 424 This presentation went only to Brandon, and 

Brandon did not provide it to Tim Grace, to any of the three directors on the compensation 

committee, or to the full board of directors. 425

The options identified by Alvarez & Marsal included keeping current compensation 

programs intact, combining annual and long-term incentive programs, increasing base salaries, 

developing programs that comply with bankruptcy requirements after bankruptcy filing, 

deferring compensation decisions until post-bankruptcy so that new owners can set 

compensation arrangements, and paying pre-bankruptcy filing retention bonuses. 426

For the option of pre-filing retention bonuses, Alvarez & Marsal highlighted several 

downsides, including “[l]iquidity issues,” that the payment “[m]ay be challenged as a preferential 

transfer/fraudulent conveyance,” and that there were “[n]o incentive/performance conditions” 

associated with such a bonus. 427 Alvarez further advised that “other alternative compensation 

arrangements” including “keep current compensation programs intact” and “increase base 

salaries” should be considered instead of retention payments. 428

The presentation sent by Alvarez & Marsal also included Alvarez’s advice on the 

appropriate process for developing and implementing a bonus. Alvarez recommended that 

approving incentive or retention plans should proceed in a seven step process including these 

four steps: “[n]egotiation with Stakeholders and U.S. Trustee,” “[f]ile motion to request court 

424 Ex. 109 (8’3’17 Goulding to Brandon Compensation Deck [TRU-Trust0000124121]). 

425 Ex. 78 (Levin depo.) 181:21-182:3; Ex. 79 (Taylor depo.) 46:12-19, 139:21-140:5; Ex. 77 

(Raether depo.) 245:5-11; Ex. 92 (Grace depo.) 39:19-23, 40:6-12; Ex. 133 (9’6’17 Summary 

Compensation Proposal [DEFS_0004337]). As a result, only Brandon received this information 

and advice from Alvarez. 

426 Ex. 108 (8’3’17 A&M Overview of Compensation Alternatives [TRU-Trust0000124123]) at 

10. 

427 Id. at 14. 

428 Id. at 8. 

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approval,” “[w]ork to resolve objections by Stakeholders, Creditors Committee, equity 

representatives and/or U.S. Trustee,” and a “[h]earing (including expert witness testimony, if 

necessary) to approve plans.” 429 Alvarez recommended that each of these steps occur before 

“Program implementation.” 430 Brandon did not follow Alvarez’s advice and Brandon failed to 

direct that any of these four steps take place before paying the executive bonuses. 

After Brandon received the information and advice from Alvarez & Marsal, he did not 

then ask Alvarez & Marsal to design the bonus plan that they thought, in their professional 

judgment, was appropriate. Instead, Brandon directed Tim Grace to assist him in drafting an 

executive bonus plan that would pay the leadership team (including Brandon and Grace) large 

bonuses before the Company filed for bankruptcy. On August 14, 2017, Grace sent a “draft of 

the proposed plans” to Brandon “as discussed.” 431 That draft was not developed by Alvarez & 

Marsal. 432

The plan identified certain executives as “insiders,” including Brandon and Grace. 433 

The plan called for paying a bonus to “insiders” in the amount of 75% of each insider’s base 

salary, and paying that bonus before the Company filed for bankruptcy. 434 This would result in 

paying Brandon a $2,812,500 bonus. The plan called for paying smaller bonuses to other 

executives, also calculated as a percentage of the executive’s base salary. 435

429 Ex. 108 (8’3’17 A&M Overview of Compensation Alternatives [TRU-Trust0000124123]) at 

27.

430 Id. 

431 Ex. 111 (8’14’17 Grace to Brandon [TRU-Trust0000012584]). 

432 Ex. 92 (Grace depo.) 42:13-22. 

433 Ex. 110 (8’14’17 Bonus Presentation [TRU-Trust0000012585]) at 3. 

434 Id. 435 Id. at 4. 

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The draft proposal prepared by Grace at Brandon’s direction did not include any analysis 

of alternative programs such as paying no bonus or paying bonuses to insiders in installments 

over the course of the bankruptcy period. Brandon never instructed Grace to look at 

 than paying lump sum retention bonuses shortly before bankruptcy. 436 

The plan was not accompanied by any analysis comparing the compensation of the 

insiders to compensation paid to comparable executives at peer group companies. The plan did 

not contain any explanation why a lump sum 75% bonus was the appropriate amount for any 

insider, much less for all of them. The plan was not accompanied by any analysis comparing the 

compensation of the Company’s executives to compensation paid to comparable executives at 

peer group companies. And the plan did not contain any discussion of the email that Brandon 

had sent to Grace just a month before, declaring that the “reality” was that Company executives, 

“particularly in leadership roles,” had both salaries and annual bonus percentages “over indexed 

to market,” and that this “was costing [Toys ‘R’ Us] millions of dollars in out-of-market, excess 

compensation.” 437 

The draft of the plan was sent to Brandon by Grace at 12:47 PM PDT on August 14, 

2017. 438 Later that evening, at 7:06 PM PDT, Grace provided the draft to Alvarez & Marsal via 

email, noting that “I’ve done additional work on the KERP and KEIP plans. Attached for your 

review is the most updated deck.” 439 Before this date, Alvarez & Marsal had not provided any 

draft of a bonus plan to Brandon or Grace. 440 

436 Ex. 92 (Grace depo.) 43:21-44:2. 

437 Ex. 99 (7’15’17 Brandon to Grace [TRU-Trust0000011727]). 

438 Ex. 111 (8’14’17 Grace to Brandon [TRU-Trust0000012584]). 

439 Ex. 103 (8’14’17 Grace to Cumberland and attach [TRU-Trust0000376712]). 

440 Ex. 88 (Brandon depo.) 72:15-17, Ex. 92 (Grace depo.) 70:1-14. 

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Brandon himself confirmed that he had the authority to direct and control Alvarez & 

Marsal in their development of the bonus plan. 441 And he exercised this control after the initial 

plan was sent by continuing to make changes to the plan. Brandon and Grace continued to 

update the plan by adding some additional executives, and modifying the bonus amount for 

certain non-insiders. 442 Up through August 21, 2017, Brandon and Grace sent a total of five 

drafts of the bonus plan to A&M with updates. 443

At that point, A&M provided a draft presentation that included a plan for paying 

executives retention bonuses that was an exact duplicate of what they had received from 

Brandon. 444 It called for paying the top executives bonuses in the amount of 75% of their 

annual salary, to be paid immediately, and paying other executives lesser bonuses, also 

calculated as percentage of salary. 445

Alvarez’s final internal emails before circulating the draft compensation plan show 

deference to Brandon and Grace in the decision-making process. 446 For example, when 

considering whether it was appropriate for the treasurer to receive a 50% bonus and some SVPs 

to receive 75%, Jeffery Stegenga of A&M remarked: “That’s a Dave [Brandon] question.” 447 

As another example, Stegenga asked, “[f]or the call with Dave, whenever it gets scheduled, I 

441 Ex. 88 (Brandon depo.), 553:10-17. 

442 Ex. 88 (Brandon depo.) 61:1-12; Ex. 92 (Grace depo.) 79:10-80:2.

443 Ex. 92 (Grace depo.); Ex. 101 (8’9’17 Grace to Cumberland [TRU-Trust0000376665]); Ex. 

102 (8’10’17 Grace to Cumberland [TRU-Trust0000376670]); Ex. 103 (8’14’17 Grace to 

Cumberland and attach [TRU-Trust0000376712]); Ex. 104 (8’18’17 Grace to Hoeinghaus [TRUTrust0000376898]); Ex. 119 (8'21'17 Grace re Revised Spreadsheet [TRU-Trust0000376901]). 

444 Ex. 117 (8’21’17 Cumberland to Grace Brandon [TRU-Trust0000125151]); Ex. 120 (8’21’17 

Restructuring Compensation Proposal [TRU-Trust0000125152]).

445 Id. at 7.

446 See Ex. 112 (8’19’17 Hoeinghaus to Stegenga [AM-TORU-0000397]) (“Tim [Grace] is still 

discussing internally whether they want to add the additional potential insiders ... to the pre-paid 

retention bonus program.”).

447 Ex. 113 (8’20’17 Stegenga to Cumberland [AM-TORU-0000475]).

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guess the question I would ask of this group is why not raise all the options so he has the ability 

to understand where he could take it?” 448 Brian Cumberland responded that “[w]e previously 

went through all the alternatives with Dave and others. We provided a slide deck with the 

alternatives. With that information, they landed on the proposed construct.” 449

Brandon continued to exercise control after receiving the draft presentation deck from 

Alvarez & Marsal by continuing to add or subtract executives, or move executives from one 

bonus tier to another. On August 21, 2017, Grace and Brandon had a discussion regarding the 

bonus plan and proposed changes and submitted those changes to Alvarez. 450 When Brandon 

and Grace noticed that some of their desired changes had not made it into the next draft of the 

deck prepared by Alvarez, Grace informed Brandon that he would “make sure the deck is 

updated.” 451 And when Grace reached out to Alvarez, he emphasized that “[i]t doesn’t look like 

the changes Dave and I made today made it to the deck.” 452

Other changes came from Brandon and Grace over the next few days. 453 On August 23, 

Grace directed Alvarez that “we [Grace and Brandon] would like to add” Brandon’s executive 

assistant to the bonus program. 454 In response to these directions from Brandon and Grace, 

Alvarez incorporated each of the requested changes. For example, Alvarez added Brandon’s 

assistant to the bonus plan. 455

448 Ex. 121 (8’21’17 Stegenga to Geier [AM-TORU-0000497]).

449 Ex. 105 (8’21’17 Cumberland to Stegenga [AM-TORU-0000505]).

450 Ex. 92 (Grace depo.) 76:4-77:3.

451 Ex. 115 (8'21'17 0740pm Comp deck [TRU-Trust0000376991]).

452 Ex. 118 (8'21'17 0655pm Comp deck [TRU-Trust0000376987]).

453 Ex. 116 (8'21'17 0511am Comp deck [TRU-Trust0000376999]), Ex. 114 (8'21'17 attach to 

0511am Comp deck).

454 Ex. 122 (8'23'17 Grace to Hoeinghaus [TRU-Trust0000377089]).

455 Ex. 123 (8'25'17 Hoeinghaus to Grace [TRU-Trust0000377276]).

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All of this direction from Brandon and Grace was given to Alvarez & Marsal before 

Alvarez & Marsal had any contact with the directors who were on the compensation committee. 

Before the compensation committee had ever heard anything about the proposal, the key 

elements of the compensation plan—who would receive a bonus, how much they would receive, 

and when the bonuses would be paid—had already been determined by Brandon and Grace. The 

compensation committee would never see any of the alternatives that Alvarez provided to 

Brandon, and it would not see any of the pros and cons to choosing pre-petition retention 

bonuses over other compensation options. It would only be presented with the plan developed 

by Brandon. 

C. When the compensation committee was presented with the plan Brandon 

had developed, it failed to guard against conflicts of interest, consider all 

reasonable alternatives, or consider critical material information.

Toys “R” Us had a compensation committee to address matters of executive 

compensation. In August 2017, the compensation committee consisted of Defendants Taylor, 

Levin, and Goodman. 456 Goodman was added on August 23. 457 The Directors’ fiduciary duties 

applied to their work on the compensation committee. 458 As discussed above, those duties 

included guarding against conflicts of interest, considering all reasonable alternatives, and 

considering all reasonably available material information before making a decision. The 

compensation committee Directors breached those fiduciary duties. 

456 Ex. 78 (Levin depo.) 147:18-148:6.

457 Ex. 34 (8’23’17 BOD minutes [TRU-Trust0000333026]) at 1.

458 Ex. 82 (Goodman depo.) 237:22-25.

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1. The compensation committee Directors abdicated their duties to 

preclude Brandon from controlling the development of the bonus 

plan. 

The compensation committee allowed Brandon to orchestrate every part of the 

compensation committee’s process of approving the executive bonus plan. 

The compensation committee had no involvement in the creation of the bonus plan. It 

had not been involved in developing the lump sum payment for retention. 459 It had not had 

communications with Alvarez and Marsal about developing the plan. 460 The compensation 

committee had not directed anyone to prepare the proposed compensation plan. 461 They had not 

seen the bonus plan before Brandon had it presented to them. 

Brandon controlled each part of the presentation of the bonus plan to the compensation 

committee. On Saturday, August 26, 2017, Brandon set up a conference call for Brandon, Grace, 

and the advisors to take place before the compensation committee meeting “to just coordinate the 

comp committee meeting plan.” 462 And later that same day, Brandon set up the compensation 

committee meeting and circulated the invitation to the compensation committee phone meeting 

to take place at 5:00 p.m. on August 28, 2017. 463 Brandon circulated to the compensation 

committee the agenda for the meeting and the materials that would be presented at the 

compensation committee meeting. 464 The only proposed plan attached to that email was 

Brandon’s executive bonus plan as described in the presentation deck prepared by Alvarez & 

Marsal. 465 Brandon did not attach the initial set of potential compensation alternatives that had 

459 Ex. 92 (Grace depo.) 96:20-97:1.

460 Ex. 78 (Levin depo.) 148:23-149:5.

461 Ex. 92 (Grace depo.) 97:2-4.

462 Ex. 125 (8’26’17 Brandon to Cumberland [TRU-Trust0000125877]) at 2.

463 Ex. 124 (8’26’17 Brandon Compensation Committee Invite [DEFS_0006174]).

464 Ex. 126 (8’27’17 Brandon to Compensation Committee [DEFS_0006360]).

465 Id. 

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been provided by Alvarez & Marsal. Brandon did not indicate to the compensation committee 

that he was the person who had selected one of multiple alternatives initially proposed by 

Alvarez & Marsal. 

Both Brandon and Grace were in attendance at the compensation committee meeting on 

August 28, 2017. Brandon was not part of the compensation committee. 466 But Taylor, the 

head of the compensation committee, testified that he considered Brandon to be a member of the 

compensation committee due to his participation in compensation committee meetings. 467 

Brandon participated in the meeting and the discussion about the plan and did not recuse 

himself.468

Each of the four Defendants at that meeting purport to have no recollection about what 

was discussed. Brandon does not “recall the meeting itself” or anything that happened at that 

meeting. 469 Taylor, the head of the compensation committee, claims to have no recollection of 

the meeting. 470 Goodman similarly claims to have no recollection of what was discussed. 471 

And Levin does not have any memory beyond a general recollection that the compensation 

committee “did ask questions.” 472

After that first compensation committee meeting, Brandon continued to orchestrate the 

compensation committee’s receipt of information. Grace sent an email to A&M on August 31, 

2017, stating that he “spoke with Dave this morning” and that “we should only discuss what has 

466 Ex. 78 (Levin depo.) 148:7-10.

467 Ex. 79 (Taylor depo.) 29:17-30:18.

468 Ex. 127 (8’29’17 Compensation Committee Minutes [DEFS_0006291]). 

469 Ex. 88 (Brandon depo.) 150:21-151:11. 

470 Ex. 79 (Taylor depo.) 31:14-23. 

471 Ex. 82 (Goodman depo.) 272:16-22.

472 Ex. 78 (Levin depo.) 149:23-150:17. 

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changed in the deck and any follow up items from the Comp. Committee call.” 473 After 

Brandon and Grace spoke with Alvarez later that same day, Alvarez “made the discussed 

changes in the attached full report.” 474

The compensation committee Directors utterly failed to guard against Brandon’s control 

of, and substantial influence over, a bonus program in which Brandon had a glaringly obvious 

personal interest. 

Defendant Taylor, while the nominal “chairman” of the compensation committee, 

allowed Brandon to direct the committee, including:

• scheduling meetings of the committee,

• setting the agenda for committee,

• overseeing and approving materials provided to the committee,

• conferring with the advisers in advance of the committee meeting to script what takes place 

in the meeting,

• directing the activities of Alvarez & Marsal,

• permitting Brandon’s attendance and participating on the committee meetings.

But Taylor took no action to ensure that the bonus plan process was free from Brandon’s 

direction and control. In fact, Taylor actually knew that Brandon had developed the bonus plan 

and that Brandon had made each of the decisions about each of the key elements of the plan. 475 

Those decisions included who would receive a bonus, when the bonuses should be paid, and how 

much each person should receive. 476 Taylor did nothing to intervene. 

473 Ex. 128 (8'31'17 Grace re Today's call [TRU-Trust0000377407]).

474 Ex. 129 (8’31’17 Hoeinghaus re Revised Comp Decks [TRU-Trust0000377450]).

475 Ex. 77 (Raether depo.) 225:25-224:15.

476 Ex. 77 (Raether depo.) 227:22-228:1, 228:2-7, 229:19-25.

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The other two committee members, Levin and Goodman did not investigate how the plan 

to pay retention bonuses to top executives including Brandon was developed. 477 They did not 

make any attempt to ensure that Brandon was not involved in preparing the retention bonus plan 

that would result in him personally receiving a bonus prior to bankruptcy. 478 Levin and 

Goodman made no inquiry at all into Brandon’s influence on the bonus plan, even though 

Brandon had an obvious direct financial interest in the plan. 479 Goodman was not even 

“interested in knowing who came up with the plan.” 480 And Levin made no attempt to ensure 

that “Dave Brandon had no influence on the bonus plan.” 481

Moreover, the compensation committee never made any effort to discuss the plan with an 

advisor outside of Brandon’s presence. All communications between the compensation 

committee and Alvarez & Marsal occurred with Brandon there. 482 The compensation committee 

Directors never reached out to Alvarez & Marsal separately. And the compensation committee 

did not retain any additional advisor to independently evaluate the bonus plan to determine 

whether it was reasonable or necessary. 483

2. The compensation committee Directors abdicated their responsibility 

to evaluate reasonable alternatives and inform themselves of all 

material information reasonably available to them. 

The compensation committee Directors failed to evaluate reasonable alternatives to the 

plan presented by Brandon. And for the plan that was presented, the compensation committee 

knowingly disregarded material information. 

477 Ex. 78 (Levin depo.) 225:1-9.

478 Ex. 78 (Levin depo.) 177:7-19, 233:2-14.

479 Ex. 78 (Levin depo.) 225:1-9; Ex. 82 (Goodman depo.) 268:8-17.

480 Ex. 82 (Goodman depo.) 267:21-23.

481 Ex. 78 (Levin depo.) 233:2-10.

482 Ex. 78 (Levin depo.) 186:18-25.

483 Ex. 78 (Levin depo.) 229:9-13. 

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First, as Defendants have admitted, their fiduciary duties required them to consider and 

assess “all reasonable alternatives” before coming to a decision. 484 And the Directors were 

expressly advised that there were multiple “design options for compensation programs during 

restructuring” that they needed to consider. 485

But the Directors on the compensation committee failed to consider any alternatives to 

the bonus plan developed by Brandon. The compensation committee Directors did not evaluate 

alternative compensation options other than the one proposed by Brandon, such as paying no 

bonus or spreading bonus payments out over the course of the bankruptcy. 486 The compensation 

committee did not even ask A&M about different types of compensation programs that could be 

considered. 487 The committee did not ask whether retention bonuses were necessary to retain 

executives or inquire into the likelihood that executives would consider leaving. 488 The 

compensation committee did not evaluate what bonus amounts were appropriate. 489 Instead, the 

only plan that the Directors ever considered “whether to go ahead with” was the one proposed by 

Brandon. 490

Second, the compensation committee Directors entirely failed to consider critical material 

information in evaluating the bonus plan. Defendants knew that in authorizing a bonus plan, 

“amounts of compensation must be reasonable compared to reasonable peer group.” 491 To be 

able to compare the compensation of each executive, the Directors needed information about 

484 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10.

485 Ex. 23 (7’31’17 Contingency Prep Overview [DEFS_0123896]) at slide 58. 

486 Ex. 82 (Goodman depo.) 296:15-297:12.

487 Ex. 78 (Levin depo.) 185:10-18, 224:10-25. 

488 Ex. 82 (Goodman depo.) 298:20-299:10.

489 Ex. 82 (Goodman depo.) 279:15-25.

490 Ex. 82 (Goodman depo.) 269:21-270:19.

491 Ex. 23 (7'31'17 Contingency Prep Overview [DEFS_0123896]) at slide 59.

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each executive’s current compensation (including base salary, bonus, and incentive amounts).492 

The Directors would need to consider what an individual executive’s “pay is currently and what 

it had been historically,” and use that information along with “marketplace comparables” to 

“make an assessment of pay relative to retention or flight risk.” 493 As Defendant Goodman 

admitted, “you want to know the market data for a comparable position.” 494

The Directors knew that information comparing the compensation of Company 

executives to comparable executives was “reasonably available,” in fact, that it was readily 

available. The compensation committee Directors had just two months earlier, on June 20, 2017, 

performed an analysis of executive compensation for 7 of the top 8 executives (everyone but 

Brandon). 495 For these 7 executives, the committee had received data comparing each 

executive’s base salary, target bonus, total cash compensation, and long-term option grants to the 

market, including identifying where each component of compensation fell for each executive. 496

And the committee knew that the Company had access to “Market Data Sources” from three data 

base providers: “Korn Ferry Hay Group, Equilar and Hewitt.” 497

But the Directors did not receive, ask for, or consider any such information when 

considering whether to approve the executive bonus plan in September 2017. The Directors did 

not assess the likelihood of executives leaving the Company absent retention bonuses. 498 They 

did not engage in “individual assessments” of executives and their compensation relative to 

492 Ex. 79 (Taylor depo.) 75:10-15. 

493 Ex. 78 (Levin depo.) 38:7-21.

494 Ex. 82 (Goodman depo.) 317:19-318:1. 

495 Ex. 98 (6'20'17 Comp committee [DEFS_0126153]) at pdf 8. 

496 Id. 497 Id. 498 Ex. 82 (Goodman depo.) 299:1-10.

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comparable executives at other firms. 499 Indeed, for 109 of the 114 executives included in the 

bonus plan, the compensation committee received no information whatsoever about the 

compensation of comparable executives at other companies. 500 The compensation committee 

Directors never asked Alvarez & Marsal to provide that information. 501

For those five executives that Alvarez & Marsal did provide comparable compensation 

information, the information did not justify paying a bonus. The analysis of Brandon’s 

compensation revealed that Brandon’s compensation was already excessive. Brandon’s base 

salary was already more than double the base salary of the 90th percentile of comparable 

executives, and Brandon’s base salary alone was between the 75th and 90th percentile of the total 

cash compensation of comparable executives. 502

The other four executives were not actually compared to comparable executives at other 

firms. For example, Barry, the Chief Merchandising Officer, was matched to the “3rd highest 

paid” position at other companies. 503 This resulted in comparing Barry to CFOs, presidents, and 

even a CEO. 504 Similarly, Toys “R” Us’ Global Chief Technology Officer was matched with 

the “4th highest paid” position at other companies. 505 That resulted in comparisons with 

presidents, CEOs, CFOs, and chairmen at other companies. It did not result in a comparison 

with any other chief technology officers, or any positions that even seemed to approximate that 

499 Ex. 82 (Goodman depo.) 306:24-307:8.

500 Ex. 120 (8’21’17 Restructuring Compensation Proposal [TRU-Trust0000125152]).

501 Ex. 79 (Taylor depo.) 128:19-24.

502 Ex. 120 (8’21’17 Restructuring Compensation Proposal [TRU-Trust0000125152]) at 28; Ex. 

82 (Goodman depo.) 255:5-21, 259:2-11.

503 Ex. 120 (8’21’17 Restructuring Compensation Proposal [TRU-Trust0000125152] at 30.

504 Id. 

505 Id. at 31. 

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role. 506 These comparisons were not the “like-for-like comparisons” that Taylor testified were 

necessary to appropriately assess executive compensation. 507

Third, the compensation committee had actual knowledge of material facts demonstrating 

that the bonuses could not be justified and were therefore not in the best interest of the Company. 

The analysis that the compensation committee had received just two months earlier (and that did 

perform a like-for-like comparison to executives in comparable positions) showed that the 

executives’ “total cash compensation” for 2017 exceeded the median compensation at other 

companies, and for most of the executives was above the 70th percentile. 508 This was consistent 

with the discussion between Brandon and Grace on July 15, 2017, that “Outside stats and 

comparisons are not going to help us.” 509

When the compensation committee received the initial bonus proposal that contained 

comparable information for Brandon, that information demonstrated that Brandon’s 

compensation without the bonus was already excessive. But rather than suggest that Brandon be 

excluded from the program, the compensation committee directed Alvarez & Marsal to find 

alternative comparables for Brandon. 510

None of the compensation committee members remember why they needed to request 

different CEO comparables after receiving the first set from Alvarez & Marsal. 511 One plausible 

inference is that the reason that the compensation committee asked for the updated list of 

comparables was so that Brandon’s compensation would look better. None of the compensation 

506 Id. 507 Ex. 79 (Taylor depo.) 78:1-14.

508 Ex. 98 (6'20'17 Comp committee [DEFS_0126153]); Ex. 78 (Levin depo.) 58:16-59:23.

509 Ex. 99 (7’15’17 Brandon to Grace [TRU-Trust0000011727]).

510 Ex. 82 (Goodman depo.) 276:14-277:3.

511 Ex. 78 (Levin depo.) 270:24-271:11.

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committee Directors identified any other reason why they would ask for a different set of 

comparables for the CEO position. In fact, none of the compensation committee Directors have 

any recollection of the discussions that took place about the executive bonus. 512

In response to the compensation committee’s request, Alvarez “expanded the scope of 

potential peers to include retail companies that fall within 33% to 300% of the Company based 

on assets, revenue and employee count.” 513 This updated set of companies raised the average 

compensation level for CEOs that Brandon was compared against. 514

But even with this upwardly skewed data set, Brandon’s compensation was still 

excessive. Brandon’s base salary continued to be over two million dollars higher than the 90th

percentile of comparable CEOs. 515 And Brandon’s total cash compensation continued to be 

almost two and a half million dollars higher than the 90th percentile of comparable CEO total 

cash compensation. 516 After receiving that updated information about comparables, the 

compensation committee Directors again failed to remove Brandon from the bonus plan or to 

make any changes. 

In sum, the compensation committee Directors failed entirely to comply with their 

fiduciary duties. They allowed Brandon to develop the bonus plan and control the compensation 

committee’s consideration of that bonus plan. And they failed to obtain material information (in 

fact critical information), that they knew was reasonably available. And they were aware of facts 

512 Ex. 79 (Taylor depo.) 97:10-16; Ex. 82 (Goodman depo.) 303:6-21; Ex. 78 (Levin depo.) 

149:23-150:17.

513 Ex. 131 (9’3’17 Summary Restructuring Compensation Proposal [DEFS_0006217]) at 9.

514 Ex. 136 (9’3’17 Restructuring Compensation Proposal [DEFS_0006228]) at 21. 

515 Id. at 27; Ex 82 (Goodman depo.) 277:4-9.

516 Ex. 136 (9’3’17 Restructuring Compensation Proposal [DEFS_0006228]) at 27; Ex. 82 

(Goodman depo.) 277:10-15.

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demonstrating that such large bonuses were not in the best interest of the Company because the 

top executives, in particular Brandon, were already overpaid. 

D. When the full board was presented with the plan Brandon had developed, it 

failed to guard against conflicts of interest, consider all reasonable 

alternatives, or consider critical material information. 

Each of the Directors on the full board had the same duties as the Directors on the 

compensation committee. 517 They had to ensure that they fulfilled their duty to inform 

themselves of all reasonably available material information. 518 And the Directors on the Board 

knew that their duty was not just “to rubber stamp any proposals that were sent to [them] from 

management.” 519 But that is exactly what the Directors did when they received the bonus plan 

from Brandon. 

1. The full board abdicated their duties to preclude Brandon from 

controlling the development of the bonus plan. 

The Board knew that Brandon had an obvious conflict of interest, because he would be 

receiving several million dollars if the bonus plan were approved. And they also knew that 

Brandon set the agenda for the board meeting at which compensation was discussed, put 

compensation approval on the agenda for that meeting, participated in the meeting, and voted to 

approve the plan. 520

But, just like the compensation committee, the full board did nothing to preclude 

Brandon from controlling the bonus plan. They did not require Brandon to leave the meeting 

during the discussion. 521 They did not require Brandon to recuse himself from the vote. 522 

517 See e.g., Ex. 77 (Raether depo.) 218:1-5. 

518 Ex. 77 (Raether depo.) 155:9-12.

519 Ex. 77 (Raether depo.) 320:9-22. 

520 Ex. 88 (Brandon depo.) 175:4-17; Ex. 40 (9’13’17 board minutes [TRU-Trust0000165899]).

521 Ex. 40 (9’13’17 board minutes [TRU-Trust0000165899]) at 3.

522 Id.; Ex. 77 (Raether depo.) 242:5-13.

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They did not ask Alvarez & Marsal to discuss the origin of the plan and who had made the 

decisions in the plan. In fact, there is no record that the Board made any effort to determine how 

the bonus plan was developed and the level of Brandon’s influence on the plan. 523 Instead, they 

were wholly unconcerned about Brandon’s interest in the plan and his involvement in creating 

it. 524

2. The Board knowingly failed to obtain critical information they knew 

was available and knowingly failed to analyze alternatives. 

As discussed above, the Directors knew that their fiduciary duties required them to 

consider all reasonable alternatives and they knew that multiple design options were available. 

But the full board considered only a single alternative, the plan that had been designed by 

Brandon that would pay executives large bonuses within a few days. 

And as discussed above, the Directors knew they needed to inform themselves of all 

material information that was reasonably available, and knew that this included a comparison to 

the compensation of comparable executives. But, just like the compensation committee, the full 

board failed even to request such information. 525

In fact, Brandon directed Alvarez and Marsal to “simply circulate an executive summary 

of the plan” to the full board. 526 The summary did not include the chart with CEO comparables 

showing Brandon’s excessive compensation relative to other CEOs. 527

523 Ex. 40 (9’13’17 board minutes [TRU-Trust0000165899]) at 3; Ex. 83 (Macnow depo.) 

141:10-142:9.

524 See, e.g., Ex. 82 (Goodman depo.) 267:21-268:17; Ex. 83 (Macnow depo.) 128:15-130:7, 

130:12-131:6; Ex. 77 (Raether depo.) 231:14-24. 

525 Ex. 83 (Macnow depo.) 141:10-15; Ex. 77 (Raether depo.) 245:5-11. 

526 Ex. 132 (9'5'17 1006pm only summary [TRU-Trust0000126680]). 

527 Ex. 88 (Brandon depo.) 172:16-173:4; Ex. 133 (9’6’17 Summary Compensation Proposal 

[DEFS_0004337]).

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As a result, the Board received the skimpiest of information. The presentation that the 

Board received did not include any analysis of why a bonus of 75% was considered to be 

appropriate for each of the Tier 1 executives, an analysis of cash compensation for comparable 

executives, or any alternative compensation structures for the Board to consider. 528 Indeed, the 

Board never received the analysis and underlying assumptions that were used in developing the 

bonus plan. 529

The Board did not reach out to Alvarez & Marsal separately to discuss the compensation 

proposal or obtain additional information. 530 The board members did not ask about how the 

numbers for executive bonuses in the Alvarez & Marsal bonus proposal had been developed, or 

whether any analysis of comparable executives had been done. 531 There is no indication that the 

board discussed the timing of payments or whether Brandon should be included at the 75% 

bonus level. 532 And there is no indication that members of the board asked for any information 

comparing the compensation of Toys “R” Us executives to other executives. 533 Moreover, there 

is no indication that any member of the board did any analysis apart from reading the materials 

presented to the board at Brandon’s direction. 534

528 Ex. 133 (9’6’17 Summary Compensation Proposal [DEFS_0004337]).

529 Ex. 77 (Raether depo.) 245:5-11. 

530 See, e.g., Ex. 83 (Macnow depo.) 134:18-135:6, 136:22-137:2; Ex. 79 (Taylor depo.) 128:19-

24; Ex. 77 (Raether depo.) 245:5-11, 247:4-9.

531 Ex. 83 (Macnow depo.) 136:3-13.

532 Ex. 77 (Raether depo.) 242:25-243:8.

533 Ex. 77 (Raether depo.) 247:4-9; Ex. 83 (Macnow depo.) 136:3-13.

534 Ex. 83 (Macnow depo.) 137:10-14.

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Finally, there is no record of the board’s reasoning or decision-making other than these 

two words in the minutes: “discussion ensued.” 535 None of the Defendants could recall anything 

about the discussions that took place. 536

The Directors on the board made the decision to approve the bonus plan knowing that 

they failed to do anything to ensure that the process was not controlled by Brandon, knowing that 

they failed to consider reasonable alternative approaches, and knowing that did not have critical 

information necessary for evaluating executive compensation. 

E. The Directors breached their fiduciary duties by knowingly authorizing an 

illegal fraudulent transfer that was designed to evade creditors. 

Directors breach their fiduciary duty of loyalty (and its subsidiary duty of good faith) 

when they direct the corporation to engage in conduct that they know is unlawful. Hampshire 

Grp., Ltd. v. Kuttner, No. 3607-VCS, 2010 Del. Ch. LEXIS 144, at *89 (Ch. July 12, 2010) (by 

“consciously causing” company to violate the law, director “breached his duty of loyalty”); 

Guttman v. Jen-Hsun Huang, 823 A.2d 492, 506 n.34 (Del. Ch. 2003) (“one cannot act loyally as 

a corporate director by causing the corporation to violate the positive laws it is obliged to obey”). 

“For fiduciaries of Delaware corporations, there is no room to flout the law.” In re Massey 

Energy Co. Derivative & Class Action Litig., No. 5430-VCS, 2011 Del. Ch. LEXIS 83, at *78 

(Ch. May 31, 2011). 

535 See, e.g., Ex. 82 (Goodman depo.) 302:20-304:6, Ex. 81 (Bekenstein depo.) 277:21-280:6, Ex 

83 (Macnow depo.) 139:17-140:6; Ex. 82 (Goodman depo.) 88:20-89:1.

536 See Ex. 79 (Taylor depo.) 104:5-9 (“I don’t have a specific recollection”); Ex. 83 (Macnow 

depo.) 140:3-6 (No recall of discussion); Ex. 82 (Goodman depo.) 303:6-21 (“I don’t recall”); 

Ex. 77 (Raether depo.) 242:25-243:8 (“[N]o recollection” of discussions); Ex. 81 (Bekenstein 

depo.) 277:12-280:6 (answering “I don’t recall” to every question about the executive bonus 

program). 

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But flouting the law is exactly what Defendants did in approving the executive bonuses. 

Defendants knowingly approved a fraudulent transfer of millions of dollars in extraordinary 

bonuses to insiders, thereby violating their fiduciary duties. 

A fraudulent transfer is a violation of both civil and criminal law. Fraudulent transfer in 

contemplation of a chapter 11 bankruptcy is a crime under federal law that subjects individuals 

to criminal penalties. 18 U.S.C. § 152(7). When an individual “as an ... officer of any ... 

corporation, in contemplation of a case under title 11 by ... 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 ... corporation,” that individual “shall be fined under 

this title, imprisoned not more than 5 years, or both. 18 U.S.C. § 152(7). The statute “attempts 

to cover all the possible methods by which a bankrupt or any other person may attempt to 

defeat the Bankruptcy Act through an effort to keep assets from being equitably distributed 

among creditors.” Stegeman v. United States, 425 F.2d 984, 986 (9th Cir. 1970) (citing Collier 

on Bankruptcy (14th ed. 1968)) (emphasis in original)). 

Fraudulent transfers prohibited by section 152(7) include any transfer “with intent to 

defeat the provisions of title 11,” including transfer made before filing a bankruptcy petition. 18 

U.S.C. § 152(7). “[A]lthough the transfer or concealment prohibited by § 152(7) must relate to a 

bankruptcy case—i.e., it must be intended to defeat the provisions of the Bankruptcy Code—the 

statute reaches beyond the bankruptcy estate itself.” United States v. Colon Ledee, 772 F.3d 21, 

34 (1st Cir. 2014); see United States v. West, 22 F.3d 586, 590 (5th Cir. 1994) (“the government 

may prosecute individuals under 18 U.S.C. § 152 for transfers of property occurring more than 

one year prior to the filing of a petition in bankruptcy if such transfers are made knowingly, 

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fraudulently, and in contemplation of a case under title 11 or with intent to defeat the provisions 

of title 11”). In addition, 18 states and U.S. territories also criminalize a fraudulent transfer. 537

A fraudulent transfer claim under section 548 of the bankruptcy code has two elements 

(1) “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,” and (2) “with actual intent to hinder, delay, or 

defraud any entity to which the debtor was or became ... indebted”). 11 U.S.C. § 548. The 

elements of a fraudulent transfer claim under the under the Uniform Fraudulent Transfer Act 

(such as enacted by Delaware) has the same two elements (1) “a transfer made or obligation 

incurred,” and (2) “with actual intent to hinder, delay, or defraud any creditor of the debtor.” 6 

Del. C. § 1304.

The federal criminal statute adds one additional element, that the transfer was made “in 

contemplation of a case under title 11 ... or with intent to defeat the provisions of title 11.” 8 

U.S.C. § 152(7). 

The evidence proves each of these elements for the Director Defendants. 

1. There was a “transfer” by paying bonuses to executives.

Payments made to officers or employees of a company constitute “transfers or 

obligations” for the purposes of a fraudulent transfer claim. See JPMorgan Chase Bank, N.A. v. 

Ballard, 213 A.3d 1211, 1245 (Del. Ch. 2019). The executive bonus plan was a “transfer or 

obligation” because it was a payment to Toys “R” Us executives. It resulted in Toys “R” Us 

537 See Jay Adkisson, US Jurisdictions That Criminalize Fraudulent Transfers, Forbes (2015) 

https://www.forbes.com/sites/jayadkisson/2015/11/22/u-s-jurisdictions-that-criminalizefraudulent-transfers/?sh=1f4a71097943. 

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transferring at least $16,279,738 to Toys “R” Us executives, including $2,812,500 to Brandon, 

$600,000 to Short, and $450,000 to Barry. 538 

2. Defendants authorized the transfer with actual intent to hinder and 

defraud creditors.

The required scienter for a fraudulent transfer is “actual intent to hinder, delay, or defraud 

any creditor of the debtor.” 6 Del. C. § 1304. Any one of the three intents (hinder, defraud, or 

delay) is sufficient: “the Court need only find that ... the Debtors made relevant transfers with 

the intent to hinder, the intent to delay, or the intent to defraud.” Sher v. JPMorgan Chase 

Funding (In re Thornburg Mortg., Inc.), 610 B.R. 807, 827 (Bankr. D. Md. 2019) (emphasis 

added). The presence of actual intent “may be inferred from the actions of debtor and may be 

proven by circumstantial evidence.” In re Smoot, 265 B.R. 128, 142 (Bankr. E.D. Va. 1999). 

The Directors authorized a transfer of funds from Toys “R” Us to Brandon and other 

insiders knowing that the Company was on the eve of filing bankruptcy, and knowing that such a 

transfer was prohibited by bankruptcy law and intending to place those funds beyond the reach 

of creditors. They intended to hinder the ability of the creditors to provide input, and to 

eliminate the ability of the bankruptcy court to perform its oversight role. 

The Directors voted to authorize the executive bonus plan on September 13, 2017. 539 

When the Directors gave that authorization, they knew that the bonuses were extraordinary and 

not part of the regular executive compensation package. For example, Brandon had an 

employment contract that extended through July 1, 2020, and, under his contract Brandon had no 

right to this additional bonus. 540

538 Ex. 135 (Mills) ¶32.

539 Ex. 40 (9’13’17 board minutes [TRU-Trust0000165900]). 

540 Ex. 176 (Brandon Employment Agree [TRU-Trust0000096961]).

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Each of the Defendants also knew on September 13 that the Company was preparing a 

bankruptcy filing, that it would “file as soon as the Company has obtained DIP financing,” and 

that it was on track “to file for chapter 11 early next week.” 541

And the Directors had been advised that when the Company became insolvent, “the 

company’s creditors become the primary beneficiaries” of the Directors’ fiduciary duties. 542 

The Directors were advised that their fiduciary duties required them to “evaluate their decisions 

through the prism of maximizing the value of the enterprise for the benefit of all 

stakeholders.” 543

The Directors also knew that, with the bankruptcy filing, the Company’s actions would 

be under the oversight of creditors and the bankruptcy court, and this included executive 

compensation decisions. The Directors were specifically advised by Kirkland that “[u]pon filing 

for relief under chapter 11,” the “compensation payable to ‘insiders’ (senior management) is 

subject to stringent bankruptcy rules and much greater scrutiny.” 544

The Directors therefore knew that, waiting a few days until the bankruptcy filing would 

have given the creditors (and the Court) the ability to weigh-in on whether paying large bonuses 

to executives would maximize the enterprise value of the cash-strapped company. And if 

bonuses were warranted, the stakeholders could evaluate what sort of bonus plan would be best, 

how much the bonuses should be, who should participate, and when bonuses should be paid. 

But the Directors did not wait, because the Directors also knew that retention bonuses for 

Brandon and the other top executives would not be approved in bankruptcy. They had been 

541 Ex. 40 (9’13’17 board minutes [TRU-Trust0000165900]). 

542 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535].

543 Id. at 24. 

544 Ex. 106 (8’27’17 attach to Brandon Kirkland presentation [DEFS_0006370]) at 7; Ex. 23 

(7’31’17 Contingency Prep Overview [DEFS_123896]) at 57. 

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advised by Kirkland that to pay retention bonuses to an “insider,” that insider would need to have 

“a bona fide job offer at the same or greater level of compensation.” 545 Kirkland explained that 

insiders “include: Directors; Officers; Persons in control; and Affiliates.” 546 Kirkland advised 

that “the title of Vice President or higher creates a rebuttable presumption that the relevant 

employee is an ‘insider.’” 547

When the board received the retention bonus plan, it was obvious that the plan included 

multiple insiders. It included Brandon and Short, who were directors. And it included 19 

executives with titles of Senior Vice President, Executive Vice President, or higher. 548 Based on 

the advice the Directors had been given, the Directors knew that this plan was not allowed by 

bankruptcy laws—it contained no showing that any insider had any job offer, much less one with 

comparable compensation. As a result, Brandon made sure the bonus plan was on the agenda 

and was approved so that the executive bonuses could be transferred out of the Company’s bank 

account before the bankruptcy filing. In fact, Grace started payroll processing for the bonuses 

even before the board meeting. 549

The only plausible reason for the timing of paying the bonuses just before filing 

bankruptcy is the need to evade the limitations on bonuses to insiders, and to evade the scrutiny 

of creditors on the executive bonuses. Defendants certainly knew the obvious fact that a cash 

bonus paid to an executive comes out of the cash that otherwise would be paid to creditors. They 

knew, therefore, that transferring the cash to executives before filing bankruptcy would hinder 

the ability of creditors to be paid for their debts. No advisor had offered the opinion that paying 

545 Ex. 106 (8’27’17 attach to Brandon Kirkland presentation [DEFS_0006370]) at 9.

546 Ex. 106 (8’27’17 attach to Brandon Kirkland presentation [DEFS_0006370]) at 9.

547 Id. at 10.

548 Ex. 134 (9’13’17 Alvarez Board Presentation [DEFS_0004160]) at slide 5.

549 Ex. 130 (9’12’17 Grace final files to AM Files [TRU-Trust0000374006]).

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retention bonuses on the eve of bankruptcy would be lawful. In fact, Alvarez & Marsal had 

specifically warned Brandon that such a program could be “challenged as a preferential 

transfer/fraudulent conveyance.” 550

By paying the bonuses before bankruptcy, Defendants knew that the “bonuses were 

placed outside the advance scrutiny of the creditors and the bankruptcy court.” Official Emp'tRelated Issues Comm. of Enron Corp. v. Arnold (In re Enron Corp.), Nos. 01-16034-AJG, 03-

3522, 03-3721, 2005 Bankr. LEXIS 3261, at *109 (Bankr. S.D. Tex. Dec. 9, 2005). 

Defendants’ actual intent to hinder and defraud creditors is strengthened by considering 

other factors that courts traditionally consider when evaluating the presence of actual intent. 

Those factors include whether “the transfer or obligation was to an insider,” whether “the debtor 

was insolvent or became insolvent shortly after the transfer was made,” and “whether the transfer 

occurred shortly before or shortly after a substantial debt was incurred.” 6 Del. C. § 1304(b). 

“The confluence of several of these factors” generally “support[s] a conclusion that one acted 

with the actual intent to defraud.” Kibler v. Wooters, No. 1351-VCN, 2007 Del. Ch. LEXIS 83, 

at *17 (Ch. June 6, 2007); see Fringer v. Kersey Homes, Inc., No. 9780-VCG, 2018 Del. Ch. 

LEXIS 203, at *23 (Ch. June 25, 2018). As discussed above, the transfer was made to insiders. 

It was made just four days before Toys “R” Us filed for bankruptcy and admitted its insolvency. 

And it was made shortly after the Company had incurred substantial debts to vendors for 

merchandise and just four days before the Company incurred large debts by entering the DIP 

financing agreements. Each of these factors further demonstrates actual intent to defraud 

creditors. 

550 Ex. 108 (8’3’17 A&M Overview of Compensation Alternatives [TRU-Trust0000124123]) at 

14. 

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3. Defendants made the transfer in contemplation of a case under title 11 

and with intent to defeat the provisions of title 11. 

Defendants authorized the transfer of payments to executives “in contemplation of a case 

under title 11 ... or with intent to defeat the provisions of title 11.” 8 U.S.C. § 152(7).

As demonstrated above Defendants authorized the bonuses to executives in direct 

contemplation of the Company filing a bankruptcy petition. Therefore, the transfer was “in 

contemplation of a case under title 11.” In addition, as demonstrated above, Defendants knew of 

the restrictions on paying bonuses to top executives found in the bankruptcy laws and the only 

plausible reason for the timing of paying the bonuses just before filing bankruptcy was the need 

to evade the limitations on bonuses to insiders, and to evade the scrutiny of creditors on the 

executive bonuses. Therefore, the transfers were also made “with intent to defeat the provisions 

of” the bankruptcy code.

* * *

By directing the Company to engage in a fraudulent transfer days before the bankruptcy 

filing, Defendants knowingly directed the Company to violate the law. And that knowing 

violation of the law was a breach of their duty of loyalty: “it is utterly inconsistent with one's 

duty of fidelity to the corporation to consciously cause the corporation to act unlawfully.” 

Desimone v. Barrows, 924 A.2d 908, 934 (Del. Ch. 2007).

F. The Directors breached their fiduciary duties of loyalty, good faith, and care.

1. The Directors breached their duty of loyalty.

Directors breach their duty of loyalty by violating or causing a corporation to violate the 

law. Hampshire Grp., Ltd. v. Kuttner, No. 3607-VCS, 2010 Del. Ch. LEXIS 144, at *89 (Ch. 

July 12, 2010) (by “consciously causing” company to violate the law, director “breached his duty 

of loyalty”).

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Further, “the duty of loyalty mandates that the best interest of the corporation and its 

shareholders takes precedence over any interest possessed by a director, officer or controlling 

shareholder and not shared by the stockholders generally.” Cede & Co. v. Technicolor, 634 A.2d 

345, 361 (Del. 1993). 

A “classic example[] of director self-interest” exists when “a director receiv[es] a 

personal benefit from a transaction.” Cede, 634 A.2d at 362. Even a single director’s breach of 

the duty of loyalty can be found “to have infected the board’s decision.” Id. at 364. To establish 

a breach of the duty of loyalty, a plaintiff does not have to establish conflicting interests “as to a 

majority of the board,” but can instead establish “that one conflicted fiduciary failed to provide 

material information to the board or that the board failed to sufficiently oversee the conflicted 

fiduciary.” In re Mindbody, Inc., 2020 Del. Ch. LEXIS 307, at *34 (Ch. Oct. 2, 2020).

In cases that “involve[] directors or officers paying themselves bonuses, the court is 

particularly cognizant to the need for careful scrutiny.” Valeant Pharm. Int'l v. Jerney, 921 A.2d 

732, 745-746 (Del. Ch. 2007) (finding that a transaction did not have fair process when “[t]he 

entire process from the initial idea of awarding bonuses to the final reallocation of the bonus pool 

was dominated by [an interested director]”).

Defendants breached their duty of loyalty in multiple ways. 

a. Directors breached their duty of loyalty by authorizing an 

illegal fraudulent transfer.

As discussed in more detail above, Defendants knew that paying the executive bonus 

payments before bankruptcy would avoid court scrutiny and make the bonus payment 

unavailable to creditors. But Defendants chose to approve that bonus program anyway, in 

knowing violation of the law and their fiduciary duty of loyalty. 

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b. Brandon breached his duty of loyalty because he was an 

interested director.

“[A] director who receives a substantial benefit from supporting a transaction cannot be 

objectively viewed as disinterested or independent.” Cede & Co. v. Technicolor, 634 A.2d 345, 

362 (Del. 1993); Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993) (“A director is considered 

interested where he or she will receive a personal financial benefit from a transaction that is not 

equally shared by the stockholders.”) 

Brandon’s self-dealing is a breach of his duty of loyalty—he controlled a process that

resulted in his receiving an additional $2,812,500 in compensation and he voted to approve his 

own bonus. 

c. Director Defendants breached their duty of loyalty by allowing 

Brandon—an interested director—to control the bonus 

process.

The Delaware Supreme Court “has established a rule that demands of a corporate officer 

or director, peremptorily and inexorably, the most scrupulous observance of his duty” of loyalty. 

Cede & Co. v. Technicolor, 634 A.2d 345, 361 (Del. 1993) (internal quotes omitted). Any 

potential for influence by personal interests is strictly prohibited. “The rule that requires an 

undivided and unselfish loyalty to the corporation demands that there be no conflict between 

duty and self-interest.” Id. A director is “independent only when the director’s decision is based 

entirely on the corporate merits of the transaction and is not influenced by personal or extraneous 

considerations.” Id. at 362.

Directors violate their duty of loyalty to a company when they allow an interested 

director to control and dominate a transaction. When “[a] board’s own lack of oversight in 

structuring and directing [a transaction] afforded management the opportunity to indulge in the 

misconduct which occurred,” the Directors on the board have breached their duty of loyalty. 

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Mills Acquisition Co. v. MacMillan, Inc., 559 A.2d 1261, 1279 (Del. 1989). A “board’s virtual 

abandonment of its oversight functions in the face of [a director’s] patent self-interest [is] a 

breach of its fundamental duties of loyalty and care.” Id. at 1284, n.32.

The Directors allowed an interested director to control the process of developing the 

bonus plan. They knew Brandon stood to receive a multimillion-dollar cash bonus and therefore 

had a “direct personal interest in the executive bonus plan.” 551 Brandon was thus not a 

disinterested or independent director. 552 Defendants therefore had an absolute duty to assure 

that any proposed bonus plan had not been corrupted by Brandon’s personal interest, because 

“there is no safe-harbor for divided loyalties in Delaware.” In re Walt Disney Co. Derivative 

Litig., 907 A.2d 693, 751 (Del. Ch. 2005). 

And yet the Directors utterly failed to take any action to preclude Brandon from 

controlling the development of the bonus plan. Moreover, Defendants didn’t care; they were not 

“interested in knowing who came up with the plan.” 553 This “abandonment of [the board’s] 

oversight functions in the face of [a director’s] patent self-interest was a breach of its 

fundamental duties of loyalty and care.” Mills Acquisition, 559 A.2d at 1284, n.32. 

2. The Directors breached their duty of good faith

Directors breach their duty of good faith when they engage in an “abdication of 

directorial duty.” Cede & Co. v. Technicolor, 634 A.2d 345, 363-64 (Del. 1993). A breach of 

the duty of good faith occurs “[w]here directors fail to act in the face of a known duty to act, 

thereby demonstrating a conscious disregard for their responsibilities.” Stone v. Ritter, 911 A.2d 

362, 370 (Del. 2006). This type of bad faith by abdication exists if the facts “imply that the 

551 Ex. 88 (Brandon depo.), 127:8-12.

552 See Ex. 88 (Brandon depo.) 128:15-21 (“If I paid myself a bonus, yes, that would be a conflict 

of interest”).

553 Ex. 82 (Goodman depo.) 267:21-23.

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defendant directors knew that they were making material decisions without adequate information 

and without adequate deliberation.” In re Walt Disney Co. Derivative Litig., 825 A.2d 275, 289 

(Del. Ch. 2003); Bridgeport Holdings Inc. Liquidating Tr. v. Boyer (In re Bridgeport Holdings, 

Inc.), 388 B.R. 548, 564 (Bankr. D. Del. 2008); Brehm v. Eisner (In re Walt Disney Co. 

Derivative Litig.), 906 A.2d 27, 66 (Del. 2006) (“[A] conscious disregard for one's 

responsibilities ... is properly treated as a non-exculpable, non-indemnifiable violation of the 

fiduciary duty to act in good faith.”) 

In addition, bad faith may be shown by evidence that a decision is “so far beyond the 

bounds of reasonable judgment that it seems essentially inexplicable on any ground other than 

bad faith.” Dent v. Ramtron Int'l Corp., No. 7950-VCP, 2014 Del. Ch. LEXIS 110, at *15 (Del. 

Ch. June 30, 2014); Parnes v. Bally Entm't Corp., 722 A.2d 1243, 1246 (Del. 1999); 

Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 981 (Del. Ch. 2000) (same). This does 

not require a plaintiff to establish “facts that rule out any possibility other than bad faith, rather 

than just pleading facts that support a rational inference of bad faith.” Kahn v. Stern, 183 A.3d 

715, 715 (Del. 2018). It suffices to establish “facts supporting an inference that [the fiduciary] 

did not reasonably believe that the ... transaction was in the best interests of” the company. 

Brinckerhoff v. Enbridge Energy Co., 159 A.3d 242, 260 (Del. 2017), quoted with approval by 

Kahn v. Stern, 183 A.3d 715, 715 & n.5 (Del. 2018). This does not require inquiring into the 

director’s subjective beliefs; instead “the use of the qualifier ‘reasonably’ imposes an objective 

standard of good faith.” Brinckerhoff, 159 A.3d at 260.

Defendants violated their duty of good faith under each of these theories. 

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a. The Directors abdicated their duties by failing to obtain an 

analysis of comparable compensation or alternative 

compensation plans.

As demonstrated above, the Directors knew that they were voting to approve the retention 

bonuses without having adequate material information. Material information is information that 

is “relevant” and “important” to what the decision-maker is trying to accomplish. Sutherland v. 

Sutherland, No. 2399-VCN, 2010 Del. Ch. LEXIS 88, at *44 (Ch. May 3, 2010). As shown 

above, the Defendants knew that they needed to obtain information comparing compensation for 

comparable executives, and knew that information was readily available. 

But the full board never received that information. The executive summary that Brandon 

directed be provided to the board included no comparison of compensation of executives at other 

companies. No director saw an analysis of comparable compensation for 109 out of the 114 

executives that were included in the bonus plan. And only the compensation committee 

Directors and Brandon saw comparable compensation data for the remaining five executives. As 

discussed above, those data were flawed and did not support paying a bonus. 

Without comparables or a rationale supporting a 75% bonus payment, board members 

had no way to evaluate whether the bonus payments were appropriate, reasonable, or in the best 

interests of the Company. And they had no way to evaluate whether a pre-petition retention 

bonus was the appropriate means to pay bonuses because no other alternatives were provided or 

considered. 

The Directors never asked for, received, or considered any of this material information. 

Instead, they made their decision to approve the bonus plan knowing only that executives would 

receive a bonus, the amount they would receive, and when they would receive it. 

These facts “imply that the defendant directors knew that they were making material 

decisions without adequate information and without adequate deliberation,” which suffices to 

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establish a breach of the duty of good faith. In re Walt Disney Co. Derivative Litig., 825 A.2d 

275, 289 (Del. Ch. 2003).

b. The Directors abdicated their duty to ensure that the process 

of developing the bonus was not controlled by an interested 

director

A breach of the duty of good faith occurs “[w]here directors fail to act in the face of a 

known duty to act.” Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006). As demonstrated above, 

Defendants knew they had a duty to ensure that conflicts of interest were avoided by delegating 

decision-making to disinterested directors. The board utterly failed to do so. “The board was 

torpid, if not supine, in its efforts to establish a truly independent auction, free of [the CEO and 

Chairman's] interference and access to confidential data. By placing the entire process in [his] 

hands . . . through his own chosen financial advisors, with little or no board oversight, the board 

materially contributed to the unprincipled conduct of those upon whom it looked with a blind

eye.” Mills Acquisition Co. v. MacMillan, Inc., 559 A.2d 1261, 1280 (Del. 1989), quoted with 

approval by Kahn v. Stern, 183 A.3d 715, 715 (Del. 2018). 

The Board failed in the first instance to delegate the process of developing bonuses to 

disinterested directors. No evidence suggests that the board directed that a bonus plan be 

prepared by independent directors or advisors. The first time that the full board saw a bonus plan 

was when they received the executive summary of the plan that Brandon had developed. 

Three of the board members (Brandon, Taylor, Raether) knew that this bonus plan had 

been developed by Brandon, who was conflicted. And that conflict should have been readily 

apparent to the rest of the board: Brandon was voting to approve a compensation plan that would 

result in him receiving a more than $2.8 million bonus. But none of the directors did anything to 

ensure that the process by which the bonuses had been developed was free of Brandon’s 

influence. As discussed above, no director asked about Brandon’s involvement in creating the 

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bonus plan. Neither Taylor nor Raether volunteered to the rest of the board that Brandon had in 

fact controlled each of the key decisions in the process. And the board raised no objection to 

Brandon voting on the plan. This deliberate “indifference” to Brandon’s involvement was a 

breach of the duty of good faith. 

Because the facts demonstrate that the “directors fail[ed] to act in the face of a known 

duty to act,” they breached their duties of good faith. Stone v. Ritter, 911 A.2d 362, 370 (Del. 

2006). 

c. Brandon and the compensation committee Directors made a 

decision that they knew was beyond the bounds of reason and 

not in the best interests of the Company.

Before developing the bonus plan, Brandon already knew that his and other executives’ 

compensation was excessive. As discussed above, Brandon was aware that existing salaries and 

annual bonus percentages were already above market. Rather than acknowledge that 

comparisons to market compensation showed that Toys “R” Us executives would not need 

additional compensation, Brandon wrote to Grace and indicated that he wanted to side-step those 

comparisons and design something that works for us.” 554 But Brandon knew that he “was 

already motivated to do well for the company” without receiving a retention bonus. 555 

Brandon’s decision to put through a bonus plan that paid executives, including himself, large 

cash bonuses days before the Company filed bankruptcy thus was objectively not in the best 

interests of the company and leads to a “rational inference of bad faith.” Kahn v. Stern, 183 A.3d 

715, 715 (Del. 2018).

For similar reasons, the compensation committee directors’ decision to approve the bonus 

plan was beyond the bounds of reason. As demonstrated above, the compensation committee 

554 Ex. 99 (7’15’17 Brandon to Grace [TRU-Trust0000011727]).

555 Ex. 88 (Brandon depo.) 182:24-183:4.

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had received and reviewed a comparability analysis in June 2017 that showed that Toys “R” Us 

executives were already paid above market. The compensation committee knew that outside 

metrics demonstrated that Toys “R” Us executives did not need a bonus. When Alvarez & 

Marsal attempted to justify Brandon’s plan by putting together comparables, the compensation 

committee directors (Taylor, Levin, Goodman) saw that the comparability analysis showed that 

Brandon’s compensation was excessive. The reaction of the compensation committee directors 

was not to delete this bonus. Instead, they tasked Alvarez & Marsal with finding a different set 

of comparable CEOs so that Brandon’s bonus payment would not appear so excessive. When 

the revised set of comparables failed to justify Brandon’s bonus, the compensation committee 

approved the bonus plan anyway (and did not provide those comparables to the full board). 

This decision by the compensation committee directors was objectively not in the best 

interests of the Company. The data that the compensation committee received indicated that the 

compensation of Brandon and other top executives was substantially higher than market. There 

was no risk that Brandon would leave to go to another company on the basis that he would be 

better compensated there. The circumstances surrounding the directors’ decision strongly 

supports “an inference that [the directors] did not reasonably believe that the ... transaction was 

in the best interests of” Toys “R” Us. Brinckerhoff v. Enbridge Energy Co., 159 A.3d 242, 260 

(Del. 2017). Accordingly, they breached their duty of good faith. 

3. The directors breached their duty of care.

The duty of care is breached if the actions or inactions of a director amount to “gross 

negligence,” or “conduct that constitutes reckless indifference.” McPadden v. Sidhu, 964 A.2d 

1262, 1274 (Del. Ch. 2008).

As demonstrated above, the Defendants breached their duty of good faith. The same 

evidence establishing that breach also demonstrates that Defendants’ conduct “constitutes 

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reckless indifference.” Thus, each of the Defendants breached their duty of care in approving the 

executive bonuses.

G. Defendants cannot meet their burden of proving the bonus payments were 

entirely fair. 

“A breach of either the duty of loyalty or the duty of care rebuts the presumption that the 

directors have acted in the best interests of the shareholders, and requires the directors to prove 

that the transaction was entirely fair.” Cede & Co. v. Technicolor, 634 A.2d 345, 371 (Del. 

1993). Moreover, the duty of good faith is a component of the duty of loyalty, because a 

“director cannot act loyally towards the corporation unless she acts in good faith.” Stone v. 

Ritter, 911 A.2d 362, 369-70 (Del. 2006). Therefore, demonstrating a breach of the duty of good 

faith also removes the protection of the business judgment rule. 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. If that is shown, 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.”). 

To meet the entire fairness standard, “the defendants must establish ... that the 

transaction was the product of both fair dealing and fair price.” Basho Techs. Holdco B, Ltd. 

Liab. Co. v. Georgetown Basho Inv’rs, Ltd. Liab. Co., No. 11802-VCL, 2018 Del. Ch. LEXIS 

222, at *80-81 (Ch. July 6, 2018) (internal quotes omitted). “Fair dealing” involves 

consideration of the process by which the transaction was approved. Id. at *82. “Fair price” 

involves assessing whether the directors “obtain[ed] the highest value reasonable available to the 

shareholders under all the circumstances.” Mills Acquisition Co. v. MacMillan, Inc., 559 A.2d 

1261, 1280 (Del. 1989). 

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Defendants make no attempt to meet their burden of proving entire fairness in their 

motion. Further, they could not do so. The Trust has presented evidence that the process was 

not fair, because Brandon controlled the development of the bonus and the other directors 

abdicated their duties in evaluating the bonus plan. As for fair price, Defendants cannot 

demonstrate that the retention bonuses were fair, because the evidence demonstrates that the 

Company’s top executives had compensation above market even without the additional bonus.

Thus, Defendants “demonstrate fairness as to process or price,” and therefore cannot 

prove entire fairness. Basho, 2018 Del. Ch. LEXIS 222, at *92 (Ch. July 6, 2018).

H. Defendants’ breaches of fiduciary duty caused losses to Toys “R” Us. 

By failing to comply with their fiduciary duties in authorizing the executive bonus plan, 

the Defendant Directors harmed Toys “R” Us by causing Toys “R” Us to pay unnecessary and 

excessive retention bonuses. This reduced Toys “R” Us’ liquidity and meant it did not have that 

money available to pay for other obligations. 

As a result of Defendants’ breaches of their fiduciary duties, Toys “R” Us executives 

received $16,279,738 in bonus payments. 556

V. Defendants’ arguments concerning Defendants’ unlawful approval of the executive

bonuses fail for multiple reasons. 

A. Estoppel does not apply to the Trust’s claims.

Defendants contend that “the Trust is estopped from litigating the retention payments” 

because “the UCC addressed the pre-petition retention payments during the Chapter 11 

bankruptcy proceeding.” Mot. at 18-19. This contention fails for multiple reasons.

556 Ex. 135 (Mills) ¶32. 

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First, as demonstrated above, the Trust is not a successor to the UCC for any purpose and 

thus is not bound by the UCC’s statements or positions. Defendants’ claim that the UCC made 

statements about the bonus payments “on behalf of the same constituency” that the Trust now 

represents is patently false. Mot. at 19. The Trust is bringing fiduciary duty claims on behalf of 

Toys “R” Us Inc. and Toys “R” Us Delaware. Neither of these entities were constituents of the 

UCC, and they are not bound by any of the UCC’s positions or statements. 

Second, the UCC never agreed that it would “address the retention payments through a 

compromise rather than litigation” as Defendants assert. Mot. at 19. The hearing statement 

quoted by Defendants contains no assertion that the UCC is releasing any right to challenge 

those payments at a later date. Indeed, the UCC’s statement supporting the debtor’s motion to 

approve settlement filed in 2018 highlighted that the lack of releases—including for claims 

involving “the payment of retention bonuses to senior executives on the eve of bankruptcy”—

was of “critical importance to the Committee.” 557

Third, the Court’s confirmation order expressly prohibits the application of preclusion 

doctrines, including estoppel, to claims asserted against the directors and officers. 558 That 

confirmation order is binding on Defendants and disposes of their estoppel argument.

In fact, in the UCC’s brief supporting the Settlement Agreement that was integral to the 

confirmed plan, the UCC expressly stated that the potential claims against the Defendants 

included “claims for breach of fiduciary duty arising out of ... the payment of retention bonuses 

to senior management on the eve of bankruptcy.” 559 The UCC told the Court that it was of 

557 Dkt. 4033 para. 20. 

558 Dkt. 5746 (Delaware order) ¶48; Dkt. 5602 (Delaware plan) at 33; Dkt. 5979 (Toys Inc. 

order); Dkt. 5940 (Toys Inc. plan) at 35.

559 Dkt. 4033 at ¶20. 

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“critical importance to the Committee” that “the Settlement Agreement also expressly preserves, 

and does not release, claims against the Debtors’ current and former directors, officers, and 

managers.” 560 Defendants never express any disagreement with this statement. And, on that 

basis, the Court approved the Settlement Agreement and the plans of confirmation.

Fourth, as discussed above, Defendants have the burden of proof on a defense of estoppel 

and they utterly fail to mention—much less provide undisputable evidence proving—the 

required elements of judicial estoppel. Defendants make no attempt to prove the element of “bad 

faith.” And Defendants could not possibly prove bad faith by either the UCC or the Trust. 

Fifth, because the “vice which judicial estoppel prevents is the cold manipulation of the 

courts” “[i]t is inappropriate, therefore, to apply the doctrine when a party’s prior position was 

based on inadvertence or mistake.” John S. Clark Co. v. Faggert & Frieden, P.C., 65 F.3d 26, 

29 (4th Cir. 1995), quoted with approval by New Hampshire v. Maine, 532 U.S. 742, 753 (2001). 

And here, the Trust’s claims against the directors for breach of fiduciary duties relating to the 

approval of the bonus plan is based on uncovering new facts that the UCC did not know in 

December 2017.

At the time that the UCC and its counsel were informed of the bonus payments, the UCC 

did not have knowledge about the process for developing and approving those bonuses. The 

UCC would justifiably expect that the board would comply with their fiduciary duties in creating 

the bonus: delegating the entire process to an independent compensation committee, evaluating 

material information, and guarding against conflicts of interest. The UCC did not know that this 

process had not been followed. The UCC did not have access to the emails between Brandon 

560 Dkt. 4033 at ¶20 (emphasis in original).

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and Grace, the communication between Brandon and Alvarez, the compensation committee 

discussion materials, or the board minutes. 

When the Trust discovered those facts during its investigation after Toys “R” Us’ 

liquidation, it brought claims against the directors for breaching their fiduciary duties in 

approving the executive bonus plan. These claims are based on the uncovering of new facts and 

thus are not estopped by any prior position adopted by the UCC.

B. Defendants’ conduct is not protected by the business judgment rule

Defendants’ assertion that the decision to approve pre-petition bonuses is “protected by 

the business judgment rule” fails for multiple reasons. Mot. at 19.

As discussed above, the business judgment rule “may only be invoked by directors who 

are found to be not only ‘disinterested’ directors, but directors who have both adequately 

informed themselves before voting on the business transaction at hand and acted with the 

requisite care.” Cede & Co. v. Technicolor, 634 A.2d 345, 367 (Del. 1993) (emphasis in 

original). Therefore, “proving that the defendant breached her duty of loyalty or her duty of 

care” will be sufficient for “rebutting one of the business judgment rule’s presumptions.” Basho 

Techs. Holdco B, Ltd. Liab. Co. v. Georgetown Basho Inv’rs, Ltd. Liab. Co., No. 11802-VCL, 

2018 Del. Ch. LEXIS 222, at *56 (Ch. July 6, 2018). Moreover, the duty of good faith is a 

component of the duty of loyalty, because a “director cannot act loyally towards the corporation 

unless she acts in good faith.” Stone v. Ritter, 911 A.2d 362, 369-70 (Del. 2006). Therefore, 

demonstrating a breach of the duty of good faith also removes the protection of the business 

judgment rule. Rich ex rel. Fuqi Int'l, Inc. v. Yu Kwai Chong, 66 A.3d 963, 977 (Del. Ch. 2013)

(“The business judgment rule, however, provides no protection in cases of bad-faith conduct”). 

In particular, the business judgement rule cannot be invoked against a claim for abdication of 

directorial duties. Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984). 

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1. The business judgment rule does not apply because Defendants did 

not act with the requisite care or adequately inform themselves.

As shown above, the conduct of the director Defendants constitutes a breach of their duty 

of care, which is sufficient, without more, to eliminate the protection of the business judgement 

rule. Cede & Co. v. Technicolor, 634 A.2d 345, 371 (Del. 1993) (“This Court has consistently 

held that the breach of the duty of care, without any requirement of injury, is sufficient to rebut 

the business judgment rule.) 

And a failure by directors “to adequately inform themselves” is by itself “sufficient to 

rebut the presumption of the business judgment rule.” Cede & Co. v. Technicolor, 634 A.2d 345, 

371 (Del. 1993).

As shown above, the director Defendants failed to adequately inform themselves before 

voting to approve the retention bonuses. The reasonably available material information that 

Defendants failed to obtain included: 

• Brandon’s role in creating and controlling the bonus plan;

• An appropriate analysis of comparable compensation for executives at other companies;

• An analysis of the alternative options for implementing compensation plans;

• Advantages and disadvantages of different compensation plans;

• The likelihood that executives would leave the company;

• Any rationale for paying bonuses equal to 75% of the annual salary rather than a lower 

amount.

That information was reasonably available to the Defendants. Any Defendant could have 

asked about Brandon’s role in developing the plan. Any Defendant could have asked Alvarez & 

Marsal to present an analysis of alternative compensation options. But no Defendant did so. 

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Taylor and Raether knew about Brandon’s control of the bonus plan, and the 

compensation committee had some information about comparables for 5 of the 114 executives. 

But those directors did not act with the requisite care to discharge their duties. As discussed in 

detail above, neither Taylor nor Raether took any action to curtail Brandon’s influence. And the 

compensation committee entirely disregarded that the comparable compensation information 

demonstrated that the top executives had compensation that exceeded the market and did not 

warrant a bonus. 

2. The business judgment rule does not apply because Defendants 

breached their duties of good faith and loyalty. 

As discussed above, the business judgment rule does not apply if Defendants breached 

their fiduciary duties. Brehm v. Eisner (in re Walt Disney Co. Derivative Litig.), 906 A.2d 27, 52 

(Del. 2006) (business judgment rule inapplicable where directors breached their fiduciary duty 

“of loyalty or acted in bad faith”). In particular, “the business judgment rule ... has no role 

where directors have either abdicated their functions, or absent a conscious decision, failed to 

act.” Aronson v. Lewis, 473 A.2d 805, 813 (Del. 1984). 

As demonstrated above, Defendants abdicated their fiduciary duties in two ways: (1) by 

allowing Brandon, an interested director, to control the bonus plan, and (2) by failing to fulfill 

their duty to obtain material information. Because the directors abdicated their duties, the 

business judgment rule does not apply. 

Further, the business judgment rule does not apply because Defendants breached their 

duty of loyalty by approving an illegal fraudulent transfer. This breach of the duty of loyalty is 

another basis for holding the business judgment rule inapplicable. 

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C. Defendants’ specific arguments concerning the business judgment rule are 

contrary to the law and the facts. 

1. The business judgment rule does not automatically shield all executive 

compensation decisions.

Defendants’ assertion that the business judgment rule “[a]pplies with [p]articular [f]orce” 

to decisions by a board of directors about executive compensation is false. Mot. at 19. 

Defendants’ cited cases stand only for the proposition that when the business judgment rule has 

been successfully invoked and not rebutted, it should protect the amount of compensation that is 

approved by the directors. In fact, Delaware courts recognize that, in cases that “involv[e] 

directors or officers paying themselves bonuses, the court is particularly cognizant to the need 

for careful scrutiny.” Valeant Pharm. Int'l v. Jerney, 921 A.2d 732, 745-746 (Del. Ch. 2007).

The White and Brehm cases cited by Defendants hold only that claims that a bonus was 

excessive, without more, should fail. See White v. Panic, 793 A.2d 356, 369 (Del. Ch. 2000)

(“Plaintiff alleges nothing beyond the amount of the bonus paid”); Brehm v. Eisner, 746 A.2d 

244, 263 (Del. 2000) (holding that a claim that a bonus payment was unreasonable purely 

because of the amount of the payment was protected by the business judgment rule). 

But the Trust’s claim here is not merely one of excessive compensation. Rather, the 

Trust has demonstrated that the process for developing the bonus was directed by Brandon, that 

Brandon had a conflict of interest, that the other Directors knew of Brandon’s conflict and 

knowingly failed to preclude him from corrupting the process, that the Directors knowingly 

failed to inform themselves of all material information reasonably available, and that the 

directors breached their duties of good faith in approving the executive bonus plan. Thus, 

Defendants’ cited cases that deal with claims solely about excessive compensation are 

inapposite. 

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Defendants’ reliance on In re Agfeed USA, LLC, 558 B.R. 116, 128 (Bankr. D. Del. 

2016), is similarly misplaced. The claim at issue in In re AgFeed USA, LLC was brought under 

Nevada law. Id. The plaintiff failed “to allege who approved the Employment Agreement,” 

which meant it was impossible to “rebut the business judgment rule.” Id. Further, the complaint 

did not allege that any of the directors had an interest in the transaction at issue. It was in this 

context that the court stated that the plaintiff had failed to make any showing that the board “was 

not independent ... or lacked good faith.” Id. 

The Trust here has shown both. The Trust has evidence demonstrating the entire board 

breached its duty of good faith by abdicating their known duties, and that they board allowed the 

plan to be controlled by a director with a personal financial interest in the bonus plan. This is a 

sufficient basis for a breach of loyalty claim. The Trust can thus rebut the business judgment 

rule, and can do so on the basis of each of the three theories discussed above. 

2. Defendants’ arguments on the fiduciary duties of due care and good 

faith fail. 

Defendants make three arguments. We rebut each in turn. 

a. Defendants’ “employee attrition” argument fails.

Defendants assert that the Board authorized the retention payments “to retain key 

personnel due to demonstrated employee attrition.” Mot. at 20. To support this claim, 

Defendants assert that Grace “was concerned that additional employees might leave the 

company.” Mot. at 20. These facts do nothing to address or justify the Defendants’ breaches of 

fiduciary duty. As discussed above, if the board had concerns about retention, that could have 

provided a reason to task an independent committee with developing a plan, and approving that 

plan after consideration of all reasonably available material information. And they could have 

presented that plan to the bankruptcy court for creditor input and court review. But neither the 

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board nor the compensation committee ever instructed anyone to prepare a retention plan, and 

allowed Brandon, who had an obvious conflict of interest, to make all of the key decisions in 

designing the plan. And the Directors never made any effort to obtain key comparability 

information that they knew was needed to assess executive compensation. Instead, the Directors 

received and rubber-stamped a plan created by Brandon. 

b. Defendants’ argument based on the participation of advisors 

fails. 

Defendants claim that the “robust process whereby A&M and Kirkland worked alongside 

TRU management” means that the Trust “cannot establish that TRU’s Board was recklessly 

uninformed or acted outside the bounds of reason.” Mot. at 20-22. And Defendants assert that 

their presented facts are “sufficient to withstand any challenge to the duty of care.” Mot. at 22. 

This argument fails for several reasons.

First, the mere presence of a special committee and advisors does not establish that no 

fiduciary duties were breached. Directors “must do more than establish a perfunctory special 

committee of outside directors” to obtain the protection of the business judgment rule. Kahn v. 

Tremont Corp., 694 A.2d 422, 429 (Del. 1997). For an independent committee and advisors to

provide any protections, “the committee must function in a manner” that complies with all 

fiduciary duties. Kahn v. Tremont Corp., 694 A.2d 422, 429 (Del. 1997). Evaluating the 

actions of a special committee and its advisors “contemplate[s] a look back at the substance, and 

efficacy, of the special committee's negotiations, rather than just a look at the composition and 

mandate of the special committee.” Ams. Mining Corp. v. Theriault, 51 A.3d 1213, 1240-41 

(Del. 2012) (affirming trial court’s determination that a transaction was not fair even with 

Special Committee and advisors involved). And directors must still fulfill their fiduciary duties 

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to “not simply rubber stamp whatever advice they receive,” and instead must “independently 

evaluate assumptions and information presented by advisors.” 561 

Defendants omit numerous facts that demonstrate that the bonus plan process was not an 

innocent collaboration between the advisors and management appropriately overseen by an 

independent committee, but rather one controlled by a CEO with a glaring conflict of interest. 

And those facts further show that the compensation committee and the board abdicated their 

fiduciary duties to consider the information that they were presented. For example, Defendants 

list of facts fails to mention the following:

• Brandon wanted to work with Alvarez & Marsal because of his close relationship with 

Bryan Marsal, and personally recommended that A&M be retained;

• Brandon (not Alvarez & Marsal) selected the approach of pre-petition retention payments 

and he discarded the other options presented by Alvarez & Marsal;

• Brandon (not A&M) made all of the key decisions, including who would receive a bonus, 

how much they would be paid, and when they would receive the bonus;

• Alvarez & Marsal identified multiple downsides to choosing the option of paying prepetition retention bonuses, including liquidity issues, that there were “[n]o 

incentive/performance conditions” and “potential public relations issues post-filing.” 562

• Alvarez & Marsal recommended evaluating alternatives to the pre-petition bonus plan. 563

561 Ex. 77 (Raether depo.) 319:23-320:1, 320:9-22; Ex. 27 (8’9’17 Fiduciary Duty Presentation 

[DEFS_0064535]) at slide 10.

562 Ex. 108 (8’3’17 A&M Overview of Compensation Alternatives [TRU-Trust0000124123]) at 

14.

563 Id. at 7.

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• Alvarez & Marsal warned that the payments could be challenged as a “fraudulent 

conveyance” during the bankruptcy proceedings. 564

• Alvarez & Marsal advised that a seven step process be followed to provide oversight when 

installing any bonus plan, including “negotiation with Stakeholders and U.S. Trustee,” 

filing a “motion to request court approval” and “work[ing] to resolve objections by 

Stakeholders.” 565

• The compensation committee never received, nor considered, nor implemented this advice 

from A&M. It did not evaluate downsides, consider alternatives, or follow the prescribed 

process;

• Neither the board nor the compensation committee had any interactions with A&M outside 

the presence of Brandon;

• The compensation committee never considered comparables—key material information—

for 109 of 114 executives that would participate in the bonus plan;

• Brandon orchestrated the participation of the compensation committee in the process,

including calling the meetings, setting the agenda, supervising what materials the 

committee received, conferring with the advisors to script what happened at the meetings, 

participating in the meetings, controlling the follow up to those meetings, and then 

determining what information should be passed from the comp committee to the full board. 

564 Id.

565 Id. at Slide 27.

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• The full board never received nor asked for any comparables, did not evaluate alternatives, 

did not ask for the rationale behind the bonus, and failed to follow the process 

recommended by A&M for approving bonuses. 

These facts demonstrate that neither the compensation committee nor the board fulfilled 

their fiduciary duties in working with advisors. The compensation committee failed to obtain all 

material information from, and follow the advice given by, the advisors. And the full board 

similarly knowingly failed to consider reasonably available material information and 

independently assess the bonus plan. Those breaches of fiduciary duty are not excused by the

presence of Kirkland and Alvarez.

Second, Defendants’ cases are inapposite. Mills Acquisition makes clear that when a 

board is “deceived by those who will gain” from a transaction, any protections from reliance on 

advisors “vanish.” Mills Acquisition Co. v. Macmillan, Inc., 559 A.2d 1261, 1283-84 (Del. 

1989). And here, the board was deceived by Brandon, who did not inform the full board of his 

development and control of the plan, or of his excessive compensation. In re Books-A-Million

dealt with an established special committee that “considered alternative transaction structures,” 

instructed its advisor to “prepare detailed financial analyses,” and “sought additional 

information” beyond what was provided by the advisor. In re Books-A-Million, Inc. 

Stockholders Litig., 2016 Del. Ch. LEXIS 154, at *61-63 (Del. Ch. Oct. 10, 2016). By contrast, 

the compensation committee considered no alternatives to the plan presented by Brandon, 

knowingly failed to obtain comparable compensation information for the vast majority of 

executives, and did not seek additional information beyond what was provided. 

Defendants’ two other cases do not apply Delaware law and deal with inapplicable 

statutory principles. See Seidman v. Clifton Sav. Bank, No. A-4033-07T2, 2009 N.J. Super. 

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Unpub. LEXIS 2267, at *23-24 (Super. Ct. App. Div. Aug. 19, 2009) (discussing interpretation 

of fiduciary duties by New Jersey courts); In re Munford, Inc., 98 F.3d 604, 610-611 (11th Cir. 

1996) (analyzing business judgment rule as applied to Georgia statutory duty of directors to act 

“with the care of an ordinary prudent person”). Moreover, the facts in these cases do not 

resemble the current case. See Seidman, 2009 N.J. Super. Unpub. LEXIS 2267, at *28-30 (no 

breach when board members “reviewed substantial data” on comparables and approved 

compensation without any influence by interested employee); In re Munford, Inc., 98 F.3d at 

611-612 (no breach where board members gathered all material information and relied on thirdparty assurances before approving a merger). 

Third, Defendants’ argument, and the corresponding cases, only deal with the duty of 

care. See Mot. at 22 (involvement of advisors “is sufficient to withstand any challenge to the 

duty of care.”) Defendants make no attempt to, and cannot, demonstrate that the involvement of 

advisors absolves directors of breaches of the duties of loyalty or good faith. And, as discussed 

above, Defendants breached those fiduciary duties in multiple ways, including by approving a 

fraudulent transfer in violation of their fiduciary duty of loyalty, and abdicating their 

responsibility to obtain all material information in violation of their duty of good faith. 

c. Defendants’ arguments on the duty of good faith fail.

Defendants further claim that the Trust’s allegations do “not establish that the directors 

intentionally disregarded their duties” or that their decision is “inexplicable on any ground other 

than bad faith.” Mot. at 23. Defendants misconstrue the relevant facts and fail to address the 

theories establishing their breaches of the duty of good faith. 

Defendants characterize the Trust’s allegations as “certain executives should have been 

excluded from receiving a retention bonus,” that “Brandon’s $2 million retention bonus was 

higher than it should have been,” and that “the peer group that A&M and management used was 

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flawed.” Mot. at 23. These facts are relevant, but they are not the sum total of facts giving rise 

to the breach of the duty of good faith. 

Each of the directors knowingly failed to fulfill their fiduciary duty to guard against 

conflicts of interest by allowing Brandon to dominate the plan. The compensation committee 

directors knowingly failed to obtain comparables for each executive. The compensation 

committee knowingly disregarded Brandon’s exorbitant compensation and Brandon’s influence 

on the plan. The Board Directors knowingly failed to obtain key material information before 

voting to approve the plan. And the Board ultimately approved the plan knowing that it was an 

illegal fraudulent transfer that would harm creditors. As discussed above, each of these facts 

demonstrates a breach of the duties of loyalty and good faith, and Defendants ignore all of them. 

3. Defendants’ “lack of self-dealing” arguments fail.

Defendants make three arguments that there was no self-dealing. We rebut each in turn.

a. Defendant’ “majority of the board” argument fails.

Defendants assert that because “the majority of disinterested board members approve[d]” 

the bonus plan, Brandon’s participation “in developing the compensation plan” is excused. Mot. 

at 24. This argument fails.

The Delaware Supreme Court expressly held that there is not “an invariable requirement 

that a plaintiff plead facts suggesting that a majority of the board committed a non-exculpated 

breach of its fiduciary duties.” Kahn v. Stern, 183 A.3d 715, 715 (Del. 2018). The Court stated 

that two such circumstances are (i) “cases where impartial board members did not oversee 

conflicted members sufficiently” and (ii) cases “premised on independent board members not 

receiving critical information from conflicted fiduciaries.” Kahn, 183 A.3d at 715 n.4. Both 

circumstances are present here. 

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First, as discussed above, the Board had no, much less sufficient, oversight of Brandon in 

his development and control of the bonus plan. The Board failed to make any attempt to oversee 

Brandon, much less curtail his domination of the process. 

Second, a board can only ratify decisions when it is aware of the key facts pertaining to 

those decisions—“[t]he Board, like shareholders, cannot approve (and ratify) what it did not 

know.” In re Xura, Inc. Stockholder Litig., 2018 Del. Ch. LEXIS 563, at *32-33 (Ch. Dec. 10, 

2018). And a majority of the Board here was entirely unaware of key facts. Brandon did not 

inform the Board about his role in designing the plan or about the comparable compensation 

figures that showed that his compensation was already excessive. Of the ten board members 

who participated in voting to approve the bonus plan, only three knew that Brandon had made 

the key decisions (Brandon, Raether, Taylor), and only four knew that the analysis of 

compensation for comparable CEOs showed that Brandon’s compensation was excessive 

(Brandon, Taylor, Levin, Goodman). A majority of the Board thus did not have the information 

it needed to appropriately ratify the bonus payments, and thus that vote cannot excuse Brandon’s 

breaches of fiduciary duty. Furthermore, Brandon told none of the directors that A&M had 

warned him that the pre-petition retention bonuses could be challenged as a fraudulent transfer, 

that A&M had suggested considering alternatives to pre-petition retention payments, and that 

A&M had recommended that a seven-step process be followed in deciding to approve any bonus. 

Defendants’ cited cases confirm that an executive’s involvement in a compensation 

decision can undercut the business judgment rule. For example, in Sama, the court reasoned that 

“an officer will breach his fiduciary duty of loyalty by accepting compensation that is clearly 

improper or by wrongfully influencing a compensation decision.” Sama v. Mullaney (In re 

Wonderwork, Inc.), 611 B.R. 169, 202 (Bankr. S.D.N.Y. 2020). In that case, the central fact that 

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led the court to conclude that the officer did not breach his duty of good faith and thus did not 

wrongfully influence the compensation decision was that “[the advisor] solicited [the 

executive’s] input and not the other way around.” Id. The executive “was participating in the 

process at [the advisor’s] request with the knowledge of the independent Board.” Id. at 203. 

By contrast, as discussed above, the exact opposite is true here. Brandon, not A&M, 

developed the bonus plan. Brandon, not A&M, made all decisions, including selecting the type 

of plan, determining which executives should be included, determining how much each should 

receive, and determining the timing for when bonus payments should be made. A&M did not 

solicit input from Brandon; instead, Brandon solicited input from A&M. After the basic plan 

was developed, A&M did not direct Bandon on what changes should be made to the list of 

executives or their bonuses. Instead, Brandon directed A&M on what changes to make and 

A&M followed his directions. 

Moreover, Brandon’s creation of the plan and direction of A&M was not done “with the 

knowledge of” the Board. Instead, Brandon initiated the process of creating a bonus plan. Then 

Brandon brought in A&M, because of his prior relationship with Bryan Marsal. Then Brandon 

designed the plan and provided it to A&M. None of those details were known to any of the other 

Directors. The Directors on the compensation committee first became involved only after the 

plan was finished. The committee did not then act independently. Instead, Brandon orchestrated 

every aspect of the committee’s processing of the plan. He participated in the compensation 

committee meetings; he coordinated with A&M beforehand on what would be discussed and be 

presented at the meetings; and he directed how the advisors would respond to the issues that the 

compensation committee raised. 

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Defendants’ other cited cases purportedly supporting their position deal with independent 

directors who fulfilled their fiduciary duties, obtained all material information, and did not 

delegate the process to an interested director. See Warhanek v. Bidzos, 2013 U.S. Dist. LEXIS 

133099, at *16-17 (D. Del. Sept. 18, 2013); Charter Twp. of Clinton Police & Fire Ret. Sys. v. 

Martin, 219 Cal. App. 4th 924, 935 (2013). That is not the present case. 

Defendants further assert that Robert Kors, the Trustee of the Trust, conceded in his 

deposition that Brandon’s involvement does not mean that “the program is fatally flawed.” Mot. 

at 25. But the Trustee said no such thing. Defendants entirely omit the rest of the Trustee’s 

answer: that for Brandon and Grace’s involvement not to make the program fatally flawed, “the 

program needs to be developed consistent with the fiduciary duties of the officers and directors, 

and the requirements of the bankruptcy code.” 566 That did not happen here. 

b. Defendants’ “independent compensation committee” argument 

fails. 

Defendants’ argument that the Board followed advice and “set up an Independent 

Compensation Committee to review and approve” bonuses fails. As a matter of law, directors 

“must do more than establish a perfunctory special committee of outside directors” to obtain the 

protection of the business judgment rule. Kahn v. Tremont Corp., 694 A.2d 422, 429 (Del. 

1997). Indeed, an interested director “providing opinions to an independent committee could be 

wrongful if the analysis were supported by other facts warranting an inference of improper 

influence.” Friedman v. Dolan, No. 9425-VCN, 2015 Del. Ch. LEXIS 178, at *33 (Ch. June 30, 

2015).

Here, Brandon not only directed how information would be presented to the 

compensation committee, he set up the compensation committee meetings, met with the advisors 

566 Ex. 97 (Kors depo.) 278:5-21.

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in advance to script what would happen in the meetings, reviewed the materials from Alvarez 

before they were provided to the committee, and then personally attended and participated in the 

committee meetings. And Brandon sent A&M changes and follow up materials after the 

compensation committee meeting that they wanted incorporated. This, coupled with Brandon’s 

control and direction of A&M in the development of the bonus plan, warrants an inference of 

improper influence.

Defendants’ cited cases involved instances where there was no evidence that a director 

had any influence on an independent committee’s decision-making. See e.g. Puma v. Marriott, 

283 A.2d 693, 696 (Del. Ch. 1971) (“There is no testimony which even tends to show that the 

terms of the transaction were dictated by the Marriott Group or any member thereof.”) By 

contrast, here Brandon dictated all of the terms of the bonus plan. He designed the plan; he made 

the key decisions on who, how much, and when; and he continued to direct changes to the plan 

to add additional employees (such as his personal assistant). The plan that was presented to the 

compensation committee was the plan that Brandon developed. 

Thus, the board did not in fact delegate decision-making to a disinterested independent 

committee and cannot claim the protection of the business judgment rule. 

c. Defendants’ “conflicts of interest” argument fails.

Defendants’ argument that “conflicts of interest asserted by the Trust are immaterial” 

fails. Mot. at 25-26. The Trust need not show that each Defendant had a conflict of interest in 

approving the bonus plan. As discussed above, allowing a conflicted director to dominate a 

transaction, failing to consider material information or consider alternatives, and making a 

decision outside the bounds of reason all establish breaches of fiduciary duty. Defendants do not 

dispute that Brandon had a glaring and obvious conflict of interest in designing and approving an 

executive bonus plan that would pay him millions of dollars. The rest of the Defendant directors 

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allowed Brandon to control the bonus program and failed to consider available information. 

That some of the Defendant Directors did not themselves personally benefit by receiving a bonus 

does not excuse their breaches of duty. 

4. Defendants’ “rational business purpose” argument fails. 

Defendants assert that the payment of retention bonuses is “indisputably a legitimate 

business purpose.” Mot. at 26. Defendants seemingly claim that because retention is a 

legitimate purpose, any decision to pay retention bonuses is protected by the business judgment 

rule. This is contrary to law. 

Although the decision to pay a retention bonus is, like all director decisions, initially 

presumed to be a valid exercise of business judgment, as discussed above, that presumption is 

rebutted by demonstrating that Directors failed to inform themselves of all material information 

reasonably available, knowingly abdicated their fiduciary duties, allowed an interested Director 

to control the process, or by demonstrating facts supporting an inference that directors did not 

reasonably believe that the transaction was in the best interests of” the company. That 

sometimes the payment of retention bonuses may have a rational business purpose does not 

change that analysis. 

Further, there is no evidence that the board in this case actually considered whether the 

bonus plan designed by Brandon was necessary to achieve the business purpose of retaining 

employees. For example, the Board never asked whether the purpose could be achieved by 

awarding employees supplemental quarterly bonuses upon completing each quarter, rather than 

paying a full year bonus in a lump sum before entering bankruptcy. The Board did not inquire as 

to whether an amount lower than 75% would serve the purpose of retention, particularly since 

the top executives already had compensation above market. Instead, the Board approved a plan 

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without knowing whether it was actually necessary to achieve a business purpose. As explained 

above, this decision is not protected by the business judgment rule.

Moreover, the existence of a “rational business purpose,” does not mitigate or justify 

using unlawful means to achieve that purpose. For example, while it may be rational for 

directors to have the ultimate purpose of increasing a corporation’s bank balance, this purpose 

does not justify authorizing employees to obtain funds by robbing a bank. And having a rational 

business purpose does nothing to excuse Defendants from engaging in fraudulent transfers, from 

knowing abdication of decision-making steps required by fiduciary duties (e.g. obtaining all 

material information reasonably available before making a decision), and disregarding known 

facts demonstrating the transaction is not in the corporation’s interest.

D. The exculpatory provision does not protect the Defendants against any of the 

Trust’s claims.

As explained in detail above, the exculpatory clause does not protect Defendants’ 

conduct for four reasons. 

First, exculpation is an affirmative defense, but Defendants failed to plead the 

exculpation defense in their answer. Moreover, have the burden of proof for an affirmative 

defense, but Defendants have failed to provide any evidence that establishes each element of the 

exculpation defense as an undisputed fact.

Second, an exculpatory provision does not excuse director breaches of the duties of 

loyalty or good faith. 8 Del. C. § 102(b)(7). As discussed above, the Trust has evidence 

demonstrating Defendants’ breaches of both of these duties. 

Third, when directors breach both a duty of care and a duty of loyalty or good faith, then 

the exculpatory provision does not immunize directors for their breach of the duty of care. 

Miller v. Greystone Bus. Credit II, L.L.C. (In re USA Detergents, Inc.), 418 B.R. 533, 545 

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(Bankr. D. Del. 2009). And here, the Trust has demonstrated breaches of all three fiduciary 

duties, rendering the exculpatory provision inapplicable.

Fourth, the exculpatory provision does not apply to Brandon’s actions in his capacity as 

an officer of the company. McPadden v. Sidhu, 964 A.2d 1262, 1275 (Del. Ch. 2008). 

Brandon’s breaches of his fiduciary duties are not excused by the exculpatory provision.

VI. The Director Defendants are liable for breaches of fiduciary duties in paying 

advisory fees to Sponsors. 

Directors owe fiduciary duties to the corporation and to minority shareholders to act in 

the best interests of all shareholders. Directors cannot engage in actions for the benefit of 

majority shareholders that detriment minority shareholders. Moreover, when a company is 

insolvent, directors owe a fiduciary duty to creditors to preserve the company’s assets for the 

benefit of creditors. Defendants breached these fiduciary duties in numerous ways.

The fiduciary duties of directors require that directors avoid conflicts of interest in 

decision-making. When directors have conflicts, they must abstain from making decisions or 

delegate decisions to disinterested directors. 

Six of the eight Directors on the Board were appointed by the Sponsor companies, and 

had obvious conflicts of interest on decisions that would financially benefit the Sponsors. 

Brandon had a close relationship with Bain that similarly created a conflict of interest. Yet those 

same Directors approved hundreds of millions of dollars of advisory fee payments made to the 

Sponsor companies. They did not make any attempt to delegate the renegotiation and 

consideration of the advisory fees to independent and disinterested directors. By failing to do so, 

each of these Directors violated their duty of loyalty.

The fiduciary duties of directors further require that directors act in good faith to only 

authorize transactions that are in the best interests of the company. And directors must not 

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engage in an abdication of their fiduciary duties by making decisions without adequate 

information or deliberation. 

Each of the Directors knew that the Advisory Fee Agreement had unreasonable terms and 

were not in the best interests of Toys “R” Us. The Agreement mandated that each Sponsor 

receive a fee, but did not require that any Sponsor perform any work—it gave the Sponsors full 

discretion to determine if they would perform any services for the company. And the Directors 

never attempted to obtain information about what services, if any, Toys “R” Us was receiving, 

much less the value of those services. Because the Directors authorized an objectively 

unreasonable transaction that was not in the best interest of the Company and abdicated their 

duty to consider material information, they breached their duty of good faith. 

Between 2005 and 2017, Bain, KKR, and Vornado received “over $308 million in fees 

paid by Toys ‘R’ Us” pursuant to an Advisory Fee Agreement. 567 The Trust seeks damages for 

losses caused by Defendants’ breaches of fiduciary duty in the three years preceding the 

bankruptcy filing, from Q4 2014 to 2017. The amount of those losses is $17,863,110. 568 

A. Defendants’ fiduciary duties applied to their decisions to allow payment of 

advisory fees to the Sponsors. 

Directors have “a fiduciary duty to the corporation and to its minority shareholders if the 

majority shareholder[s] dominate[] the board and control[] the corporation.” In re Reading Co., 

711 F.2d 509, 517 (3d Cir. 1983).

When minority shareholders are present, payments that are “in essence self-dealing” by 

majority shareholders, to “the exclusion of and detrimental” to “minority stockholders,” are 

presumed to violate fiduciary duties unless the Defendants can demonstrate intrinsic fairness in 

567 Ex. 70 (Greenspan) ¶346-347.

568 Ex. 135 (Mills) ¶31.

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the transaction. Sinclair Oil Corp. v. Levien, 280 A.2d 717, 721 (Del. 1971); see Frederick Hsu 

Living Tr. v. ODN Holding Corp., No. 12108-VCL, 2017 Del. Ch. LEXIS 67, at *102 (Ch. Apr. 

14, 2017) (denying motion to dismiss where majority shareholder “was able to extract the cash to 

the exclusion of [minority] stockholders.”).

Bain, KKR, and Vornado each owned a 32.6% interest in Toys “R” Us. 569 Together, the 

three Sponsors owned approximately 97.8% of Toys “R” Us. 570 The remaining 2.2% was held 

by minority shareholders. 571 In 2015, 2016, and 2017, there were minority shareholders of Toys 

“R” Us that were identified in TRU’s 10-K filings. 572 As of 2017, there were approximately 

300 minority shareholders, including “current and former employees and a private investor.” 573 

The presence of these minority shareholders meant that the Directors needed to comply 

with their fiduciary duties to the Company and its minority shareholders when approving 

transactions that would benefit the majority shareholders. 

Further, when a company is insolvent, directors “owe[] a fiduciary duty” to “the 

company’s creditors to preserve assets.” Collins v. Throckmorton, 425 A.2d 146, 149 (Del. 

1980). Numerous pieces of evidence indicate that Toys “R” Us was not solvent at all times 

during its payment of the advisory fees. As discussed above, the Sponsor Directors and Brandon 

569 Ex. 80 (Silverstein depo.) 84:23-85:10; Ex. 70 (Greenspan) ¶350.

570 Id. 571 Id.; Ex. 65 (2017 TRU 10k); Ex. 69 (Form 10-K 2016); Ex. 68 (Form 10-K 2015). 

572 Ex. 70 (Greenspan) ¶351. 

573 Ex. 65 (2017 TRU 10k) at pdf 28; Ex. 70 (Greenspan) ¶351. 

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had acknowledged that the Company was insolvent and that the Sponsors’ equity interests had no 

value. 574 “The inability to realize any value above the debt is the definition of insolvency.” 575

Thus, because of the presence of minority shareholders and because Toys “R” Us was 

insolvent, Defendants had fiduciary duties of loyalty, good faith, and due care that applied to any 

decision to allow the Company to make payments to Bain, KKR, or Vornado.

As discussed above, directors have a duty to avoid conflicts of interest in a transaction 

and delegate decision-making to disinterested directors if a conflict of interest is implicated. The 

Delaware Supreme Court has “consistently defined the duty of loyalty of officers and directors” 

in “unyielding terms.” Cede & Co. v. Technicolor, 634 A.2d 345, 361 (Del. 1993). A director is 

“independent only when the director’s decision is based entirely on the corporate merits of the 

transaction and is not influenced by personal or extraneous considerations.” Id. at 362. “[T]here 

is no safe-harbor for divided loyalties in Delaware.” In re Walt Disney Co. Derivative Litig., 907 

A.2d 693, 751 (Del. Ch. 2005). When directors have conflicts and do “not totally abstain from 

participation in the matter,” they must “demonstrate their utmost good faith and the most 

scrupulous inherent fairness of the bargain.” Weinberger v. Uop, 457 A.2d 701, 710 (Del. 1983). 

Defendants’ duty of good faith required that they only authorize transactions that they 

reasonably believed were in the best interest of the Company. Bad faith can be shown when 

574 Ex. 70 (Greenspan) ¶¶163-165; 399-401; Ex. 79 (Taylor depo.) 170:10-21 (testifying that 

KKR’s internal valuation of “KKR’s investment in Toys ‘R’ Us” showed that “our equity had no 

value”); Ex. 79 (Taylor depo.) 167:2-24 (testifying that KKR calculated that Toys “R” Us had 

debt of $4.7 billion but an enterprise value of $3.4 billion to $3.7 billion); Ex. 79 (Taylor depo.) 

169:4-18 (“the total value of Toys ‘R’ Us is less than the debt”); Ex. 78 (Levin depo.) 239:6-25, 

240:13-241:3 (“the equity investment in Toys ‘R’ Us has a value of zero”); Ex. 75 (Vornado 

2013 annual report) at 10 n.7, 57; Ex. 76 (Vornado 2014 annual report) at 36; Ex. 62 (11’4’14 

Vornado write down [DEFS_0111323]); Ex. 13 (4’8’15 Saghir to Taylor Levin re Brandon 

[DEFS_0049061]); Ex. 1 (1’4’16 Taylor Raether equity calculation, [DEFS_0125987]). 

575 Ex. 70 (Greenspan) ¶400.

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there are “facts supporting an inference that [the fiduciary] did not reasonably believe that the ... 

transaction was in the best interests of” the company. Brinckerhoff v. Enbridge Energy Co., 159 

A.3d 242, 260 (Del. 2017), quoted with approval by Kahn v. Stern, 183 A.3d 715, 715 & n.5 

(Del. 2018). This bad faith standard is an objective standard that does not require proof of the 

director’s subjective intent. Brinckerhoff, 159 A.3d at 260.

Directors also breach their duty of good faith if they engage in an “abdication of 

directorial duty.” Cede & Co. v. Technicolor, 634 A.2d 345, 363-64 (Del. 1993). Such a breach 

occurs when “the defendant directors knew that they were making material decisions without 

adequate information and without adequate deliberation.” In re Walt Disney Co. Derivative 

Litig., 825 A.2d 275, 289 (Del. Ch. 2003). 

Further, Defendants were also obligated to comply with their duty of care. That fiduciary 

duty is breached by action or inaction that amounts to “gross negligence,” which is “conduct that 

constitutes reckless indifference or actions that are without the bounds of reason.” McPadden v. 

Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008).

As discussed above, Defendants knew that to fulfill their fiduciary duties “in a situation 

where a decision would implicate an actual or potential conflict of interest, the board should 

delegate decision-making authority to disinterested directors or managers.” 576 Defendants 

further knew that they had to consider and assess “all reasonable alternatives” before coming to a 

decision. 577 And Defendants understood that their fiduciary duties required them to “inform 

576 Ex. 77 (Raether) 157:3-8; Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at 

slide 15.

577 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10. 

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themselves of all material information that was reasonably available” and “carefully consider 

that information” before making a decision. 578 

Defendants knew and understood their fiduciary duties. But they utterly failed to comply 

with those duties in authorizing the payment of advisory fees to the Sponsors. 

B. Defendants’ decision to allow the Company to make payments to Bain, KKR, 

and Vornado violated their fiduciary duty of loyalty.

Six of the eight directors on the Board were appointed by the Sponsors who received 

advisory fee payments from Toys “R” Us: Bekenstein and Levin were appointed by Bain, 

Silverstein and Macnow were appointed by Vornado, and Raether and Taylor were appointed by 

KKR. 579 As demonstrated above, each of the Sponsor-appointed Directors was beholden to the 

Sponsor company that appointed them to the Board. And, as demonstrated above, Brandon had a 

conflict of interest in decisions involving the Sponsors because Brandon owed his continued 

employment and other outside financial benefits to the Sponsors. 580 Each of these directors 

therefore had conflicts of interest in decisions that would provide financial benefits to the 

Sponsors. 

Each of the Sponsor Directors and Brandon knew that Toys “R” Us was paying advisory 

fees to the Sponsors. Those advisory fees were disclosed in Toys “R” Us’ 10-Ks, which 

Brandon and the Sponsor Directors signed. 581 By signing the 10-Ks, the Directors indicated that 

they “thoroughly reviewed and agreed with the accuracy and veracity of the contents therein.” 582 

578 Ex. 27 (8’9’17 Fiduciary Duty Presentation [DEFS_0064535]) at slide 10.

579 Ex. 65 (2017 TRU 10k) at pdf 119. 

580 Ex. 70 (Greenspan) ¶356. 

581 Ex. 68 (Form 10-K 2015) at 115-116; Ex. 65 (2017 Form 10k) at 146-47; Ex. 80 (Silverstein 

depo.) 86:9-23. 582 Ex. 80 (Silverstein depo.) 86:9-23. 

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The Advisory Fee Agreements provided significant benefits to each of the Sponsors. In 

2005, Toys “R” Us entered an advisory fee agreement with the Sponsors and agreed to pay the 

three Sponsors approximately $15 million each year. 583 The agreement provided that the fees 

paid would increase by 5% each year. 584

The agreement also required that the Company pay the Sponsors a fee equal to 1% of the 

value of each financing, acquisition, or other transaction that the Company engaged in, 

regardless whether any of the Sponsors had any involvement in arranging the transaction. 585

The Sponsors benefitted financially from the payment of advisory fees. As discussed in 

greater detail below, the Advisory Fee Agreement provided that the Sponsors would receive a 

specific fee each quarter, and did not require that the Sponsors do anything to receive that fee. 

To the contrary, the agreement specified that “no minimum number of hours is required to be 

devoted” by the Sponsors and that the Company was required to pay the fees “regardless of the 

extent of services requested by [Toys ‘R’ Us].” 586 As long as the Advisory Fee Agreement was 

in effect, the Sponsors were guaranteed their $5 million yearly fee. And the Sponsors were 

similarly guaranteed their transaction fees, regardless of work done on any financing. 587 In 

total, this resulted in the Sponsors receiving “over $308 million in fees paid by Toys ‘R’ Us” 

between 2005 and 2017. 588 

Toys “R” Us and the Sponsors had the ability at any time to negotiate an amendment to 

the Agreement, including changing the amount of the fees, and, in fact, four amendments were 

583 Ex. 169 (Original Advisory Agreement [DEFS_0064739]) at 2, 9-10; Ex. 70 (Greenspan) 

¶338. 

584 Ex. 169 (Original Advisory Agreement [DEFS_0064739]) at 2, 9-10.

585 Ex. 169 (Original Advisory Agreement [DEFS_0064739]) at 2-3. Ex. 70 (Greenspan) ¶338. 

586 Ex. 169 (Original Advisory Agreement [DEFS_0064739]) at 3. 

587 Id. at 2-3. 

588 Ex. 70 (Greenspan) ¶346-347.

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entered over the years. 589 The Agreement was amended in August 2014, to change the amount 

of the fees that the Company was required to pay to $17 million per year. 590 The agreement was 

amended in June 2015 to change the amount of the fees to $6 million per year. 591 That 2015 

amendment was signed by Defendant Silverstein on behalf of Vornado, by Defendant Taylor on 

behalf of KKR, and by Defendant Levin on behalf of Bain. 592 

The parties to the agreement not only had the ability to negotiate amendments that 

reduced the amount of the fee, the parties also had the ability to negotiate a complete termination 

of the agreement, or to invoke the termination provision in the agreement. The Advisory Fee 

Agreement provided that it could be terminated by either the Sponsors or Toys “R” Us by 

“written notice of its desire to terminate.” 593 

The Directors not only knew that the Company could negotiate amendments to modify 

the fees paid, the Directors participated in the amendment process. For example, before the 

Company entered the 2015 amendment, the Directors received an update email from the Toys 

“R” Us general counsel that identified “the reduction of the quarterly sponsor advisory fee” as 

one of “several important matters related to the Board.” 594 Silverstein represented Vornado in 

the discussions with Bain and KKR. 595 She shared her views on the extension with Steve Roth, 

the CEO of Vornado. 596 And the signatories on that amendment on behalf of each of the 

589 Ex. 70 (Greenspan) ¶¶342-345. 

590 Ex. 177 (Amendment No. 3 to the Advisory Agreement); Ex. 70 (Greenspan) ¶343; Ex. 65 

(2017 Form 10k) at 146-47. 

591 Ex. 166 (Amendment No. 4 to the Advisory Agreement) at 1 §2; Ex. 70 (Greenspan) ¶344; 

Ex. 65 (2017 Form 10k) at 146-47. 

592 Ex. 80 (Silverstein depo) 29:17–30:19, 35:6-14; Ex. 166 (Amendment No. 4 to the Advisory 

Agreement [TRU-Trust0000323115]).

593 Ex. 169 (Original Advisory Agreement [DEFS_0064739]) at 1.

594 Ex. 153 (5'29'15 Silverstein reduction in fees [DEFS_0076425]). 

595 Ex. 153 (5'29'15 Silverstein reduction in fees [DEFS_0076425]). 596 Id. 

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Sponsors were three of the Sponsor Directors: Levin, Taylor, and Silverstein. 597 As 

demonstrated above, “each of the Sponsor Directors held positions of significant influence 

within their organizations and had the ability to influence decisions by the Sponsor in any 

renegotiation of the advisory fee agreement.”598 

When considering whether to renegotiate or terminate the Advisory Fee Agreement in the 

best interests of the Company, each of the Sponsor Directors and Brandon could not purport to 

be independent. Whereas a disinterested director would only be interested in determining 

whether the payment of advisory fees benefitted Toys “R” Us, the Sponsor Directors and 

Brandon had a separate interest—whether the fees benefitted the Sponsors. 599 For the conflicted 

directors to comply with their fiduciary duties, they would have to delegate the decision-making 

on advisory fee payments to independent and disinterested directors, and recuse themselves from 

participating in decision-making on whether to pay advisory fees to the Sponsors. 600 

There is no evidence that the Sponsor Directors and Brandon ever delegated their 

decision making to disinterested directors. The Sponsor Directors did not recuse themselves 

from participating in decision making on the advisory fees. They did not task an independent 

committee with evaluating whether the advisory fees were in the best interest of the Company 

and whether Toys “R” Us should continue paying them. And there is no evidence that any 

director suggested that the decision to pay advisory fees be delegated to the only independent 

597 Ex. 80 (Silverstein depo.) 35:6-14; Ex. 166 (Amendment No. 4 to the Advisory Agreement 

[TRU-Trust0000323115]) at 3-5.

598 Ex. 70 (Greenspan) ¶358. 

599 See Ex. 78 (Levin depo.) 9:19-10:13 (discussing Levin’s interest in Bain); Ex. 77 (Raether 

depo.) 7:23-8 (discussing Raether’s role at and ownership of shares in KKR); Ex. 80 (Silverstein 

depo.) 9:19-22, 11:15-22 (discussing ownership interest in Vornado). 

600 Ex. 70 (Greenspan) ¶356.

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director on the board at the time (Goodman). Instead, as demonstrated above, the Sponsor 

Directors were active participants in the process.

Because the majority of the Board (7 of 8 directors) were conflicted in the decision to pay 

advisory fees, and did not recuse themselves, the burden shifts to Defendants to prove that “the 

transaction was entirely fair to the shareholders.” Chaffin v. GNI Grp., Inc., Civil Action No. 

16211-NC, 1999 Del. Ch. LEXIS 182, at *16 (Ch. Sep. 3, 1999). As discussed below, 

Defendants have made no attempt to demonstrate entire fairness and cannot do so.

C. Defendants’ decision to allow the Company to make payments to Bain, KKR, 

and Vornado violated their fiduciary duty of good faith.

1. The advisory fee agreements were objectively unreasonable in their 

terms and not in the best interests of the Company. 

Bad faith can be shown when there are “facts supporting an inference that [the fiduciary] 

did not reasonably believe that the ... transaction was in the best interests of” the company. 

Brinckerhoff v. Enbridge Energy Co., 159 A.3d 242, 260 (Del. 2017), quoted with approval by

Kahn v. Stern, 183 A.3d 715, 715 & n.5 (Del. 2018). Whether a director “reasonably believed” a 

transaction was in the best interest of the company is an objective standard that does not require 

proof of the director’s subjective intent. Brinckerhoff, 159 A.3d at 260.

The structure of the Advisory Fee Agreement was objectively unreasonable and not in the 

best interest of the Company. The Advisory Fee Agreement required the payment of millions of 

dollars in fees, but required no work whatsoever to be performed, and gave each of the Sponsors 

full discretion on whether to provide services and how to provide those services. 601 

Defendants understood that Toys “R” Us would be better off if it “spent less money” for 

the same services and thus “kept more money in its pocket.” 602 “[I]t would have been in the 

601 Ex. 70 (Greenspan) ¶355.

602 Ex. 80 (Silverstein depo.) 81:22-82:4.

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best interest of the Company to pay advisory fees only to the extent that the Company was 

receiving services from each Sponsor, that such services were not duplicative and unnecessary, 

and that the amount paid was fair value for the services.” 603 “If the Company was receiving no 

needed services from the Sponsors, then the interests of the Company would be served by not 

paying any fees to the Sponsors.” 604 The Advisory Fee Agreement did not serve Toys “R” Us’ 

interests. 

The Advisory Fee Agreement stated that “[e]ach Advisor will provide and devote to the 

performance of this Agreement such partners, employees and agents of such Advisor as it shall 

deem appropriate to the furnishing of the services mutually agreed upon,” and that “no minimum 

number of hours is required to be devoted by any or all of the Advisors.” 605 And the Advisory 

Fee Agreement further ensured that the Sponsors would receive the same flat fee payment 

regardless of the services that were actually requested and performed: “[t]he fees and other 

compensation specified in this Agreement will be payable by the Company regardless of the 

extent of services requested by the Company pursuant to this Agreement, and regardless of 

whether or not the Company requests an Advisor to provide any such services.” 606 

This meant that by its terms, the Advisory Fee Agreement allowed the Sponsors to 

perform no work for Toys “R” Us to receive the advisory fee payment in a given quarter. And it 

gave the Sponsors an incentive to perform minimal or no work at all for Toys “R” Us because 

they were guaranteed to receive their advisory fee payment anyway. Instead of tasking 

employees with performing work for Toys “R” Us, the Sponsors had an incentive to use those 

603 Ex. 70 (Greenspan) ¶354.

604 Ex. 70 (Greenspan) ¶354.

605 Ex. 169 (Original Advisory Agreement [DEFS_0064739]) at 3. 

606 Ex. 169 (Original Advisory Agreement [DEFS_0064739]) at 3.

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employees on projects that actually required deliverables and measurable work product for fees 

to be paid. 

As a result, “it was unreasonable for the Company to enter into the Advisory Agreement 

since its terms were materially tilted to benefit the Sponsors, and it was a breach of fiduciary 

duty by the Defendants to allow the agreement to remain in place without negotiating material 

revisions or seek its termination.” 607 “An advisory agreement that requires the payment of 

millions of dollars in fees to the advisor, but permits the advisor to determine if and to the extent 

it will provide services and requires no work whatsoever to collect those fees, is one that the 

Director Defendants should have recognized as inherently unreasonable.” 608 It posed a high risk 

that Toys “R” Us would receive nothing in value in exchange for the payment of advisory fees. 

But instead of terminating the agreement or reducing the fees to zero, Defendants extended it 

beyond 2015 and caused Toys “R” Us to continue paying advisory fees. 

2. The advisory fee payments were not justified by the amount, quality, 

or value of the services provided and therefore were objectively 

unreasonable and not in the best interests of the Company.

In assessing whether the advisory fee payments were in the best interest of the Company, 

they were highly suspect on their face. First, as demonstrated above, the payments were not tied 

to any specific services that the Sponsors were required to provide. There was thus a significant 

risk that there would be few or no services provided in exchange for the payments made by Toys 

“R” Us, because the Sponsors had no incentive to provide services—they were guaranteed their 

payment regardless of hours worked or services provided. Second, as discussed above, each of 

the Directors knew that they already had fiduciary duties to provide services to Toys “R” Us, 

irrespective of any advisory agreement. The Company did not need to pay the Sponsors to have 

607 Ex. 70 (Greenspan) ¶355. 

608 Ex. 70 (Greenspan) ¶355. 

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the Directors perform services that the Directors were already required to perform by the 

Directors’ fiduciary duties. Third, these two concerns were heightened because of the six 

Sponsor Directors’ obvious conflicts of interest in decisions regarding the Sponsors that 

appointed them to the board. 

Moreover, the Directors could not reasonably believe the payments were in the best 

interests of the Company because, as shown below, the record before the Directors demonstrated 

that the Company was not receiving any value in exchange for the payments.

a. The Directors had insufficient evidence that advisory services 

were actually provided by Sponsors to the Company 2014-

2017.

The Advisory Agreement provided that the Sponsors would perform “such services for 

the Company and/or its subsidiaries as mutually agreed by the Advisors and the Company.” 609 

There is “no documentary or other evidence demonstrating that the Company requested or 

agreed that the Sponsor should provide any service to the Company ... for the period from 2014-

2017.” 610 For example, Silverstein testified as follows:

14 Q. Did -- did Vornado ever enter a

15 specific written agreement where Toys "R" Us and

16 Vornado mutually agreed to certain services that

17 were spelled out and that would be provided by

18 Vornado to Toys "R" Us on a specific project?

19 A. Not that I recall.

20 Q. Did that ever occur between

21 Toys "R" Us and Bain or KKR?

22 A. I -- I don't know -- I don't recall,

23 and I'm not sure I would know if it did or

24 didn't exist.

...

Page 66

6 Q. Did Vornado and Toys "R" Us ever agree

7 on a specific deliverable that would be provided

8 to Toys "R" Us for a specific set of services

609 Ex. 169 (Original Advisory Agreement [DEFS_0064739]) at 1 §2. 

610 Ex. 70 (Greenspan) ¶¶365-366. 

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9 that Vornado was providing to Toys "R" Us?

10 A. Nothing specific that I recall.

Ex. 80 (Silverstein depo.) 65:14 – 66:10. 

Furthermore, “[o]ne would generally expect that if multi-million dollars’ worth of 

services were provided over multiple years by a company with which a Sponsor Director had a 

relationship, he/she would be readily aware and knowledgeable of such services. And one would 

further expect that such services would be documented in some form.” 611 But there is no 

“documentary evidence demonstrating that a Sponsor provided any advisory services to the 

Company, in particular for the period from 2014-2017.” 612 

Defendant Silverstein testified:

15 Q. Do you have a -- any recollection of

16 hearing about any services that were provided by

17 Vornado to Toys "R" Us during the time period

18 from 2014 through 2017?

19 MR. SEFICK: Objection to form. Asked

20 and answered.

21 A. I have nothing further to add.

22 Q. Did you hear about any services that

23 were provided by KKR to Toys "R" Us during the

24 time period from 2014 to 2017?

25 A. I have no recall as to what KKR or

Page 55

1 Bain did specifically.

2 Q. Did you hear about any services that

3 were provided by either Bain or KKR to

4 Toys "R" Us during the time period 2014 to 2017?

5 MR. SEFICK: Objection to form.

6 A. I have no recollection.

Ex. 80 (Silverstein depo.) 54:15 – 55:6.

611 Ex. 70 (Greenspan) ¶366. 

612 Ex. 70 (Greenspan) ¶366.

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b. The Directors had insufficient evidence of the value of advisory 

services provided by Sponsors to the Company 2014-2017.

For the Directors to reasonably believe the advisory payments were in the best interest of 

the Company they would need to understand the value of those services, and the relationship 

between fees paid and services provided. But the Directors had no “documentation 

demonstrating the fair market value of any advisory services provided to the Company by a 

Sponsor.” 613 

“Although the Company was paying millions of dollars in fees to the Sponsors each year, 

it appears the Directors made no effort to audit or assess the quantity, nature, or value of 

advisory services provided to the Company from the Sponsors. 614 For example, Silverstein 

testified:

21 Q. Was there ever an audit done of the

22 services provided by Bain, KKR or Vornado to

23 Toys "R" Us to determine, in the preceding year

24 or five years, the amount of the services and

25 their value to Toys “R” Us

1 A. I'm -- I'm sorry, an audit done by

2 whom? Which party?

3 Q. By anyone.

4 A. Not that I'm aware of.

5 Q. Did the board of directors ever

6 receive a report identifying the quantity and

7 nature and value of the services that had been

8 provided by Bain or KKR or Vornado to

9 Toys "R" Us?

10 A. Not that I recall.

Ex. 80 (Silverstein) 66:21 – 67:10.

Furthermore, “the payment of multi-million-dollar consulting fees is typically tied to 

specific services or workstreams that will be provided. This allows for the company hiring a 

consultant to periodically evaluate whether the payment of those fees is appropriate and creating 

613 Ex. 70 (Greenspan) ¶367.

614 Ex. 70 (Greenspan) ¶368.

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value for the company. And ... companies typically re-evaluate those fees in the context of other 

retained advisors or advisory services.” 615 But for “the advisory fees paid by Toys ‘R’ Us to the 

Sponsors, there is no indication that the advisory fees were ever tied to specific services or levels 

of services.” 616 

Furthermore, the Sponsors were willing to provide those purported services regardless of 

the amount of money the Sponsors received. Although the required fees changed dramatically 

over the years, Silverstein testified that as the fees changed the Sponsors “did the same thing 

with or without the fees.” 617 “The reasonable inference is that Bain, KKR, and Vornado were 

not actually providing such services to the Company.” 618

3. The Director Defendants abdicated their fiduciary duties to consider 

material information and alternatives.

The Director Defendants knew that when making decisions about a transaction, they 

needed to ensure that they were making that decision only after gathering and considering all 

reasonably available material information. And they needed to consider alternatives. They 

failed to do either.

The payments to the Sponsors should have been highly suspect for several reasons. First, 

the payments were not tied to any specific services that the Sponsors were required to provide. 

There was thus a significant risk that there would be few or no services provided in exchange for 

the payments made by Toys “R” Us, because the Sponsors had no incentive to provide 

services—they were guaranteed their payment regardless of hours worked or services provided. 

Second, as discussed above, each of the Directors knew that they already had fiduciary duties to 

615 Ex. 70 (Greenspan) ¶369. 

616 Ex. 70 (Greenspan) ¶370. 

617 Ex. 80 (Silverstein depo) at 81:9-15; id. at 97:14-98:12.

618 Ex. 70 (Greenspan) ¶371.

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provide services to Toys “R” Us, irrespective of any advisory agreement. If the advisory fee 

agreement was duplicative of the services already required by the Directors’ fiduciary duties, it 

would not create any additional value to the Company. Third, these two concerns should have 

been heightened by the six Sponsor Directors’ obvious conflicts of interest in decisions regarding 

the Sponsors that appointed them to the board. 

To comply with their fiduciary duties in light of the above concerns, Defendants needed 

to assess all reasonably available material information to determine whether the advisory fee 

payments were actually in the best interests of Toys “R” Us. They needed to determine what 

services were actually being provided by the Sponsors, and whether the value of those services 

was equal to the price Toys “R” Us was paying for them. They needed to evaluate whether those 

services were duplicative of services already being performed by Toys “R” Us directors, 

employees, or other advisors hired by Toys “R” Us. They needed to assess whether those 

services could be obtained by paying less money to other advisors. And they needed to ensure 

that these assessments were performed by disinterested, rather than conflicted, directors. The 

Directors did none of these things. 

a. The Directors did not consider what services were provided or 

the value of those services. 

A prerequisite to being able to assess the value of services provided under the Advisory 

Fee Agreement is to determine what services were actually provided. The Directors failed to 

take even that basic step. 

As demonstrated above, there is no evidence that any of services were ever provided 

under the Advisory Fee Agreement. There is no documentation whatsoever of any services 

provided by Bain, KKR, or Vornado between 2005 and 2017. 619 And the Directors never made 

619 Ex. 80 (Silverstein depo.) 65:14-24, 66:6-10, 73:19-74:7. 

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any effort to assess whether any services were provided under the advisory agreement or the 

value of those services. There was no audit of the services provided by Bain, KKR or Vornado 

to “determine, in the preceding year or five years, the amount of the services and their value to 

Toys “R” Us.” 620 Without knowing the services (if any) that were provided, the number of 

hours worked by Sponsor employees on particular projects, or the deliverables that each Sponsor 

provided in exchange for payment, there was no possible way for the Directors to conclude that 

the payment of advisory fees was a transaction that was in the best interest of the Company. 

As demonstrated above, if the Directors had performed an analysis of the value received 

for the advisory fee payments, they would have seen no correlation between the amount of fees 

paid and the purported levels of service provided. And they therefore would have seen 

compelling evidence that the payment of advisory fees was not providing any additional value to 

the Company. 

b. The Directors did not consider whether the services were 

duplicative of other services already being provided to Toys 

“R” Us. 

Considering whether the same services listed in the Advisory Fee Agreement were 

already being provided to Toys “R” Us was a material fact. If a company pays for the same 

service twice, it is losing money and not gaining value because the company is unnecessarily 

paying for a duplicative service. Thus, to evaluate whether a transaction is in the interests of the 

company, a director must to assess whether that transaction is providing value rather than a 

merely duplicative service. If the services in the Advisory Fee Agreement were already being 

provided to Toys “R” Us from other sources, Toys “R” Us would receive no value from paying 

for those same services in the Advisory Fee Agreement.

620 Ex. 80 (Silverstein depo.) 66:21-67:4. 

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The Directors did not obtain information showing whether the services in the Advisory 

Fee Agreement were duplicative of those already being provided. Had they done so, they would 

have determined that all of the services listed in the Agreement were already being performed by 

a combination of Toys “R” Us employees and outside advisors. 621 

Toys “R” Us employees provided many of the services detailed in the Advisory Fee 

Agreement. The Advisory Fee Agreement services included “general executive and 

management services,” “finance functions,” “real estate functions,” “marketing functions,” and 

“human resources functions.” 622 As Defendants confirmed, each of these services was already 

being provided by Toys “R” Us employees. Toys “R” Us had “executives and employees who 

fulfilled the function of providing general executive and management services.” 623 It had 

“employees and managers who performed finance functions, real estate functions, marketing 

functions, and human resources functions.” 624 And Toys “R” Us was already paying those 

employees to perform those functions. 625 The Directors did not evaluate whether these services 

were entirely duplicative of those in the Advisory Fee Agreement. 

Other services were duplicative of the work that other outside advisors were being paid to 

do for Toys “R” Us. The Defendants were aware that other outside advisors were performing 

work for Toys “R” Us during the same time period that Toys “R” Us was paying advisory 

fees. 626 

621 Ex. 70 (Greenspan) ¶374. 

622 Ex. 169 (Original Advisory Agreement [DEFS_0064739]) at 2-3. 

623 Ex. 80 (Silverstein depo.) 58:4-11. 

624 Ex. 80 (Silverstein depo.) 59:23-60:2. 

625 Ex. 80 (Silverstein depo.) 60:4-7. 626 See Ex. 80 (Silverstein depo.) 61:9-62:5. 

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For example, the potential services listed in the Advisory Fee Agreement included 

“analysis of acquisitions and dispositions” and “negotiation and analysis of financing 

alternatives.” 627 Other advisors were already hired by Toys “R” Us to perform these functions. 

For example, Blackstone Advisory Partners L.P. was retained by Toys “R” Us in 2014 to provide 

valuation, financial modeling, and structuring advice. 628 And Sullivan & Cromwell LLP was 

retained to evaluate “options for refinancing” and “legal alternatives to increase equity value.” 

629 

Defendants did not evaluate whether and to what extent these services were entirely 

duplicative of those contemplated by the Advisory Fee Agreement. 630 And they made no 

attempt to determine whether the services listed in the Advisory Fee Agreement could be 

“provided more cost effectively by outside advisors.” 631

Failing to assess whether the services provided were duplicative was a knowing 

abdication of the directors’ fiduciary duty to assess material information. And without such a 

conclusion, it was a breach of the Directors’ fiduciary duty to pay the advisory fees. 

c. The Directors did not consider whether payment was required 

to ensure that services were provided by the Sponsors and

Sponsor directors. 

Defendants further needed to analyze whether payment for the services contemplated by 

the Advisory Fee Agreement was superfluous; if Defendants were already required to provide 

services for Toys “R” Us at no cost to Toys “R” Us, it would be irrational for the Company to 

make payments for those services. 

627 Ex. 169 (Original Advisory Agreement [DEFS_0064739]) at 2-3. 

628 Ex. 70 (Greenspan) ¶381. 

629 Ex. 70 (Greenspan) ¶384. 

630 Ex. 70 (Greenspan) ¶387.

631 Ex. 80 (Silverstein depo.) 66:12-20. 

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Defendants did not perform this analysis. If they had done so, they would have 

determined that the Sponsor Directors and Sponsors were already obligated to provide services 

to Toys “R” Us. 

The Sponsor Directors were already required by their fiduciary duties to provide services 

to Toys “R” Us in their roles as directors. They would “devote time to reading materials, 

conducting analysis, setting the strategic course of the company, considering and voting on key 

decisions, and selection, review of the performance, and compensation of the CEO.” 632 Those 

actions were “customary duties that are expected to be provided by any individual serving as a 

board member,” and “not advisory services under the Advisory Agreement.” 633 

Moreover, each of the Sponsor Directors, and the Sponsors themselves, had an obligation 

to manage the Toys “R” Us investment to the best of their ability based on their duties as fund 

managers. “Toys “R” Us was held in Bain’s VIII fund, KKR’s Millennium Fund, and in 

Vornado Truck LLC.” 634 Each of the Sponsors received payments from investors to manage the 

holdings in those funds. 635 Defendants’ obligations as executives at the Sponsor companies 

included “fiduciary responsibilities ... to manage all investments to the best of [their] 

abilities.” 636 One of those investments was Toys “R” Us. 637 When employees of the Sponsors 

performed work related to Toys “R” Us, they did so in fulfillment of their duties to the holders of 

the investment funds. For example, when KKR employees created a performance summary for 

632 Ex. 70 (Greenspan) ¶361. 

633 Id. 

634 Ex. 70 (Greenspan) ¶362; Ex. 65 (2017 TRU 10k) at 140-141. 

635 Ex. 70 (Greenspan) ¶363. 636 Ex. 80 (Silverstein depo.) 104:9-21. 

637 Id. 

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Toys “R” Us and calculated the equity value of Toys “R” Us, they did so because “they were 

paid by the funds as their investment fund manager.” 638 

By failing to even consider whether the services being paid for in the Advisory Fee 

Agreement were already required by other duties to Toys “R” Us, the Directors knowingly 

abdicated their duty to consider material information in evaluating the payment of advisory fees.

4. The Directors abdicated their fiduciary duty to ensure that decisions 

were made by disinterested directors. 

A breach of the duty of good faith occurs “[w]here directors fail to act in the face of a 

known duty to act.” Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006). As discussed above, 

Defendants knew they had a duty to ensure that decisions were made by disinterested directors 

who did not have conflicts of interest. And each Director Defendant knew that each of the 

Sponsor Directors had conflicts of interest in making decisions about advisory fees because the 

Sponsor Directors were appointed by, and represented the interests of the three Sponsors. 639 

The Directors’ fiduciary duties meant they could not stand by and simply allow decisions about 

the advisory fees to be made by interested directors. 

As demonstrated above, decisions about advisory fee payments were not delegated to 

Goodman as an independent director or to an independent committee set up for these purposes. 

Instead, the advisory fee agreements stayed in place, and the Sponsor Directors were the ones 

signing the agreements on behalf of the Sponsors. Thus, the Directors knowingly abdicated their 

duty to ensure that disinterested directors were making decisions about the advisory fee 

payments. 

638 Ex. 70 (Greenspan) ¶364. 

639 Ex. 80 (Silverstein depo.) 93:25-94:11; Ex. 65 (2017 Form 10-K) at 145-46; Ex. 68 (Form 10-

K 2015) at 115, 131-32. 

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C. Defendants’ decision to allow the Company to make payments to Bain, KKR, 

and Vornado violated their fiduciary duty of care.

A director violates the duty of care when the director’s actions or inactions amount to 

“conduct that constitutes reckless indifference or actions that are without the bounds of reason.” 

McPadden v. Sidhu, 964 A.2d 1262, 1274 (Del. Ch. 2008). The evidence demonstrating that the 

Directors breached their duty of good faith by abdicating their duties and entering into 

transactions that they knew were not in the best interests of Toys “R” Us establishes “conduct 

that constitutes reckless indifference.” Thus, the Defendant Directors breached their duties of 

care in paying advisory fees to the Sponsors. 

D. Defendants cannot demonstrate that their actions meet the entire fairness 

standard.

“A breach of either the duty of loyalty or the duty of care rebuts the presumption that the 

directors have acted in the best interests of the shareholders, and requires the directors to prove 

that the transaction was entirely fair.” Cede & Co. v. Technicolor, 634 A.2d 345, 371 (Del. 

1993)

Under the entire fairness standard “the defendants must establish ... that 

the transaction was the product of both fair dealing and fair price.” Basho Techs. Holdco B, Ltd. 

Liab. Co. v. Georgetown Basho Inv’rs, Ltd. Liab. Co., No. 11802-VCL, 2018 Del. Ch. LEXIS 

222, at *80-81 (Ch. July 6, 2018) (internal quotes omitted). The “fair dealing” aspect concerns 

the process by which the transaction was approved. Id. at *82. The “fair price” aspect concerns 

the economic value. Id. A “fair price” means “obtaining the highest value reasonably available 

to the shareholders under all the circumstances.” Mills Acquisition Co. v. MacMillan, Inc., 559 

A.2d 1261, 1280 (Del. 1989).

Although Defendants have the burden of proving entire fairness, in their motion for 

summary judgment, Defendants make no attempt to demonstrate that the payment of advisory 

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fees satisfies the entire fairness standard. And “where the movant fails to fulfill its initial burden 

of providing admissible evidence of the material facts entitling it to summary 

judgment, summary judgment must be denied, even if no opposing evidentiary matter is 

presented, for the non-movant is not required to rebut an insufficient showing.” Ray Communs., 

Inc. v. Clear Channel Communs., Inc., 673 F.3d 294, 299-300 (4th Cir. 2012). 

Moreover, as demonstrated above, the decision to pay advisory fees was not the product 

of “fair dealing,” because the Sponsor Directors and Brandon had conflicts of interest, and 

because Defendants undertook no process to evaluate whether paying advisory fees was 

appropriate or in the interests of Toys “R” Us. And for “fair price,” as demonstrated above, there 

is no evidence of any services that Toys “R” Us received from the Sponsors in exchange for the 

advisory fees, much less that any services were “the highest value reasonably available” for the 

millions that Toys “R” Us paid. 

Thus, because Defendants “cannot demonstrate fairness as to process or price,” they 

cannot demonstrate that the payment of advisory fees meets the entire fairness standard. Basho, 

2018 Del. Ch. LEXIS 222, at *92 (Ch. July 6, 2018).

E. The Director Defendants’ breach of their fiduciary duties caused harm to 

Toys “R” Us.

By failing to comply with their fiduciary duties in allowing Toys “R” Us to pay advisory 

fees to the Sponsors, the Defendant Directors caused Toys “R” Us losses. This was a “diversion 

of assets from Toys ‘R’ Us for the benefit of the three Sponsors.” 640 

In total, between Q4 2014 and Q1 2017, the Directors’ breaches of fiduciary duty in 

authorizing the payment of advisory fees caused Toys “R” Us losses of $17,863,110. 641 

640 Ex. 70 (Greenspan) ¶352. 

641 Ex. 135 (Mills) ¶31. 

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F. Defendants’ arguments fail.

Defendants make no attempt to argue that the advisory fee agreements were supportable 

or justifiable. Instead, they raise three arguments that misstate the law and ignore the facts. We 

rebut each in turn. 

1. Defendants’ “solvency justifies payments” argument fails.

Defendants assert that “as long as a company is not insolvent” that Company’s board 

members “can take actions that benefit the owners to the detriment of the company.” Mot. at 27-

28. Defendants’ argument fails.

Defendants’ premise holds only when there are no minority shareholders in a company 

and the owners own 100% of the company’s equity. “A transfer of value from a solvent 

subsidiary to the holder of 100% of the equity cannot give rise to a fiduciary wrong.” Quadrant 

Structured Prods. Co. v. Vertin, 102 A.3d 155, 184 (Del. Ch. 2014) (emphasis added) (cited at 

Mot. 27); Official Comm. of Unsecured Creditors v. Meltzer, 589 B.R. 6, 27 (D. Me. 2018) 

(cited at Mot. 27) (“directors of a solvent wholly-owned subsidiary” may “serve its parent’s 

interest”) (emphasis added). 

By contrast, when minority shareholders are present, the directors have “a fiduciary duty 

to the corporation and to its minority shareholders if the majority shareholder dominates the 

board and controls the corporation.” In re Reading Co., 711 F.2d 509, 517 (3d Cir. 1983). And 

when payments are “in essence self-dealing” by majority shareholders to “the exclusion of and 

detrimental” to “minority stockholders,” a violation of this fiduciary duty is presumed. Sinclair 

Oil Corp. v. Levien, 280 A.2d 717, 721 (Del. 1971); see Frederick Hsu Living Tr. v. ODN 

Holding Corp., No. 12108-VCL, 2017 Del. Ch. LEXIS 67, at *102 (Ch. Apr. 14, 2017).

The Sponsors did not own 100% of the equity. As discussed above, there were 300 

minority shareholders that owned roughly 2% of Toys “R” Us’ equity. Because of the presence 

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of those shareholders, the Sponsor Directors could not authorize self-dealing transactions that 

paid the Sponsors and extracted value from the Company, whether or not Toys “R” Us was 

solvent. 

Moreover, whether Toys “R” Us was solvent is a disputed material issue of fact. 

Defendants assert that “to survive summary judgment, the Trust would have to show that there is 

a material issue of fact regarding TRU’s insolvency.” Mot. at 28. And Defendants then claim 

that their “expert conducted a detailed solvency analysis” and that “no other evidence in the 

record” supports a conclusion of insolvency, there is no disputed issue of material fact. Mot. At 

28. Defendants’ contention fails. 

That Defendants’ expert prepared a solvency analysis does not compel the conclusion at 

summary judgment that Toys “R” Us was solvent. Rather, it is one piece of evidence that must 

be assessed by the finder of fact at trial. The Trust’s expert highlighted multiple flaws with 

Defendants’ expert’s solvency analysis, including that he relied on “unrealistic projections” by 

management, failed to “subject [management’s] assumptions and resulting projections to any 

meaningful scrutiny,” and ignored “the equity valuations of Toys “R” Us performed by the 

Sponsors.” 642 Defendants’ expert testimony on solvency is thus not an undisputed material fact.

Further, multiple pieces of evidence prove that Toys “R” Us was not solvent. The Trust’s 

expert marshalled evidence demonstrating that the Sponsors themselves, who are “arguably the 

people who know the company best and are incentivized to conclude there is equity” concluded 

that Toys “R” Us had no equity value. 643 

642 Ex. 70 (Greenspan) ¶¶395-401. 

643 Ex. 70 (Greenspan) ¶¶399-401; Ex. 70 (Greenspan) ¶¶163-165; Ex. 79 (Taylor depo.) 170:10-

21 (testifying that KKR’s internal valuation of “KKR’s investment in Toys ‘R’ Us” as of 

September 2017 showed that “our equity had no value”); Ex. 79 (Taylor depo.) 167:2-24 

(testifying that KKR calculated that Toys ‘R’ Us had debt of $4.7 billion but an enterprise value 

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First, the presence of a contract does not absolve directors of fulfilling their fiduciary 

duties. As the case that Defendants themselves cite makes clear, “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.” Frederick Hsu Living Tr. 

v. ODN Holding Corp., 2017 Del. Ch. LEXIS 67, at *53 (Del. Ch. Apr. 14, 2017). If 

Defendants’ premise were true, directors could freely make payments to majority shareholders 

without considering minority shareholders, alternatives, or the best interests of the corporation, 

as long as the parties entered a contract. One way to handle the contractual obligations imposed 

under the Advisory Fee Agreement was to attempt to renegotiate those fees to zero. Indeed, the 

amount of advisory fees paid was altered several times between 2005 and 2015, indicating that 

such renegotiation could be done and that Defendants knew this. 647 And the Sponsor Directors 

were in positions of influence at the Sponsor companies and could have attempted to renegotiate. 

Second, a contractual obligation between 2005 and the first quarter of 2015 does not 

excuse the Directors’ breaches of fiduciary duties between Q2 2015 and Q1 2017. The directors 

could have instructed Toys “R” Us to issue a notice of termination and the agreement would not 

have been renewed on July 20, 2015. Nothing in the contract obligated Toys “R” Us to renew 

the agreement. And in determining to renew the contract, the Directors breached their fiduciary 

duties. As discussed above, the Directors breached those duties by failing to delegate the 

renewal decision to disinterested directors, and utterly failing to perform any analysis of whether 

renewing the agreement would be in Toys “R” Us’ best interest. Those breaches are not excused 

by the presence of an expired contract. 

647 Ex. 70 (Greenspan) ¶371. 

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3. Defendants’ “acquiescence” argument fails.

Defendants assert that “[a] party with access to knowledge of actions that take place 

regularly for years, who lodges no objection to those actions, when an objection easily could 

have been made” cannot challenge those actions and “is estopped from later claiming that those 

actions were breaches of fiduciary duty.” Mot. at 29. This argument fails on all counts.

First, Defendants’ argument fails because the Trust is not “a party with access to 

knowledge” that “easily could have” objected to the advisory fee agreements. The Trust was not 

in existence at the time that the advisory fee payments were being made, and thus neither knew 

about nor could challenge those payments. Mot. at 29. The Trust was not established until after 

Toys “R” Us liquidated. And, as discussed above, the Trust is not the successor to any party that 

could have challenged those payments—instead, it is a successor to Toys “R” Us Inc. and Toys 

“R” Us Delaware. The Trust thus could not have acquiesced to the advisory fee payments as a 

matter of law. 

Second, Defendants have failed to prove each of the elements of an affirmative defense 

of acquiescence. To prevail on an affirmative defense at the summary judgment stage, 

Defendants bear the burden of proving each of the elements of that defense. To do so, 

Defendants must show that (1) a party with “full knowledge” of a transaction, (2) “accept[ed] the 

benefits of [the] transaction,” and (3) “thereafter attack[ed] the same transaction.” Staples v. 

Billing, Civil Action No. 11339, 1994 Del. Ch. LEXIS 10, at *37 (Ch. Jan. 31, 1994). 

Defendants offer no evidence whatsoever for the latter two elements. They identify no 

party that accepted the benefits of the advisory fees that later attempted to challenge that 

transaction. Indeed, Defendants fail to provide evidence of any benefit whatsoever that resulted 

from the Advisory Fee Agreement. And as discussed above, there was none. 

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“Where, as here, the movant seeks summary judgment on an affirmative defense, it must 

conclusively establish all essential elements of that defense.” Ray Communs., Inc. v. Clear 

Channel Communs., Inc., 673 F.3d 294, 299-300 (4th Cir. 2012). And “where the movant fails 

to fulfill its initial burden of providing admissible evidence of the material facts entitling it 

to summary judgment, summary judgment must be denied, even if no opposing evidentiary 

matter is presented, for the non-movant is not required to rebut an insufficient showing.” Id. 

For the “full knowledge” element, Defendants claim that Toys “R” Us “regularly 

disclosed the advisory fees as Related Party Transactions.” Mot. at 29-30. But these disclosures 

do not suggest that any party had “full knowledge” of the advisory fees. Indeed, the description 

of Advisory Fees in Toys “R” Us’ 10-K agreements makes no mention of the key facts—that no 

services were actually being provided beyond what the Directors were already obligated to do for 

the company, that no analysis was performed on whether the advisory fee payments were 

reasonable, and that the services were entirely duplicative of other services already being 

provided. 648 The first time that a party had full knowledge of these facts was when the Trust 

learned of them in investigating Defendants’ misconduct.

VII. Defendants are liable for fraudulent concealment.

Defendants made (and caused to be made) representations of fact to Trade Vendors 

commencing on September 18, 2017, and continuing until March 14, 2018, when the Company 

announced it was liquidating. These representations were made for the purpose of inducing the 

Trade Vendors to ship goods on credit to Toys “R” Us during the bankruptcy. Central to those 

representations was that Toys “R” Us had received over $3 billion in DIP financing, that the 

financing would be available to pay vendors during the restructuring process, and that the 

648 Ex. 68 (Form 10-K 2015) at 101-102. 

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financing gave Toys “R” Us the liquidity to pay vendors for goods shipped on credit during the 

restructuring period. In reliance on these representations, Trade Vendors shipped goods to Toys 

“R” Us on credit.

From the beginning, Defendants knew these representations were misleading (overstating 

both the amount of DIP financing and its availability). And within weeks, Defendants knew that 

the Company’s sales and margins were far lower than would be needed to comply with the 

financial covenants in the DIP financing. By December 13, 2017, Defendants knew that the 

Company was projecting to default on the DIP financing, and therefore lacked the ability to pay 

for goods shipped on credit. Defendants also knew that Trade Vendors did not have this 

information, and that Trade Vendors would stop shipping goods on credit if they knew the truth.

Defendants did not direct the Company’s employees to stop ordering goods on credit. 

And they did not disclose the truth to Trade Vendors. Instead, Defendants concealed the truth 

and made additional misrepresentations to Trade Vendors reassuring them that the Company had 

access to over $3 billion in DIP financing, that it had the ability to pay for all goods shipped on 

credit, and that the Company was focused on emerging from bankruptcy. This continued as the 

Company’s financial situation spiraled downward right up to the announcement of the 

Company’s liquidation on March 14, 2018.

As a result of Defendants’ fraudulent concealments and representations, Trade Vendors 

lost hundreds of millions of dollars.

A. The law of fraudulent concealment

1. Choice of law: The tort claims of each Trade Vendor are governed by 

the law of the state where that vendor is located, not by New York 

law.

The parties agree that because this case was transferred from the Southern District of 

New York, New York’s choice of law principles apply. Mot. 32 (citing Ferens v. John Deere 

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Co., 494 U.S. 516, 519 (1990). Defendants assert that “New York’s choice-of-law rules require 

the application of New York substantive law to tort claims like fraud and negligent 

misrepresentation” because “there is significant overlap between the law of New York and that 

of other states that have an interest in the tort claims.” Mot. 32. This is incorrect. New York 

choice of law rules require the Court to apply the law of the state where each Trade Vendor was 

located.

a. There is an actual conflict between the tort laws of different 

states.

“In New York . . . 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) (citing Allstate Ins. Co. v. Stolarz, 81 N.Y.2d 219, 223 (1993)). “If the 

applicable law from each jurisdiction provides different substantive rules, a conflict of laws 

analysis is required.” Id. Notably, the “party seeking application of non-[New York] law is not 

required . . . to demonstrate that its case would be lost were the court to apply [New York] law. 

Such a requirement would be absurd.” Fin. One Pub. Co. v. Lehman Bros. Special Fin., Inc., 

414 F.3d 325, 331 (2d Cir. 2005).

Contrary to Defendants’ assertions, the laws of New York and of the Vendors’ home 

states “provide[] different substantive rules” relevant to this case, thus requiring the Court to 

engage in a choice of law analysis. Curley v. AMR Corp., 153 F.3d 5, 12 (2d Cir. 1998). For 

example, to “state a claim for negligent misrepresentation under New York law, the plaintiff 

must allege that . . . the defendant had a duty as a result of a special relationship, to give correct 

information.” Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 114 (2d Cir. 2012)

(emphasis added). By contrast, California (where the largest number of Vendors is located) does 

not require a special or privity-like relationship. B.L.M. v. Sabo & Deitsch, 55 Cal. App. 4th 

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823, 843 (1997) (listing the elements of negligent misrepresentation); Cal. Civ. Code §§ 1709-

1710. Similarly, many of the Trade Vendors’ jurisdictions follow the Restatement (Second) of 

Torts, which does not include the requirements of New York law. Restatement (Second) of Torts 

§552(1). “Because New York law requires a plaintiff to plead the existence of a special 

relationship, while [these other states’ law] does not, a clear conflict exists.” Flatiron 

Acquisition Vehicle, LLC v. CSE Mortg. LLC, No. 1:17-cv-8987-GHW, 2019 U.S. Dist. LEXIS 

43682, at *50 (S.D.N.Y. Mar. 17, 2019).

Accordingly, the Court must engage in a choice-of-law analysis to resolve this conflict.

b. The law of the Trade Vendors’ home states governs the Trust’s 

tort claims.

Under New York’s choice of law rules, when “conduct-regulating laws are at issue, the 

law of the jurisdiction where the tort occurred will generally apply.” Padula v. Lilarn Props. 

Corp., 84 N.Y.2d 519, 522 (N.Y. 1994); Sack v. Low, 478 F.2d 360, 366 (2d Cir. 1973) (“New 

York courts ... hold that the cause of action accrues where the loss is suffered.”); Daiuto v. 

Evolve Guest Controls, LLC, No. 17-CV-1279 (NGG) (JO), 2020 U.S. Dist. LEXIS 38689, at *6 

(E.D.N.Y. Mar. 4, 2020). Legal rules are conduct-regulating when they have the “effect of 

governing conduct to prevent injuries from occurring.” Padula v. Lilarn Props. Corp., 84 

N.Y.2d 519, 522 (1994).

Here, the Trust is alleging claims based on fraud and negligent misrepresentation, both of 

which are legal rules intended to prevent injuries from occurring, and are therefore conductregulating. Antipodean Domestic Partners, LP v. Clovis Oncology, Inc., 2018 NY Slip Op 

30809(U), ¶ 28 (Sup. Ct. 2018) (“negligent misrepresentation . . . is a conduct-regulating rule”); 

Vandashield LTD v. Isaacson, 2015 NY Slip Op 31782(U), ¶ 21 n.18 (Sup. Ct. 2015) (holding 

that fraud is “a conduct-regulating body of tort law”); Abu Dhabi Inv. Auth. v. Citigroup, Inc., 

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2013 U.S. Dist. LEXIS 30214, at *22 n.9 (S.D.N.Y. Mar. 4, 2013) (“Fraud and negligent 

misrepresentation are conduct-regulating rules.”); Mark Andrew of the Palm Beaches, Ltd. v. 

GMAC Commercial Mortgage 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. 

Apr. 22, 2004);

Thus, the law of the place of the tort applies, which “is considered to be the place where 

the last event necessary to make the actor liable occurred.” Schultz v. Boy Scouts of Am., 65 

N.Y.2d 189, 195 (N.Y. 1985).

Here, the last event necessary to make the Defendants liable was the Trade Vendors 

relying on the false information provided by Defendants. Reliance is a required element of both 

fraud and negligent misrepresentation. Kurtz v. Foy, 65 A.D.3d 741, 743 (App. Div. 3rd Dept.). 

Thus, an actor is not liable until the victim acts in reliance—which 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” which is “where plaintiffs are located”);

Conner v. Kira Int’l, Inc., No. 13 CV 417 (ARR) (LB), 2015 U.S. Dist. LEXIS 102813, at *9 

(E.D.N.Y. July 14, 2015) (holding that for fraud claims, the loss is suffered “where the plaintiff 

is located.”); Geron v. Seyfarth Shaw 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.”). Accordingly, 

the tort claims assigned to the Trust are governed by the laws of the states where each Trade 

Vendor was located when it acted in reliance on Defendants’ false statements—not by New York 

law. See, e.g., Lewis Tree Serv. v. Lucent Techs., Inc., 211 F.R.D. 228, 237 (S.D.N.Y. 2002)

(applying New York choice of law rules to conclude that the “fraud alleged in this lawsuit arose 

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in all fifty states, and their laws would be applied to the fraud claims”); Hughes v. Ester C Co., 

317 F.R.D. 333, 352 (E.D.N.Y. 2016) (same for negligent misrepresentation).

c. The states with most relevant vendors include California, 

Connecticut, Georgia, Rhode Island, Florida, and Illinois.

The greatest quantity of claims—whether measured by number of Trade Vendors or 

amount of losses— are those assigned from California-based Trade Vendors, such as Mattel. 

There is only one Trade Vendor, Delta Enterprises, that operated out of New York and that is 

therefore subject to the peculiar requirements of New York law.

Each of the Trade Vendors below testified that they are headquartered in and made their 

shipping decisions in a state other than New York. The chart below shows the Trade Vendors in 

the most relevant states, the amount of their claimed loss, and testimony from the Trade 

Vendor’s 30(b)(6) witness about where the company is headquartered and made decisions. The 

laws of the below states are the ones most relevant to this action, and are thus the ones cited by 

the Trust in its opposition brief.

California

• Mattel

• McColgan 197:21-198:20

• $42,728,378

• Jakks Pacific

• Cooney 121:9-14

• $9,898,499

• MGA

• Elliott 242:18-243:5

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• $8,291,976

• Munchkin

• Sikand 263:23-264:10

• $3,184,195

• Bandai

• Ciminera 144:21-145:5

• $2,136,292

• Funrise

• Stone 88:3-4, 90:17-21, 91:19-22

• $1,263,524

• Warner Bros

• Gamble 207:10-22

• $1,087,659

• Merch Source

• Wysocki 126:14-21

• $922,878

• Jada Toys

• Simons 249:24-250:8

• $793,485

• Skyrocket Toys

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• Ardell, 177:21-178:10

• $482,660

Georgia

• Graco

• Brinkmeier 132:15-21

• $37,180,065

• Kids II

• Calhoun 11:10-16

• $6,271,849

Connecticut

• LEGO Group

• Kodak 257:16-24, 258:15-259:2

• $22,215,747

Rhode Island

• Hasbro

• Glenn 7:3-5

• $16,109,150

Illinois

• RR Donnelley

• Elliott 121:16-122:6

• $7,227,475

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• Learning Resources

• Woldenberg 188:16-189:2

• $1,837,953

• LSC

• Pevonka 250:11-18

• $1,642,942

Florida

• Jazwares

• Zebersky 158:23-159:4, 159:10-11

• $3,312,127

• Just Play

• Emby 254:11-24

• $2,207,573

• Basic Fun

• Foreman 208:15-20

• $1,841,009

2. Elements of fraudulent concealment.

“The elements of a claim for fraudulent concealment require the plaintiff to show that: 

(1) the defendant ... concealed or suppressed a material fact, (2) the defendant [was] under a 

duty to disclose the fact to the plaintiff, (3) the defendant ... intentionally concealed or 

suppressed the fact with the intent to defraud the plaintiff, (4) the plaintiff [was] unaware of the 

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fact and would not have acted as he did if he had known of the concealed or suppressed fact, and 

(5) as a result of the concealment or suppression of the fact, the plaintiff must have sustained 

damage.” Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 1105, 1130 (2014)

(internal quotes omitted).

3. Liability of directors and officers for concealments or representations 

of other officers or employees.

Defendants, as directors and officers, are personally liable for the representations or 

concealments of other officers or employees if either (a) the Defendant intends that the 

representation or concealment will be passed on and influence vendors, or (b) the Defendant fails 

to stop fraudulent conduct.

a. Intended to influence vendors.

Defendants are liable for any misrepresentation or concealment of material fact that they 

intended to have passed on to vendors to influence their conduct. “One who makes a 

misrepresentation or false promise or conceals a material fact is subject to liability if he or she 

intends that the misrepresentation or false promise or concealment of a material fact will be 

passed on to another person and influence such person’s conduct in the transaction involved.” 

Whiteley v. Philip Morris, Inc., 117 Cal. App. 4th 635, 681, 11 Cal. Rptr. 3d 807, 845 (2004)

(internal quotes omitted).

The California Supreme Court has also held that indirect liability for fraudulent 

representations does not require that the statement reach the ultimate decision-maker; it is 

“sufficient that defendant makes a misrepresentation to one group intending to influence the 

behavior of the ultimate purchaser, and that he succeeds in this plan.” Comm. on Children’s 

Television, Inc. v. Gen. Foods Corp., 35 Cal. 3d 197, 219 (1983).

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As the Restatement frames it, a person is liable for a fraudulent misrepresentation 

received by another “if the misrepresentation, although not made directly to the other, is made to 

a third person and the maker intends or has reason to expect that its terms will be repeated or its 

substance communicated to the other, and that it will influence his conduct in the transaction or 

type of transactions involved.” Restatement (Second) of Torts § 533, quoted with approval in

Whiteley v. Philip Morris, Inc., 117 Cal. App. 4th 635, 681, 11 Cal. Rptr. 3d 807, 845 (2004); 

Giulietti v. Giulietti, 65 Conn. App. 813, 842 n.24 (2001); Fla. Rock & Tank Lines v. Moore, 258 

Ga. 106, 106 n.1 (1988).

Moreover, a defendant is deemed to expect that “a misrepresentation, false promise or 

nondisclosure of material fact will be passed on to another person and influence that person’s 

conduct if he or she has information that would lead a reasonable person to conclude that there is 

a likelihood that it will reach such person and will influence his or her conduct in the transaction 

involved.” Whiteley, 117 Cal. App. 45h at 681; Geernaert v. Mitchell, 31 Cal. App. 4th 601, 605 

(1995) (“if defendant makes the representation to a particular class of persons, he is deemed to 

have deceived everyone in that class”).

b. Failing to stop fraudulent conduct.

Directors and officers of a corporation are “personally liable for intentional torts when 

they knew or had reason to know about but failed to put a stop to tortious conduct.” Asahi Kasei 

Pharma Corp. v. Actelion Ltd., 222 Cal. App. 4th 945, 966 (2013); Frances T. v. Village Green 

Owners Assn., 42 Cal. 3d 490, 504 (1986) (director liable for tort claim if “they specifically 

knew or reasonably should have known that some hazardous condition or activity under their 

control could injure plaintiff, they negligently failed to take or order appropriate action to avoid 

the harm”); PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1380 (2000) (officers are “personally 

liable for fraud committed by a managerial employee because [the officers] knew about and 

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allowed the tortious conduct to occur”); Polonetsky v. Better Homes Depot, Inc., 97 N.Y.2d 46, 

55 (2001) (“In actions for fraud, corporate officers and directors may be held individually liable 

if they participated in or had knowledge of the fraud, even if they did not stand to gain 

personally.”); Nielsen Co. (US), LLC v. Success Sys., 2012 U.S. Dist. LEXIS 115774, at *16-18 

(S.D.N.Y. Aug. 13, 2012).

B. The information concealed and suppressed by Defendants was actionable.

For concealed information to be the subject of fraudulent concealment claim, the 

information must be actionable as fraud. The information concealed by Defendants is actionable 

on three different bases.

(i) capable of empirical verification as true or false,

(ii) implies the existence of facts that justify a belief in the truth of the statement or 

implies the speaker knows of nothing that would make the statement improbable,

(iii) speaker possessed superior knowledge or special information on the subject.

In the following sections, the Trust identifies the concealments and then demonstrates 

that they are actionable under each of these three bases.

1. The concealments.

The information that Defendants concealed from Trade Vendors includes the following 

statements.

September 20, 2017: While the Company’s advisors had determined that a $200 million 

liquidity cushion was required, the DIP Term Loan lenders had insisted on adding a new $175 

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million liquidity covenant that left the Company with a liquidity cushion of less than $50 

million.649 Short had determined that the new covenant “doesn’t work.” 650

September 20, 2017: The DIP Term Loan lender had insisted on adding a January 31 

revised budget covenant in lieu of deleted milestones. 651 The covenant provided a zero cushion 

from achieving the liquidity levels projected in the DIP budget. 652 Brandon and Short had 

concluded: “[t]his just isn’t going to work.” 653 

November 30, 2017: For the month of November, U.S. sales were down 13.9%. 654

December 4, 2017: Brandon wrote an email to Mike Short stating, “We can confidently 

say that the flash projections for the quarter would indicate that the stretch target is completely 

unachievable and the target performance ... could very well be under achieved by a significant 

amount.” 655

December 13, 2017: “Brandon informed the Board that Management” had determined 

“that the Company will likely end the year with an EBITDA that would result in a default under 

its financing milestones.” 656

December 31, 2017: For the month of December, U.S. sales were down 15.5%. 657

649 Ex. 70 (Greenspan) ¶¶103, 111-112, 115; Ex. 56 (9’20’17 0612 am Kilkenney [TRUTrust0000075262]); Ex. 37 (8’31’17 attach DIP sizing [TRU-Trust0000373909]) at 3; Ex. 42

(9’15’17 Lal 144 not sufficient [LZ-TRU0079112]); Ex. 59 (9’21’17 Kurtz re negotiations [LZTRU0086423]) at 1.

650 Greenspan ¶104; Ex. 57 (9’20’17 0652 am [TRU-Trust0000075725]).

651 Ex. 70 (Greenspan) ¶¶ 103, 262, 289, 302; Ex. 11 (3’2’18 Geier re 6.16 [TRUTrust0000302970]). 

652 Ex. 70 (Greenspan) ¶136.

653 Ex. 70 (Greenspan) ¶100; Ex. 48 (9’18’17 2244 pm [LZ-TRU0092221]) at 4.

654 Ex. 5 (2’7’18 weekly board update [DEFS_0125623]) at 3.

655 Ex. 163 (12’4’17 Brandon not achieve target [TRU-Trust0000007350]).

656 Ex. 164 (12’13’17 minutes [DEFS_0061932]).

657 Ex. 5 (2’7’18 weekly board update [DEFS_0125623]) at 3.

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January 10, 2018: Brandon told the Board about management’s decision “not to 

voluntarily release our holiday sales results” contrary to the Company’s usual practice. 658 This 

decision was made because “holiday performance” was “significantly less than expected,” which 

“could have concerned” “the trade vendor community” because the Company “would have 

reported a weak holiday period,” and “[t]hey may have been concerned about the ability of Toys 

‘R’ Us to continue going forward,” and “[t]he ability of Toys ‘R’ Us to pay for goods that were 

shipped on credit.” 659

January 24, 2018: “Brandon advised the Board that the Company’s 2017 EBITDA is 

currently projected to be under $300 million—significantly short of the Company’s $640 million

projection in the DIP budget” and the Company “anticipated breach of financial covenants under 

the DIP Financing in February or March.” 660

January 24, 2018: Brandon told the Board that “the Company will now require a $150-

$200 million cash infusion from a third-party in order to fill a hole in the proposed budget and 

emerge as a reorganized operating business” and also would need “substantial additional 

amounts of post-emergence capital that will be required for the Company to make planned 

capital expenditures.” 661

January 28, 2018: Brandon told the Board that “while at the last meeting he said that the 

company would need $150-$200 million of additional capital to fill a hole in the budget and 

emerge from chapter 11, the revised numbers ... indicate that the Company will require at least 

658 Ex. 88 (Brandon depo.) 344:3-344:24; Ex. 87 (Short depo.) 279:19-23; Ex. 3 (1’10’18 BOD 

minutes [TRU-Trust0000374746]) at 2.

659 Ex. 87 (Short depo.) 279:19-23, 281:18-282:9; Ex. 88 (Brandon depo.) 344:3-344:24, Ex. 88 

(Brandon depo.) 346:7-16, Ex. 89 (Barry depo.) 519:16-24.

660 Ex. 139 (1’24’18 minutes [TRU-Trust0000374989]).

661 Ex. 139 (1’24’18 minutes [TRU-Trust0000374989]); Ex. 88 (Brandon depo.) 555:17-22; Ex. 

88 (Brandon depo.) 376:23-377:1.

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$200 million in order to emerge from the chapter 11 cases as a reorganized operating company, 

plus additional capital for planned capital expenditures.” Brandon also told the board that 

procuring the funding for emergence was “unlikely to materialize,” and one of the “likely 

outcomes of these chapter 11 cases” is “total liquidation of the enterprise.” 662 

January 31, 2018: Mike Short signed a waiver agreement stating that the Company had 

“determined that [it] would not be able to comply with the Revised Budget Covenant [covenant 

6.16].” 663

January 31, 2018: “Brandon advised the board that ... the forecasted cash liquidity 

position is dire” and “the Company projects it will breach its postpetition financing covenants in 

February or March.” 664

January 31, 2018, Short provided the board “an update regarding the Company’s cash 

liquidity projections,” which show that the Company had more than a “$500 million shortfall” 

below the level required in the DIP budget. 665

February 16, 2018: Brandon called an “emergency leadership team” meeting to announce 

that the DIP Term Loan lenders “thought it would be better to liquidate the company sooner 

rather than later,” and the Company was preparing “plans around a liquidation process” 

including a “liquidation analysis” and “wind-down budget” for the U.S. business, with the focus 

“around a mid March date.” 666

662 Ex. 140 (1’28’18 minutes [DEFS_0059009]) at 1-2.

663 Ex. 144 (1’31’18 TRU - Waiver Extension (1-30-18) [Draft] [TRU-Trust0000323056]).

664 Ex. 142 (1’31’18 minutes [DEFS_0059013]).

665 Ex. 142 (1’31’18 minutes [DEFS_0059013]); Ex. 141 (1’31’18 2b. Project Sunrise - Forecast 

Model 2018-01-31 (Liquidity Bridge) [DEFS_0002878]).

666 Ex. 146 (2’17’18 Brandon to Sussberg [TRU-Trust0000275355]) at 1-3; Ex. 145 (2’16’18 

Barry Notes (Barry depo. exh. 44) [DEFS_0026183]); Ex. 89 (Barry depo.) 419:24-421:17.

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2. The concealments are actionable as facts capable of empirical 

verification.

Actionable statements include those that are capable of “being adjudged true or false in a 

way that ... admit[s] of empirical verification.” Harrison v. Westinghouse Savannah River Co., 

176 F.3d 776, 792 (4th Cir. 1999) (holding that cost estimates are statements of fact; internal 

citations and quotations omitted).

A statement that can be verified is a fact, as contrasted with an entirely subjective opinion 

(e.g., “that artwork is beautiful”) or a statement that is so vague that it evades verification (e.g., 

“the coming year will be eventful”). For example, the statement that a company’s financial 

projection for the coming year reports minimum liquidity of $100 million is a statement of fact 

because the statement can be verified as true or false: the financial projection can be examined to 

see what it reports.

Each of the concealments is actionable because the truth or falsity of each of these 

statements could be objectively verified. The Company’s current sales results could be verified 

because the sales were recorded in Company records, which could be examined to determine 

what they show. The liquidity cushion the advisors had determined was required for the 

Company could be verified by examining documents reporting that information.

The state of the Company’s financial projections could be verified because the 

projections were written down and could be examined to determine what they show. 667 

Likewise, how the financial projection compared to the requirements of the financial covenants 

could be verified by examining the relevant documents. In fact, the Company prepared exactly 

these comparisons to test the cash flow covenant and minimum liquidity covenant. 668

667 Ex. 190 (12’15’17 Project sunrise preliminary model [TRU-Trust0000201870]). 

668 Ex. 141 (1’31’18 2b. Project Sunrise – Forecast Model 2018-01-31 (Liquidity Bridge) 

[DEFS_0002878]); Ex. 191 (12’30’17 LT forecast [TRU-Trust0000025841]) at 4.

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Similarly, whether the Company had a hole or shortfall in its projected budget and the 

amount of that hole could be readily determined by examining the Company’s projected budget. 

And how the Company’s budget projection on January 31 compared to the DIP budget could be 

readily determined by putting the Company’s January 31 budget projections next to the DIP 

budget. 669

Likewise, whether Short signed a document and whether the document stated that the 

Company had determined that it could not comply with the revised budget covenant could be 

verified by looking at the document. 670 And whether Toys “R” Us was engaging in liquidation 

planning targeting a mid-March date could be verified by asking those involved in the planning 

or examining internal emails and notes. 671

Moreover, whether Brandon told the board that “the forecasted cash liquidity position is 

dire” or that one of the “likely outcomes of these chapter 11 cases” is “total liquidation of the 

enterprise” could be verified by examining the minutes of the board meeting.

Because each of the pieces of concealed information was and is objectively verifiable, 

each is actionable.

3. The concealments are actionable statements that imply the existence 

of facts that justify a belief in the truth of the statement and imply the 

maker knows of nothing that would make the statement improbable.

A statement that is a prediction of future events or actions, or that is an opinion, is also 

actionable if it “impl[ies] facts which justify a belief in the truth of the opinion.” Cohen v. S & S 

Constr. Co., 151 Cal. App. 3d 941, 946 (1983) (internal quotes omitted). “A statement about the 

669 Ex. 141 (1’31’18 2b. Project Sunrise – Forecast Model 2018-01-31 (Liquidity Bridge) 

[DEFS_0002878]); First Day Motion (Bk. Dkt. 29) at 145.

670 Ex. 143 (1’31’18 signed Waiver [TRU-Trust0000375089]).

671 Ex. 146 (2’17’18 Brandon to Sussberg [TRU-Trust0000275355]; Ex. 145 (2’16’18 Barry 

Notes (Barry depo. exh. 44) [DEFS_0026183]).

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future may imply a representation concerning an existing or past fact.” Restatement (Second) of 

Torts § 525, comment e.

Similarly, “a statement that is in the form of a prediction or promise as to the future 

course of events may justifiably be interpreted as a statement that the maker knows of nothing 

which will make the fulfillment of his prediction or promise impossible or improbable.” 

Restatement (Second) of Torts § 525, comment f; Harrison v. Westinghouse Savannah River 

Co., 176 F.3d 776, 792 (4th Cir. 1999) (“opinion ... carries with it an implied assertion ... that 

the speaker knows no facts which would preclude such an opinion” (internal quotes omitted)).

For example, if a contractor provides “cost ... estimates” for what a project will end up 

costing, the cost estimates are actionable representations, because they imply the existence of 

reasonable cost projections that justify the estimate. Harrison, 176 F.3d at 792. As another 

example, a sales agent’s representations that a condominium with structural defects was 

“luxurious” and an “outstanding investment” was actionable. Cooper v. Jevne, 56 Cal. App. 3d 

860, 866 (1976); see Southern Cal. etc. Assemblies of God v. Shepherd of Hills etc. Church, 77 

Cal. App. 3d 951, 959 (1978) (a realtor’s opinion that the purchaser of a particular lot would 

have an enforceable access easement is actionable).

Some of the concealed facts identified above contain within them predictions about future 

events. But in each such case, the statements necessarily implied the existence of verifiable facts 

justifying the prediction. Many of the concealed statements implied the existence of recent data 

and financial modeling that justified the statement. These include statements such as the 

Company “will likely end the year with an EBITDA that would result in a default under its 

financing milestones,” “the Company’s 2017 EBITDA is currently projected to be under $300 

million,” the Company “anticipated breach of financial covenants under the DIP Financing in 

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February or March,” “the Company will now require a $150-$200 million cash infusion from a 

third-party in order to fill a hole in the proposed budget,” and the Company “would not be able 

to comply with the Revised Budget Covenant [covenant 6.16].” All of these statements imply 

the existence of recent data, financial modeling, and calculations justifying the statement.

Similarly statements by a CEO delivered at a board meeting that “the forecasted cash 

liquidity position is dire,” that funding for the Company to emerge from bankruptcy was 

“unlikely to materialize,” and that one of the “likely outcomes of these chapter 11 cases” is “total 

liquidation of the enterprise,” imply the existence of analysis and financial modeling justifying 

the statements. And the statement that “the flash projections for the quarter” indicate that an 

EBITDA target “is completely unachievable” and “could very well be under achieved by a 

significant amount,” implied the existence of recent financial data justifying these statements.

Each of the concealments identified above is therefore actionable on this basis as well.

4. The concealments are actionable statements because Defendants 

possessed superior knowledge or special information on the subject.

“[I]t is well settled that an opinion may be actionable when it is made by a party who ... 

possesses, or assumes to possess, superior knowledge or special information regarding the 

subject matter.” Jolley v. Chase Home Fin., LLC, 213 Cal. App. 4th 872, 892, 153 Cal. Rptr. 3d 

546, 562 (2013) (internal quotes omitted).

For example, a defendant with superior knowledge to the plaintiff was held liable for 

stating that it “was ‘highly probable,’ and ‘likely,’ and ‘look[ed] good’—that a modification of 

the loan agreement would be approved.” Jolley, 213 Cal. App. 4th at 892. Similarly, when a 

broker with superior knowledge to the plaintiff buyer represented that “early prepayment of 

notes was ‘guaranteed,’” this statement was held to be actionable as fraud. Apollo Capital Fund 

LLC v. Roth Capital Partners, LLC, 158 Cal. App. 4th 226, 241 (2007); see PhotoMedex, Inc. v. 

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Irwin, 601 F.3d 919, 931 (9th Cir. 2010) (defendants’ statement “in March 2003 that the Pharos 

laser would be available that summer, within just a few months” was actionable).

Because a company’s internal data sources and internal communications are, by 

definition, internal to the company, vendors do not have access to that information unless the 

company takes specific action to communicate the information outside the company. 

Accordingly, the Trade Vendors could not access the Company’s internal data sources and 

internal communications.

The Trade Vendors consistently testified that the Company was the best source of 

information on the its liquidity, ability to pay, and financial results, and that Trade Vendors did 

not have access to this information. 672

As Defendants admitted, Trade Vendors “did not have access to the leadership team 

meetings” at Toys “R” Us. 673 They “did not have access to the cash flow projections that were 

prepared by Toys “R” Us.” 674 And the Trade Vendors “did not have the financial information 

about Toys “R” Us” such that they could “calculate Toys “R” Us’ cash flow position.” 675 

Because the Trade Vendors lacked all of this information, they could not “determine whether or 

672 For example: Ex. 307 (Cooney (Jakks) depo.) 212:22-213:6 (there was no “source of 

information besides representations made by Toys ‘R’ Us” that could provide “accurate 

information about Toys ‘R’ Us’ internal financial situation”); Ex. 232 (Foreman (Basic Fun) 

depo). 283:4-12 (“we didn’t really have any other source outside of what was coming directly 

from the company and the employees of the company”); Ex. 278 (Stone (Funrise) depo.) 146:22-

147:9 (No “reasonable way” for “Funrise to learn about Toys ‘R’ Us’ internal financial 

projections in bankruptcy”); Ex. 284 (Brinkmeier (Graco) depo.) 183:13-184:8 (no source “that 

would be able to validate [covenant compliance] other than Toys ‘R’ Us”); Trust SOF ¶¶ 404, 

410, 416, 422, 428, 434, 440, 446, 452, 458, 464, 470, 476, 481, 486, 491, 496, 502, 508, 513, 

519, 525, 532, 537, 542, 548, 553, 559, 565, 571, 576, 581, 586, 592, 597, 603, 608.

673 Ex. 89 (Barry depo.) 542:23-25.

674 Ex. 89 (Barry depo.) 543:1-5.

675 Ex. 89 (Barry depo.) 543:20-544:2.

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not [Toys “R” Us] was meeting or was likely to meet its financial covenants.” 676 Indeed, it was 

“impossible for a vendor to realistically assess and test complex covenants without detailed (and 

truthful) information and forecasts by the Company.” 677

The Defendants had access to the Company’s internal data and communications that the 

Trade Vendors lacked. For example, Brandon, Short, and Barry received daily reports of 

sales.678 The Directors received a “Weekly Board Update” with financial information. 679 And 

the Directors continued “to be updated about Toys ‘R’ U’s financial situation” while it was in 

bankruptcy. 680 And the Directors were “provided detailed status updates by Mike Short and 

David Brandon.” 681

As demonstrated above, these updates included information about Toys “R” Us’ financial 

position, and how that financial position affected covenant compliance and access to the DIP 

financing. The Defendants therefore possessed both superior knowledge and special information 

on the subjects of (i) the Company’s recent financial results including sales, margins, SG&A 

costs, and capital expenditures, (ii) the Company’s projected financial results including sales 

growth/ decline, margins, costs, and capital expenditures, (iii) the Company’s plan for emergence 

or liquidation, (iv) the Company’s compliance with financial covenants, (v) the Company’s 

current or projected liquidity. 682

676 Ex. 70 (Greenspan) ¶533.

677 Id. ¶538.

678 Bk. Dkt. 2341 (Transcript of 3’20’17 hearing; Kurtz testimony) at 17 (“the management 

team” was watching “the day-to-day operating performance of the company during ... the 

holiday season” and “would literally receive ... a daily sales tally”).

679 E.g. Ex. 5 (2’7’18 weekly board update [DEFS_0125623]); Ex. 81 (Bekenstein) 185:2-7, 

187:20-189:31. 

680 Ex. 81 (Bekenstein depo.) 185:2-7.

681 Ex. 77 (Raether) 298:5-8.

682 See, e.g., Ex. 5 (2’7’18 weekly board update [DEFS_0125623]) at 3; Ex. 141 (1’31’18 2b. 

Project Sunrise - Forecast Model 2018-01-31 (Liquidity Bridge) [DEFS_0002878]); Ex. 146 

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Each of the concealments identified above is a statement on one or more of these 

subjects. The Defendants therefore possessed both superior knowledge and special information 

on the subject matter of the concealments. The concealments are therefore actionable.

* * *

The concealments are actionable on each of the three bases. Moreover, “‘where there is a 

reasonable doubt as to whether a particular statement is an expression of opinion or the 

affirmation of a fact, the determination rests with the trier of the facts.’” Jolley v. Chase Home

Fin., LLC, 213 Cal. App. 4th 872, 893, (2013) (quoting Willson v. Municipal Bond Co., 7 Cal. 2d 

144, 151 (1936)).

C. The concealed information was “material.”

“[A] fact is material if a reasonable man would attach importance to its existence or 

nonexistence in determining his choice of action in the transaction in question.” Persson v. 

Smart Inventions, Inc., 125 Cal. App. 4th 1141, 1163 (2005) (internal quotes omitted); 

Greenwald v. Odom, 314 Ga. App. 46, 55 (2012). (“a fact is material if its existence or 

nonexistence is a matter to which a reasonable man would attach importance in determining his 

choice or action in the transaction in question”).

Each of the concealed facts was material to the Trade Vendors because they went to the 

heart of each Trade Vendor’s decision making in choosing to ship goods on credit to Toys “R” 

Us.

(2’17’18 Brandon to Sussberg [TRU-Trust0000275355]) at 1-3; Ex. 163 (12’4’17 Brandon not 

achieve target [TRU-Trust0000007350]); Ex. 89 (Barry depo.) 543:1-544:2.

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1. Whether Trade Vendors will be paid for goods that they ship was of 

paramount importance to the Trade Vendors.

Trade Vendors sell goods to be paid for those goods. Whether vendors will be paid for 

the goods that they ship is of “paramount” importance because the vendors are “not a charity or a 

nonprofit” and “need to be paid for the goods that [they] ship.” 683 When deciding whether or 

not to ship goods to a company, Trade Vendors evaluate the risks involved in shipping those 

goods.684 As Defendants admit, part of the risk determination in shipping to Toys “R” Us was 

“whether [Trade Vendors] would be paid by Toys “R” Us,” and that risk was “a reasonable thing 

for [Trade Vendors] to consider.” 685

Defendants also admit that if Trade Vendors had “doubts about whether they would be 

paid,” then Trade Vendors would not “want to ship [goods] on credit to Toys “R” Us.” 686 For 

goods that Trade Vendors shipped on credit, the vendors needed to assess the risk of whether 

Toys “R” Us would be able to pay for those goods when they came due. For example, for a 

vendor to choose to ship goods on 60 day terms to Toys “R” Us on January 25, 2018, the Trade 

Vendor would need to analyze the risk that Toys “R” Us would be unable to pay for those goods 

in late March.

Trade Vendors testified that the risk level that vendors would not be paid on goods that 

they ordered would “vary based on information that’s available.” 687 Any information about 

Toys “R” Us’ ability to pay for goods shipped was thus highly important to vendors in 

determining whether to ship goods to Toys “R” Us on credit.

683 Ex. 409 (McCallum (Step2) depo.) 147:5-14; Ex. 258 (Rana (Dorel) depo.) 206:17-207:2; Ex. 

372 (Elliott (MGA) depo.) 270:12-20.

684 See e.g. Ex. 372 (Elliott (MGA) depo.) 270:24-271:4.

685 Ex. 87 (Short depo.) 311:1-17.

686 Ex. 89 (Barry depo.) 27:15-23; Ex. 372 (Elliott (MGA) depo.) 270:12-20; Ex. 258 (Rana 

(Dorel) depo.) 247:13-20.

687 Ex. 258 (Rana (Dorel) depo.) 209:4-11; Ex. 380 (Emrey (Munchkin) depo.) 110:4-7.

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2. The continued availability of the DIP financing was directly relevant 

to whether Trade Vendors would be paid for goods that they shipped.

During the bankruptcy, Toys “R” Us’ ability to pay vendors was contingent on the DIP 

financing. Defendants admit that it was the presence of the DIP financing that provided vendors 

with the assurance that Toys “R” Us would be able to pay them for goods shipped on credit. 688 

The DIP financing was “necessary for Toys “R” Us to have liquidity to pay for goods shipped on 

credit. 689

In fact, Defendants admit that they knew that the presence of the DIP financing was 

critical to the vendors because it meant that Toys “R” Us had available liquidity to buy and pay 

for goods. 690

For example, on September 18, 2017, Defendant Barry reported to Brandon on his phone 

calls with “over 30” vendors, and stated: “Confirmation of the DIP financing is a crucial issue 

for the vendors, and subject to this, indications are a return to business as usual terms with a 

resumption of shipping.” 691

Indeed, the DIP financing was the only source of liquidity that Toys “R” Us identified to 

vendors that could pay vendors for the goods that they shipped. 692

Defendants admit that Trade Vendors would be interested in knowing “whether there was 

a serious risk that the DIP financing would disappear.” 693 The loss of the financing would mean 

that Toys “R” Us would no longer have the liquidity to pay vendors “for all goods shipped on 

688 Short depo. 53:21-54:4.

689 Ex. 89 (Barry depo.) 396:17-21.

690 Ex. 89 (Barry depo.) 73:16-22; Ex. 372 (Elliott (MGA) depo.) 265:20-266:8; Ex. 321 (Kamler 

(Kent) depo.) 166:9-16; Ex. 330 (Woldenberg (Learning Resources) depo.) 198:3-199:8.

691 Ex. 156 (9’18’17 Barry re DIP crucial [TRU-Trust0000036336]).

692 See, e.g., Ex. 244 (Schellhase (Bestway) depo.) 171:25-172:5; Ex. 335 (Kodak (LEGO) 

depo.) 264:16-24, 265:1-10.

693 Ex. 87 (Short depo.) 434:20-435:1; Ex. 89 (Barry depo.) 461:9-12.

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credit.” 694 Trade Vendors needed to have “sufficient information to be able to accurately 

evaluate the probability of a catastrophic outcome.” 695 A risk that the DIP financing would be 

lost in the coming weeks or months would affect a Trade Vendor’s risk calculus on whether it 

should ship goods to Toys “R” Us on credit, because Trade Vendors had to assess the likelihood 

that they would not be paid for all of the goods that they shipped.

3. Each of the concealed facts was highly material to a Trade Vendor’s 

decision to ship goods on credit.

Each of the concealed facts was highly material for a vendor’s assessment of risk and the 

Company’s ability to pay, and most of the concealed facts signaled that the DIP financing was in 

grave danger of disappearing.

As Defendants knew, a breach of covenants in the DIP financing would mean that the 

DIP financing would disappear. 696 A projection that Toys “R” Us would default on its financing 

milestones was thus a projection that the DIP financing would become unavailable.

Furthermore, Defendants also knew that the financial covenants in the DIP financing 

were (by definition) tied to the Company’s financial performance. 697 And the Defendants also 

knew that the Trade Vendors understood this. Defendants Brandon and Short testified that they 

made the decision “not to voluntarily release our holiday sales results” contrary to the 

Company’s usual practice, because “holiday performance” was “significantly less than 

expected,” which “could have concerned” “the trade vendor community” because the Company 

“would have reported a weak holiday period,” and “[t]hey may have been concerned about the 

ability of Toys ‘R’ Us to continue going forward,” and “[t]he ability of Toys ‘R’ Us to pay for 

694 Ex. 87 (Short depo.) 56:23-57:2.

695 Ex. 70 (Greenspan) ¶529.

696 See e.g., Ex. 89 (Barry depo.) 395:22-396:8; Ex. 87 (Short depo.) 313:25-314:4.

697 See, e.g., Ex. 78 (Levin depo.) 286:22-287:15; Ex. 77 (Raether depo.) 124:19-125:12.

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goods that were shipped on credit.” 698 And, on January 10, 2018, Brandon told the Board about 

“the decision not to release holiday results, including the communications strategy related 

thereto.” 699

Moreover, Defendants knew that the discrepancy between Toys “R” Us’ actual 

performance and the DIP budget was enormous—the Company had a liquidity shortfall of $500 

million below the levels required by covenant 6.16. 700 And that deficit would increase, rather 

than decrease, over time: Short’s projection showed that by June 2018 the deficit would be 

almost $600 million. 701

Facts about Toys “R” Us’ projected breach of the covenants and $500 million 

shortfall in liquidity would indicate to the Trade Vendors that Toys “R” Us was not on track to 

comply with its covenants, and that there was a grave risk that the DIP financing would disappear. 

This in turn would mean that Trade Vendors would not be paid for their goods. These facts were 

highly material to the vendors. 702

Similarly, Toys “R” Us engaging in liquidation planning would indicate to the vendors 

that there was a high risk that Toys “R” Us would be unable to pay for purchase orders that it 

placed. Liquidation means that a company has failed as an ongoing business and will not be able 

698 Ex. 87 (Short depo.) 279:19-23, 281:18-282:9; Ex. 88 (Brandon depo.) 344:3-344:24, Ex. 88 

(Brandon depo.) 346:7-16, Ex. 89 (Barry depo.) 519:16-24.

699 Ex. 88 (Brandon depo.) 344:3-344:24; Ex. 87 (Short depo.) 279:19-23; Ex. 138 (1’10’18 

BOD minutes [TRU-Trust0000374746]) at 2.

700 Ex. 141 (1’31’18 2b. Project Sunrise - Forecast Model 2018-01-31 (Liquidity Bridge) 

[DEFS_0002878]); Ex. 70 (Greenspan) ¶¶455-459.

701 Ex. 141 (1’31’18 2b. Project Sunrise - Forecast Model 2018-01-31 (Liquidity Bridge) 

[DEFS_0002878]); Ex. 70 (Greenspan) ¶459.

702 See Trust SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 451, 457, 463, 469, 475, 480, 485, 

490, 495, 501, 507, 512, 518, 524, 530, 536, 541, 547, 552, 558, 564, 570, 575, 580, 585, 591, 

596, 602, 607.

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to continue to pay its obligations as they come due. 703 Liquidation planning would be “a clear 

signal that [a Trade Vendor] should expect not to be paid on any further shipments. 704 

4. The vendors testified that the concealed facts would have been 

relevant to their decision-making, and would have caused them to act 

differently.

Vendors testified that the concealed information about Toys “R” Us’ projected covenant 

defaults and liquidation planning was relevant to their decision-making. 705 “Anything that 

would have indicated that [Trade Vendors] were at risk of not getting paid back would have been 

relevant.” 706 And, as demonstrated above, each of the pieces of concealed information indicated 

that there was a risk of non-payment.

For example, had the LEGO Group “known that there was a risk that Toys “R” Us would 

be defaulting on its loan covenants,” the LEGO Group would have “only ship[ped] on a cash in 

advance basis.” 707 If the LEGO Group had any indication that Toys “R” Us had a “half a billion 

dollar miss” on the DIP budget requirements, that “would have been a clear sign that the 

operation was faltering,” and would have caused the LEGO Group “to trade cash in advance 

only.” 708

Defendants make no effort to argue that the concealed facts were not material to vendors. 

Nor could they. Each vendor testified that the above facts that were concealed from them were 

relevant in their decision-making process. And the vendors testified that they would have acted 

703 Ex. 88 (Brandon depo.) 564:18-21. 

704 Ex. 335 (Kodak (LEGO) depo.) 356:20-357:15. Additional examples can be found in Trust 

SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 451, 457, 463, 469, 475, 480, 485, 490, 495, 501, 

507, 512, 518, 524, 530, 536, 541, 547, 552, 558, 564, 570, 575, 580, 585, 591, 596, 602, 607.

705 See Trust SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 451, 457, 463, 469, 475, 480, 485, 

490, 495, 501, 507, 512, 518, 524, 530, 536, 541, 547, 552, 558, 564, 570, 575, 580, 585, 591, 

596, 602, 607.

706 Ex. 380 (Emrey (Munchkin) depo.) 54:23-55:4. 

707 Ex. 335 (Kodak (LEGO) depo.) 344:23-345:16. 

708 Ex. 335 (Kodak (LEGO) depo.) 352:15-353:16.

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on that information by reconsidering their trade terms with Toys ‘R’ Us, moving to cash in 

advance, or simply stopping shipments altogether. 709

The above evidence more than establishes materiality. “Materiality is a question of fact 

for the jury, unless the fact misrepresented is so obviously unimportant that the jury could not 

reasonably find that a reasonable man would have been influenced by it.” Persson v. Smart 

Inventions, Inc., 125 Cal. App. 4th 1141, 1163 (2005) (internal quotes omitted).

D. Defendants were under a duty to disclose the concealed facts to the Trade 

Vendors.

Defendants had a duty to disclose the concealed facts to Trade Vendors under four 

independent theories.

1. Defendants had a duty to disclose subsequently acquired information 

that made their earlier statements untrue or misleading.

A person has a duty to disclose “subsequently acquired information that he knows will 

make untrue or misleading a previous representation that when made was true or believed to be 

so.” Restatement (Second) of Torts § 551(c). A person makes “a representation which when 

made was true or believed to be so” and then “remains silent after he has learned that it is 

untrue” is “legally in the same position as if he knew that his statement was false when made.” 

Restatement (Second) of Torts § 551, comment h.

709 See, e.g., Ex. 258 (Rana (Dorel) depo.) 251:22-252:4 (information about cash infusion would 

have “highlight[ed] the liquidity issues, which would definitely help us make our decision of 

stopping to ship”); Ex. 301 (Simons (Jada Toys) depo.) 295:2-9 ($150 to $200 million required 

cash infusion would have caused Jada to “sto[p] shipping goods and/or mov[e] them to a cash-inadvance”); Ex. 351 (McColgan (Mattel) depo.) 256:13-257:5 (December 2017 information about 

projected EBITDA would have led Mattel to “not have shipped them any more goods”); see 

Trust SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 451, 457, 463, 469, 475, 480, 485, 490, 

495, 501, 507, 512, 518, 524, 530, 536, 541, 547, 552, 558, 564, 570, 575, 580, 585, 591, 596, 

602, 607. 

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“The Restatement provides in subsection 2(c) that a party in a business transaction who 

subsequently learns of information that renders a prior representation untrue or misleading is 

under a duty to disclose that information.” R.I. Indus.-Recreational Bldg. Auth. v. CAPCO Steel, 

LLC, No. PC 14-6055, 2015 R.I. Super. LEXIS 90, at *37 (Super. Ct. July 22, 2015) (internal 

citations omitted); Nissan Motor Acceptance Cases, 63 Cal. App. 5th 793, 828 (2021)

(“[Plaintiff] based its claim on [Defendant’s] failure to disclose material information that would 

have shown [Defendant’s] disclosed representations were false or misleading.”).

The Restatement applies this principal in an illustration that is remarkably similar to the 

facts of the present case. In that example, the “president of a mercantile corporation makes a 

true statement of its financial position,” that he intends will be relied on by trade vendors. 

Restatement (Second) of Torts § 551, Illustration 2. The president then learns that the 

“corporation’s financial position becomes seriously impaired” but does nothing to inform the 

vendors. Id. When later the “corporation receives goods on credit from” a trade vendor, the 

president “is subject to liability in deceit” for any losses suffered by the vendor. Id. 

Defendants made, and caused others to make, representations to Trade Vendors and then 

Defendants acquired information that made those earlier representations untrue and misleading. 

Defendants therefore had a duty to disclose that subsequently acquired information to Trade 

Vendors.

a. Defendants’ representations in September 2017.

The Company’s bankruptcy filing caused Trade Vendors to stop shipping goods on 

credit. 710 Beginning on the day of the filing, September 18, 2017, Defendants directed 

communications in various forms to Trade Vendors containing key representations to persuade 

710 Ex. 89 (Barry depo.) 26:12-19.

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Trade Vendors that they could safely ship goods to the Company on credit during the 

restructuring process. (In Part VIII, Section B below, we demonstrate that each of these 

representations is actionable. And in Part VII, Section H below, we demonstrate that all 

Defendants are liable for fraudulent concealment as to the representations delivered to Trade 

Vendors by other officers and employees of the Company.) The September representations 

included each of the following.

Vendor FAQ on the website.

A Vendor FAQ was posted on the Toys “R” Us’ website and vendor portal stating that 

Toys “R” Us had “sufficient liquidity to meet its obligations” because it had “access to up to $2.5 

billion in debtor-in-possession (‘DIP’) financing which will support our business and enable us 

to meet our financial obligations throughout the restructuring process.” 711 It further stated that 

the Company would later “access almost $1 billion in additional financing for a total of $3.125 

billion in new financing.” 712 It also stated that Toys “R” Us “will pay vendors for all goods and 

services received on or after the filing date.” 713 Barry testified that this Vendor FAQ was posted 

“for vendors to read and review.” 714

Telephone calls directly to Trade Vendors.

Brandon, Short, Barry, and the Company’s merchant team that reported to Barry, made 

telephone calls to Trade Vendors and communicated that the Company had obtained $3 billion in 

DIP financing that gave the Company liquidity to pay vendors for all goods shipped on credit 

throughout the restructuring process.

711 Ex. 172 (Vendor FAQ (Barry Exhibit 8) [TRU-Trust0000349256]).

712 Id. 713 Ex. 172 (Vendor FAQ (Barry Exhibit 8) [TRU-Trust0000349256]).

714 Ex. 89 (Barry depo.) 64:15-24.

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Barry, Brandon, and Short personally reached out to many trade vendors to inform them 

about the bankruptcy filing and the DIP financing. 715

They communicated that “the DIP financing would provide liquidity to Toys “R” Us to 

be able to pay for goods that were shipped on credit,” 716 that the DIP financing “would enable 

Toys “R” Us to pay for merchandise that was shipped on credit while Toys “R” Us was in 

bankruptcy.” 717

Defendant Barry was in charge of the merchandising team responsible for interacting 

with Trade Vendors. 718 The merchant team was given a set of “Vendor Talking Points” and was 

trained to deliver those talking points to Trade Vendors. 719 Barry directed the merchandising 

team to attend these trainings. 720

The merchants were trained to communicate to Trade Vendors that “our operations are 

continuing in the ordinary course,” and “We intend to pay vendors in full under normal terms for 

goods and services provided on or after the filing date.” 721

The Trade Vendors were trained to communicate that the Company does “have sufficient 

liquidity to meet its obligations” because “we have commitments for over $3.0 billion in new 

financing that will help support our operations and enable is us to meet our financial obligations 

during the restructuring process.” 722

715 Ex. 88 (Brandon depo.) 260:12-24; Ex. 87 (Short depo.) 61:24-62:2; Ex. 89 (Barry depo.) 

34:8-15, 73:2-15, 83:6-10.

716 Ex. 89 (Barry depo.) 73:11-5.

717 Ex. 89 (Barry depo.) 35:6-14.

718 Ex. 89 (Barry depo.) 40:19-41:4, 135:1-23. 

719 Ex. 89 (Barry depo.) 56:20-57:4, 57:10-15, 58:6-11, 59:5-60:12, 139:9-16, 137:15-23. 

720 Ex. 89 (Barry depo.) 136:6-9.

721 Ex. 174 (Vendor Talking Points [TRU-Trust0000336056]); Ex. 89 (Barry) 59:13-60:2.

722 Ex. 174 (Vendor Talking Points [TRU-Trust0000336056]); Ex. 170 (TRU Master Q&A 

(Barry Exhibit 7) [TRU-Trust0000322879]) at 2, 13; Ex. 173 (Vendor reference guide 

[DEFS_0026186]) at 8; Ex. 89 (Barry depo.) 47:13-21.

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Defendant Barry testified that the Vendor Talking Points “was the information the team 

was required to share with vendors.” 723 And he testified:

4 Was the Toys"R"Us merchandising

5 team instructed to tell trade vendors

6 that Toys "R" Us had received commitments

7 of over 3 billion in new financing that

8 will help support their operations and

9 enable Toys"R"Us to meet its business

10 obligations during the financial

11 restructuring process?

12 A. Yes.

Ex. 89 (Barry) 60:4-12.

Barry and the merchant team made a list of approximately 200 senior executives at Trade 

Vendors who were to be contacted and receive the representations in the talking points. 724

Barry directed the merchant team to “split up the list between ourselves,” and make the 

“talking points” calls to all of these Trade Vendors. 725 Some of the calls were assigned to be 

made by Brandon, Short, and Barry. 726

Brandon delivered the representations in calls to executives at the following Trade 

Vendors:

• Lego. 727

• Hasbro. 728

723 Ex. 89 (Barry depo.) 59:5-12.

724 Ex. 89 (Barry) 108:5-20; Ex. 171 (Vendors Call spreadsheet (Barry depo exhibit 16) [TRUTrust0000364251]).

725 Ex. 89 (Barry) 139:25-140:4; Ex. 171 (Vendors Call spreadsheet (Barry depo exhibit 16).

726 Ex. 171 (Vendor Call spreadsheet (Barry Exhibit 16) [TRU-Trust0000364251].

727 See Ex. 335 (Lego (Kodak)) 16:4-16, 17:20-18:14; Ex. 89 (Barry) 115:3-9; Ex. 95 (9’18’17 

Brandon RE VIP Vendor List [TRU-Trust0000229765]).

728 See Ex. 293 (Hasbro (Glenn)) 33:13-23, 34:7-23, 34:24-35:7, 40:20-41:6; Ex. 89 (Barry) 

112:9-13; Ex. 95 (9’18’17 Brandon RE VIP Vendor List [TRU-Trust0000229765]).

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• Huffy. 729

• Jakks. 730

• Just Play. 731

• Mattel. 732

• Spin Master. 733

• MGA. 734

• Graco. 735

Short delivered the representations in calls to executives at the following Trade Vendors:

• Lego. 736

729 See Ex. 297 (Huffy (O’Gara)) 26:16-22, 53:1-10, 54:16-18.

730 See Ex. 307 (Jakks (Cooney)) 157:17-158:2; Ex. 95 (9’18’17 Brandon RE VIP Vendor List 

[TRU-Trust0000229765]).

731 See Ex. 315 (Just Play (Emby)) 73:16-18, 74:2-9, 257:18-258:12, 258:13-259:5, 64:4-65:7, 

259:20-260:10, 260:11-261:5, 261:13-262:1; Ex. 89 (Barry) 115:19-116:9; Ex. 95 (9’18’17 

Brandon RE VIP Vendor List [TRU-Trust0000229765]).

732 See Ex. 351 (Mattel (McColgan)) 230:16-231:8, 231:15-232:2, 237:23-239:8, 241:5-7, 

242:16-243:12, 243:3-12; Ex. 95 (9’18’17 Brandon RE VIP Vendor List [TRUTrust0000229765]).

733 See Ex. 88 (Brandon) 264:2-11; Ex. 89 (Barry) 117:16-118:6; Ex. 95 (9’18’17 Brandon RE 

VIP Vendor List [TRU-Trust0000229765]).

734 See Ex. 88 (Brandon) 265:5-10, 266:10-19; Ex. 89 (Barry) 118:12-21, 119:17-21; Ex. 95 

(9’18’17 Brandon RE VIP Vendor List [TRU-Trust0000229765]).

735 See Ex. 95 (9’18’17 Brandon RE VIP Vendor List [TRU-Trust0000229765]).

736 See Ex. 335 (Lego (Kodak)) 53:9-21, 286:2-18, 288:1-19; Ex. 87 (Short) 143:11-16, 145:13-

146:10, 147:9-25.

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• Spin Master. 737

• Mattel. 738

• Hasbro. 739

• Jazwares. 740

Barry delivered the representations in calls to executives at the following Trade Vendors:

• Mattel. 741

• Lego. 742

• Spin Master. 743

• Hasbro. 744

• MGA. 745

• Kids 2. 746

737 See Ex. 401 (Spin Master (Stewart)) 193:10-15, 194:2-25, 195:2-16, 197:18-198:2, 199:15-

23, 283:19-284:10, 241:5-17; Ex. 87 (Short) 111:1-7, 111:19-22, 112:22-113:7, 112:6-10, 

114:15-20.

738 See Ex. 351 (Mattel (McColgan)) 170:21-171:20; Ex. 87 (Short) 116:3-13.

739 See Ex. 87 (Short) 141:1-142:1, 142:18-24.

740 See Ex. 87 (Short) 148:15-21, 149:14-19, 149:7-10.

741 See Ex. 351 (Mattel (McColgan)) 244:13-245:15; Ex. 89 (Barry) 111:25-112:3.

742 See Ex. 335 (Lego (Kodak)) 67:18-68:4, 68:15-23, 310:8-311:16; Ex. 89 (Barry) 115:3-9.

743 See Ex. 401 (Spin Master (Stewart)) 195:18-196:1, 197:18-198:2, 199:15-23; Ex. 89 (Barry) 

117:16-118:6.

744 See Ex. 293 (Hasbro (Glenn)) 290:12-291:1; Ex. 89 (Barry) 112:9-13.

745 See Ex. 372 (MGA (Elliott)) 54:25-55:3, 55:23-56:12, 258:21-259:16; Ex. 89 (Barry) 118:12-

21, 119:17-21.

746 See Ex. 324 (Kids 2 (Calhoun)) 49:18-50:10, 50:11-21, 51:5-21, 215:23-216:5.

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• Step2. 747

• Jazwares. 748

• Huffy. 749

• Just Play. 750

• Bandai. 751

• Delta. 752

• Learning Resources. 753

• Handi-Craft. 754

• Funrise. 755

• Yvolve. 756

• eKids. 757

747 See Ex. 409 (Step2 (McCallum)) 26:9-12, 76:24-77:3, 27:10-20, 153:21-154:12. 

748 See Ex. 311 (Jazwares (Zebersky)) 164:13-17, 164:21-165:5, 41:1-10, 42:14-23, 42:24-43:6. 

749 See Ex. 297 (Huffy (O’Gara)) 125:10-14, 36:21-37:16, 38:2-8, 39:1-10, 40:19-21. 

750 See Ex. 315 (Just Play (Emby)) 259:20-260:10; Ex. 89 (Barry) 115:19-116:9. 

751 See Ex. 213 (Bandai (Ciminera)) 47:7-14, 47:23-48:8, 48:23-49:2, 50:18-51:2 

752 See Ex. 255 (Delta (Shamie)) 169:7-22. 

753 See Ex. 330 (Learning Resources (Woldenberg)) 192:20-193:17, 198:3-199:8. 

754 See Ex. 289 (Handi-Craft (Hentschell)) 23:5-21, 26:24-27:13, 105:15-106:7. 

755 See Ex. 279 (Funrise (Price)) 52:23-54:17, 58:9-59:6. 

756 See Ex. 421 (Yvolve (Smith)) 42:2-14, 46:12-16, 253:21-255:16; Ex. 89 (Barry) 82:19-24, 

81:12-22. 

757 See Ex. 267 (eKids ( )) 335:22-336:2, 250:18-251:1, 336:18-337:14, 337:15-25, 338:1-

339:11. 

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• Skyrocket. 758

The initial contact spreadsheet assigned Company officers or employees to deliver the 

talking points to executives at the following trade vendors: Mattel, Hasbro, Just Play, Jazwares, 

Spin Master, Graco, MGA, Skyrocket, Jakks, Dorel, Kids II, Huffy, Delta, Bandai, Evenflo, 

Kent, Yvolution/Yvolve, Crayola, Best Chairs, Step 2, Munchkin, Artsana, Kitex. 759 In 

addition, other merchant team members made calls to the following Trade Vendors. 

• eKids ( ) 760 

• Bestway (Schellhase) 761

• Learning Resources (Woldenberg) 762

• Funrise (Price) 763

• Jada Toys (Simons) 764 

• Warner Bros (Gamble) 765

• North States (Sueker) 766

758 See Ex. 395 (Skyrocket (Ardell)) 65:13-66:5, 105:18-106:4. 

759 Ex. 89 (Barry depo.) 122:17-25, 124:19-128:2, 128:14-18, 128:24-129:13. Ex. 171 (Vendors 

Call spreadsheet (Barry depo. exhibit 16) [TRU-Trust0000364251]). 

760 Ex. 267 (eKids ( ) depo.) 330:1-21, 250:18-251:1, 336:18-337:14. 

761 Ex. 244 (Bestway (Schellhase) depo.) 102:2-17, 171:11-16, 181:13-17. 

762 Ex. 330 (Learning Resources (Woldenberg) depo.) 192:20-193:17, 198:3-199:8. 

763 Ex. 279 (Funrise (Price) depo.) 44:18-24, 45:2-11, 45:21-46:19, 48:15-49:1, 49:3-13, 52:23-

53:17, 58:9-59:6. 

764 Ex. 301 (Jada Toys (Simons) depo.) 51:22-25, 52:19-53:4, 207:11-25. 

765 Ex. 415 (Warner (Gamble) depo.) 212:13-213:18, 215:5-21. 

766 Ex. 385 (North States (Sueker) depo.) 59:1-5, 61:11-62:7. 

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• Basic Fun (Foreman) 767

• Handi-Craft (Hentschell) 768

• LSC (Pevonka) 769

• RR Donnelly (see LSC)

Barry’s letter

A letter signed by Richard Barry was “sent out to all of the major trade vendors.” 770 The 

letter began “Dear Valued Business Partner.” 771 It said “We have received commitments for 

over $3 billion in new financing that will support our operations and enable us to meet our 

business obligations during the financial restructuring process.” 772

Press releases

The Company issued press releases informing the vendor community that Toys “R” Us 

“successfully obtained debtor-in-possession financing today” and that Toys “R” Us “can assure 

our vendors that we are in a good position to accept shipments on a normal basis and they have 

great assurance they will be paid.” 773

767 Ex. 232 (Basic Fun (Foreman) depo.) 246:19-247:5, 247:12-248:1.

768 Ex. 290 (Handi-Craft (Hentschell) depo.) 90:13-24, 37:4-17, 45:16-46:6, 28:2-13, 23:5-21, 

26:4-27:13, 105:15-106:7.

769 Ex. 347 (LSC (Pevonka) depo.) 181:6-24, 260:9-24, 264:3-13.

770 Ex. 89 (Barry) 93:25:94:10, 94:18-22, 95:3-6, 96:3-7; Ex. 160 (9’21’17 Barry letter Business 

Partner Update [TRU-Trust0000374052]).

771 Ex. 160 (9’21’17 Barry letter Business Partner Update [TRU-Trust0000374052]).

772 Ex. 160 (9’21’17 Barry letter Business Partner Update [TRU-Trust0000374052]), Ex. 89 

(Barry) 95:20-97:2.

773 Ex. 157 (9’19’17 1000 pm Reuters [TRU-Trust0000375540]); Ex. 159 (9’20’17 TRU First 

Day Press Release [TRU-Trust000374024]).

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Short’s declaration

Short submitted a declaration with the First Day filings stating “the DIP Facilities will 

also provide the Debtors liquidity to fund the administrative costs of these chapter 11 cases ... 

and emerge from bankruptcy.” 774 Short further stated that “the DIP Facilities will provide the 

Debtors with the liquidity needed to reactivate their supply chain, provide assurance to their 

vendors, and capitalize on the holiday season.” 775

Additional evidence about these statements and how they were communicated to Trade 

Vendors is found in Trust SOF ¶¶ 402, 408, 414, 420, 426, 432, 438, 444, 450, 456, 462, 468, 

474, 479, 484, 489, 494, 500, 506, 511, 517, 523, 529, 535, 540, 546, 551, 557, 563, 569, 574, 

579, 584, 590, 595, 601, 606.

b. The information acquired by Defendants made the earlier 

representations false or misleading.

As demonstrated above, the Defendants had communicated to trade vendors that Toys 

“R” Us had access to over $3 billion in DIP financing during the restructuring process that would 

enable Toys “R” Us to pay for merchandise that was shipped on credit while Toys “R” Us was in 

bankruptcy. The concealments identified above constitute information acquired by Defendants 

establishing that the representations made in September were false and misleading. The 

concealed information makes these representations false or misleading in three related ways.

First, it was false or misleading to represent that the DIP financing provided Toys “R” Us 

with sufficient liquidity to meet its obligations throughout the bankruptcy. 

As Defendant Short admitted, “By the end of January, we understood that the original 

amount raised under the DIP financing wouldn’t be sufficient.” 776 Defendants understood that 

774 Short declaration (Bk. Dkt. 20) at ¶127. 

775 Id. at ¶130.

776 Ex. 87 (Short depo.) 441:15-442:15.

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the “DIP financing by itself [was] not enough,” because Toys “R” Us “need[ed] an additional 

$200 million” in financing. 777

The statement that the DIP financing provided sufficient liquidity for Toys “R” Us to 

meet its obligations was thus no longer true. 778 In fact, the exact opposite was true. Defendants 

knew that the DIP financing would not provide Toys “R” Us with sufficient liquidity to meet its 

obligations, and that Toys “R” Us “would need access to additional financing” for the earlier 

statements to be true. 779

Short admitted that Defendants’ representation that the DIP financing would allow Toys 

“R” Us to meet its obligations during the restructuring was no longer true in January. 780 At that 

time, Defendants knew that Toys “R” Us “would require an additional 150 to $200 million in a 

cash infusion” to meet its financial obligations. 781 And because of that information, Short 

“understood that the DIP financing that [the Company] had secured back in September would no 

longer enable the company to meet its financial obligations throughout the restructuring 

process.” 782 He admitted that as of January 2018, “there would be other things that would have 

to be added to this statement to make it true,” including that “we needed additional financing ... 

on the order of 150 to $200 million.” 783

Second, it was misleading to represent that the DIP financing would be available for the 

duration of the bankruptcy process.

777 Ex. 88 (Brandon depo.) 559:18-560:3.

778 Ex. 88 (Brandon depo.) 558:3-12, 559:23-560:3. 

779 Ex. 87 (Short depo.) 442:17-24.

780 Ex. 87 (Short depo.) 441:15-442:15.

781 Ex. 87 (Short depo.) 345:15-18.

782 Ex. 87 (Short depo.) 441:15-442:15.

783 Ex. 87 (Short depo.) 443:2-14, 444:16-24.

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As discussed above, Defendants learned that the Company was projected to default on 

financial covenants by February or March 2018, and that they could not comply with the January 

31 budget covenant.

A projected breach of the DIP financing covenants would mean that Toys “R” Us would 

not have access to the financing for the duration of the bankruptcy. For example, a loss of the 

financing in March would mean that the DIP financing would only be available for five months, 

rather than the 16 months that Defendants had represented.

Defendants did not update Trade Vendors with the new information they learned. 

Instead, they continued to misrepresent the status of Toys “R” Us’ covenant compliance. For 

example, at the beginning of March 2018, Short sent a PowerPoint on covenant compliance to 

LEGO that stated that Toys “R” Us was “in compliance with all of our covenants through March 

3rd.” 784 That presentation did not mention that the Company had not complied with the January 

budget covenant (6.16), that the Company had determined that they could not satisfy the 

covenant, and that the lender had given them a 30 day waiver that would expire on March 3rd. 

785 

Third ̧ it was misleading to represent that Toys “R” Us had the ability to pay vendors for 

“all goods and services” provided during the bankruptcy.

Because Toys “R” Us was ordering goods on credit, Toys “R” Us needed sufficient 

liquidity to pay for those goods when the bill came due, typically 60 days after the order was 

placed. As discussed above, the DIP financing was the source of liquidity that allowed Toys “R” 

Us to satisfy its obligations. Defendants knew that if the Company breached its financial 

784 Ex. 343 (Kodak (LEGO) depo. ex. 113).

785 Ex. 343 (Kodak (LEGO) depo. Ex. 113) at 3.

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covenants and the DIP financing became unavailable, Toys “R” Us would be unable to pay 

vendors for goods. And by December 13, 2017, Defendants knew that the Company would 

breach a financial covenant in February or March 2018. It was therefore misleading to represent 

that the Company had the ability to pay vendors for “all goods and services” provided during 

bankruptcy.

2. Because Defendants continued to make representations, they had a 

duty to disclose all material facts.

Someone is liable “for non-disclosure of material facts” if “the defendant makes 

representations but does not disclose facts which materially qualify the facts disclosed, or which 

render his disclosure likely to mislead.” Nissan Motor Acceptance Cases, 63 Cal. App. 5th 793, 

827 (2021) (quoting Warner Constr. Corp. v. City of Los Angeles, 2 Cal. 3d 285, 294 (1970)). In 

other words, “concealment exists when a party to a transaction, who is under no duty to speak, 

nevertheless does speak and suppresses facts which materially qualify the facts stated.” Persson 

v. Smart Inventions, Inc., 125 Cal. App. 4th 1141, 1164-65 (2005); Jones v. ConocoPhillips Co., 

198 Cal. App. 4th 1187, 1198, (2011) (a duty to disclose “[the suppression of a fact, by one ... 

who gives information of other facts which are likely to mislead for want of communication of 

that fact”); Macomber v. Travelers Prop. & Cas. Corp., 261 Conn. 620, 636 (2002) (“A duty to 

disclose will be imposed, however, on a party insofar as he voluntarily makes disclosure. A party 

who assumes to speak must make a full and fair disclosure as to the matters about which he 

assumes to speak.”); Gutter v. Wunker, 631 So. 2d 1117, 1118-19 (Fla. Dist. Ct. App. 1994)

(“where a party in an arm’s length transaction undertakes to disclose information, all material 

facts must be disclosed”).

Defendants did not merely remain silent after making the initial representations to 

vendors in September. Rather, they continued to make statements to vendors. Each of these 

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representations to Trade Vendors required disclosure of all facts that materially qualified the 

statements or that were needed so that the statement was not misleading.

a. The Vendor FAQ on the website.

As Defendant Barry admitted, the Vendor FAQ was maintained on the Company’s 

vendor portal “all the way up through the date that it announced it was liquidating in March 0f 

2018.” 786

And that Vendor FAQ continued to represent to vendors that Toys “R” Us “had sufficient 

liquidity to meet its obligations” during the bankruptcy because it “had access” to billions of 

dollars in DIP financing that would “enable us to meet our financial obligations throughout the 

restructuring process.” 787 And it continued to represent that Toys “R” Us would “pay vendors 

for all goods and services” that Trade Vendors provided after the bankruptcy filing. 788

Defendants had an obligation to disclose all facts that would materially qualify those 

statements and that were necessary so that they would not be misleading. As demonstrated 

above, Defendants knew that whether the Company “had access” to billions of dollars in DIP 

financing “throughout the restructuring process,” was contingent on satisfying the financial 

covenants, that the Company was projecting to breach those covenants, and that—by January 

31—had determined the Company could not comply. As Short admitted, “there would be other 

things that would have to be added to this statement to make it true,” including that Toys “R” Us 

had “concluded we needed additional financing.” 789

786 Ex. 89 (Barry depo.) 64:15-24.

787 Ex. 172 (Vendor FAQ (Barry Exhibit 8) [TRU-Trust0000349256]).

788 Ex. 172 (Vendor FAQ (Barry Exhibit 8) [TRU-Trust0000349256]).

789 Ex. 87 (Short depo.) 443:2-13, 444:16-24.

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Furthermore, the Vendor FAQ continued to represent “Will Toys ‘R’ Us continue normal 

operations? Yes. Our operations are continuing as usual.” That statement was misleading in 

light of the concealed facts set forth above that were known to Defendants, but not disclosed, 

including the following:

• “the Company will require at least $200 million in order to emerge from the chapter 11 

cases as a reorganized operating company, plus additional capital for planned capital 

expenditures,” the funding for emergence was “unlikely to materialize,” and one of the 

“likely outcomes of these chapter 11 cases” is “total liquidation of the enterprise.” 790 

• the Company had “determined that [it] would not be able to comply with the Revised 

Budget Covenant [covenant 6.16].” 791

• “the forecasted cash liquidity position is dire” and “the Company projects it will breach 

its postpetition financing covenants in February or March.” 792

• the DIP Term Loan lenders “thought it would be better to liquidate the company sooner 

rather than later,” and the Company was preparing “plans around a liquidation process” 

including a “liquidation analysis” and “wind-down budget” for the U.S. business, with 

the focus “around a mid March date.” 793

As Brandon admitted:

21 Q. Did you tell any trade vendors that,

22 although you’d represented to them that Toys "R" Us

23 would continue normal operations while in

790 Ex. 140 (1’28’18 minutes [DEFS_0059009]) at 1-2.

791 Ex. 144 (1’31’18 TRU - Waiver Extension (1-30-18) [Draft] [TRU-Trust0000323056]).

792 Ex. 142 (1’31’18 minutes [DEFS_0059013]).

793 Ex. 146 (2’17’18 Brandon to Sussberg [TRU-Trust0000275355]) at 1-3; Ex. 145 (2’16’18 

Barry Notes (Barry depo. exh. 44) [DEFS_0026183]).

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24 bankruptcy, that you now determined it was unlikely

25 that Toys "R" Us would continue to operate its

1 current business plan?

3 THE WITNESS: We did not share that

4 information with any stakeholders.

Brandon 565:21-566:4.

b. December 21 conference call with vendors.

On December 21, 2017, Brandon and Short conducted a conference call that was attended 

by many Trade Vendors as well as major news outlets, such as the Wall Street Journal, 

Bloomberg News, U.S.A. Today, PBS, and CBS. 794 Brandon and Short stated that the Company 

had “secured $3.1 billion in DIP financing” and “we obtained a very strong DIP financing 

package which put us in a position to have strong liquidity through this process.” 795

But both Brandon and Short knew and failed to disclose facts that materially qualified 

those statements. While representing that they had a “very strong DIP financing package” that 

projected “strong liquidity through this process,” they failed to disclose that the Term DIP Loan 

lender had insisted on two financial covenants that left the Company with an insufficient 

liquidity cushion, so that the $175 million liquidity covenant “doesn’t work,” and the January 

budget covenant “just isn’t going to work.” 796

They failed to disclose that holiday sales were down double-digits which meant the 

Company could not possibly achieve the liquidity levels required by the January budget 

794 Ex. 87 (Short) 168:7-170:23; Ex. 165 (12’21’17 participant list).

795 Ex. 64 (12’21’17 Transcript, Q3 Earnings Call [TRU-Trust0000323034]).

796 Ex. 70 (Greenspan) ¶¶100, 104; Ex. 57 (9’20’17 0652 am [TRU-Trust0000075725]); Ex. 48 

(9’18’17 2244 pm [LZ-TRU0092221]) at 4; Ex. 70 (Greenspan) ¶¶103, 111-112, 115; Ex. 56 

(9’20’17 0612 am Kilkenney [TRU-Trust0000075262]); Ex. 37 (8’31’17 attach DIP sizing 

[TRU-Trust0000373909]) at 3; Ex. 42 (9’15’17 Lal 144 not sufficient [LZ-TRU0079112]); Ex. 

59 (9’21’17 Kurtz re negotiations [LZ-TRU0086423]) at 1.

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covenant, and that eight days earlier Brandon had told the Board that the Company was 

projecting a “default under its financing milestones.” 797

c. Hong Kong Toy Fair.

Barry attended the Hong Kong Toy Fair from January 7 to January 11, 2018, along with 

Company employees Ron Baime, Rich Ryan, Raina Khumush, Dave Ditota, and Rob 

Magarino.798 The team had extensive discussions with many Trade Vendors. 799 Barry reported 

that there were “Lots of vendor concerns out here.” 800 To address these concerns, the 

employees that accompanied Barry were not given an updated set of talking points and were not 

told to say anything different than what they had been saying since September. 801 The 

September talking points instructed the employees to tell Trade Vendors the Company had 

“sufficient liquidity to meet its obligations” because it had “a commitment for over $3.0 billion 

in new financing which will support our business and enable is us to meet our financial 

obligations during the restructuring process.” 802

Barry told vendors “the common message” “that Toys ‘R’ Us had received ... ‘DIP 

financing’ that would help us get through and exit bankruptcy” and that Toys “R” Us was going 

to be “purchasing additional merchandise in the coming months over the following years.” 803 

He told vendors that Toys “R” Us “was looking forward to doing business with them for the 

797 Ex. 5 (2’7’18 weekly board update [DEFS_0125623]) at 3; Ex. 164 (12’13’17 minutes 

[DEFS_0061932]); Ex. 70 (Greenspan) ¶¶111, 135.

798 Ex. 89 (Barry depo.) 143:23-144:2, 145:1-13.

799 Ex. 89 (Barry depo.) 148:18-22, 152:20-153:8.

800 Ex. 89 (Barry depo.) 192:15-193:24; Ex. 137 (1'8'18 Barry to Hassan [TRUTrust0000376438]).

801 Ex. 89 (Barry depo.) 92:22-25, 93:8-13, 144:20-25.

802 Ex. 174 (Vendor Talking Points (Barry Exhibit 6) [TRU-Trust0000336056]); Ex. 170 (TRU 

Master Q&A (Barry Exhibit 7) [TRU-Trust0000322879]) at 2, 13.

803 Ex. 90 (Baime depo.) 25:3-16, 26:25-27:7.

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holiday season.” 804 He informed vendors that “we were working through the bankruptcy 

process with a plan to emerge and we were looking to get focused on driving business in holiday 

2018.” 805 Barry told vendors “things are fine,” “[e]verything’s on track” and “[f]inance is in 

place,” and was “giving his word” that vendors would be paid for the goods that they shipped. 806 

Barry did not communicate any negative information to vendors, such as “risks that Toys “R” Us 

could default on its financing,” or that “there may be obstacles to Toys “R” Us emerging from 

bankruptcy.” 807 For additional evidence of representations to vendors at the Hong Kong Toy 

Fair see Trust SOF 494, 468, 563, 590, 500, 511, 414, 484, 551, 420.

Multiple meeting schedules show the Trade Vendors that Barry and his team met with in 

Hong Kong. 808 Those vendors included:

Jada Toys

• January 7, 2018, 10:30am

• Ex. 89 (Barry depo.) 162:22-163:5

Funrise

• January 7, 2018, 11:00am

• Ex. 89 (Barry depo.) 151:22-152:5, 162:11-165:7

MGA

• January 7, 2018, 11:45am and January 10, 3:30pm

• Ex. 89 (Barry depo.) 156:4-8, 165:12-16, 190:22-25

804 Ex. 89 (Barry depo.) 158:23-159:4, 186:25-187:5. 

805 Ex. 89 (Barry depo.) 193:9-24.

806 Ex. 232 (Foreman (Basic Fun) depo.) 263:17-264:11, 266:15-267:14. 

807 Ex. 89 (Barry depo.) 195:16-23, 155:7-19. 

808 Ex. 180 (1’7’18 HK Executive Schedule [TRU-Trust0000376417]); Ex. 181 (1’9’18 HK 

GCC Schedule [TRU-Trust0000376416]); Ex. 182 (1’10’18 HK GCC Schedule [TRUTrust0000376410]); Ex. 89 (Barry depo.) 150:14-21.

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Spin Master

• January 7, 2018, 1:30pm

• Ex. 89 (Barry depo.) 167:11-168:1, 168:19-169:1

Jakks

• January 7, 2018, 3:45pm and January 9, 2018, 7:00pm

• Ex. 89 (Barry depo.) 157:2-4, 169:2-9, 177:13-17

Just Play

• January 8, 12:45pm and January 10, 2:30pm

• Ex. 89 (Barry depo.) 189:17-24

Bandai

• January 8, 2018, 2:45pm

• Ex. 89 (Barry depo.) 174:12-15

Hasbro

• January 8, 2018, 3:30pm and January 10

• Ex. 89 (Barry depo.) 185:23-186:1

Mattel

• January 8, 5:30pm

• Ex. 89 (Barry depo.) 176:10-19

Basic Fun

• Ex. 89 (Barry depo.) 196:20-23, 200:15-201:9

While representing to Trade Vendors that the Company had “‘DIP financing’ that would 

help us get through and exit bankruptcy,” Barry and his team omitted critical facts about the 

status of the financing. Barry did not disclose that the Company’s holiday sales were down over 

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15% and that, as a result, the Company had determined that it would default on the DIP 

financing financial covenants in February or March or that shipping goods was “a risk.” 809 

Barry gave no indication that “Toys “R” Us was concerned” that it would not be able “to comply 

with its financing.” 810 Barry made selective disclosures that only provided positive information 

while withholding information suggesting Toys “R” Us’ liquidity was in jeopardy.

d. Larian.

When Brandon and Barry received an inquiry from Isaac Larian, the CEO of MGA, on 

February 3, 2018, Brandon chose to make statements on the subject, but not disclose the whole 

truth to Larian. 811 Larian forwarded Brandon a LinkedIn post by Jim Silver, an industry 

commentator, who reported that “Word has leaked from one of ToysRUS financial owners 

(Bain,Vornado,KKR) that they are leaning toward a liquidation” and were considering various 

options ranging from shrinking the footprint to “a 200 store chain” or “liquidate the whole 

thing.” 812 Larian asked Brandon “What the hell is going on? ... Why NOBODY tell me about 

this?” 813

In responding to Larian, Brandon communicated that Larian should not “rely upon Jim 

Silver as being a source of useful and accurate information about decisions being made in the 

boardroom of TRU.” 814 Brandon stated: “If there is something to tell you, you will be hearing it 

from us– not rumors on LinkedIn from Jim Silver.” 815 Brandon assured Larian that Toys “R” 

Us was “working on the best plan for emergence and a variety of alternatives are being 

809 Ex. 232 (Foreman (Basic Fun) depo.) 263:17-264:11.

810 Ex. 232 (Foreman (Basic Fun) depo.) 264:13-265:1.

811 Ex. 147 (2’3’18 Brandon to Larian re Silver post [TRU-Trust0000272792]).

812 Ex. 167 (Larian Post).

813 Ex. 147 (2’3’18 Brandon to Larian re Silver post [TRU-Trust0000272792]) at 3.

814 Ex. 147 (2’3’18 Brandon to Larian re Silver post [TRU-Trust0000272792]) at 2.

815 Id. at 2.

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considered.” 816 Brandon’s statements were calculated to convince Larian that there was no truth 

in the rumor of liquidation and that Silver was not an accurate source of information. 817

Brandon’s statements were misleading and failed to disclose all material facts on the 

subject. Brandon failed to disclose that, just five days earlier, Brandon had told the board that 

there were “three likely outcomes of these chapter 11 cases” one of which was “total liquidation 

of the enterprise,” and that the outcome of emergence from bankruptcy “seems unlikely to 

materialize given current facts.” 818

Brandon failed to disclose that the Company had a “500 million shortfall” in liquidity 

from the levels stated in the DIP budget. 819 And he failed to disclose the Company had 

determined that it could not satisfy the January 31 revised budget covenant, but had only been 

able to obtain a one-month waiver from the lender. 820 Brandon omitted that, just three days 

before, he had told the Board that “the forecasted cash liquidity position is dire,” and “the 

Company projects it will breach its postpetition financing covenants in February or March.” 821

e. New York Toy Fair.

Defendants Brandon and Barry attended the New York Toy Fair from February 17 to 

February 19, 2018. All of the Defendants knew that Brandon, Barry, and a Toys “R” US team 

would be attending, because Brandon updated the board about the plans to attend the Toy Fair. 

Brandon told the Board that he “intends to meet with the executives of many large vendors” at 

the Toy Fair. 822 Brandon explained that each vendor would likely “push him for comfort that 

816 Id. at 2.

817 Ex. 88 (Brandon depo.) 433:18-434:3.

818 Ex. 140 (1’28’18 minutes, [DEFS_0059009]).

819 Ex. 142 (1’31’18 minutes [DEFS_0059013]) at 2.

820 Ex. 143 (1’31’18 signed Waiver [TRU-Trust0000375089]).

821 Ex. 142 (1’31’18 minutes [DEFS_0059013]) at 2.

822 Ex. 148 (2’12’18 minutes [DEFS_0059030]).

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the Company can pay for shipments,” and that Brandon and other Toys “R” Us employees 

visiting the Toy Fair would “provide vendors additional comfort so they do not determine to stop 

shipping.” 823

As Raether testified, at the board meeting “there was a discussion about the upcoming 

New York Toy Fair and that Dave Brandon would be meeting with a number of the vendors ... 

[a]nd that undoubtedly, there would be difficult conversations with the vendors about whether 

they would continue to ship or not.” 824 Brandon told the board “that he expected these vendors 

at the toy fair to push him for comfort that the company can pay for shipments.” 825 Brandon 

said “he was hopeful that he would be able to convince those vendors ... that they should 

continue to ship Toys ‘R’ Us.” 826 “He hoped that he would be successful in convincing the –

the vendors not to stop shipping.” 827

In advance of the Toy Fair, Barry and Brandon prepared and approved messaging that 

they and the rest of the Toys “R” Us team visiting the Toy Fair would use to communicate to 

Trade Vendors at the Toy Fair. On February 15, Barry approved a “NYTF Fact Sheet” that 

contained messages that the Toys “R” Us employees visiting Toy Fair were expected to deliver. 

That messaging stated: “The Leadership Team and our advisors are totally focused on our plans 

for emergence.” 828

823 Ex. 148 (2’12’18 minutes [DEFS_0059030]). Ex. 82 (Goodman) 346:19-347:3, 347:20-24; 

Ex. 81 (Bekenstein) 266:23-267:15, 268:6-269:24, 273:4-10; Ex. 83 (Macnow) 145:1-146:12, 

150:22-151:11; Ex. 80 (Silverstein) 328:15-25, 329:10-330:10; Ex. 79 (Taylor) 251:17-253:2, 

274:2-11, 277:10-18, 279:13-24, 281:21-282:2, 282:12-283:6; Ex. 88 (Brandon) 471:2-9, 

471:21-472:4, 472:10-473:6, 473:12-25, 475:1-4, 476:6-12, 477:4-8., 478:2-8, 478:18-479:2.

824 Ex. 77 (Raether) 282:13-283:4.

825 Ex. 77 (Raether) 283:5-16.

826 Ex. 77 (Raether) 283:17-284:4.

827 Ex. 77 (Raether) 283:5-16, see Ex. 77 (Raether) 284:15-22, 285:14-286:2, 287:7-24.

828 Ex. 150 (2’15’18 - Von Walter to Barry re fact sheet [TRU-Trust0000362680]); Ex. 149 

(2’15’18 NYTF Fact Sheet FINAL [TRUTrust0000362681]).

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On February 15, 2018, Barry organized a “Team Huddle” to instruct the Toys ‘R’ Us 

merchant team that would be attending the Toy Fair what to communicate to Trade Vendors. At 

the Team Huddle, Brandon and Barry presented a PowerPoint presentation that included slides 

such as “be positive,” “be aggressive,” and “[a]sk unapologetically for everything!” 829 It 

contained a slide with a graphic that read “Chapter 11 next exit,” which was used to 

communicate that Toys “R” Us “would emerge from bankruptcy.” 830 And it also included a 

slide that stated that “We are on our toes, not our heels,” which Brandon felt “was a very 

appropriate metaphor to use” to get the team in the right mindset. 831

When delivering the presentation, Brandon told the merchant team “to be positive and 

work with our vendor partners to deliver a successful season as we worked to emerge from 

bankruptcy.” 832 And Barry’s remarks included telling the team to “[b]e positive in your outlook 

with the vendors and in the way that you are going to drive negotiations,” and to “really as[k] the 

vendors to lean in with us and support us.” 833 Barry further told the team that “we were working 

hard on the emergence plans,” and to focus on Toys “R” Us’ future emergence from 

bankruptcy.834

An executive schedule listed the meetings that Brandon and Barry would have with 

different vendors. 835 Barry admits that he attended each of the meetings on the Toy Fair 

executive schedule. 836

829 Ex. 183 (2’15’18 NYTF team huddle powerpoint [TRU-Trust0000323065]). Id. at 7, 8, 11.

830 Id. at 5; Ex. 89 (Barry depo.) 272:4-8.

831 Ex. 183 (2’15’18 NYTF team huddle powerpoint [TRU-Trust0000323065]) at 6; Ex. 88 

(Brandon depo.) 462:15-21.

832 Ex. 89 (Barry depo.) 267:21-268:5; Ex. 88 (Brandon depo.) 463:8-12.

833 Ex. 89 (Barry depo.) 272:16-25, 276:10-25.

834 Ex. 89 (Barry depo.) 271:13-272:15.

835 Ex. 189 (2018 Executive Schedule – NY Toy Fair [TRU-Trust0000374795]).

836 Ex. 89 (Barry depo.) 332:10-15.

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That schedule indicates that the following Trade Vendors received representations from 

Defendants at the toy fair at specific times.

Basic Fun

• Saturday, February 17, 10:00am 837

Jakks

• February 17, 2:45pm

Yvolve/Yvolution

• February 17, 5:00pm

Hasbro

• Sunday, February 18, 9:30am 838

Lego

• February 18, 12:00pm 839

Step2

• February 18, 2:00pm 840

Crayola

• February 18, 3:00pm 841

Spin Master

• Monday, February 19, 9:00am

Mattel

837 Ex. 89 (Barry depo.) 289:15-17.

838 Ex. 89 (Barry depo.) 332:19-21, 335:13-24.

839 Ex. 89 (Barry depo.) 340:2-341:3.

840 Ex. 89 (Barry depo.) 347:18-22.

841 Ex. 89 (Barry depo.) 351:5-9.

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• February 19, 11:00am 842

• February 20, 5:30pm 843

Just Play

• February 19, 1:10pm 844

MGA

• February 19, 2:00pm 845

For additional evidence of Trade Vendor meetings with Defendants and other Toys “R” 

Us representatives, see 420, 500, 606, 484, 540, 595, 438, 590, 551, 511, 563.

At the New York Toy Fair, Brandon and Barry delivered a consistent message to Trade 

Vendors. Brandon told Trade Vendors in a “reassuring and comforting manner” that Toys “R” 

Us was “working through the bankruptcy” and was working on “exiting” and “having a 

business.” 846 

Brandon sat down with McCallum from Step2, “literally knee to knee,” and looked 

McCallum “straight in the eye” and said “we’re coming out of this fast,” “load the trucks, and 

get ready to ship because we’re going to need goods.” 847

Brandon admitted that he told Trade Vendors “that Toys “R” Us was working on plans to 

emerge from bankruptcy.” 848 And Brandon further admitted that he did not inform vendors 

“that Toys “R” Us was working on a plan for liquidation.” 849

842 Ex. 89 (Barry depo.) 355:2-5, 360:5-11. 843 Ex. 88 (Brandon depo.) 516: 5-15.

844 Ex. 89 Barry depo. 362:21-363:1; Ex. 88 (Brandon depo.) 508:19-23. 845 Ex. 89 (Barry depo.) 366:4-67:5.

846 Ex. 90 (Baime depo.) 43:25-44:14.

847 Ex. 409 (Step 2 (McCallum)) 149:16-150:5, 184:19-185:10.

848 Ex. 88 (Brandon depo.) 500:4-7. 

849 Ex. 88 (Brandon depo.) 500:10-14.

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Barry delivered the same message: that Toys “R” Us was “focused on emergence and 

focused on the holiday season.” 850 Barry admitted that he did not provide “any negative 

information” to Trade Vendors or inform vendors that “there’s risks that [they] might not get 

paid.” 851 Barry told vendors it was “business as usual at Toys “R” Us.” 852 Barry stated: “things 

are fine,” “[e]verything’s on track” and “[f]inance is in place,” and was “giving his word” that 

vendors would be paid for the goods that they shipped to Toys “R” Us. 853 

Each of the other Toys “R” Us representatives delivered the message that Brandon and 

Barry had instructed them to convey. They told Trade Vendors that management was “totally 

focused on our plans for emergence.” 854 They assured Trade Vendors that 

 

Each of those statements was misleading and omitted the concealed information 

described above, which materially qualified the statements. They omitted that Brandon told the 

Board that “the Company will require at least $200 million in order to emerge from the chapter 

11 cases as a reorganized operating company, plus additional capital for planned capital 

expenditures” and this funding was “unlikely to materialize.” 856 They omitted that the 

Company had determined that it could not satisfy the January 31 revised budget covenant, but 

850 Ex. 89 (Barry depo.) 343:6-13. 

851 Ex. 89 (Barry depo.) 289:5-9. 

852 Ex. 421 (Smith (Yvolve) depo.) 272:13-273:10. 

853 Ex. 232 (Foreman (Basic Fun) depo.) 263:17-264:11, 266:15-267:14. 

854 Ex. 150 (2’15’18 - Von Walter to Barry re fact sheet [TRU-Trust0000362680]); Ex. 149 

(2’15’18 NYTF Fact Sheet FINAL [TRUTrust0000362681]). 

855 Ex. 93 (Ryan depo.) 174:6-10. 

856 Ex. 140 (1’28’18 minutes [DEFS_0059009]) at 1-2. 

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had only a one-month waiver. 857 They omitted that on January 31, 2018, “Brandon advised the 

board that ... the forecasted cash liquidity position is dire” and “the Company projects it will 

breach its postpetition financing covenants in February or March.” 858

And they omitted that on February 16, 2018, the day before the start of the New York 

Toy Fair, Brandon called an “emergency leadership team” meeting to announce that the DIP 

Term Loan lenders “thought it would be better to liquidate the company sooner rather than later,” 

and the Company was preparing “plans around a liquidation process” including a “liquidation 

analysis” and “wind-down budget” for the U.S. business, with the focus “around a mid March 

date.” 859

Brandon, Barry, and the rest of the team were being “positive,” and “provid[ing] vendors 

additional comfort so they do not determine to stop shipping,” and telling vendors that “The 

Leadership Team and our advisors are totally focused on our plans for emergence.” 860 But 

Brandon and Barry knew that in fact they had just had an “emergency meeting” on the day 

before the Toy Fair, that the liquidity situation was dire, that they were not totally focused on 

emergence, and that liquidation planning was underway. This constitutes fraudulent 

concealment. Nissan Motor Acceptance Cases, 63 Cal. App. 5th 793, 827 (2021) (defendant 

“failed to disclose material facts it had a duty to disclose” when defendant told plaintiff that it 

857 Ex. 144 (1’31’18 TRU - Waiver Extension (1-30-18) [Draft] [TRU-Trust0000323056]).

858 Ex. 142 (1’31’18 minutes [DEFS_0059013]).

859 Ex. 146 (2’17’18 Brandon to Sussberg [TRU-Trust0000275355]) at 1-3; Ex. 145 (2’16’18 

Barry Notes (Barry depo. exh. 44) [DEFS_0026183]); Ex. 89 (Barry depo.) 419:24-421:17; Ex. 

89 (Barry depo.) 419:24-421:17.

860 Ex. 148 (2’12’18 minutes [DEFS_0059030]); Ex. 150 (2’15’18 - Von Walter to Barry re fact 

sheet [TRU-Trust0000362680]); Ex. 149 (2’15’18 NYTF Fact Sheet FINAL 

[TRUTrust0000362681]).

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“would not shut Superior down while at the same time he and his staff were contemplating that 

option”).

As Raether admitted, telling vendors at the New York Toy Fair that “things are going 

great,” that Toys “R” Us was “working on [its] plans to emerge from bankruptcy,” and that Toys 

“R” Us was “looking forward to the next holiday season” would not be “the whole truth.” 861

f. Mattel and the LEGO Group representations.

Defendants made additional, specific statements to Mattel and the LEGO Group falsely 

claiming covenant compliance.

The LEGO Group entered a non-disclosure agreement with Toys “R” Us to obtain 

information about Toys “R” Us’ covenant compliance in February 2018. 862 After LEGO signed 

that NDA, Short sent LEGO a financial covenant forecast deck on March 1, 2018, stating that it 

provided “info on covenant compliance in Delaware for Jan and Feb.” 863 That slide deck stated 

that Toys “R” Us had only “two financial covenants,” the cash flow and liquidity covenants, and 

that Toys “R” Us would be “in compliance with both of these covenants” through March 3, 

2018. 864 In reality, Short knew that Toys “R” Us was projected to soon breach these covenants. 

And Short failed to disclose a third covenant, the January 31 revised budget covenant, and that 

the Company had determined it could not comply with that covenant, but had only been able to 

obtain a one-month waiver from the lender. 865

861 Ex. 77 (Raether depo.) 296:4-19; see Ex. 80 (Silverstein depo.) 335:1-24.

862 Ex. 335 (Kodak (LEGO) depo.) 156:20-157:9.

863 Ex. 152 (3’2’18 Short to Lao [LEGO-TRU_00012738]).

864 Ex. 151 (3’1’18 financial covenant forecast).

865 Ex. 143 (1’31’18 signed Waiver [TRU-Trust0000375089]).

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Similarly, Mattel reached out to Short on February 16 and informed Short that its auditors 

were requesting “a document confirming current compliance with existing covenants.” 866 Short 

was “the point person for” “understanding whether they were going to be in a position to default” 

on any of the covenants. 867 Short did not tell Mattel that Toys “R” Us was projected to breach 

the liquidity and cash flow covenants and had already determined it could not comply with the 

January 31 revised budget covenant. Instead, Short surmised that “we are going to tell Gregg 

[Stefanick] that if we were in covenant default, we would have had to issue an 8K. Since we did 

not, he, his company, and their auditors ought to assume that we are not in breach.” 868 Brandon 

executed this strategy, telling Mattel on February 25 or 26 that “Toys “R” Us would have been 

required to file an 8-K if it was not in compliance with its covenants.” 869 Brandon and Short did 

not disclose, or direct anyone else to disclose, the true facts regarding the Company’s covenant 

breaches. Instead, on February 25, Mattel received an email with forecasts that were claimed to 

“demonstrate the Company’s ability to comply with February covenants.” 870

g. Purchase orders representing the ability to pay.

In addition to the verbal and written statements to Trade Vendors directly addressing the 

status of the Company’s financing, liquidity situation, and plans for emergence, vendors received 

additional representations each time that they received a purchase order from the Company. 

Trust’s SOF ¶¶401, 407, 413, 419, 425, 431, 437, 443, 449, 455, 461, 467, 473, 478, 483, 488, 

493, 499, 505, 510, 516, 522, 528, 534, 539, 545, 550, 556, 562, 568, 573, 578, 583, 589, 594, 

600, 605.

866 Ex. 185 (2’16’18 Stefanick to Short [MATTEL00000537]). 

867 Ex. 357 (Stefanick (Mattel) depo.) 172:2-18.

868 Ex. 184 (2’16’18 Short to Kosturos [TRU-Trust0000299828]).

869 Ex. 357 (Stefanick (Mattel) depo.) 177:23-179:14.

870 Ex. 186 (2’26’18 Johnson to Euteneuer cash flow forecast [MATTEL00005494]).

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A buyer’s commitment to purchase goods on credit includes an implied representation 

that the buyer “has the wherewithal”—the ability—to “repay all credit extended.” In re 

Hutchinson, 27 B.R. 247, 250-51 (Bankr. E.D.N.Y. 1983) (collecting cases); In re Rodgers, 115 

B.R. 678, 683-84 (Bankr. C.D. Cal. 1990). A buyer has “a duty to disclose to the seller facts 

critical to the buyer’s ability to perform the transaction.” Fairview Dev. Corp. v. Aztex Custom 

Homebuilders, LLC, No. CV-07-0337-PHX-SMM, 2009 U.S. Dist. LEXIS 16501, at *33 (D. 

Ariz. Mar. 2, 2009) (collecting cases).

The representation that the Company had the ability to pay gave rise to a duty to disclose 

all facts that materially qualified that representation. These facts included that the Company was 

projected to soon default on its DIP financing. But Defendants failed to give vendors any of the 

information that indicated that Toys “R” Us’ ability to pay for purchase orders using the DIP 

financing was in peril. For example, a purchase order placed by Toys “R” Us on January 25, 

2018, contained the implied representation that Toys “R” Us would be able to pay for that 

purchase order when it came due. But Defendants learned just one day earlier that they were 

projected to lose access to the DIP financing—their ability to pay—because they could not 

comply with required liquidity levels under the budget covenant. 871

Trade Vendors were never aware of any of this information. Instead, the Company “just 

kept merrily producing the POs, and we kept shipping them. And they were trying to induce us 

to accept more orders and take more financial risk and send them more inventory with free 

financing up to the very last day.” 872 Additional evidence for the Trade Vendors’ lack of 

awareness is found in Trust SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 451, 457, 463, 469, 

871 Ex. 139 (1’24’18 minutes [TRU-Trust0000374989]).

872 Ex. 330 (Woldenberg (Learning Resources) depo.) 220:20-222:5.

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475, 480, 485, 490, 495, 501, 507, 512, 518, 524, 530, 536, 541, 547, 552, 558, 564, 570, 575, 

580, 585, 591, 596, 602, 607. 

3. Defendants were under a duty to disclose because they possessed 

superior knowledge and knew that Trade Vendors were acting on the 

basis of mistaken facts.

A person is under a duty to disclose when he knows that another is acting on a mistaken 

belief about a material fact to the transaction. “[A] duty to disclose may also arise when a 

defendant possesses or exerts control over material facts not readily available to the plaintiff.”

Jones v. ConocoPhillips Co., 198 Cal. App. 4th 1187, 1199 (2011)). A defendant is liable for 

“non-disclosure of material facts” if “the facts are known or accessible only to defendant, and 

defendant knows they are not known to or reasonably discoverable by the plaintiff. Nissan 

Motor Acceptance Cases, 63 Cal. App. 5th 793, 826 (2021) (quoting Warner Constr. Corp. v. 

City of Los Angeles, 2 Cal. 3d 285, 294 (1970)).

Such a duty exists when “(1) one party has superior knowledge of certain information; (2) 

that information is not readily available to the other party; and (3) the first party knows that the 

second party is acting on the basis of mistaken knowledge.” Pursuit Partners, LLC v. UBS AG, 

No. X05CV084013452S, 2009 Conn. Super. LEXIS 2313, at *40 (Super. Ct. Sep. 8, 2009).

A duty to disclose exists “where one party possesses superior knowledge, not readily 

available to the other, and knows that the other is acting on the basis of mistaken knowledge.” 

Century Pac., Inc. v. Hilton Hotels Corp., 2004 U.S. Dist. LEXIS 6904, at *26-27 (S.D.N.Y. 

Apr. 20, 2004) (discussing Second Circuit application of New York state law). “It is no longer 

acceptable, if ever it was, to conclude in knowing silence, a transaction damaging to a party who 

is mistaken about its basic factual assumptions when, like the present plaintiff, he ‘would 

reasonably expect a disclosure’.” Gaines Serv. Leasing Corp. v. Carmel Plastic Corp., 432 

N.Y.S.2d 760, 763 (Civ. Ct. 1980) (citing Restatement, Torts 2d, § 551).

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The Trust has evidence establishing each of these components.

a. Defendants had superior knowledge of material facts.

As demonstrated above, Defendants had access to the Company’s internal data and 

communications that the Trade Vendors lacked. The Defendants therefore possessed both 

superior knowledge and special information on the subjects of (i) the Company’s recent financial 

results including sales, margins, SG&A costs, and capital expenditures, (ii) the Company’s 

projected financial results including sales growth/ decline, margins, costs, and capital 

expenditures, (iii) the Company’s plan for emergence or liquidation, (iv) the Company’s 

compliance with financial covenants, (v) the Company’s current or projected liquidity.

Defendants had superior knowledge of the concealed facts because the facts consisted of 

internal Company communications, data, and projections. For example, Brandon, Short, and 

Barry received daily reports of sales. 873 The Directors received a “Weekly Board Update” with 

financial information. 874 And the Directors received updates at each board meeting about Toys 

“R” Us’ financial position, and how that financial position affected covenant compliance and 

access to the DIP financing. As discussed above, each of these facts was material because they 

directly related to the risk that Toys “R” Us would be unable to pay vendors for goods as they 

came due.

As a result, Defendants knew each of the concealed facts, for example:

873 Bk. Dkt. 2341 (Transcript of 3’20’17 hearing; Kurtz testimony) at 17 (“the management 

team” was watching “the day-to-day operating performance of the company during ... the 

holiday season” and “would literally receive ... a daily sales tally”).

874 E.g. Ex. 5 (2’7’18 weekly board update [DEFS_0125623]); Ex. 81 (Bekenstein) 185:2-7, 

187:20-189:31. 

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On December 13, 2017, Brandon informed the Board of Directors that Toys “R” Us was 

projected to “end the year with an EBITDA that would result in a default under its financing 

milestones.” 875

On January 24, 2018, Brandon told the Board that Toys “R” Us’ 2017 EBITDA was 

“projected to be under $300 million—significantly short of the Company’s $640 million 

projection in the DIP budget” which would lead to an “anticipated breach of financial covenants 

under the DIP Financing.” 876 And Brandon explained that “as a result of the Company’s poor 

performance and based on current projections the Company will now require a $150-$200 

million cash infusion from a third-party in order to fill a hole in the proposed budget and emerge 

as a reorganized operating business.” 877

Four days later, at a January 28, 2018, board meeting, Brandon told the Board that “the 

Company will require at least $200 million in order to emerge from the chapter 11 cases as a 

reorganized operating company, plus additional capital for planned capital expenditures.” 878 

And on January 31, 2018, Brandon and Short informed the Board that the company was more 

than $500 million below the level required to satisfy the company’s covenant milestones. 879

875 Ex. 164 (12’13’17 minutes [DEFS_0061932]).

876 Ex. 139 (1’24’18 minutes [TRU-Trust0000374989]).

877 Ex. 139 (1’24’18 minutes [TRU-Trust0000374989]); Ex. 88 (Brandon depo.) 555:17-22; Ex. 

88 (Brandon depo.) 376:23-377:1.

878 Ex. 140 (1’28’18 minutes [DEFS_0059009]).

879 Ex. 142 (1’31’18 minutes [DEFS_0059013]).

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By February 16, 2018, Barry, Brandon, and Short understood that the “contingency 

planning effort” for a liquidation was “well underway” and was targeting a “mid March date.” 880 

And the rest of the Director Defendants learned this at a board meeting on February 18, 2018. 881

b. Information about those material facts was not readily 

available to the Trade Vendors.

In particular, Toys “R” Us’ internal projections for covenant compliance and statements 

made at board meetings were not readily available to Trade Vendors. Defendants admitted as 

much: Trade Vendors “did not have access to the leadership team meetings” at Toys “R” Us. 882 

They “did not have access to the cash flow projections that were prepared by Toys “R” Us.” 883 

And the Trade Vendors “did not have the financial information about Toys “R” Us” such that 

they could “calculate Toys “R” Us’ cash flow position.” 884 Because the Trade Vendors lacked 

all of this information, they could not “determine whether or not [Toys “R” Us] was meeting or 

was likely to meet its financial covenants.” 885 Indeed, it was “impossible for a vendor to 

realistically assess and test complex covenants without detailed (and truthful) information and 

forecasts by the Company.” 886

Moreover, Trade Vendors could not learn any of this information from outside sources. 

As the vendors testified, news sources and rumors in the industry did not provide accurate 

information on which they could base their decisions. 887 The only way that Trade Vendors 

880 Ex. 146 (2’17’18 Brandon to Sussberg [TRU-Trust0000275355]); Ex. 89 (Barry depo.) 

420:25-421:3; Ex. 87 (Short depo.) 415:9-25.

881 Ex. 146 (2’17’18 Brandon to Sussberg [TRU-Trust0000275355]); Ex. 188 (2’18’18 board 

minutes [TRU-Trust0000303812]) at 3-4.

882 Ex. 89 (Barry depo.) 542:23-25.

883 Ex. 89 (Barry depo.) 543:1-5.

884 Ex. 89 (Barry depo.) 543:20-544:2.

885 Ex. 70 (Greenspan) ¶533. 

886 Id. ¶538.

887 Ex. 372 (Elliott (MGA) depo.) 292:21-293:8 (discussing that other sources be “just 

speculating on whether [Toys “R” Us was] in compliance or would eventually be out of 

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could learn this information was by getting it from Defendants or others at Toys “R” Us. 888 As 

one vendor put it “[s]hort of hacking or spying,” there was no way to obtain the information that 

was communicated in “a private conversation held in confidence behind closed doors.” 889 

Vendors attempted to learn that information from Toys “R” Us—they would “ask for and expect 

updates from Toys “R” Us about their status.” 890 But vendors were not told the truth when they 

asked for those updates. Instead, they were “told consistently” that Toys “R” Us was “confident

that they would emerge” and never given any information that contradicted the initial 

information posted on the Vendor FAQ. 891 Additional evidence of Defendants’ superior 

knowledge can be found in Trust SOF ¶¶ 404, 410, 416, 422, 428, 434, 440, 446, 452, 458, 464, 

470, 476, 481, 486, 491, 496, 502, 508, 513, 519, 525, 532, 537, 542, 548, 553, 559, 565, 571, 

576, 581, 586, 592, 597, 603, 608.

c. Defendants knew that the Trade Vendors were acting on the 

basis of mistaken knowledge.

As demonstrated above, Defendants knew that the concealed facts were material to the 

Trade Vendors’ decision to ship goods on credit and that the Trade Vendors did not have this 

information.

Brandon, Barry, and Short understood the importance of the DIP financing to Trade 

Vendors because they personally made statements to the Trade Vendors and gauged their 

reaction. “[I]t was important that [trade vendors] understood that [Toys ‘R’ Us] had financing 

that allowed us to continue going forward.” 892 The DIP was important because Trade Vendors 

compliance” with its covenants); Ex. 307 (Cooney (Jakks) depo.) 188:17-189:17 (“we couldn’t 

act on rumor”).

888 Ex. 70 (Greenspan) ¶535.

889 Ex. 330 (Woldenberg (Learning Resources) depo.) 230:11-231:8.

890 Ex. 372 (Elliott (MGA) depo.) 293:10-21.

891 Ex. 372 (Elliott (MGA) depo.) 278:25-279:11, 289:19-290:1.

892 Ex. 87 (Short depo.) 73:17-74:2; Ex. 88 (Brandon depo.) 206:11-14.

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wanted assurances that Toys “R” Us had the ability to pay for goods that it shipped. 893 And the 

presence of the DIP facilities “provide[d] assurance to vendors that, if they shipped goods on 

credit, they would be paid.” 894 After Barry and his team completed 30 discussions with Trade 

Vendors on September 18, 2017, he wrote an email to the entire leadership team including 

Brandon and Short, and explained that “Confirmation of the DIP financing is a crucial issue for 

the vendors” in deciding whether to “return to business as usual terms with a resumption of 

shipping.” 895

The Directors similarly understood the importance of the DIP financing to vendors 

because they were told about the vendor communication strategy implemented by Brandon and 

Barry. At the board meeting on September 27, 2017, the board was informed that a “vendor war 

room was established with the primary focus of getting vendors to start shipping again.” 896 

Barry described for the Directors “the war room process that Toys ‘R’ Us was following to reach 

out to trade vendors to get them to start shipping” to the board. 897

Barry explained to the Directors that “informing the trade vendors about the $3 billion in 

DIP financing was important to the trade vendors,” that vendors were “reacting positively” to 

“the liquidity available from the DIP financing” and “had agreed to ship.” 898 Barry explained 

that “to get trade vendors to start shipping,” the vendors were told that “Toys ‘R’ Us had 

liquidity to pay for goods shipped on credit as a result of obtaining DIP financing.” 899 As 

893 Ex. 87 (Short depo.) 44:3-8.

894 Ex. 87 (Short depo.) 54:13-18.

895 Ex. 156 (9’18’17 Barry re DIP crucial [TRU-Trust0000036336]); Ex. 89 (Barry) 132:11-

133:2.

896 Ex. 87 (Short depo.) 155:9-12; Ex. 162 (9’27’17 board minutes [TRU-Trust0000374722]); 

Ex. 77 (Raether) 261:13-18.

897 Ex. 89 (Barry depo.) 132:7-133:2; Ex. 162 (9’27’17 board minutes [TRU-Trust0000374722]).

898 Ex. 89 (Barry depo.) 132:7-134:1.

899 Ex. 77 (Raether) 262:3-12.

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Defendant Raether (one of the Directors) explained, the reason the Company obtained “a 

substantial amount of DIP financing” was “to be able to say...to the vendors, that ... it’s 

demonstrable that we have the cash to pay for the goods that we’ve ordered.” 900

As a result of those updates, the Directors knew that the “presence of the $3 billion in 

DIP financing” was “one of the substantial reasons why” Trade Vendors decided to ship goods to 

Toys “R” Us during the bankruptcy. 901

Defendants understood that Toys “R” Us “needed the DIP facilities to be able to pay 

vendors in the future.” 902 Without the DIP financing, Toys “R” Us would not “have the ability 

to pay for all goods shipped on credit.” 903 And Defendants further knew that Trade Vendors 

would be interested in knowing “whether there was a serious risk that the DIP financing would 

disappear” because vendors were assessing the risk of “whether they would be paid by Toys “R” 

Us.” 904 If vendors had been informed about Toys “R” Us’ “dire liquidity position or potential to 

default its financial covenants,” vendors would likely have stopped shipping. 905

But Defendants knew that Trade Vendors were not receiving updates about these risks, 

and were acting on the basis of mistaken information. The information that Trade Vendors 

had—from representations made throughout the bankruptcy—was that the DIP financing 

provided sufficient liquidity to fulfill Toys “R” Us’ obligations and that it would be available for 

the duration of the bankruptcy. 906 As discussed above, Defendants were aware that these 

900 Ex. 77 (Raether) 262:3-12.

901 Ex. 77 (Raether depo.) 262:23-263:17.

902 Ex. 87 (Short depo.) 55:7-11. 

903 Ex. 87 (Short depo.) 56:23-57:2. 

904 Ex. 87 (Short depo.) 311:1-9, 313:25-314:4.

905 Ex. 87 (Short depo.) 401:21-402:17.

906 See, e.g., Ex. 290 (Hentschell (Handi-Craft) depo.) 129:11-20, 126:13-127:13; Ex. 315 (Emby 

(Just Play) depo.) 276:24-277:15; Trust SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 451, 

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statements were no longer true, and knew that Defendants had superior knowledge as a result of 

communications, data, and projections that were internal to the Company. Defendants therefore 

knew that Trade Vendors did not have this information. 907

For example, Defendants Brandon and Short testified that they made the decision “not to 

voluntarily release our holiday sales results” contrary to the Company’s usual practice, because 

“holiday performance” was “significantly less than expected,” which “could have concerned” 

“the trade vendor community” because the Company “would have reported a weak holiday 

period,” and “[t]hey may have been concerned about the ability of Toys ‘R’ Us to continue going 

forward,” and “[t]he ability of Toys ‘R’ Us to pay for goods that were shipped on credit.” 908 

And, on January 10, 2018, Brandon told the Board about “the decision not to release holiday 

results, including the communications strategy related thereto.” 909

Thus, Defendants knew that Trade Vendors were acting on the basis of mistaken and 

incomplete knowledge in making their decision to ship goods to Toys “R” Us. And they had a 

duty to disclose facts to rectify that mistaken knowledge when entering into transactions with the 

Trade Vendors.

4. Defendants had a relationship of trust and confidence with Trade 

Vendors that created a duty to disclose.

A person has a duty to disclose “matters known to him that the other is entitled to know 

because of a fiduciary or other similar relation of trust and confidence between them.” 

Restatement (Second) of Torts §551(2)(a). “[A] duty to disclose material facts may arise out of a 

457, 463, 469, 475, 480, 485, 490, 495, 501, 507, 512, 518, 524, 530, 536, 541, 547, 552, 558, 

564, 570, 575, 580, 585, 591, 596, 602, 607. 

907 See, e.g., Ex. 89 (Barry depo.) 542:23-25.

908 Ex. 87 (Short depo.) 279:19-23, 281:18-282:9; Ex. 88 (Brandon depo.) 344:3-344:24, Ex. 88 

(Brandon depo.) 346:7-16, Ex. 89 (Barry depo.) 519:16-24.

909 Ex. 88 (Brandon depo.) 344:3-344:24; Ex. 89 (Short depo.) 279:19-23; Ex. 3 (1’10’18 BOD 

minutes [TRU-Trust0000374746]) at 2.

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situation where plaintiff places trust and confidence in defendant, thereby placing defendant in a 

position of influence and superiority over plaintiff. This position of superiority may arise by 

reason of friendship, agency, or experience.” Connick v. Suzuki Motor Co., 174 Ill. 2d 482, 500 

(1996) (internal citation omitted); see Schrager v. N. Cmty. Bank, 328 Ill. App. 3d 696, 708-09 

(2002) (holding that superior knowledge of financial history and specific facts of a development 

project “placed defendants in a position of influence”); R.I. Indus.-Recreational Bldg. Auth. v. 

CAPCO Steel, LLC, No. PC 14-6055, 2015 R.I. Super. LEXIS 90, at *36-37 (Super. Ct. July 22, 

2015) (“The duty to disclose, or duty to speak, does not depend on the existence of a fiduciary 

relationship between the parties. It may arise in any situation where one party imposes 

confidence in the other because of that person’s position, and the other party knows of this 

confidence.” (internal quotes omitted)); Hooper v. Barnett Bank of W. Fla., 474 So. 2d 1253, 

1257 (Fla. Dist. Ct. App. 1985) (“one who stands in a confidential or fiduciary relation to the 

other party to a transaction must disclose material facts”).

Trade Vendors placed trust and confidence in Defendants, and relied on that relationship 

in their dealings with Toys “R” Us and Defendants.

Trade Vendors had “very longstanding, mutually beneficial partnership[s]” with Toys 

“R” Us spanning many years. 910 Trade Vendors and Toys “R” Us representatives built 

“relationship[s] based on trust and long-term business together.” 911 When Defendants sent 

communications to vendors, they reminded vendors of this partnership. For example, the letter 

910 Ex. 307 (Cooney (Jakks) depo.) 126:18-24; Ex. 272 (Blankenship (Evenflo) depo.) 156:17-21 

(“We also considered them a partner); Ex. 88 (Brandon depo.) 191:8-14 (Confirming that he 

often “referred to the relationship between Toys “R” Us and toy vendors as ... a partnership.”)

911 Ex. 409 (McCallum (Step2) depo.) 148:14-149:15 (“[W]e looked each other in the eye and 

we made promises, and we delivered on those promises.”)

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sent bearing Barry’s signature that provided Trade Vendors with information about the DIP 

financing referred to the Trade Vendors as “valued business partners.” 912

This close relationship of trust extended to the relationships between Trade Vendors and 

Defendants. Barry had a relationship with many vendors “for years, even decades.” 913 Over 

that period, Barry had “developed a reputation as someone who would be honest” with the Trade 

Vendors. 914

Barry himself agreed that the relationship between him and trade vendors was “one of 

mutual trust and partnership.” 915 When Barry communicated with Trade Vendors during the 

bankruptcy, he reiterated that he considered “the relationship to be a partnership.” 916 And Barry 

continuously “encourage[d] trade vendors to believe that [he was] a man of [his] word and could 

be trusted.” 917

Trade Vendors confirmed that they had close relationships of Trust and confidence with 

both Barry and Brandon. For example, Jay Foreman of Basic Fun had “a warm, personal 

friendship and relationship from a business standpoint” with Barry, and felt that he could trust 

Barry. 918 And Joe Shamie of Delta testified that he and Barry were ‘close friends” and that he 

“trusted [Barry] immensely.” 919 Bill McCallum of Step2 testified of his close relationship with 

Brandon: “[W]hen David looked me in the eye and told me something, that’s it. We shake hands, 

and we moved forward.” 920 Additional evidence of Trade Vendors’ trust and confidence is 

912 Ex. 160 (9’21’17 Barry letter Business Partner Update [TRU-Trust0000374052]).

913 Ex. 89 (Barry depo.) 471:5-10.

914 Ex. 89 (Barry depo.) 88:19-23. 

915 Ex. 89 (Barry depo.) 471:8-10.

916 Ex. 89 (Barry depo.) 169:17-25.

917 Ex. 89 (Barry depo.) 201:10-13.

918 Ex. 232 (Foreman (Basic Fun) depo.) 216:1-217:1.

919 Ex. 255 (Shamie (Delta) depo.) 169:23-172:3.

920 Ex. 409 (McCallum (Step2) depo.) 178:5-18.

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found in Trust SOF ¶¶ 406, 412, 418, 424, 430, 436, 442, 448, 454, 460, 466, 472, 498, 504, 515, 

521, 527, 533, 544, 555, 561, 567, 588, 598, 610. 

These special relationships created a duty to share with Trade Vendors information 

material to the Company’s ability to pay for goods shipped on credit. As discussed above, the 

concealed facts were not readily available to Trade Vendors. But they were available to 

Brandon, Barry, and the other Defendants. Thus, Defendants’ superior knowledge about the 

Company’s ability to pay vendors coupled with the relationship of trust and confidence created a 

duty to disclose.

E. Defendants’ concealment was intended to induce action by the Trade 

Vendors.

“An intent to deceive is not an essential element of the cause of action; the required intent 

is an intent to induce action.” Beckwith v. Dahl, 205 Cal. App. 4th 1039, 1062 (2012) (internal 

citations omitted). To demonstrate the requisite intent for fraudulent concealment, a plaintiff 

must prove that “the concealment was intended to induce a false belief, under circumstances 

creating a duty to speak.” Neptuno Treuhand-Und Verwaltungsgesellschaft MBH v. Arbor, 295 

Ill. App. 3d 567, 572 (1998).

As demonstrated above, Defendants knew the importance of the concealed facts to Trade 

Vendors, understood that Trade Vendors did not have this information, but determined not to 

disclose them so that Trade Vendors would continue shipping goods to Toys “R” Us—this 

suffices to show knowledge and an intent to induce action.

Defendants intended (in fact had the strong desire) that the Trade Vendors continue 

shipping goods on credit. As long-time directors and officers of the Company, Defendants knew 

that the Company’s business model required obtaining goods from Trade Vendors. 2017 Form 

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10k at 16. They also knew that the Company did not have sufficient liquidity to pay for goods 

COD, and needed the Trade Vendors to ship goods on credit. 921

Similarly, Short testified that the Company’s “business model is effectively built on these 

trade terms.” 922 And if the Company’s “trade terms contracted from 60 days to cash-ondelivery,” this “would require over $1.0 billion in additional liquidity.” 923 Defendants knew that 

if “vendors stopped shipping, then the company would have been unable to continue as a going 

concern.” 924

As demonstrated above, Defendants also knew that Trade Vendors would stop shipping 

goods on credit if they became concerned about the Company’s ability to pay, and that the 

presence of the DIP financing was the source of liquidity that gave Trade Vendors the assurance 

to ship on credit. 925 For example, Barry wrote an email to the entire leadership team including 

Brandon and Short, and explained that “Confirmation of the DIP financing is a crucial issue for 

the vendors” in deciding whether to “return to business as usual terms with a resumption of 

shipping.” 926 Barry also explained to the Directors “the war room process that Toys ‘R’ Us was 

following to reach out to trade vendors to get them to start shipping” to the board. 927 And Barry 

explained that “informing the trade vendors about the $3 billion in DIP financing was important 

921 Ex. 51 (9’18’17 attach Brandon chapt 11 [DEFS_0027298]) at 7 (“The Company does not 

have available liquidity to pay cash in advance”).

922 Bk. Dkt. 30 (Short decl.) ¶112.

923 Bk. Dkt. 30 (Short decl.) ¶113.

924 Ex. 87 (Short depo.) 401:21-402:17.

925 Ex. 87 (Short depo.) 54:13-18.

926 Ex. 156 (9’18’17 Barry re DIP crucial (Barry Exh. 2) [TRU-Trust0000036336]); Ex. 89 

(Barry) 132:11-133:2.

927 Ex. 89 (Barry depo.) 132:7-133:2; Ex. 162 (9’27’17 board minutes [TRU-Trust0000374722]).

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to the trade vendors,” that vendors were “reacting positively” to “the liquidity available from the 

DIP financing” and “had agreed to ship.” 928

As demonstrated above, Defendants knew that Trade Vendors were interested in knowing 

“whether there was a serious risk that the DIP financing would disappear” because vendors were 

assessing the risk of “whether they would be paid by Toys “R” Us.” 929 And Defendants 

understood that if vendors had been informed about Toys “R” Us’ “dire liquidity position or 

potential to default its financial covenants,” vendors could have stopped shipping. 930 Had the 

Trade Vendors been made aware of the Company’s financial predicament and the analysis it had 

conducted, “they would have changed their shipping terms or stopped shipping altogether.” 931

Because Defendants knew that the Trade Vendors would stop shipping goods on credit if 

they learned the concealed facts, Defendants knew that by concealing that information the Trade 

Vendors would continue shipping goods on credit, which is the action Defendants intended and 

desired to induce in Trade Vendors. For example, Defendants Brandon and Short testified that 

they made the decision “not to voluntarily release our holiday sales results” contrary to the 

Company’s usual practice, because “holiday performance” was “significantly less than 

expected,” which “could have concerned” “the trade vendor community” because the Company 

“would have reported a weak holiday period,” and “[t]hey may have been concerned about the 

ability of Toys ‘R’ Us to continue going forward,” and “[t]he ability of Toys ‘R’ Us to pay for 

goods that were shipped on credit.” 932

928 Ex. 89 (Barry depo.) 132:7-134:1.

929 Ex. 87 (Short depo.) 311:1-9, 313:25-314:4.

930 Ex. 87 (Short depo.) 401:21-402:17.

931 Ex. 70 (Greenspan) ¶538.

932 Ex. 87 (Short depo.) 279:19-23, 281:18-282:9; Ex. 88 (Brandon depo.) 344:3-344:24, 346:7-

16, Ex. 89 (Barry depo.) 519:16-24.

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As another example, all Defendants knew that Brandon, Short, and Barry went to the 

New York Toy Fair for the express purpose of providing Trade Vendors information about the 

Company’s finances and plans for emergence that would provide “comfort that the Company can 

pay for shipments,” “so they [Trade Vendors] do not determine to stop shipping.” 933 Because 

Defendants knew that the concealed facts would not “comfort” Trade Vendors, Defendants failed 

to disclose them and did so with the knowledge that this would induce Trade Vendors to 

continue shipping. 934 The Trust has proffered powerful direct and circumstantial evidence that, 

by failing to disclose the concealed facts, Defendants intended to induce Trade Vendors to 

continue shipping, and Defendants have never disputed that they had such intent. “Questions of 

intent are normally questions of fact properly reserved for the jury.” Sloan v. GM LLC, No. 16-

cv-07244-EMC, 2020 U.S. Dist. LEXIS 71982, at *54 (N.D. Cal. Apr. 23, 2020) (collecting 

cases); Testo v. Ruggiero, NO. CV90 27 19 97 S, 1993 Conn. Super. LEXIS 1719, at *8 (Super. 

Ct. July 13, 1993) (“Summary judgment is inappropriate to determine questions of motive and 

intent.”).

F. Trade Vendors were unaware of the concealed facts and would have acted 

differently.

The fourth element of fraudulent concealment is: “(4) the plaintiff [was] unaware of the 

fact and would not have acted as he did if he had known of the concealed or suppressed fact.” 

Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 1105, 1130 (2014) (internal 

quotes omitted); Huls v. Clifton, Gunderson & Co., 179 Ill. App. 3d 904, 909 (1989) (“the 

concealed information must also have been such that the other party would have acted differently 

had he been aware of it”).

933 Ex. 148 (2’12’18 board minutes [TRU-Trust0000313960]).

934 Ex. 70 (Greenspan) ¶451. 

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As demonstrated above, the concealed facts were material to each Trade Vendor because 

they directly affected each Trade Vendor’s evaluation of the risk of shipping goods to Toys “R” 

Us. Each of the vendors testified that they were unaware of the concealed facts and would have 

acted differently had they been told each of the concealed facts—they would have stopped 

shipping goods on credit. Vendors would have either moved to cash in advance (ensuring that 

they received payment before parting with any additional goods), or stopped shipping and 

retained the goods (so that they could sell them to other purchasers). See Trust SOF ¶¶ 403, 409, 

415, 421, 427, 433, 439, 445, 451, 457, 463, 469, 475, 480, 485, 490, 495, 501, 507, 512, 518, 

524, 530, 536, 541, 547, 552, 558, 564, 570, 575, 580, 585, 591, 596, 602, 607. And the 

testimony of Defendants and outside advisors further supports that Trade Vendors would have 

acted differently by stopping shipments or tightening credit terms if they had learned the 

concealed facts. 935

G. Trade Vendors were damaged by Defendants’ concealment of facts.

The final element of a claim for fraudulent concealment is: “as a result of the 

concealment or suppression of the fact, the plaintiff must have sustained damage.” 

Prakashpalan v. Engstrom, Lipscomb & Lack, 223 Cal. App. 4th 1105, 1130 (2014) (internal 

quotes omitted).

Each Trade Vendor filled purchase orders between December 2017 and March 2018 and 

therefore sustained damage. As demonstrated above, had Defendants disclosed the concealed 

facts above, Trade Vendors would have acted differently by not shipping goods or by only 

shipping those goods if they received cash before shipment. Each Trade Vendor filled purchase 

orders between December 13, 2017, and March 14, 2018, when the Company’s liquidation was 

935 See Ex. 87 (Short depo.) 401:21-402:17; Ex. 84 (Sussberg depo.) 176:6-14; Ex. 85 (Kurtz 

depo.) 270:24-271:7.

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announced. Because Trade Vendors shipped goods to Toys “R” Us on credit, and were not paid 

for those goods they sustained damage. See Trust SOF ¶¶ 405, 411, 417, 423, 429, 435, 441, 

447, 453, 459, 465, 471, 477, 482, 487, 492, 497, 503, 509, 514, 520, 526, 532, 538, 543, 549, 

554, 560, 566, 572, 577, 582, 587, 593, 599, 604, 609. 

Each Trade Vendor’s administrative proof of claim lays out the purchase orders that the 

Trade Vendor shipped and was not paid for. This Court approved those proofs of claim. 936 And 

the specific amounts of those damages are detailed and supported by the Trust’s experts. 937

H. All Defendants are liable for the fraudulent concealments and 

representations.

For Defendants to be liable for fraudulent concealment there is no requirement that each 

Defendant personally prepare or distribute each non-disclosure, misleading statement, or halftruth to Trade Vendors. Instead, Defendants are personally liable for the representations or nondisclosures of other officers or employees if either (a) the Defendant intends that the 

representation or concealment will be passed on and influence a vendor, or (b) the Defendant 

fails to stop fraudulent conduct.

1. Defendants intended that that the concealment would be passed on 

and influence Trade Vendors.

“One who makes a misrepresentation or false promise or conceals a material fact is 

subject to liability if he or she intends that the misrepresentation or false promise or concealment 

of a material fact will be passed on to another person and influence such person’s conduct in the 

transaction involved.” Whiteley v. Philip Morris, Inc., 117 Cal. App. 4th 635, 681 (2004)

(internal quotes omitted); Comm. on Children’s Television, Inc. v. Gen. Foods Corp., 35 Cal. 3d 

197, 219 (1983).

936 See, e.g., Bk. Dkt. 4583, Bk. Dkt 5171.

937 See Ex 70 (Greenspan) ¶¶545-571, Ex. 135 (Mills) ¶¶55-61.

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As the Restatement frames it, a person is liable for a fraudulent misrepresentation 

received by another “if the misrepresentation, although not made directly to the other, is made to 

a third person and the maker intends or has reason to expect that its terms will be repeated or its 

substance communicated to the other, and that it will influence his conduct in the transaction or 

type of transactions involved.” Restatement (Second) of Torts § 533, quoted with approval 

Whiteley v. Philip Morris, Inc., 117 Cal. App. 4th 635, 681, 11 Cal. Rptr. 3d 807, 845 (2004); 

Giulietti v. Giulietti, 65 Conn. App. 813, 842 n.24 (2001). 

In the immediate aftermath of the bankruptcy filing, Defendants intended that Trade 

Vendors receive representations about the DIP financing that would influence the Trade Vendors 

to ship goods to Toys “R” Us. As discussed above, Defendants knew that Toys “R” Us needed 

Trade Vendors to ship goods on credit. Defendants also knew that Trade Vendors needed 

assurances about payment so that they would make the decision to ship goods to Toys “R” Us.938 

And they knew that the DIP financing would provide Trade Vendors with assurances about 

payment. In the words of Defendant Raether, Toys “R” Us’ DIP financing would enable Toys 

“R” Us “to be able to say... to the vendors, that ... its demonstrable that we have the cash to pay 

for the goods that we’ve ordered.” 939 To convince Trade Vendors to ship goods to the company 

on credit, Defendants thus needed to ensure that each Trade Vendor was informed about the DIP 

financing. 

To ensure that the Trade Vendors received those representations, Defendants Brandon 

and Barry took the lead in establishing a “vendor war room” that would aim to “ge[t] vendors to 

start shipping again.” 940 As part of the war room process, Brandon and Barry instructed the 

938 Ex. 87 (Short depo.) 44:3-8.

939 Ex. 77 (Raether depo.) 262:3-12.

940 Ex. 87 (Short depo.) 155:9-12.

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Toys “R” Us merchant team to deliver specific representations to Trade Vendors about the $3.0 

billion in new financing, and Toys “R” Us’ ability to pay Trade Vendors for goods shipped for 

the duration of the bankruptcy. 941 Each of the other Defendants was informed that the war room 

was established and that Toys “R” Us employees were communicating the specific messages 

about the DIP financing that would provide assurances to vendors that they would be paid for 

goods that they ordered. 942 No Defendant objected to this process because it accomplished their 

goal: informing Trade Vendors of the presence of the DIP financing so that Trade Vendors 

would determine to ship goods during the bankruptcy. 

Moreover, Defendants intended that Brandon, Barry, and the team at the New York Toy 

Fair reassure Trade Vendors and provide them “comfort so they do not determine to stop 

shipping.” 943 In a board meeting just days before the New York Toy Fair, “there was a 

discussion about the upcoming New York Toy Fair and that Dave Brandon” would be having 

“conversations with the vendors about whether they would continue to ship or not.” 944 

Defendants knew that the concealed facts about Toys “R” Us’ liquidity hole, need for an 

additional cash infusion, and consideration of a full or partial liquidation would not provide 

comfort to the Trade Vendors. Instead, those facts would cause Trade Vendors to stop 

shipping.945 But no Defendant raised any objection to Brandon’s plan. They did not instruct 

Brandon to refrain from visiting the New York Toy Fair. They did not tell Brandon that instead 

of providing “comfort,” he should provide Trade Vendors with the current facts about Toys “R” 

941 Ex. 174 (Vendor Talking Points [TRU-Trust0000336056]); Ex. 89 (Barry depo.) 59:13-60:2.

942 Ex. 87 (Short depo.) 155:9-12; Ex. 162 (9’27’17 board minutes [TRU-Trust0000374722]); 

Ex. 77 (Raether) 261:13-18; Ex. 89 (Barry depo.) 132:7-133:2.

943 Ex. 148 (2’12’18 minutes [DEFS_0059030]).

944 Ex. 77 (Raether depo.) 282:13-283:4.

945 See Ex. 87 (Short depo.) 401:21-402:17.

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Us’ situation. Instead, Defendants allowed Brandon, Barry, and a team of Toys “R” Us 

employees to attend the New York Toy Fair and deliver misleading half-truths. As Raether 

confirmed, comforting statements at the New York Toy Fair “that things are going great,” that 

Toys “R” Us was “working on [its] plans to emerge from bankruptcy” and that Toys “R” Us was 

“looking forward to the next holiday season,” would not be “the whole truth.” 946 Those 

comforting statements necessarily required concealing the facts that Defendants knew would 

cause Trade Vendors to stop shipping. 

As demonstrated above, each Defendant had knowledge of the concealed facts and had 

reason to expect (in fact intended) that the non-disclosure would be communicated to Trade 

Vendors and would influence Trade Vendors in shipping goods to the Company on credit. 

Accordingly, all Defendants are liable for all acts of fraudulent concealment.

Such liability does not require that a Defendant knew with certainty that non-disclosure 

would reach each Trade Vendor. A defendant is deemed to expect that “a misrepresentation, 

false promise or nondisclosure of material fact will be passed on to another person and influence 

that person’s conduct if he or she has information that would lead a reasonable person to 

conclude that there is a likelihood that it will reach such person and will influence his or her 

conduct in the transaction involved.” Whiteley, 117 Cal. App. 4th at 681. Furthermore, it does 

not matter whether each Defendant knew the identity of each Trade Vendor. If a representation 

or non-disclosure is made to “a particular class of persons, [the defendant] is deemed to have 

deceived everyone in that class.” Geernaert v. Mitchell, 31 Cal. App. 4th 601, 605 (1995)

946 Ex. 77 (Raether depo.) 296:4-19.

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2. Defendants failed to stop fraudulent conduct.

Defendants are also liable under the alternative theory that they failed to stop fraudulent 

conduct.

Directors and officers of a corporation are “personally liable for intentional torts when 

they knew or had reason to know about but failed to put a stop to tortious conduct.” Asahi Kasei 

Pharma Corp. v. Actelion Ltd., 222 Cal. App. 4th 945, 966 (2013); Frances T. v. Village Green 

Owners Assn., 42 Cal. 3d 490, 504 (1986) (director liable for tort claim if “they specifically 

knew or reasonably should have known that some hazardous condition or activity under their 

control could injure plaintiff, they negligently failed to take or order appropriate action to avoid 

the harm”); PMC, Inc. v. Kadisha, 78 Cal. App. 4th 1368, 1380 (2000) (officers are “personally 

liable for fraud committed by a managerial employee because [the officers] knew about and 

allowed the tortious conduct to occur”); Polonetsky v. Better Homes Depot, Inc., 97 N.Y.2d 46, 

55 (2001) (“In actions for fraud, corporate officers and directors may be held individually liable 

if they participated in or had knowledge of the fraud, even if they did not stand to gain 

personally.”); Nielsen Co. (US), LLC v. Success Sys., 2012 U.S. Dist. LEXIS 115774, at *16-18 

(S.D.N.Y. Aug. 13, 2012) (same).

As demonstrated above:

• All Defendants knew that the Company’s officers and employees had conducted a “war 

room” strategy to persuade Trade Vendors to ship goods on credit. They knew that the 

Company’s officers and directors had represented to Trade Vendors that the Company 

had the ability to pay Trade Vendors because it had access to over $3 billion in DIP 

financing throughout the restructuring process.

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• All Defendants knew the DIP financing was crucial to the Trade Vendor’s continuing 

to ship goods on credit.

• All Defendants knew that the Company was continuing to place orders for goods on 

credit, thereby representing that the Company had the ability to pay for the goods.

• All Defendants knew the concealed facts and knew that the Company’s officers and 

employees were not disclosing those facts to Trade Vendors.

• All Defendants knew that the Company’s officers and employees would be attending 

the New York Toy Fair, where they would be receiving questions from Trade Vendors 

seeking assurances that the Company can pay for shipments, and that officers and 

employees would respond by providing Trade Vendors comfort so that they do not 

determine to stop shipping.

Because Defendants thus “knew or had reason to know about but failed to put a stop to 

tortious conduct,” Defendants are “personally liable” for those torts. Asahi Kasei Pharma Corp. 

v. Actelion Ltd., 222 Cal. App. 4th 945, 966 (2013).

VIII. Defendants are liable for fraudulent misrepresentation.

A. Law of fraudulent misrepresentation.

A claim for fraudulent misrepresentation claim has the following elements: “(1) a false 

statement of material fact, (2) knowledge or belief of the falsity by the party making it, (3) 

intention to induce the other party to act, (4) action by the other party in reliance on the truth of 

the statements, and (5) damage to the other party resulting from such reliance.” Kopley Grp. V., 

Ltd. P’ship v. Sheridan Edgewater Props., 376 Ill. App. 3d 1006, 1017 (2007); see Gold v. Univ. 

of Bridgeport Sch. of Law, 19 Conn. App. 379, 382 (1989); Cooper v. Equity Gen. Ins. Co., 219 

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Cal. App. 3d 1252, 1262 (1990) (describing elements as “(1) representation; (2) falsity; (3) 

knowledge of falsity; (4) intent to deceive; and (5) reliance and resulting damages”).

The Trust has powerful evidence proving each of these elements.

B. The representations from Defendants were actionable.

1. The representations.

As demonstrated above, Defendants made representations directly to Trade Vendors, 

authorized and instructed others to make representations directly to the Trade Vendors, and 

authorized representations that Toys “R” Us would disseminate publicly. These statements are 

summarized here:

a. September representations

Vendor FAQ on the website:

• Toys “R” Us had “sufficient liquidity to meet its obligations” because it had “access to 

up to $2.5 billion in debtor-in-possession (‘DIP’) financing which will support our 

business and enable us to meet our financial obligations throughout the restructuring 

process.” 947

• The Company would later “access almost $1 billion in additional financing for a total 

of $3.125 billion in new financing.” 948 It also stated that Toys “R” Us “will pay 

vendors for all goods and services received on or after the filing date.” 949 

Telephone calls directly to Trade Vendors:

947 Ex. 172 (Vendor FAQ (Barry Exhibit 8) [TRU-Trust0000349256]).

948 Id. 949 Ex. 172 (Vendor FAQ (Barry Exhibit 8) [TRU-Trust0000349256]).

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• The Company’s “operations are continuing in the ordinary course,” and “We intend to 

pay vendors in full under normal terms for goods and services provided on or after the 

filing date.” 950

• The Company does “have sufficient liquidity to meet its obligations” and “we have 

commitments for over $3.0 billion in new financing that will help support our 

operations and enable is us to meet our financial obligations during the restructuring 

process.” 951

• “the DIP financing would provide liquidity to Toys ‘R’ Us to be able to pay for goods 

that were shipped on credit,” 952 and “would enable Toys ‘R’ Us to pay for merchandise 

that was shipped on credit while Toys ‘R’ Us was in bankruptcy,” 953

Barry’s letter:

• “We have received commitments for over $3 billion in new financing that will support 

our operations and enable us to meet our business obligations during the financial 

restructuring process.” 954

Press releases:

950 Ex. 174 (Vendor Talking Points [TRU-Trust0000336056]); Ex. 89 (Barry) 59:13-60:2.

951 Ex. 174 (Vendor Talking Points [TRU-Trust0000336056]); Ex. 170 (TRU Master Q&A 

(Barry Exhibit 7) [TRU-Trust0000322879]) at 2, 13; Ex. 173 (Vendor reference guide 

[DEFS_0026186]) at 8; Ex. 89 (Barry depo.) 47:13-21.

952 Ex. 89 (Barry depo.) 73:11-5.

953 Ex. 89 (Barry depo.) 35:6-14.

954 Ex. 160 (9’21’17 Barry letter Business Partner Update [TRU-Trust0000374052]); Ex. 89 

(Barry) 95:20-97:2.

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• Toys “R” Us “successfully obtained debtor-in-possession financing today” and Toys 

“R” Us “can assure our vendors that we are in a good position to accept shipments on 

a normal basis and they have great assurance they will be paid.” 955

Short’s declaration:

• “the DIP Facilities will also provide the Debtors liquidity to fund the administrative 

costs of these chapter 11 cases ... and emerge from bankruptcy.” 956

• “the DIP Facilities will provide the Debtors with the liquidity needed to reactivate their 

supply chain, provide assurance to their vendors, and capitalize on the holiday season.” 

957

b. December-March representations

The Vendor FAQ on the website

• The same representations identified above continued to appear on the Vendor FAQ.

Purchase orders representing the ability to pay

• An implied representation that the Company “has the wherewithal to repay all credit 

extended.”

December 21 conference call with vendors.

955 Ex. 157 (9’19’17 1000 pm Reuters [TRU-Trust0000375540]); Ex. 159 (9’20’17 TRU First 

Day Press Release [TRU-Trust000374024]).

956 Short declaration (Bk. Dkt. 20) at ¶127.

957 Id. at ¶130.

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• The Company had “secured $3.1 billion in DIP financing” and “we obtained a very 

strong DIP financing package which put us in a position to have strong liquidity 

through this process.” 958 

Hong Kong Toy Fair, January 7-11, 2018.

• The Company had “sufficient liquidity to meet its obligations” and had “a commitment 

for over $3.0 billion in new financing which will support our business and enable is us 

to meet our financial obligations during the restructuring process.” 959

• “Toys ‘R’ Us had received ... ‘DIP financing’ that would help us get through and exit 

bankruptcy” 960

• Barry stated: “things are fine,” “[e]verything’s on track” and “[f]inance is in place,” 

and was “giving his word” that vendors would be paid for the goods that they shipped 

to Toys “R” Us. 961

Larian

• An MGA executive asked Brandon and Barry about Jim’s Silver post that: “Word has 

leaked from one of ToysRUS financial owners (Bain, Vornado, KKR) that they are 

leaning toward a liquidation” and were considering various options ranging from 

shrinking the footprint to “a 200 store chain” or “liquidate the whole thing.” 962

958 Ex. 64 (12’21’17 Transcript, Q3 Earnings Call [TRU-Trust0000323034]).

959 Ex. 170 (TRU Master Q&A (Barry Exhibit 7) [TRU-Trust0000322879]) at 2, 13; Ex. 173 

(Vendor reference guide [DEFS_0026186]) at 8; Ex. 89 (Barry depo.) 47:13-17. 

960 Ex. 90 (Baime depo.) 25:3-16, 26:25-27:7.

961 Ex. 232 (Foreman (Basic Fun) depo.) 263:17-264:11, 266:15-267:14. 

962 Ex. 167 (Larian Post); Ex. 147 (2’3’18 Brandon to Larian re Silver post [TRUTrust0000272792]). 

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• In response, Brandon communicated that Larian should not “rely upon Jim Silver as 

being a source of useful and accurate information about decisions being made in the 

boardroom of TRU.” 963

• Brandon also said Toys “R” Us was “working on the best plan for emergence and a 

variety of alternatives are being considered.” 964 “If there is something to tell you, you 

will be hearing it from us– not rumors on LinkedIn from Jim Silver.” 965

NY Toy Fair February 17-19, 2018

• “The Leadership Team and our advisors are totally focused on our plans for 

emergence.” 966

• Brandon told Trade Vendors in a “reassuring and comforting manner” that Toys “R” 

Us was “working through the bankruptcy” and was working on “exiting” and “having 

a business.” 

• “Toys “R” Us was working on plans to emerge from bankruptcy.” 967

• Toys “R” Us “would emerge from bankruptcy.” 968

• Toys “R” Us was “focused on emergence and focused on the holiday season.” 969

963 Ex. 147 (2’3’18 Brandon to Larian re Silver post [TRU-Trust0000272792]) at 2. 

964 Id. at 2.

965 Id. at 2. 

966 Ex. 150 (2’15’18 – Von Walter to Barry re fact sheet [TRU-Trust0000362680]); Ex. 149 

(2’15’18 NYTF Fact Sheet FINAL [TRUTrust0000362681]).

967 Ex. 88 (Brandon depo.) 500:4-7.

968 Id. at 5; Ex. 89 (Barry depo.) 272:4-8.

969 Ex. 89 (Barry depo.) 343:6-13. 

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• “we were working hard on the emergence plans,” 970

• it was “business as usual at Toys “R” Us.” “Toys ‘R’ Us was looking forward to 

working with the vendor in the holiday season,” and “wanted to work with the vendor 

once [Toys “R” Us] emerged from Chapter 11.” 971

• things are fine,” “[e]verything’s on track” and “[f]inance is in place,” and was “giving 

his word” that vendors would be paid for the goods that they shipped to Toys “R” Us.972

Mattel and Lego representations.

• To LEGO Group: Toys “R” Us has only “two financial covenants” and would be “in 

compliance with those covenants” throughout March 3, 2018. 973

• To Mattel: cash flow forecasts purporting to “demonstrate the Company’s ability to 

comply with February covenants.” 974 Statements by Brandon that Toys “R” Us was 

in compliance with its covenants because otherwise it would have been required to file 

an 8-K. 

2. The representations are actionable as facts capable of empirical 

verification.

Each of the representations is actionable because the truth or falsity of each of these 

statements could be objectively verified. 

970 Ex. 89 (Barry depo.) 271:13-272:15

971 Ex. 93 (Ryan depo.) 174:6-10.

972 Ex. 232 (Foreman (Basic Fun) depo.) 263:17-264:11, 266:15-267:14. 

973 Ex. 151 (3’1’18 financial covenant forecast).

974 Ex. 186 (2’26’18 Johnson to Euteneuer cash flow forecast [MATTEL00005494]). 

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Each of the representations about DIP financing were verifiable as true or false in several 

respects. Whether the Company had “access to” or had “received commitments for” the 

financing is a fact that can be determined to be true or false, and can be objectively verified by 

examining documentation and emails. Objective evidence would demonstrate whether the 

Company did have access to the financing, or whether it did not. The representation as to the 

amount of financing, such as “over $3 billion in new financing” or “$3.125 billion in new 

financing” is a fact whose truth or falsity can be determined. Numerical amounts are facts; and 

the amount of new financing could be verified from documentation. 

The representation that the amount of DIP financing was sufficient to “enable us to meet 

our financial obligations throughout the restructuring process” was a fact whose truth or falsity 

could be objectively verified. 975 The statement would be clearly true, for example, if the 

Company’s budget for the restructuring process projected a $200 million surplus in liquidity. 

And the statement would be clearly false if the budget projected a $200 million shortfall in 

liquidity. As Defendant Short admitted, by the end of January that representation had become 

verifiably false: Toys “R” Us needed “access to additional financing for that to be true.” 976 And 

that financing would have to be “on the order of 150 to $200 million.” 977

And a representation as to the duration of availability, such as “throughout the 

restructuring process,” or “while Toys ‘R’ Us was in bankruptcy” is a fact capable of being true 

or false and subject to verification by examining objective documentation. The fact would be 

certainly true, for example, if financing documents provided that the financing was committed 

“for the duration of the restructuring process,” and it would be clearly false if the documents 

975 Ex. 172 (Vendor FAQ [TRU-Trust0000349256]). 

976 Ex. 87 (Short depo.) 442:17-24, 443:2-13.

977 Ex. 87 (Short depo.) 444:16-24.

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provided that the financing would end in six months, which could be well before any 

restructuring could be completed. 

 Each of the representations about the sufficiency of the company’s liquidity include 

facts capable of verification as true or false. Representations such as that the Company does 

“have sufficient liquidity to meet its obligations,” or will “pay vendors in full under normal 

terms,” or has the “ability to pay” for goods shipped on 60 days credit include a statement of fact 

about the current state of the Company’s liquidity projection. And that fact can be verified as 

true or false based on examining objective evidence. The statement would be clearly true, for 

example, if the Company was projecting that it would have several hundred million dollars in 

excess liquidity in 60 days. It would be clearly false if the Company projected a large liquidity 

shortfall in 60 days.

Each of the representations about the Company’s plan for emergence or liquidation 

include facts capable of verification as true or false, by examining objective documentation, such 

as emails and board minutes. For example, a representation that the Company was “working on 

the best plan for emergence” and was not considering the option of “liquidate the whole thing,” 

would be clearly false if management and advisors were in fact considering the option of 

liquidation. Similarly, a representation that the Company’s “Leadership Team and our advisors 

are totally focused on our plans for emergence,” would be false if they were in fact focusing in 

substantial part on plans to liquidate the Company.

Similarly, representations that its “business as usual” and that the Company’s “operations 

are continuing in the ordinary course” contain facts capable of verification as true or false by 

examining objective records. The statement would be clearly false if, for example, that 

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Company’s management had determined that the Company could no longer be continuing 

business as usual and instead would need to liquidate the U.S. business.

3. The representations are actionable statements that imply the existence 

of facts that justify a belief in the truth of the statement and imply the 

maker knows of nothing that would make the statement improbable.

A statement that is a prediction of future events or actions, or that is an opinion, is also 

actionable if it “impl[ies] facts which justify a belief in the truth of the opinion.” Cohen v. S & S 

Constr. Co., 151 Cal. App. 3d 941, 946 (1983) (internal quotes omitted). “A statement about the 

future may imply a representation concerning an existing or past fact.” Restatement (Second) of 

Torts § 525, comment e. 

“Similarly a statement that is in form a prediction or promise as to the future course of 

events may justifiably be interpreted as a statement that the maker knows of nothing which will 

make the fulfillment of his prediction or promise impossible or improbable.

Restatement (Second) of Torts, § 525. Harrison v. Westinghouse Savannah River Co., 176 F.3d 

776, 792 (4th Cir. 1999) (“opinion ... carries with it an implied assertion ... that the speaker 

knows no facts which would preclude such an opinion” (internal quotes omitted)). 

For example, if a contractor provides “cost ... estimates” for what a project will end up 

costing, this implies existing, reasonable cost projections that justify the estimate, and it is 

actionable. Harrison, 176 F.3d at 792. As another example, a sales agent’s representations that 

a condominium with structural defects was “luxurious” and an “outstanding investment” was 

actionable. Cooper v. Jevne, 56 Cal. App. 3d 860, 866 (1976); see Southern Cal. etc. 

Assemblies of God v. Shepherd of Hills etc. Church, 77 Cal. App. 3d 951, 959 (1978) (a realtor’s 

opinion that the purchaser of a particular lot would have an enforceable access easement is 

actionable).

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All of the representations implied the existence of verifiable facts justifying the 

statements, and are therefore actionable. 

Statements about the Company’s liquidity such as that the Company has “sufficient 

liquidity to meet its obligations” imply the existence of recent financial data, financial modeling, 

and calculations justifying the statement. And such statements imply that there are no facts that 

would make the statement improbable. For example, if the Company’s then existing projections 

showed a $200 million liquidity shortfall, that is a fact (the existence of that projection) that 

would make the statement improbable. Accordingly, the representation that the Company has 

sufficient liquidity to pay trade vendors in full for goods shipped on credit implies that no such 

facts are known.

Statements characterizing the DIP financing as “a very strong DIP financing package 

which put us in a position to have strong liquidity through this process,” imply the existence of 

data and analysis justifying the statement. And it also implies that there are no known facts that 

would make statement impossible or improbable. 

Some representations include, in part, a statement about the Company’s future business 

operations, such as that it was “business as usual at Toys ‘R’ Us,” that the company was 

“focused on emergence,” and that management and advisors were “totally focused on our plans 

for emergence.” These representations imply the existence of facts that would justify the 

statement (e.g. supporting analyses and plans), and that no known facts would make the 

representation impossible or improbable (e.g. that the Company had determined that emergence 

as a going concern was unlikely to materialize, or was working on plans for liquidation).

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4. The representations are actionable statements because Defendants 

possessed superior knowledge or special information on the subject.

As discussed above, “it is well settled that an opinion may be actionable when it is made 

by a party who ... possesses, or assumes to possess, superior knowledge or special information 

regarding the subject matter.” Jolley v. Chase Home Fin., LLC, 213 Cal. App. 4th 872, 892, 153 

Cal. Rptr. 3d 546, 562 (2013) (internal quotes omitted).

For example, a defendant with superior knowledge to the plaintiff was held liable for 

stating that it “was ‘highly probable,’ and ‘likely,’ and ‘look[ed] good’—that a modification of 

the loan agreement would be approved.” Jolley, 213 Cal. App. 4th at 892. Similarly, a broker 

with superior knowledge to the plaintiff buyer represented that “early prepayment of notes was 

‘guaranteed,’” and this statement was actionable. Apollo Capital Fund LLC v. Roth Capital 

Partners, LLC, 158 Cal. App. 4th 226, 241 (2007); see PhotoMedex, Inc. v. Irwin, 601 F.3d 919, 

931 (9th Cir. 2010) (defendants’ statement “in March 2003 that the Pharos laser would be 

available that summer, within just a few months” was actionable).

As demonstrated above, because a company’s internal data sources and internal 

communications are, by definition, internal to the company, vendors do not have access to that 

information unless the company takes specific action to communicate the information outside the 

company. Accordingly, the Trade Vendors could not access the Company’s internal data sources 

and internal communications. 

As Defendants admitted, Trade Vendors “did not have access to the leadership team 

meetings” at Toys “R” Us. 978 They “did not have access to the cash flow projections that were 

prepared by Toys “R” Us.” 979 And the Trade Vendors “did not have the financial information 

978 Ex. 89 (Barry depo.) 542:23-25.

979 Ex. 89 (Barry depo.) 543:1-5.

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about Toys “R” Us” such that they could “calculate Toys “R” Us’ cash flow position.” 980 

Because the Trade Vendors lacked all of this information, they could not “determine whether or 

not [Toys “R” Us] was meeting or was likely to meet its financial covenants.” 981 Indeed, it was 

“impossible for a vendor to realistically assess and test complex covenants without detailed (and 

truthful) information and forecasts by the Company.” 982 See Trust SOF ¶¶ 404, 410, 416, 422, 

428, 434, 440, 446, 452, 458, 464, 470, 476, 481, 486, 491, 496, 502, 508, 513, 519, 525, 532, 

537, 542, 548, 553, 559, 565, 571, 576, 581, 586, 592, 597, 603, 608. 

The Defendants had access to the Company’s internal data and communications that the 

Trade Vendors lacked. The Defendants therefore possessed both superior knowledge and special 

information on the subjects of (i) the Company’s recent financial results including sales, 

margins, SG&A costs, and capital expenditures, (ii) the Company’s projected financial results 

including sales growth/ decline, margins, costs, and capital expenditures, (iii) the Company’s 

plan for emergence or liquidation, (iv) the Company’s compliance with financial covenants, (v) 

the Company’s current or projected liquidity. 

Each of the representations is a statement on one or more of these subjects. The 

Defendants therefore possessed both superior knowledge and special information on the subject 

matter of the representations. The representations are therefore actionable. 

* * *

The representations are actionable on each of the three bases. Moreover, “‘where there is 

a reasonable doubt as to whether a particular statement is an expression of opinion or the 

affirmation of a fact, the determination rests with the trier of the facts.’” Jolley v. Chase Home 

980 Ex. 89 (Barry depo.) 543:20-544:2.

981 Ex. 70 (Greenspan) ¶533.

982 Id. ¶538.

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Fin., LLC, 213 Cal. App. 4th 872, 893, (2013) (quoting Willson v. Municipal Bond Co., 7 Cal. 2d 

144, 151 (1936)).

C. The representations were material.

“[A] fact is material if a reasonable man would attach importance to its existence or 

nonexistence in determining his choice of action in the transaction in question.” Persson v. 

Smart Inventions, Inc., 125 Cal. App. 4th 1141, 1163 (2005) (internal quotes omitted). As 

demonstrated above, the Company’s ability to pay for goods shipped on credit was highly 

material to a Trade Vendors’ decision-making. And the Trade Vendors would “attach 

importance” to the existence or nonexistence of any fact that materially affect the credit risk of 

shipping to Toys ‘R’ Us. 

And, as demonstrated above, Toys “R” Us’s ability to pay vendors was contingent on the 

DIP financing, and, as Defendants admitted, it was the presence of the DIP financing that 

provided vendors with the assurance that Toys “R” Us would be able to pay them for goods 

shipped on credit. 983 The DIP financing was “necessary for Toys ‘R’ Us to have liquidity to pay 

for goods shipped on credit.” 984 And the presence of the DIP financing was critical to the 

vendors as the Company’s source of liquidity to pay for goods shipped on credit. 985 For 

example, Defendant Barry reported to Brandon that “Confirmation of the DIP financing is a 

crucial issue for the vendors.” 986 

Defendants admit that Trade Vendors would be interested in knowing “whether there was 

a serious risk that the DIP financing would disappear.” 987 A risk that the DIP financing would 

983 See, e.g., Ex. 87 (Short depo.) 53:21-54:4.

984 Ex. 89 (Barry depo.) 396:17-21.

985 Ex. 89 (Barry depo.) 73:16-22; Ex. 372 (Elliott (MGA) depo.) 265:20-266:8; Ex. 321 (Kamler

(Kent) depo.) 166:9-16; Ex. 330 (Woldenberg (Learning Resources) depo.) 198:3-199:8.

986 Ex. 156 (9’18’17 Barry re DIP crucial [TRU-Trust0000036336]).

987 Ex. 87 (Short depo.) 434:20-435:1; Ex. 89 (Barry depo.) 461:9-12.

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disappear in the coming weeks or months would affect a Trade Vendor’s risk calculus on 

whether it should ship goods to Toys “R” Us on credit. The loss of the financing would mean 

that Toys “R” Us would no longer have the liquidity to pay vendors “for all goods shipped on 

credit.” 988

Therefore, each of the representations was material to a Trade Vendors’ decision-making 

because it would materially affect the credit risk of shipping to Toys ‘R’ Us, and a reasonable 

vendor would attach importance to the existence or non-existence of the fact. 

Representations addressing the Company’s liquidity and ability to pay were material 

because liquidity and ability to pay directly affect the credit risk. Examples include:

• Toys “R” Us had “sufficient liquidity to meet its obligations”

• Toys “R” Us “can assure our vendors that we are in a good position to accept shipments 

on a normal basis and they have great assurance they will be paid.” 

• “We will pay vendors in full under normal terms for goods and services provided on or 

after the filing date.”

• The implied representation in each purchase order that the Company “has the 

wherewithal to repay all credit extended.” 

Representations addressing the DIP financing were material because that financing was 

the source of liquidity for the Company’s ability to pay for goods shipped on credit, and a 

reasonable vendor would attach importance to the existence or nonexistence of the DIP 

financing. Examples include: 

988 Ex. 87 (Short depo.) 56:23-57:2.

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• The Company had “access to up to $2.5 billion in debtor-in-possession (‘DIP’) 

financing which will support our business and enable us to meet our financial 

obligations throughout the restructuring process.” 

• “We have received commitments for over $3 billion in new financing that will support 

our operations and enable us to meet our business obligations during the financial 

restructuring process.”

• “we have commitments for over $3.0 billion in new financing that will help support 

our operations and enable is us to meet our financial obligations during the restructuring 

process.” 

• “the DIP financing would provide liquidity to Toys ‘R’ Us to be able to pay for goods 

that were shipped on credit,” 989 and “would enable Toys ‘R’ Us to pay for merchandise 

that was shipped on credit while Toys ‘R’ Us was in bankruptcy,” 990

• Toys “R” Us “successfully obtained debtor-in-possession financing today” and 

• “the DIP Facilities will also provide the Debtors liquidity to fund the administrative 

costs of these chapter 11 cases ... and emerge from bankruptcy.” 991

989 Ex. 89 (Barry depo.) 73:11-5.

990 Ex. 89 (Barry depo.) 35:6-14. 

991 Short declaration (Bk. Dkt. 20) at ¶127. 

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• “the DIP Facilities will provide the Debtors with the liquidity needed to reactivate their 

supply chain, provide assurance to their vendors, and capitalize on the holiday season.” 

992

• The Company had “secured $3.1 billion in DIP financing” and “we obtained a very 

strong DIP financing package which put us in a position to have strong liquidity 

through this process.”

• “Toys ‘R” Us had received ... ‘DIP financing’ that would help us get through and exit 

bankruptcy.” 

• Toys “R” Us had only “two financial covenants” and would be “in compliance with 

both of these covenants” through March 3, 2018. 993

• That forecasts “demonstrate the Company’s ability to comply with February 

covenants.” 994

Representations addressing whether the Company will continue as an ongoing business 

and will emerge from bankruptcy or instead will liquidate were material because they go directly 

to whether the Company would be around to pay for goods shipped on credit, and a reasonable 

vendor would attach importance to the representation. Liquidation planning would be “a clear 

signal that [a Trade Vendor] should expect not to be paid on any further shipments. 995 

Examples include: 

992 Id. at ¶130.

993 Ex. 151 (3’1’18 financial covenant forecast).

994 Ex. 186 (2’26’18 Johnson to Euteneuer cash flow forecast [MATTEL00005494]). 

995 Ex. 335 (Kodak (LEGO) depo.) 356:20-357:15. 

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• The Company’s “operations are continuing in the ordinary course,”

• “things are fine,” “[e]verything’s on track” and “[f]inance is in place,” and

• Toys “R” Us was going to be “purchasing additional merchandise in the coming 

months over the following years.” 

• Toys “R” Us was “working on the best plan for emergence and a variety of 

alternatives are being considered.” “If there is something to tell you, you will be 

hearing it from us– not rumors on LinkedIn from Jim Silver.” 

• “The Leadership Team and our advisors are totally focused on our plans for 

emergence.” 

• “Toys “R” Us was working on plans to emerge from bankruptcy.” 996

• Toys “R” Us was “focused on emergence and focused on the holiday season.” 997

• it was “business as usual at Toys “R” Us.” “Toys ‘R’ Us was looking forward to 

working with the vendor in the holiday season,” and “wanted to work with the 

vendor once [Toys ‘R’ Us] emerged from Chapter 11.” 

“Anything that would have indicated that [Trade Vendors] were at risk of not 

getting paid back would have been relevant.” 998 As set forth in the accompanying statement of 

facts, the Trade Vendors testified that the representations were relevant to their decision-making, 

996 Ex. 88 (Brandon depo.) 500:4-7. 

997 Ex. 89 (Barry depo.) 343:6-13. 

998 Ex. 380 (Emrey (Munchkin) depo.) 54:23-55:4.

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and if they had known they were not true, they would have acted differently. See Trust SOF ¶¶ 

403, 409, 415, 421, 427, 433, 439, 445, 451, 457, 463, 469, 475, 480, 485, 490, 495, 501, 507, 

512, 518, 524, 530, 536, 541, 547, 552, 558, 564, 570, 575, 580, 585, 591, 596, 602, 607; Trust 

SOF ¶¶ 402, 408, 414, 420, 426, 432, 438, 444, 450, 456, 462, 468, 474, 479, 484, 489, 494, 500, 

506, 511, 517, 523, 529, 535, 540, 546, 551, 557, 563, 569, 574, 579, 584, 590, 595, 601, 606.

For example, had LEGO “known that there was a risk that Toys “R” Us would be 

defaulting on its loan covenants,” LEGO would have “only ship[ped] on a cash in advance 

basis.” 999 If LEGO had any indication that Toys “R” Us had a “half a billion dollar miss” on the 

DIP budget requirements, that “would have been a clear sign that the operation was faltering,” 

and would have caused LEGO “to trade cash in advance only.” 1000

As another example, if Learning Resources had known that Toys “R” Us “anticipated the 

breach of financial covenants under its DIP financing in February or March,” it “wouldn’t have 

shipped.” 1001 And if it had learned that Toys “R” Us’ cash liquidity situation was dire, Learning 

Resources “would have taken their credit to zero and put them on cash in advance.” 1002

Defendants make no effort to argue that the representations were not material to vendors. 

Nor could they. The above evidence more than suffices to demonstrate materiality. “Materiality 

is a question of fact for the jury, unless the fact misrepresented is so obviously unimportant that 

the jury could not reasonably find that a reasonable man would have been influenced by it.” 

Persson v. Smart Inventions, Inc., 125 Cal. App. 4th 1141, 1163 (2005) (internal quotes omitted).

999 Ex. 335 (Kodak (LEGO) depo.) 344:23-345:16.

1000 Ex. 335 (Kodak (LEGO) depo.) 352:15-353:16. 

1001 Ex. 330 (Woldenberg (Learning Resources) depo.) 229:23-230:10.

1002 Ex. 330 (Woldenberg (Learning Resource) depo.) 235:9-236:13.

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D. Defendants knew the representations were false or misleading when made.

A representation is fraudulent if it is false or if it is a misleading half-truth. A 

representation is known to be false if it includes a material fact that was known to be false when 

the representation was made. Cohen v. S & S Constr. Co., 151 Cal. App. 3d 941, 946 (1983). A 

representation that contains only true facts is also fraudulent if it is a half-truth that is materially 

misleading because of the failure to recite matters that materially qualify the statement. “A 

statement containing a half-truth may be as misleading as a statement wholly false. Thus, a 

statement which contains only those matters which are favorable and omits all reference to those 

which are unfavorable is as much a false representation as if all the facts stated were untrue.”

Rest. (2d) Torts §529, comment (a). “A statement that is technically true may nevertheless be 

fraudulent where it omits qualifying material since a ‘half-truth’ is sometimes more misleading 

than an outright lie.” Guvenoz v. Target Corp., 30 N.E.3d 404, 425 (Ill. App. 2015). “A halftruth may be as misleading as a statement which is wholly false. A fraudulent misrepresentation 

may inhere in a statement which is truthful so far as it goes but which is materially misleading 

because of the failure to recite qualifying matters.” Medivox Prods. v. Hoffmann-LaRoche, Inc., 

107 N.J. Super. 47, 69 (Super. Ct. 1969).

Each of the representations when made was known to be false in material respects, a 

misleading half-truth in material respects, or both. 

1. September representations.

The September statements to Trade Vendors about the DIP financing were known to be 

false in material respects and were known to be misleading half-truths.

As described above, Defendants communicated to Trade Vendors in multiple ways that: 

the Company had “sufficient liquidity to meet its obligations” to Trade Vendors because “We 

have received commitments for over $3 billion in new financing that will support our operations 

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and enable us to meet our business obligations during the financial restructuring process.” 

Several aspects of this were known to be false by Defendants.

When the Company’s officers and directors started representing to Trade Vendors on 

September 18 that the Company had “commitments for” and “access to” the DIP financing, 

Brandon and Short knew those representations were false. As demonstrated above (in explaining 

the breach of fiduciary duty for authoring the DIP financing), Brandon and Short knew that the 

Company did not have access to the DIP Term Loan, because the lender was insisting on 

financial covenants that the Company could not accept. After several days of negotiations with 

no access to cash, the Company was “dying,” and Brandon and Short had to accept the 

covenants. 1003 The loan was not closed until the afternoon of September 22, 2017. 1004

Defendants also knew that it was false and misleading to represent to Trade Vendors the 

amount of the financing as “over $3 billion in new financing” that was available “to support our 

operations and enable us to meet our business obligations during the financial restructuring 

process.” The face amount of the potentially available credit for the DIP financing did exceed $3 

billion. But this financing did not give the Company $3 billion to “support our operations and 

enable us to meet our business obligations during the financial restructuring process.”

The $375 million TAJ DIP loan was “not available to the U.S. entity” at all and most of it 

was used to pay off existing loans for international subsidiaries. 1005 The ABL/FILO DIP loan 

essentially rolled over the pre-petition ABL/FILO. 1006 The actual available credit for this loan 

was determined by the “borrowing base,” and there “were no projections which indicated that the 

1003 Ex. 158 (9’20’17 1501 pm company dying [TRU-Trust0000338280]) (“I just got off with 

Mike Short. We have to get this done ... The company is dying.”).

1004 Ex. 161 (9’22’17 352 pm closed [TRU-Trust0000338956]).

1005 Ex. 70 (Greenspan) ¶442.

1006 Ex. 70 (Greenspan) ¶442.

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Company’s borrowing base would allow it to access the full nominal amount of the DIP 

loans.”1007 In addition, $1.305 billion of the ABL/FILO was used to pay off the prepetition 

ABL/FILO, and was not available for ongoing operations. The available amount was further 

reduced by over $90 million of then-outstanding letters of credit, and over $90 million of loan 

fees withheld by the DIP lenders. 1008 In addition, the loan terms blocked access to another $300 

million. 1009

After subtracting these amounts, available DIP financing at the start of the process was 

about $1 billion. But Brandon and Short also knew that about $500 million was committed to 

pay for pre-petition obligations to foreign and critical vendors. Consequently, they knew the 

amount of DIP financing the Company would have access to “to meet our business obligations 

during the financial restructuring process” was about $500 million, which is a far cry from the $3 

billion they represented.

The Directors also knew that it was false to represent that the DIP financing provided 

over $3 billion in new financing to pay Trade Vendors during the restructuring process. For 

example, in the Board meeting on September 13, 2017, the Directors were told that the 

ABL/FILO would “refinance in full the existing prepetition ABL and FILO ... and enhance 

liquidity by $170 million” and the DIP Term loan would provide “$450 million of incremental 

liquidity” for a total $620 million. 1010 

1007 Ex. 70 (Greenspan) ¶442. 

1008 Ex. 70 (Greenspan) ¶442.

1009 Ex. 70 (Greenspan) ¶442. 

1010 Ex. 41 (9’13’17 Brandon agenda plus attach [DEFS_0004126]) at 4; Ex. 155 (9’6’17 Raether 

board materials [DEFS_0124536]) at pdf 3 (Raether’s handwritten calculations that the delta 

added by the DIP financing was “$620MM”).

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Whether the Company had a $3 billion credit card or a $500 million credit card to 

provide liquidity was highly material to vendors. 1011

Brandon and Short also knew that it was misleading to represent that the Company would 

have access to the DIP financing “during the financial restructuring process,” or “throughout the 

restructuring process,” or “while Toys ‘R’ Us was in bankruptcy,” or “to fund the administrative 

costs of these chapter 11 cases ... and emerge from bankruptcy.” As demonstrated above, Short 

knew that the DIP Term loan that left the Company with insufficient liquidity to get through 

bankruptcy and “doesn’t work,” and Brandon and Short knew that it required a revised budget 

covenant that “just isn’t going to work.” The ability to comply with financial covenants for the 

DIP financing was plainly material to the Trade Vendors, and it was therefore misleading to 

represent that the Company had DIP financing without disclosing these key facts.

2. December-March representations.

Each of the representations made from December to March was known by the 

Defendants to be both false and misleading.

The implied representation in every purchase order that the Company had the ability to 

repay all credit extended was false as all Defendants knew. As demonstrated above, all 

Defendants knew that the DIP financing was required for the Company to have the ability to pay 

for goods shipped on credit. And by December 13, 2017, the Directors knew that the Company 

was projected to default on its DIP financing, which would eliminate the Company’s source of 

liquidity. It was therefore false to represent otherwise after that date. And it was misleading, 

1011 See, e.g., Ex. 330 (Woldenberg (Learning Resources) depo.) 198:2-199:8; Ex. 347 (Pevonka 

(LSC) depo.) 258:12-22; Ex. 351 (McColgan (Mattel) depo.) 213:10-214:18. 

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and therefore a fraudulent half-truth, to omit that fact in any representation that the Company had 

the ability to pay.

Brandon and Short knew that their statements on the December 21 conference call that 

the Company had “secured $3.1 billion in DIP financing” and “we obtained a very strong DIP 

financing package which put us in a position to have strong liquidity through this process” were 

false and misleading. 1012 As demonstrated above, Brandon and Short knew (a) the DIP 

financing package was subject to financial covenants that left insufficient liquidity, (b) the 

terrible holiday sales meant that the Company could not possibly satisfy the covenants, and (c) 

management had already determined—and announced to the Board of Directors that it was 

projected to default on the covenants. Consequently, Brandon and Short knew that it was 

misleading to state that the Company had a “very strong DIP financing package” that would 

provide “strong liquidity through this process.”

Moreover, throughout January and February, all Defendants knew additional facts (the 

concealments described above) that were highly material to the Company’s ability to pay, and 

that the Defendants failed to include when making statements to Trade Vendors on the 

Company’s financial situation and ability to pay, and failed to direct that the Company’s officers 

and directors include in statements to Trade Vendors.

As demonstrated above, Defendants knew by January 2018 that the Vendor FAQ was 

false and misleading because it represented that the DIP financing “will support our business and 

enable us to meet our financial obligations throughout the restructuring process,” when in fact 

the DIP financing would not be sufficient, because the Company had a $200 million hole in its 

budget and was projected to default within weeks. 

1012 Ex. 64 (12’21’17 Transcript - Q3 Earnings Call [TRU-Trust0000323034]).

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In fact, the Defendants’ admissions demonstrate that they knew this information was 

material to Trade Vendors, and that they withheld this information from Trade Vendors precisely 

because they knew that Trade Vendors would stop shipping goods on credit if they knew the 

information. On January 10, 2018, Brandon told the Board about management’s decision “not to 

voluntarily release our holiday sales results” contrary to the Company’s usual practice. 1013 This 

decision was made because “holiday performance” was “significantly less than expected,” which 

“could have concerned” “the trade vendor community” because the Company “would have 

reported a weak holiday period,” and “[t]hey may have been concerned about the ability of Toys 

‘R’ Us to continue going forward,” and “[t]he ability of Toys ‘R’ Us to pay for goods that were 

shipped on credit.” 1014

As demonstrated above, Barry knew that it was false and misleading for him to attend the 

Hong Kong Toy Fair and represent that “Toys ‘R’ Us had received ... ‘DIP financing’ that 

would help us get through and exit bankruptcy,” “[e]verything’s on track” and “[f]inance is in 

place,” and “giving his word” that vendors would be paid for the goods that they shipped to Toys 

“R” Us. 1015

Brandon’s response to Trade Vendor executive Larian on February 3 was knowingly 

false and misleading. Larian asked Brandon and Barry about Jim’s Silver post that: the 

1013 Ex. 88 (Brandon depo.) 344:3-344:24; Ex. 87 (Short depo.) 279:19-23; Ex. 138 (1’10’18 

BOD minutes [TRU-Trust0000374746]) at 2.

1014 Ex. 87 (Short depo.) 279:19-23, 281:18-282:9; Ex. 88 (Brandon depo.) 344:3-344:24; Ex. 88 

(Brandon depo.) 346:7-16; Ex. 89 (Barry depo.) 519:16-24.

1015 Ex. 232 (Foreman (Basic Fun) depo.) 263:17-264:11, 266:15-267:14; Ex. 90 (Baime depo.) 

25:3-16, 26:25-27:7.

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Company was considering the options of shrinking the footprint to “a 200 store chain” or 

“liquidate the whole thing.” 1016

Brandon and Barry knew that Brandon had presented exactly those options at a Board 

meeting a few days earlier. A truthful response would have included: yes, those options are 

being considered. But instead, Brandon communicated that Larian should not “rely upon Jim 

Silver as being a source of useful and accurate information about decisions being made in the 

boardroom of TRU.” 1017 Brandon also said Toys “R” Us was “working on the best plan for 

emergence.” 1018 “If there is something to tell you, you will be hearing it from us– not rumors on 

LinkedIn from Jim Silver.” 1019

Brandon knew the information in Jim Silver’s post was highly material to Trade Vendors. 

In fact, Trade Vendor Larian had just given “TRU a $25 Million line of credit” and was 

demanding to know: “Why NOBODY tell me about this?” 1020 Brandon admitted that he 

understood that Larian was “concerned about the rumor” that “Toys ‘R’ Us was considering a 

liquidation,” and was seeking “to verify whether there was any credibility contained in this 

blog.” 1021

And Brandon knew that what Larian was asking about was true: Brandon had just 

notified the Board five days earlier that the two remaining “likely options” were “shrink and 

rethink the business” or “total liquidation of the enterprise.” 1022 But Brandon told Larian that 

1016 Ex. 167 (Larian Post); Ex. 147 (2’3’18 Brandon to Larian re Silver post [TRUTrust0000272792]).

1017 Ex. 147 (2’3’18 Brandon to Larian re Silver post [TRU-Trust0000272792]) at 2.

1018 Id. at 2.

1019 Id. at 2.

1020 Ex. 147 (2’3’18 Brandon to Larian re Silver post [TRU-Trust0000272792]) at 3.

1021 Ex. 88 (Brandon) 435:8-14, 436:9-17.

1022 Ex. 140 (1’28’18 minutes) at 2. 

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this was not “accurate information.” Brandon admitted: “my response to him was coaching him 

that that was not an appropriate source of useful information for him and he should not take it as 

fact.” 1023 But Brandon knew it was fact. And Brandon falsely stated, “If there is something to 

tell you, you will be hearing it from us.” Brandon knew there was something to tell Larian but 

that Larian would not be hearing it from Brandon or anyone else at Toys “R” Us. Brandon knew 

that his statements were false and misleading (and obviously designed to deceive Larian). 

Defendants knew that the representations given to Trade Vendors at the New York Toy 

Fair were false and misleading. Brandon told the Board that he “intends to meet with the 

executives of many large vendors” at the Toy Fair. 1024 Brandon explained that each vendor 

would likely “push him for comfort that the Company can pay for shipments,” and that Brandon 

and other Toys “R” Us employees visiting the Toy Fair would “provide vendors additional 

comfort so they do not determine to stop shipping.” 1025

As Raether testified, at the board meeting “there was a discussion about the upcoming 

New York Toy Fair and that Dave Brandon would be meeting with a number of the vendors ... 

[a]nd that undoubtedly, there would be difficult conversations with the vendors about whether 

they would continue to ship or not.” 1026 Brandon told the board “that he expected these vendors 

at the toy fair to push him for comfort that the company can pay for shipments.” 1027 Brandon 

said “he was hopeful that he would be able to convince those vendors ... that they should 

1023 Ex. 88 (Brandon) 434:21-435:6.

1024 Ex. 148 (2’12’18 minutes [DEFS_0059030]).

1025 Ex. 148 (2’12’18 minutes [DEFS_0059030]).

1026 Ex. 77 (Raether) 282:13-283:4.

1027 Ex. 77 (Raether) 283:5-16.

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continue to ship Toys ‘R’ Us.” 1028 “He hoped that he would be successful in convincing the – 

the vendors not to stop shipping.” 1029 

Brandon and Barry organized a “Team Huddle” to get the merchants in the “right 

mindset.” 1030 They instructed the merchant team to be positive and aggressive with Trade 

Vendors and tell them: “The Leadership Team and our advisors are totally focused on our plans 

for emergence.” 1031 The team communicated to Trade Vendors that it was 

 

Brandon told Trade Vendors in a “reassuring and comforting manner” that Toys “R” Us 

was “working through the bankruptcy” and was working on “exiting” and “having a business.” 

Barry and Brandon represented that “Toys “R” Us was working on plans to emerge from 

bankruptcy.” 1033 And Toys “R” Us was “focused on emergence and focused on the holiday 

season.” 1034 

Defendants knew that responding to questions from Trade Vendors about whether the 

Company could pay for shipments by providing Trade Vendors comfort so that they continue 

shipping was misleading and omitted the concealed information described above, which 

materially qualified the statements. Defendants were delivering a message “which contains only 

1028 Ex. 77 (Raether) 283:17-284:4. 

1029 Ex. 77 (Raether) 283:5-16, see Ex. 77 (Raether) 284:15-22, 285:14-286:2, 287:7-24. 

1030 Ex. 187 (2’14’18 Brandon to Barry [TRU-Trust0000362666]); Ex. 183 (2’15’18 NYTF team 

huddle [TRU-Trust0000323065]). 

1031 Ex. 150 (2’15’18 Von Walter to Barry re fact sheet [TRU-Trust0000362680]); Ex. 149 

(2’15’18 NYTF Fact Sheet FINAL [TRUTrust0000362681]). 

1032 Ex. 93 (Ryan depo.) 174:6-10. 

1033 Ex. 88 (Brandon depo.) 500:4-7. 

1034 Ex. 89 (Barry depo.) 343:6-13. 

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those matters which are favorable and omits all reference to those which are unfavorable,” which 

“is as much a false representation as if all the facts stated were untrue.” Restatement (Second) 

Torts §529, comment (a). 

Defendant Macnow admitted: 

22 Q. If as of February 12, the fact

23 was that Toys “R” Us was expected to

24 default on its covenants, would it be

25 appropriate for Mr. Brandon to go to the

1 Toy Fair and provide comfort for vendors?

3 A. No.

9 In February – as of February

10 12, 2018, you understand that Toys “R” Us

11 was not on track to meet its financial

12 covenants; is that correct?

14 A. Yes.

15 Q. And so as of February 12, 2018,

16 it would be inappropriate for Mr. Brandon

17 to provide trade vendors with comfort so

18 that they would continue shipping; is that

19 correct?

21 A. Yes.

Macnow depo. 148:22-149:3, 150:9-21.

For example, Defendants omitted that the Company had determined that it could not 

satisfy the January 31 revised budget covenant, but had only a one-month waiver. 1035 They 

omitted that on January 31, 2018, “Brandon advised the board that ... the forecasted cash 

liquidity position is dire” and “the Company projects it will breach its postpetition financing 

covenants in February or March.” 1036

And they omitted that on February 16, 2018, the day before the start of the New York 

Toy Fair, Brandon called an “emergency leadership team” meeting to announce that the DIP 

1035 Ex. 144 (1’31’18 TRU – Waiver Extension (1-30-18) [Draft] [TRU-Trust0000323056]).

1036 Ex. 142 (1’31’18 minutes [DEFS_0059013]). 

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Term Loan lenders “thought it would be better to liquidate the company sooner rather than later,” 

and the Company was preparing “plans around a liquidation process” including a “liquidation 

analysis” and “wind-down budget” for the U.S. business, with the focus “around a mid March 

date.” 1037

Brandon, Barry, and the rest of the team were being “positive,” and “provid[ing] vendors 

additional comfort so they do not determine to stop shipping,” and telling vendors that they are 

“totally focused on our plans for emergence.” 1038 In truth, they were not totally focused on 

emergence, and the Company was planning for a liquidation targeting mid-March.

By stating “only those matters which are favorable and omit[ting] all reference to those 

which are unfavorable,” Defendants knowingly presented false statements and half-truths, 

thereby engaging in fraudulent misrepresentation. Restatement (Second) Torts § 529, 

comment (a). 

F. Defendants intended the representations to induce the Trade Vendors to ship 

goods on credit. 

As detailed above, “[a]n intent to deceive is not an essential element of the cause of 

action; the required intent is an intent to induce action.” Beckwith v. Dahl, 205 Cal. App. 4th

1039, 1062 (2012) (internal citations omitted). And the statement intended to induce action need 

not “be the sole or even the predominant or decisive factor in influencing [plaintiff’s] conduct. . . 

. It is enough that the representation has played a substantial part, and so has been a substantial 

factor, in influencing his decision.” Engalla v. Permanente Med. Grp., Inc., 15 Cal. 4th 951, 976-

77 (1997) (quoting Rest. 2d Torts § 546, com. b, p. 103). Just as Defendants intended that the 

1037 Ex. 146 (2’17’18 Brandon to Sussberg [TRU-Trust0000275355]) at 1-3; Ex. 145 (2’16’18 

Barry Notes [DEFS_0026183]). Ex. 98 (Barry depo.) 419:24-421:17. 

1038 Ex. 148 (2’12’18 minutes [DEFS_0059030]); Ex. 150 (2’15’18 Von Walter to Barry re fact 

sheet [TRU-Trust0000362680]); Ex. 149 (2’15’18 NYTF Fact Sheet FINAL [TRUTrust0000362681]).

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concealment of certain facts would induce the Trade Vendors to continue shipping goods on 

credit, they also intended that the statements affirmatively made to the Trade Vendors would 

cause the Trade Vendors to continue shipping goods on credit.

Defendants knew that for Toys “R” Us to remain in business, it needed to obtain goods 

from Trade Vendors. And they further understood that Toys “R” Us would need to obtain those 

goods on credit, because it did not have sufficient liquidity to pay for goods cash in advance. 1039

For the Trade Vendors to ship again, the Trade Vendors “needed some assurance that 

they would be paid for their goods.” 1040 Defendants knew that statements made to Trade 

Vendors about the DIP financing and its availability throughout the bankruptcy would be 

“crucial for the vendors” in their determination of whether to ship to Toys “R” Us, because they 

provided Trade Vendors with those assurances. 1041 Defendants themselves confirmed that the 

statements made to Trade Vendors in September were made to “get them [Trade Vendors] to 

start shipping merchandise to Toys ‘R’ Us again.” 1042 Defendants intended for the initial 

outreach in September to Trade Vendors to “encourage[e] them to ship” to Toys “R” Us. 1043 

This demonstrates that those statements were made with the intent to induce Trade Vendors to 

ship goods on credit.

Each of the representations made to Trade Vendors during the bankruptcy were similarly 

intended to have those Trade Vendors continue shipping goods to Toys “R” Us. After the initial 

statements in September that had convinced Trade Vendors to begin shipping goods on credit, 

1039 Ex. 51 (9’18’17 attach Brandon chapt 11 [DEFS_0027298]) at 7 (“The Company does not 

have available liquidity to pay cash in advance”). 

1040 Ex. 89 (Barry depo.) 37:4-9.

1041 Ex. 87 (Short depo.) 66:18-67:2.

1042 Ex. 89 (Barry depo.) 34:8-15; Ex. 82 (Goodman depo.) 330:4-9 (“the goal of that process 

was to get vendors to ship goods to Toys “R” Us”).

1043 Ex. 87 (Short depo.) 61:16-23.

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Defendants knew that Trade Vendors would want to know “whether there was a serious risk that 

the DIP financing would disappear” because vendors were evaluating “whether they would be 

paid by Toys “R” Us.” 1044 Defendants understood that if Trade Vendors felt that Toys “R” Us 

was in a “dire liquidity position” or had a “potential to default its financial covenants,” vendors 

could have stopped shipping. 1045

Because Defendants knew that the presence of the DIP financing was critical to Trade 

Vendors, that Trade Vendors were highly interested in updates from Toys “R” Us, and were 

constantly evaluating risk, Defendants knew that statements about Toys “R” Us’ position would 

influence the Trade Vendors. And by making statements that misleadingly portrayed Toys “R” 

Us’ condition as positive, Defendants knew that Trade Vendors would be more likely to ship 

goods to Toys “R” Us. This establishes a strong inference that those statements were made with 

the intent to induce Trade Vendors to continue those shipments. 

For example, each time that Toys “R” Us placed a purchase order, that purchase order 

contained an implied representation of an ability to pay, as discussed above. Defendants knew 

that Trade Vendors would respond to that implied representation by filling the purchase order 

and shipping goods. And because Defendants knew that receiving those goods was critical to 

Toys “R” Us’ business, there is a strong inference that they made those implied representations 

with the intent that Trade Vendors ship goods in response to them. 

As another example, on December 21, Brandon and Short participated in an earnings call. 

They knew that Trade Vendors would be participating on that call, along with members of the 

media. 1046 They further knew that the reason Trade Vendors were listening was to “learn 

1044 Ex. 87 (Short depo.) 311:1-9, 313:25-314:4.

1045 Ex. 87 (Short depo.) 401:21-402:17.

1046 Ex. 87 (Short depo.) 169:1-6, 170:9-14.

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information about Toys “R” Us’ liquidity and its ability to pay for goods shipped on credit.” 1047 

On that call, Brandon and Short made statements that Toys “R” Us “secured $3.1 billion in DIP 

financing” and “we obtained a very strong DIP financing package which put us in a position to 

have strong liquidity through this process.” 1048 Brandon and Short’s knowledge of Trade 

Vendors participating in the call, coupled with their desire to have Trade Vendors continue 

shipping goods on credit, strongly suggests that those statements were made with the intent to 

induce Trade Vendors to ship goods on credit. 

Moreover, at the Hong Kong Toy Fair, Barry made statements to Trade Vendors with the 

intent of getting Trade Vendors “focused on driving business in holiday 2018.” 1049 He told 

Trade Vendors that Toys “R” Us was “building plans for the holiday season,” so that Toys ‘R” 

Us “would have a successful 2018 holiday season.” 1050 One part of that “successful holiday 

season” included Trade Vendors continuing to “driv[e] the business” by shipping goods to Toys 

“R” Us on credit. 1051 By making those statements to Trade Vendors and planning for the future, 

Barry intended that the Trade Vendors would continue shipping product to Toys “R” Us. 

Further, Brandon, Barry, and Short attended the New York Toy Fair with the intent to 

give vendors “comfort that the Company can pay for shipments,” “so they [Trade Vendors] do 

not determine to stop shipping.” 1052 As discussed above, each of the other Defendants 

understood that Brandon, Barry, and Short would be attending the New York Toy Fair for the 

1047 Ex. 87 (Short depo.) 171:10-17, 172:16-24.

1048 Ex. 64 (12’21’17 Transcript - Q3 Earnings Call [TRU-Trust0000323034]).

1049 Ex. 89 (Barry depo.) 193:9-24.

1050 Ex. 89 (Barry depo.) 159:5-12.

1051 Ex. 89 (Barry depo.) 194:19-195:11, 198:10-20 (asking Basic Fun “to continue to ship to 

Toys “R” Us”).

1052 Ex. 148 (2’12’18 board minutes [TRU-Trust0000313960]).

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purpose of making statements about the Company’s finances and plans for emergence. 1053 And 

none of the Defendants objected to that strategy. This creates a strong inference that the 

Defendants wanted statements of comfort to be made to Trade Vendors at the New York Toy 

Fair so that they “do not determine to stop shipping.” 

The evidence detailed above provides compelling inferences that Defendants made 

misrepresentations to Trade Vendors throughout the bankruptcy with the intent to induce Trade 

Vendors to ship goods to Toys “R” Us on credit. As discussed above, Defendants have never 

disputed that they had this intent. Whether Defendants had the requisite intent is thus a disputed 

issue of material fact that cannot be resolved on summary judgment. “Questions of intent are 

normally questions of fact properly reserved for the jury.” Sloan v. GM LLC, No. 16-cv-07244-

EMC, 2020 U.S. Dist. LEXIS 71982, at *54 (N.D. Cal. Apr. 23, 2020) (collecting cases); Testo 

v. Ruggiero, NO. CV90 27 19 97 S, 1993 Conn. Super. LEXIS 1719, at *8 (Super. Ct. July 13, 

1993) (“Summary judgment is inappropriate to determine questions of motive and intent”); Sadiq 

Marafi v. Hind El Achchabi, No. FSTCV186036789, 2020 Conn. Super. LEXIS 1333, at *17 

(Super. Ct. Nov. 2, 2020) (“[i]t is well established that the question of intent is purely a question 

of fact”). 

G. Trade Vendors acted in reliance on Defendants’ statements.

To demonstrate reliance, a plaintiff “need only make a showing that the 

misrepresentations were material, and that therefore a reasonable trier of fact could infer reliance 

from such misrepresentations.” Engalla v. Permanente Med. Grp., Inc., 15 Cal. 4th 951, 977 

(1997). This is because “a presumption, or at least an inference, of reliance arises wherever there 

1053 See, e.g., Ex. 77 (Raether depo.) 282:13-283:4, 283:17-284:4 (Brandon was going to 

convince “vendors” “that they should continue to ship Toys “R” Us.”)

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is a showing that a misrepresentation was material.” Engalla v. Permanente Med. Grp., Inc., 15 

Cal. 4th 951, 977 (1997). 

As discussed at length above, each of the misrepresentations that Defendants made were 

material, because they each impacted the risk of whether a Trade Vendor would be paid for 

goods shipped on credit. Trade Vendors uniformly testified that the statements about the DIP 

financing and its availability was a material or key factor in their decision to continue shipping 

goods to Toys “R” Us on credit. This alone suffices to establish reliance. 

Moreover, Trade Vendors provided additional direct evidence of reliance. For example, 

Trade Vendors testified that the statements made by Defendants were the key factors in 

determining to ship goods to Toys “R” Us during the bankruptcy. 1054 And other Trade Vendors 

testified that they relied on the information that Defendants disseminated in letters, press 

releases, and the Vendor FAQ in deciding to ship goods to Toys “R” Us on credit. 1055 

Additional evidence of reliance is found in Trust SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 

451, 457, 463, 469, 475, 480, 485, 490, 495, 501, 507, 512, 518, 524, 530, 536, 541, 547, 552, 

558, 564, 570, 575, 580, 585, 591, 596, 602, 607.

The evidence discussed above establishes not just an inference of, but actual reliance, and 

thus precludes a grant of summary judgment. 

1054 See, e.g., Ex. 232 (Foreman (Basic Fun) depo.) 258:2-10, 260:2-17 (discussing 

representations received as “critical factor” in decision-making, “in particular” those from 

Barry); Ex. 330 (Woldenberg (Learning Resources) depo.) 198:19-199:8 (the “representation 

that” Toys “R” Us had the ability to pay “was essential to” decision to ship); Ex. 421 (Smith 

(Yvolve) depo.) 253:21-255:16 (discussing “assurances” from Barry as leading Yvolve to 

believe that shipping to Toys “R” Us “was a low risk”); Ex. 244 (Schellhase (Bestway) depo.) 

172:11-17.

1055 Ex. 307 (Cooney (Jakks) depo.) 149:3-7 (describing vendor FAQ as “critical” in shipping 

decision); Ex. 321 (Kamler (Kent) depo.) 166:9-16 (describing statement about DIP financing in 

Dear Valued Business Partner letter as “the most critical piece” in shipping decision).

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H. Trade Vendors’ reliance was reasonable. 

Reasonable reliance can be shown by demonstrating that “circumstances were such to 

make it reasonable for [the] plaintiff to accept [the] defendant’s statements without an 

independent inquiry or investigation.” OCM Principal Opportunities Fund, L.P. v. CIBC World 

Mkts. Corp., 157 Cal. App. 4th 835, 864 (2007). “[W]hether reliance is reasonable in an 

intentional fraud case is not tested against the standard of precaution or of minimum knowledge 

of a hypothetical, reasonable man.” Boeken v. Philip Morris, Inc., 127 Cal. App. 4th 1640, 1666 

(2005) (internal quotes omitted). 

Trade Vendors attempted to make independent inquiries and investigations into the truth 

of Defendants’ statements, but they had no way of learning that Defendants’ statements were 

false. Trade Vendors could not independently investigate the internal financial condition of Toys 

“R” Us. Trade Vendors had no other source of reliable information other than what they were 

being told by Toys “R” Us. News articles, rumors, and other information was neither accurate 

nor reliable, and Trade Vendors testified that they could not make decisions based on that 

information. 1056 To obtain accurate financial information about Toys “R” Us, Trade Vendors 

had to rely on what they were being told by Defendants and others at Toys “R” Us. 1057 And, as 

discussed above, the statements that Defendants made were false and misleading, and did not 

inform Trade Vendors about the true state of affairs at Toys “R” Us. As one vendor put it, 

“[s]hort of hacking or spying,” there was no way to obtain the information that was 

communicated in “a private conversation held in confidence behind closed doors.” 1058

1056 Ex. 307 (Cooney (Jakks) depo.) 188:17-189:17.

1057 See, e.g., Ex. 307 (Cooney (Jakks) depo.) 188:10-16; Ex. 421 (Smith (Yvolve) depo.) 277:6-

21; Ex. 369 (Wysocki (MerchSource)) 150:19-151:14.

1058 Ex. 330 (Woldenberg (Learning Resources) depo.) 230:11-231:8.

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As one Trade Vendor put it, “[w]e felt it was reasonable [to rely on representations] 

because Toys “R” Us was the source for their information. They had the facts in hand. And as 

our business partner, we relied pretty heavily, unfortunately, on how they communicated those 

facts to us.” 1059 And in the words of another Trade Vendor, Defendants “had knowledge of the 

health of the business and we didn’t believe people we had known [for] so long and trusted and 

had a relationship with would tell us anything but the truth.” 1060

Additional testimony and evidence supporting reasonable reliance and the inability of 

Trade Vendors to learn accurate information from other sources is found in Trust SOF ¶¶ 404, 410, 

416, 422, 428, 434, 440, 446, 452, 458, 464, 470, 476, 481, 486, 491, 496, 502, 508, 513, 519, 

525, 532, 537, 542, 548, 553, 559, 565, 571, 576, 581, 586, 592, 597, 603, 608.

The evidence above demonstrates that Trade Vendors’ reliance was reasonable. 

“[J]ustifiable reliance is a question of fact that is to be determined by the finder of fact and not 

the by the trial court as a matter of law.” Schrager v. N. Cmty. Bank, 328 Ill. App. 3d 696, 709 

(2002) (internal quotes omitted); Blankenheim v. E. F. Hutton & Co., 217 Cal. App. 3d 1463, 

1475 (1990) (“[w]hether plaintiffs’ reliance on this representation was reasonable is a question 

of fact to be determined by the jury”); Johnson v. Waterfront Servs. Co., 391 Ill. App. 3d 985, 

993 (2009) (reversing grant of summary judgment on the issue of reasonable reliance).

I. Trade Vendors suffered losses.

As discussed above in the [fraudulent concealment damages section], as a result of 

Defendants’ statements, Trade Vendors shipped hundreds of millions of dollars of goods that 

they were not paid for. 1061

1059 Ex. 307 (Cooney (Jakks) depo.) 209:13-210:2.

1060 Ex. 232 (Foreman (Basic Fun) depo.) 282:4-17. 

1061 See Ex. 135 (Mills) ¶¶55-59, Ex. 168 (Mills supplemental report Ex. 15) (collecting postpetition vendor losses). 

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Each Trade Vendor filled purchase orders between December 13, 2017, and March 14, 

2018, when the Company’s liquidation was announced. Because Trade Vendors shipped goods to 

Toys “R” Us on credit, and were not paid for those goods, they sustained losses. Evidence of these 

losses is found in Trust SOF ¶¶ 405, 411, 417, 423, 429, 435, 441, 447, 453, 459, 465, 471, 477, 

482, 487, 492, 497, 503, 509, 514, 520, 526, 532, 538, 543, 549, 554, 560, 566, 572, 577, 582, 587, 

593, 599, 604, 609.

Each Trade Vendor’s administrative proof of claim lays out the purchase orders that the 

Trade Vendor shipped and was not paid for. This Court approved those proofs of claim. 1062 

And the specific amounts of those damages are detailed and supported by the Trust’s experts. 1063

J. All Defendants liable.

As discussed at length above, Defendants are liable for misrepresentations under two 

theories. First, Defendants are liable if they intended to have representations passed on to Trade 

Vendors to influence their conduct. See Whiteley v. Philip Morris, Inc., 117 Cal. App. 4th 635, 

681, 11 Cal. Rptr. 3d 807, 845 (2004). As detailed above, each of the Defendants intended that 

representations be made to the Trade Vendors to influence them to continue shipping goods to 

the Company on credit. Second, Defendants are liable if they knew or had reason to know about 

but failed to put a stop to tortious conduct. Asahi Kasei Pharma Corp. v. Actelion Ltd., 222 Cal. 

App. 4th 945, 966 (2013); Frances T. v. Village Green Owners Assn., 42 Cal. 3d 490, 504 

(1986). As discussed above, Defendants made no effort to stop the misrepresentations that were 

being made to Trade Vendors, and thus they are also liable under this theory. 

1062 See, e.g., Bk. Dkt. Nos. 4583, 5171, 5562, 6060, 6848, 7073, 7099, 7199, 7248 (Notices of 

Allowed Administrative Claims).

1063 See Ex. 70 (Greenspan) ¶¶545-571, Ex. 135 (Mills) ¶¶55-61. 

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IX. Defendants are liable for negligent concealment, negligent misrepresentation, and 

negligence.

A. The Trust’s evidence proves each element of its claims for negligent 

misrepresentation and concealment.

“The elements of negligent misrepresentation are substantially similar to those of 

fraudulent misrepresentation, except that the required mental state is less stringent.” Schrager v. 

N. Cmty. Bank, 328 Ill. App. 3d 696, 703 (2002). “Negligent misrepresentation is a lesser 

included claim of fraudulent misrepresentation. It differs only in that while [fraudulent 

misrepresentation] requires knowledge that the pertinent statement was false, [negligent 

misrepresentation] merely requires that the person who made the statement failed to exercise 

reasonable care or competence to obtain or communicate true information.” Ferris Ave. Realty, 

LLC v. Huhtamaki, Inc., No. PB 07-1995, 2011 R.I. Super. LEXIS 25, at *32 (Super. Ct. Feb. 18, 

2011) (internal quotes and citations omitted). Similarly, negligent concealment is a lesser 

included claim of fraudulent concealment that differs only in terms of the intent required. Wigod 

v. Wells Fargo Bank, N.A., 673 F.3d 547, 573 n.11 (7th Cir. 2012) (“We assume the elements 

of negligent concealment are equivalent to those of a negligent misrepresentation claim, meaning 

the defendant must have negligently — but not intentionally — failed to disclose a material fact, 

and that he also must have owed some duty to the plaintiff to disclose it”).

As discussed above, the Trust has presented evidence of each of the other elements of 

fraudulent misrepresentation and concealment. And the evidence of knowledge above satisfies 

the “less stringent” mental state requirement for negligent misrepresentation and concealment. 

Thus, the evidence above demonstrates that Defendants are liable for negligent misrepresentation 

and concealment. 

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B. The Trust’s evidence proves each element of its claim for negligence.

“Actionable negligence involves a legal duty to use due care, a breach of such legal duty, 

and the breach as the proximate or legal cause of the resulting injury.” United States Liab. Ins. 

Co. v. Haidinger-Hayes, Inc., 1 Cal. 3d 586, 594 (1970). What is negligence under a particular set 

of circumstances is a question for the trier of fact. Id.

The Trust’s evidence above establishes each of the elements of a negligence claim. 

Defendants owed a duty of care to the Trade Vendors. Defendants owed a duty of care to Trade 

Vendors. They breached that duty of care in multiple ways. Defendants paid executive bonuses 

so that Trade Vendors would not have access to those funds. They recklessly and carelessly 

obtained a financing package with no care for the damage that would be caused to Trade Vendors. 

And Defendants repeatedly made statements to Trade Vendors to induce Trade Vendors to ship 

goods, knowing that Trade Vendors did not have the information that they needed to make their 

decision. And as a result of Defendants’ breaches of their duty of care, Trade Vendors suffered 

hundreds of millions of dollars of damages. This evidence of a negligence claim precludes 

summary judgment. 

Defendants argue that “[u]nder Delaware law,” the Trust’s negligence claim cannot survive 

summary judgment. Mot. 99. But Defendants apply the wrong law. As discussed above, the 

substantive law of each Vendor’s home state governs the Trust’s tort claims. None of the Trade 

Vendors were located in Delaware. Thus, Delaware law is irrelevant to the negligence claim.

Moreover, the internal affairs doctrine does not change this analysis. Under New York 

choice-of-law rules, the law of a corporation’s state of incorporation governs issues relating to 

the “corporation’s internal affairs—matters peculiar to the relationships among or between the 

corporation and its current officers, directors, and shareholders.” Edgar v. Mite Corp., 457 U.S. 

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624, 645 (1982); Mindspirit, LLC v. Evalueserve Ltd., 2019 U.S. Dist. LEXIS 167060, at *16-17 

(S.D.N.Y. Sep. 2019) (same). 

But the internal affairs doctrine does not apply to torts committed by directors and 

officers against a third-party, such as a creditor. Roselink Inv’rs, L.L.C. v. Shenkman, 386 F. 

Supp. 2d 209, 225 (S.D.N.Y. 2004) (“Creditors’ claims at issue here are tort claims regarding the 

rights of ‘third parties external to the corporation’ as they are not brought by shareholders, 

officers or directors, nor are they brought derivatively on behalf of the corporation. Therefore, 

the ‘internal affairs doctrine’ is inapplicable.”); Tyco, 756 F. Supp. 2d at 560 (“internal affairs 

doctrine” does not apply to a claim against “the directors and officers for ... the commission of a 

tort”).

Here, the negligence claim is brought on behalf of Trade Vendors—creditors external to 

the corporation—and therefore does not involve a matter peculiar to the internal affairs of TRU. 

Thus, the internal affairs doctrine does not apply, and neither does Delaware law. 1064

Under the applicable state common law, Defendants owed a duty of care to the Trade 

Vendors. Defendants argue that they “did not owe a duty to the trade vendors apart from the 

duty the Defendants owed to the company.” Mot. 99. This is incorrect. For example, under the 

law of California, the state where the largest number of Vendors was located, “directors 

individually owe a duty of care, independent of the corporate entity’s own duty, to refrain from 

acting in a manner that creates an unreasonable risk of personal injury to third parties.” Frances 

1064 Defendants also cite a Delaware statute, 8 Del C. § 102(b)(7), that allows corporations to 

shield directors from personal liability for breaches of their duty of care. Mot. 100. But 

section 102(b)(7) covers only liability for breaches of a duty of care owed to the 

corporation, not negligence toward third parties. Moreover, second, section 102(b)(7) does 

not insulate officers from liability for actions taken in bad faith, and the Trust has 

demonstrated above that Defendants acted in good faith.

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T. v. Vill. Green Owners Ass’n, 42 Cal. 3d 490, 504 (1986). Thus, “[d]irectors are liable to third 

persons injured by their own tortious conduct regardless of whether they acted on behalf of the 

corporation and regardless of whether the corporation is also liable.” Id.

And here, as demonstrated above, Defendants breached their duty of care to the Trade 

Vendors through their actions and caused Trade Vendors to suffer losses, establishing a 

negligence claim separate from Defendants’ duties to the Company. As demonstrated above, 

Defendants’ conduct breached their duty of care owed to the Trade Vendors. As demonstrated 

above, Defendants paid executive bonuses depriving Trade Vendors of access to those funds. 

Defendants recklessly and carelessly obtained a financing package with no care for the damage 

that would be caused to Trade Vendors. And Defendants repeatedly made statements to Trade 

Vendors to induce Trade Vendors to ship goods, knowing that Trade Vendors did not have the 

information that they needed to make their decision. 

Finally, the evidence presented above demonstrated that Trade Vendors suffered losses 

caused by Defendants’ breach of the duty of care. Accordingly, the Trust has sufficient evidence 

of its separate claim for negligence, and the motion for summary judgment should be denied.

X. Each of Defendants’ arguments on the Trust’s tort claims fails. 

A. The Trust has standing to pursue claims assigned to it by the Trade Vendors.

1. Fourth Circuit precedent governs issues of federal bankruptcy law. 

Defendants argue that the Court should apply “Delaware’s interpretation of federal 

bankruptcy law” to determine whether the Trust has standing to pursue claims on behalf of the 

Trade Vendors. Mot. 31. Defendants are mistaken. The Court must apply Fourth Circuit 

precedent to issues of federal law. And under binding Fourth Circuit precedent, the Trust has 

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

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Federal courts do not apply a state court’s interpretation of federal law. Westport Ins. 

Corp. v. Atchley, Russell, Waldrop & Hlavinka, L.L.P., 267 F. Supp. 2d 601, 628 (E.D. Tex. 

2003) (“where a state interpretation of federal law varies from federal interpretation, the state 

interpretation is ignored”) (citing Hutto v. Davis, 454 U.S. 370, 375 (1982)). Rather, when 

interpreting federal law, courts in the Fourth Circuit must, “of course, apply the law of the Fourth 

Circuit.” Bradley v. United States, 161 F.3d 777, 782 n.4 (4th Cir. 1998). This is true even 

when, as here, the case was transferred from another circuit. “[T]his court cannot and does not 

apply the law of another circuit simply because the case was transferred from the other circuit.” 

Id. 

Thus, the Court need not engage in a choice-of-law analysis on this issue, and Delaware’s 

interpretation of federal bankruptcy law is irrelevant. In re Escalera Res. Co., 563 B.R. 336, 350 

n.6 (Bankr. D. Colo. 2017) (“There is no need for the Court to engage in a choice of law analysis 

. . . since the Court is only required to construe federal law.”); Art Inst. of Phila. Llc v. Nelson, 

Nos. Chapter 7, 20-50627 (CTG), 2022 Bankr. LEXIS 68, at *15 (Bankr. D. Del. Jan. 12, 2022)

(“the choice-of-law problem arises only when a federal court exercises jurisdiction over a case 

that is governed by a law other than federal law.”)

2. Under binding Fourth Circuit precedent, the Trust has standing to 

pursue claims assigned to it by the Trade Vendors.

The Fourth Circuit has held that a “trustee has the requisite standing to sue [for] the 

causes of action he acquired for the estate from the [creditors] after commencement of [a] 

bankruptcy case.” Logan v. JKV Real Estate Servs. (In re Bogdan), 414 F.3d 507, 512 (4th Cir. 

2005). 

For example, in In re McCurnin, 590 B.R. 729, 740 (Bankr. E.D. Va. 2018), M&T Bank, 

the creditor of a bankruptcy estate, assigned its claim against the estate to a trust. Applying 

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Logan, this Court held that “[b]y giving the Trustees the unconditional Assignment [of its claim], 

M&T Bank relinquished its rights to the claim, and the Trustees, who now stand in place of 

M&T Bank, may pursue the claim . . . as if they were M&T Bank.” Id. 

Here, under the direction of this Court, the Trade Vendor claims were unconditionally 

assigned to the Trust for the specific purpose of bringing this action. E.g. TRU Trust Agreement 

[Dkt. 6925] §2.5(a) (“[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.”). The Trust has the exclusive right to assert the Trade Vendor claims. TRU Trust 

Agreement [Dkt. 6925] §2.5(f) (“no 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.”). Thus, the Trust has 

standing under controlling Fourth Circuit law. 

Defendants do not actually apply Delaware state law, nor do they assert any principle of 

Delaware state law that would bar the Trust from asserting claims assigned to it, and for good 

reason. “Delaware has a longstanding rule that claims are freely assignable and can be asserted 

by the acquirer.” In re Activision Blizzard, Inc. Stockholder Litig., 124 A.3d 1025, 1050-51 (Del. 

Ch. 2015).

Instead, Defendants rely on a Delaware state court opinion applying federal bankruptcy 

law. Trenwick America Litigation Trust v. Ernst & Young, L.L.P., 906 A.2d 168, 205 (Del. Ch. 

2006). The court in Trenwick stated that under federal bankruptcy law, “litigation trusts do not 

have standing to pursue the direct claims of creditors . . . even in cases where a creditor has 

assigned her claims to a . . . Trust.” The Trenwick court based this statement on a 

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misinterpretation of the U.S. Supreme Court case Caplin v. Marine Midland Grace Trust Co., 

406 U.S. 416, 434 (1972). 

The Trenwick court’s statement was merely dicta, however, because the creditors in 

Trenwick had not actually assigned their claims to the trust. The Trenwick court held that the 

trust could not bring the creditors’ claims because the “provisions of the Litigation Trust 

Agreement ... include an express assignment of Trenwick America's pre-petition claims to the 

Litigation Trust, but not the claims of Trenwick America's creditors.” Trenwick Am. Litig. Tr. v. 

Ernst & Young, L.L.P., 906 A.2d 168, 190 (Del. Ch. 2006) (emphasis added); see Zazzali v. 

Hirschler Fleischer, P.C., 482 B.R. 495, 509 (D. Del. 2012) (distinguishing Trenwick because it 

“did not involve the assignment of creditors’ claims” and holding: “[T]he Trustee has standing to 

pursue claims on behalf of assigning creditors. As an assignee, the Trustee has standing to assert 

the injury in fact suffered by the assignors.”) 1065

More importantly, the Fourth Circuit has already considered and rejected Trenwick’s

misinterpretation of Caplin, holding that Caplin does not apply to cases (like the present one) 

where the creditors unconditionally assigned their claims to a trust. Logan v. JKV Real Estate 

Servs. (In re Bogdan), 414 F.3d 507, 511 (4th Cir. 2005) (“It does not follow from the reasons 

advanced by the Court in Caplin that the trustee lacks the necessary standing in this case.... By 

taking unconditional assignments from the creditors, the trustee, as assignee, is making his claim 

1065 Defendants also assert that Torch Liquidating Trust ex rel. Bridge Assocs., LLC v. Stockstill, 

2008 U.S. Dist. LEXIS 19535 at *21 n.4 (E.D. La. Mar. 13, 2008) “is illustrative.” Mot. 31. It is 

not. In Torch the dispositive finding was that the creditors would not be able to assert fiduciary 

duty claims on their own behalf if they owned the claims. Id. at *10. “If the causes of action are 

not able to be brought by the creditors ... then the Trust, in turn, cannot bring that cause of 

action.” Id. There is no similar issue here. In a footnote, the Torch court noted hypothetically 

that the trust would not have standing under Trenwick. Id. at *20 n.4. Thus, like in Trenwick, 

this statement was merely dicta.

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on behalf of Bogdan’s estate, not on behalf of the mortgage lenders . . . the Bankruptcy Code 

implicitly authorizes such a suit.”). 1066

In sum, binding Fourth Circuit precedent—not dicta from the Delaware Court of 

Chancery—governs issues of federal bankruptcy law. And under Fourth Circuit precedent, the 

Trust has standing to pursue claims assigned to it by the Trade Vendors. See Logan v. JKV Real 

Estate Servs. (In re Bogdan), 414 F.3d 507, 512 (4th Cir. 2005); In re McCurnin, 590 B.R. 729, 

740 (Bankr. E.D. Va. 2018); Schnelling v. Crawford (In re James River Coal Co.), 360 B.R. 139, 

159 (Bankr. E.D. Va. 2007). 

B. Defendants’ “30(b)(6) testimony contradicts” argument fails. 

Defendants assert “the Trust’s claims must be dismissed for all trade vendors who gave 

30(b)(6) testimony directly contradicting the Trust’s claims.” Mot. at 33. This argument fails 

for four reasons.

First, the Trust’s 30(b)(6) deposition testimony responding to questions on the Trust’s 

contentions is found exclusively in the 30(b)(6) deposition that was taken of the Trust, and not in 

the deposition of any Trade Vendor witness. The Trust never designated a trade vendor 

employee to testify as a 30(b)(6) witness for the Trust. The testimony from trade vendor 

witnesses was the result of notices that Defendants expressly directed at the vendor company, 

and not the Trust. For example, for vendor Just Play, the deposition notice was styled 

“Defendants’ Amended Notice of 30(b)6) Deposition of Just Play, LLC.” 1067 And Charlie 

1066 Most other courts to consider this issue have similarly held that Caplin does not apply where 

the creditors assigned their claims to a litigation trust. See Grede v. Bank of N.Y. Mellon, 598 

F.3d 899, 901-02 (7th Cir. 2010) (holding that Caplin does not apply to a plan-created litigation 

trust asserting claims that were assigned to it by creditors); Semi-Tech Litig., LLC v. Bankers 

Trust Co., 272 F. Supp. 2d 319, 323-24 (S.D.N.Y. 2003) (same); In re Tribune Co., 464 B.R. 

126, 192-93 (Bankr. D. Del. 2011) (same).

1067 Ex. 179 (Notice of 30(b)(6) of Just Play (Emby exhibit 1)). 

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Emby, the witness who testified for Just Play, confirmed that he was “designated by Just Play to 

testify on its behalf,” not on behalf of the Trust. 1068 

By contrast, Defendants served a separate and distinct 30(b)(6) deposition notice on the 

Trust: “Defendants’ Notice of 30(b)(6) Deposition of TRU Creditor Litigation Trust.” 1069 That 

notice requested a witness to testify regarding the Trust’s contentions, for example, “Your 

contentions that the Trade Vendors, when deciding to ship goods to TRU on credit, 

justifiably/reasonably relied on statements or representations You contend Defendant made or 

caused to be made.” 1070 In response, the sole person designated by the Trust to provide 30(b)(6) 

testimony on its behalf was the Trustee, Robert Kors. 1071 The Trust’s 30(b)(6) deposition 

testimony responding to questions on the Trust’s contentions is found exclusively in that 

deposition, not in the deposition of a Trade Vendor witness. 

Second, the rule of law that Defendants are referring to (and that is stated in the case that 

Defendants cite) is that “a party may not submit an affidavit or declaration at the summary 

judgment stage contradicting its earlier deposition testimony.” Thomas v. FTS USA, LLC, No. 

3:13cv825, 2016 U.S. Dist. LEXIS 82679, at *23 n.4 (E.D. Va. June 24, 2016) (internal quotes 

omitted). The Trust is not seeking to submit an affidavit or declaration from a witness that 

contradicts earlier deposition testimony from the witness. Defendants’ argument is thus entirely 

inapplicable. 

Moreover 30(b)(6) testimony does not foreclose an issue, because “answers given at 

a Rule 30(b)(6) deposition are not judicial admissions.” United States v. Taylor, 166 F.R.D. 356, 

1068 Ex. 315 (Just Play (Emby) depo.) 12:6-10.

1069 Ex. 178 (Notice of 30(b)(6) of Trust (Kors depo exhibit 1)). 

1070 Id. at 32. 

1071 Ex. 97 (Kors depo.) 20:24-21:25. 

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362-63 & n.6 (M.D.N.C. 1996) (“When the court indicates that the Rule 30(b)(6) designee gives 

a statement or opinion binding on the corporation, this does not mean that said statement is 

tantamount to a judicial admission. Rather, just as in the deposition of individuals, it is only a 

statement of the corporate person which, if altered, may be explained and explored through 

cross-examination as to why the opinion or statement was altered.”); Vehicle Mkt. Research, Inc. 

v. Mitchell Int'l, Inc., 839 F.3d 1251, 1261 (10th Cir. 2016) (“We agree with our sister circuits 

that the testimony of a Rule 30(b)(6) witness is merely an evidentiary admission, rather than 

a judicial admission.”).

Third, to the extent Defendants contend that the Trust cannot use a statement in vendor 

deposition testimony that appears to be inconsistent with other parts of the deposition, that 

argument has been flatly rejected by courts across the country. “[C]onflicting testimony within 

[the same deposition] raises a genuine issue of material fact... which precludes summary 

judgment for defendants.” O'Brien v. Ed Donnelly Enters., 575 F.3d 567, 595 (6th Cir. 2009), 

overruled in part on another ground, Campbell-Ewald Co. v. Gomez, 577 U.S. 153, 160 (2016); 

Mest v. Cabot Corp., 449 F.3d 502, 514 (3d Cir. 2006) (contradictory testimony in the same 

deposition must be “viewed in the light most favorable to the non-moving party”); Burns v. Bd. 

of Cty. Comm'rs, 330 F.3d 1275, 1282-83 (10th Cir. 2003) (“internally inconsistent” testimony 

must be viewed “in the light most favorable” to the non-moving party). Thus, inconsistent 

testimony in a Trade Vendor’s deposition “raises a genuine issue of material fact ... which 

precludes summary judgment for defendants.” O’Brien, 575 F.3d at 595.

Fourth, when each vendor’s testimony is considered as a whole, and when it is compared 

against the various alternative theories asserted by the Trust to prove its claims, there is no 

vendor testimony that is inconsistent with or forecloses any of the Trust’s claims. For example, 

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the Trust asserts multiple actionable misrepresentations by Defendants across multiple time 

periods. A vendor witness, therefore, might testify that the vendor did not receive or rely upon a 

particular representation, but did receive and rely upon other representations. The testimony that 

the vendor did not receive that one particular representation does not contradict all of the Trust’s 

theories for the claim, and therefore provides no basis for summary judgment on the claim. 

C. Defendants’ “Critical Vendor Agreements” argument fails.

Defendants assert that Trade Vendors “were contractually obligated to ship regardless of 

what Defendants said to them,” and thus the Trust cannot “prove reliance or causation for 

vendors who signed them.” Mot. at 34. Each part of this argument fails.

1. Critical Vendor Agreements did not obligate Trade Vendors to ship 

goods to Toys “R” Us on credit. 

The Critical Vendor agreements were contractual agreements to supply goods as long as 

Toys “R” Us paid for those goods. But the Critical Vendor agreements did not obligate Trade 

Vendors to extend credit to Toys “R” Us or ship goods on credit. Trade Vendors were free to 

move to cash in advance or shorten credit terms if they became concerned about Toys “R” Us’ 

ability to pay for goods shipped. 

The Critical Vendor Agreements required Trade Vendors to ship goods to Toys “R” Us 

under the trade terms that were customary in the 180 days leading up to the bankruptcy. The 

Critical Vendor Agreements stated that “supplier shall supply goods and/or perform services to 

the company” based on “Customary Trade Terms.” 1072 Those “Customary Trade Terms” were 

defined as “trade terms at least as favorable to the company as those practices and programs, 

1072 See, e.g., Ex. 260 (Dorel (Rana depo ex. 13)) at 2. 

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product mix, availability, and other programs, in place in the 180 days prior to the Petition 

Date.” 1073

Trade Vendors confirmed that the trade terms in place with Toys “R” Us during that 180 

day period before the bankruptcy would allow the vendors to move to cash in advance or ask for 

assurances if they were concerned about Toys “R” Us’ ability to pay. Trade Vendors would still 

ship goods—in compliance with the critical vendor agreement—but they would ship those goods 

only after receiving payment from Toys “R” Us. 1074 

Moving to cash in advance would have allowed each Critical Vendor to avoid all of its 

losses. There would have been no unpaid goods that were shipped to Toys “R” Us, because 

vendors would have received payment before shipping any of those goods. Defendants entirely 

ignore the ability of Trade Vendors to adjust their payment terms in this way. 

2. Each Critical Vendor testified that they would have acted differently 

had they learned of concealed facts, establishing reliance and 

causation. 

Defendants’ claim that the Trust cannot “prove reliance or causation” for these vendors is 

directly contrary to the vendors’ testimony. Mot. at 34. As discussed above, reliance and 

causation require showing that a statement or concealment was a material or important factor in a 

decision, and that absent that statement, the Trade Vendor would have acted differently. The 

evidence demonstrates reliance and causation for each Critical Vendor.

1073 Id.

1074 See, e.g., Ex. 372 (Elliott (MGA) depo.) 262:17-263:16 (confirming that “it is very routine” 

for MGA to “ask for cash in advance in situations where we think the customer is unable to 

pay”); Ex. 258 (Rana (Dorel) depo.) 233:6-234:15 (confirming that under “customary trade 

terms,” Dorel would have the option to “move to cash in advance terms” if it was “unsure [that a

customer] would be able to pay”); Ex. 284 (Brinkmeier (Graco) depo.) 179:11-180:25 

(confirming that under customary trade terms, Graco could ship “cash in advance” or “halve the 

[length of payment] terms” if it believed “there was a substantial chance that Toys “R” Us was 

not going to be able to pay”).

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Trade Vendors with critical vendor agreements uniformly testified that they would have 

acted differently had they known the facts that Defendants concealed from them. For example, 

Jakks would have “moved to cash in advance” if it had known about projected covenant breaches 

and the need for additional financing, notwithstanding the existence of the critical vendor 

agreement. 1075 Best Chairs explained that it would have “terminate[d] the contract pursuant to 

the provisions that were in there or at a minimum we would have said he who first materially 

breaches the contract cannot later enforce it. So we would have had lots of arguments to stop 

shipping them and we would have utilized those at that time.” 1076

As another example, LEGO’s Trade Agreement signed after Toys “R” Us entered 

bankruptcy included the following language under scenarios in which LEGO could stop shipping 

goods:

“Supplier determines, in its good-faith business judgment, that the Company or one or 

more of the Relevant Affiliates fails to satisfy Supplier’s customary business credit risk 

management criteria” 1077

“the occurrence of a material adverse change with respect to the ability of one or more of 

the Relevant Affiliates to purchase goods and services from vendors on credit in the 

ordinary course of business” 1078

LEGO testified that the “customary business risk management criteria” would include 

“evidence of liquidity with the customer” and necessitated “access to that information.” 1079 If 

LEGO “felt that there was risk” that Toys “R” Us would not be “able to access the DIP facilities 

for any reason,” LEGO would have stopped shipping based “on the good-faith business 

judgment or credit judgment clause that’s inside of our trading terms contract.” 1080 

1075 Ex. 307 (Cooney (Jakks) depo.) 215:15-217:4. 

1076 Ex. 239 (Sermersheim (Best Chairs) depo.) 329:17-330:15.

1077 Ex. 341 (Kodak (LEGO) depo. Ex. 107) 6(c)(vi)

1078 Ex. 341 (Kodak (LEGO) depo. Ex. 107) 6(d)(i)

1079 Ex. 335 (Kodak (LEGO) depo.) 138:7-19. 

1080 Ex. 335 (Kodak (LEGO) depo.) 342:8-23.

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Defendants’ present a table with vendor testimony that Defendants assert supports their 

argument. Mot. 35-37. Once again, Defendants completely ignore the testimony demonstrating 

that each Trade Vendor with a critical vendor agreement would have acted differently if 

Defendants had told them the truth. To respond to Defendants’ table, the Trust presents 

testimony for each Trade Vendor in the Trust’s Appendix A in response to Defendants’ tables of 

vendor testimony, and that Appendix is being filed as a separate document. 

Moreover, Defendants’ cited cases do not support the proposition that there can be no 

fraud when a contract exists. To the contrary, Defendants’ own cited case establishes that “a 

fraud claim may arise when a defendant makes misrepresentations to induce a plaintiff's 

continuing performance.” Coughlan v. Jachney, 473 F. Supp. 3d 166, 194 (E.D.N.Y. 2020); see 

Barrie House Coffee Co. v. Teampac, LLC, No. 13 CV 8230 (VB), 2016 U.S. Dist. LEXIS 

85527, at *20 (S.D.N.Y. June 30, 2016). Defendants’ misrepresentations here induced Trade 

Vendors to ship goods on credit, rather than adjusting payment terms, because the Trade Vendors 

falsely believed that Toys “R” Us’ DIP financing was available and that Toys “R” Us would 

have the ability to pay for those orders when they came due.

None of Defendants cases involve a similar situation in which the plaintiff could alter his 

conduct under a contract. ICBC (London) PLC v. Blacksands Pac. Grp., Inc., 2015 U.S. Dist. 

LEXIS 131211, at *33 (S.D.N.Y. Sep. 29, 2015) (discussing fraud in context of obligation to 

make interest payments); Megaris Furs v. Gimbel Bros., 172 A.D.2d 209, 212-13 (App. Div. 1st 

Dept. 1991) (holding no fraud to induce rent payments because plaintiff was “contractually 

bound to comply with a particular schedule of rent payments”); IBM Credit Fin. Corp. v. Mazda 

Motor Mfg. Corp., 152 A.D.2d 451, 453 (App. Div. 1st Dept. 1989) (discussing presence of 

existing contract as defeating a fraudulent inducement claim). None of these cases involve a 

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plaintiff alleging that it would have exercised its ability to change terms or act differently under 

the allowed terms of a contract. As discussed above, the Trade Vendors here were not 

“contractually bound” to ship goods on credit. They could, and would, have moved to cash in 

advance if Defendants had told them the truth. As discussed at length above, this satisfies the 

elements of reliance and causation. 

3. Defendants’ “fraudulent inducement” argument is a red herring. 

Separately, Defendants claim that “the Trust cannot argue that the trade vendors were 

fraudulent induced into signing the Critical Vendor Agreements.” Mot. at 37-38. This is a red 

herring. The Trust is not arguing that Trade Vendors were fraudulently induced into entering the 

Critical Vendor Agreements. Rather, the terms of the critical vendor agreements and the 

vendors’ testimony demonstrate that the critical vendor agreements do not change the analysis of 

vendor reliance or causation. 

D. Defendants’ “actionable misstatements” arguments fail.

Defendants assert that “the Trust must be able to identify a specific actionable 

representation to every trade vendor that was false when made to proceed with its fraudulent 

misrepresentation claim for that vendor” and “[t]he Trust cannot do so.” Mot. at 38. Each part 

of this argument fails.

As an initial matter, Defendants’ argument relates only to the fraudulent and negligent 

misrepresentation claims. Defendants do not address the concealed facts giving rise to 

fraudulent concealment claims. And Defendants’ arguments also lack merit regarding the 

fraudulent misrepresentation claims. 

1. Statements made in September and October are actionable. 

Defendants make two arguments: that there is no evidence “to suggest” that statements 

made in September and October “were false when made,” and that statements “regarding the 

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purpose of the DIP financing and TRU’s intent to pay trade vendors” are not actionable because 

they were “forward looking and aspirational or promissory statements.” Mot. at 39-42. 

First, Defendants’ claim that “[n]othing in the factual record suggests” that the September 

and October statements “were not true” is wrong. 

As demonstrated at length above, the September statements were both false and 

misleading half-truths, giving rise to liability for fraudulent misrepresentation. The statements 

on September 18 that Toys R” Us had “commitments for” and “access to” the DIP financing as 

of that date were false, because the DIP financing was not yet available. Further, the DIP did not 

provide “over $3 billion in new financing” that would be available “to support [Toys “R” Us’] 

business obligations during the financial restructuring process.” Instead, the actual amount of 

new money that could be used to pay for obligations in the post-petition period was less than 

$500 million. Each of these falsities gives rise to a cause of action for fraudulent concealment. 

Moreover, the statement that the Company had access to the financing throughout the 

restructuring process was both false and misleading as demonstrated above.

Second, Defendants entirely ignore the additional fraudulent statements made from 

December 2017 through February 2018. For example, as demonstrated above, Defendants made 

additional false and misleading statements to Trade Vendors at the Hong Kong and New York 

Toy Fairs, including that it was “business as usual at Toys “R” Us,” and that Toys “R” Us was 

“totally focused on plans for emergence”—both of which were false when made. Further, the 

Vendor FAQ was posted on Toys “R” Us website throughout the bankruptcy, not just in 

September. And in January and February, the statement on the FAQ that the DIP financing “will 

enable [Toys “R” Us] to meet our financial obligations throughout the restructuring process” was 

false, because Toys “R” Us needed a cash infusion of at least $150 to $200 million. Defendants 

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ignore the statements after September and October that separately give rise to liability for 

fraudulent misrepresentation and were false when made. 

2. Defendants’ “advisors approved” argument fails.

Defendants’ claim that because advisors “reviewed and approved” messaging used by 

Toys “R” Us, there can be no claim that Defendants were “transmitting false information.” Mot. 

at 40. This argument is not only wholly unsupported by evidence, but also fails as a matter of 

law. 

First, Defendants claim that the “undisputed factual evidence demonstrates” that “legal 

and financial advisors reviewed and approved the messaging and written statements that TRU 

issued during this time period” and that this review and approval included “FAQs, vendor talking 

points, press releases, and letter to customers” is false. Mot. at 40 (emphasis added). 

Defendants cite to their statement of facts ¶¶85-88 and Exhibits 109-111 to support this 

assertion. The statement of facts again repeats the assertion that a “legal or financial advisor 

approved” of the messaging. Exhibit 109 shows that Joele Frank (a public relations firm, not a 

“legal or financial advisor”) circulated drafts to other professionals, but provides no indication 

that the materials were “reviewed and approved.” 1081 Defendants’ Exhibit 110 is an email in 

which a Kirkland lawyer summarizes in an email that he told one vendor that “if they want to 

ship on preexisting terms, and the company wants to purchase products, they would be paid in 

full for that postpetition purchase.” 1082 That email does not indicate that Kirkland “reviewed or 

approved of” the Vendor Talking Points, Vendor FAQ, or the Dear Valued Business Partner 

Letter. Similarly, Defendants’ Exhibit 111 reflects a Kirkland lawyer giving advice on 

1081 Defs. Ex. 109. 

1082 Defs. Ex. 110. 

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September 27 about statements at the Dallas Toy Fair, not approving the messaging that was 

used to contact vendors in the aftermath of the bankruptcy. 1083 

Defendants thus have no evidence or basis for the claim that legal or financial advisors 

“approved” the messaging being given to vendors, much less evaluated it to ensure that it did not 

make false or misleading statements. Because Defendants have not provided any evidence, 

much less undisputed evidence, of review and approval, this argument fails at the threshold. 

Second, Defendants claim that Kirkland and Ellis was making “these same substantive 

representations to trade vendors,” demonstrating that they were true. Mot. at 40. But 

Defendants again provide no evidence to support this statement. Defendants cite an email in 

which a Kirkland lawyer informed a vendor about shipment as a non-critical vendor. 1084 And 

Defendants misleadingly excerpt from the deposition of the LEGO Group. Here is the full 

answer, showing the statement made by Kirkland and the witness’ limitation of the answer to 

“the same type of messaging” to “this particular message.”

2 Q. Josh Sussberg writes, "Not sure

3 what you guys are doing here. You are now

4 the only vendor not shipping."

5 Do you see that?

6 A. I do see that.

7 Q. So the same type of messaging

8 that was being provided to Lego Dave

9 Brandon, Mike Short, and Richard Barry was

10 also being provided to LEGO's outside

11 counsel from Toys "R" Us' outside counsel,

12 correct?

13 A. Yes. On this particular

14 message, that seems clear.

Kodak (LEGO) depo. 98:2-14

1083 Defs. Ex. 111.

1084 Defs. Ex. 110. 

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The statement that the LEGO Group was “the only vendor not shipping” was certainly 

not a statement about $3.0 billion in new financing or that it would be available throughout the 

restructuring process. Thus, Defendants’ argument that Kirkland and Ellis was communicating 

the same false statements to Trade Vendors is baseless. 

Third, any claim of reliance on advisors does not apply when “Defendants knew the true 

facts” and “the advisors did not provide contrary advice containing false information.” 1085 As 

discussed above, both Brandon and Short knew that the DIP financing did not in fact provide 

$3.0 billion of new money, but that it instead provided less than $500 million. And they knew 

that the DIP financing had not been approved as of September 18, when they were calling 

vendors and informing them that Toys “R” Us had obtained DIP financing. Moreover, 

Defendants do not provide evidence that Kirkland & Ellis or Alvarez & Marsal gave Brandon 

and Short advice to the contrary—for example, that the DIP financing truly did provide $3.0 

billion in funding to use for ongoing operations. Brandon and Short’s decision to make those 

false statements to vendors would not be excused by advisor approval. 

Fourth, throughout the bankruptcy, neither Kirkland nor Alvarez gave Defendants advice 

that the statements on the FAQ continued to be true, or that the statements in the talking points 

continued to be accurate. For example, Defendants do not proffer evidence of a Kirkland lawyer 

telling Defendants that it would be perfectly true and not misleading to tell vendors in February 

that the DIP financing was sufficient to enable Toys “R” Us to meet its financial obligations 

during the bankruptcy. Each of those false statements remain actionable, regardless of the 

presence of advisors. 

1085 Ex. 70 (Greenspan) ¶487. 

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Fifth, the Trust’s evidence demonstrates that the Defendants failed to follow the advice 

they had been given by the advisors. Josh Sussberg of Kirkland & Ellis at a board meeting 

“advised it is best to remain open, honest, and transparent with stakeholders throughout the 

process.” 1086 Sussberg testified that he instructed Brandon, Short, and the Directors to be 

 and that they should 

1087 

Sussberg also testified that he never advised Defendants that it was permissible to make 

statements that would mislead the trade vendors, or to make statements that would create false 

impressions about Toys R Us’ financial strength. 1088 

Finally, to attempt to support their position, Defendants use a single quote from the 

Trustee that the Trust “does not contend that Kirkland engaged in any wrongdoing in connection 

with the DIP financing.” Mot. at 40. That statement does not stand for, nor imply, the 

proposition that all materials that anyone from Kirkland ever received contained truthful 

information, or nor does it imply that all statements communicated by Defendants remained true 

after they were initially disseminated. And indeed, the analysis above indicates that Defendants 

made many statements that were knowingly false when made, and otherwise became false or 

misleading during the bankruptcy. 

3. Forward looking and aspirational or promissory statements are 

actionable 

Defendants assert that the statements “that TRU would make payments on post-petition 

shipments” and that “the DIP financing received would provide sufficient liquidity” are forward 

looking and “cannot serve as the basis for tort liability.” Mot. at 42. Defendants are wrong.

1086 Ex. 142 (1'31'18 minutes [DEFS_0059013]) at 4. 

1087 Ex. 84 (Sussberg depo.) 116:9-117:13. 

1088 Ex. 84 (Sussberg depo.) 116:9-13, 212:13-213:9 

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First, as explained at length above, a statement that is a prediction or an opinion is 

actionable if it “impl[ies] facts which justify a belief in the truth of the opinion.” Cohen v. S & S 

Constr. Co., 151 Cal. App. 3d 941, 946 (1983) (internal quotes omitted). Because all of the 

representations made by Defendants implied the existence of verifiable facts justifying the 

statements, those representations are therefore actionable. 

Second, a forward-looking statement or statement of opinion “may be actionable when it 

is made by a party who ... possesses, or assumes to possess, special knowledge or special 

information regarding the subject matter.” Jolley v. Chase Home Fin. LLC, 213 Cal. App. 4th 

872, 892 (2013) (internal quotes omitted). As detailed above, Defendants had superior 

knowledge of Toys “R” Us’ financial position and internal data. Trade Vendors did not have 

access to any of this information. Because Defendants had superior knowledge of the facts 

underlying each of the representations, their forward-looking statements and opinions made area 

actionable. 

Third, Defendants’ “aspirational or promissory” argument does not address the additional 

fraudulent misrepresentation made by Defendants between December 2017 and March 2018. As 

discussed in detail above, each of those statements were actionable statements of fact when 

made, and they separately give rise to claims for fraudulent misrepresentation. 

Finally, Defendants assert that vendors testified that they still “believe that Defendants 

were speaking truthfully” when they made statements in September and October 2017. That a 

Defendant fooled a vendor into believing that the Defendant was speaking truthfully does 

nothing to undermine a fraud claim: just the opposite, it is perfectly consistent with fraud. As 

demonstrated above, while Defendants knew the truth, trade vendors did not know the truth, and 

even today most trade vendors do not know the full truth. It is not surprising, therefore, that a 

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trade vendor could continue to believe Defendants’ false statements. Likewise, vendors believed 

that Brandon and Barry were telling them the truth when they represented to vendors at the New 

York Toy Fair that that it was “business as usual” for the Company. 1089 Those vendors did not 

know what Brandon and Barry knew—that the Company was preparing to liquidate and 

targeting a mid-March date. 

Moreover, as discussed above, a Trade Vendors’ 30(b)(6) testimony is not a judicial 

admission by the Trust on any fact, and the Trust has presented powerful evidence of each of the 

elements of fraudulent misrepresentation, including falsity. 

4. Defendants “cannot identify specific statements” argument fails.

Defendants claim that because “vendors testified that they could not identify the specifics 

of any misstatements allegedly made to them,” the Trust’s fraudulent misrepresentation claims 

fail. Mot. at 42-44. This argument is wrong on two counts. 

First, as demonstrated in the Trust’s evidence (examples in the Trust’s specific response 

to Defendants’ tables for each Trade Vendor) each Trade Vendor identified multiple specific 

statements, who those statements were made by, and when the statements were made. This alone 

defeats Defendants’ argument. See Trust SOF ¶¶ 402, 408, 414, 420, 426, 432, 438, 444, 450, 

456, 462, 468, 474, 479, 484, 489, 494, 500, 506, 511, 517, 523, 529, 535, 540, 546, 551, 557, 

563, 569, 574, 579, 584, 590, 595, 601, 606. 

Second, Defendants falsely assume that the only source of evidence for specific 

statements is the Trade Vendor depositions. But Defendants and Toys “R” Us employees also 

provided testimony identifying specific statements, when they were made, and to whom they 

were made. For example, Barry testified that he and other employees at Toys “R” Us had 

1089 See, e.g., Ex. 421 (Smith (Yvolve) depo.) 56:21-58:8. 

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conversations in which they communicated “the information in the talking points” to vendors. 

1090 Those talking points included: “we have received commitments for over $3.0 billion in new 

financing” that would “enable [Toys “R” Us] to meet our business obligations.” 1091 And Barry 

admitted specific statements that he made, for example: 

6 Q. In September 2017 and in October

7 2017 when you were talking to trade

8 vendors, did you tell them that

9 Toys ‘R’ Us had over $3 billion in DIP

10 financing that would provide liquidity

11 and enable Toys ‘R’ Us to pay for

12 merchandise that was shipped on credit

13 while Toys ‘R’ Us was in bankruptcy?

14 A. Yes.

Ex. 89 (Barry depo.) 35:6-14.

He further admitted: 

6 Q. Was there any trade vendor that

7 you had a conversation with where you

8 decided I'm not going to mention the 3

9 billion in DIP financing that we got?

10 A. Not that I recall.

11 Q. Did you think it was important to

12 tell each of the trade vendors about the

13 $3 billion in DIP financing that

14 Toys ‘R’ Us had as a source of liquidity?

15 A. Yes.

Ex. 89 (Barry depo.) 83:6-15.

Furthermore, Barry’s testimony may be used to prove which Trade Vendors received this 

representation and when they were contacted. 1092 Further, documents confirm the timing of 

particular statements. For example, they indicate that particular vendors were contacted the day 

1090 Ex. 89 (Barry depo.) 83:2-10. 

1091 Ex. 174 (Vendor Talking Points [TRU-Trust0000336056]). 1092 Ex. 89 (Barry depo.) 118:12-119:6 (testifying about a conversation “in Dave Brandon’s 

office” and a number of conversations that occurred “a day before” the bankruptcy filing). 

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of the bankruptcy filing, or the day after filing. 1093 Defendants ignore all of this additional 

evidence that independently establishes specific statements, when they were made, and who 

made them. 

E. Defendants’ “scienter” arguments fail. 

Defendants claim that no evidence of scienter sufficient for fraudulent misrepresentation 

or concealment “appears in the factual record.” Mot. at 44. Defendants are wrong. 

1. The Trust has ample evidence of Defendants’ intent. 

As discussed above, “[a]n intent to deceive is not an essential element of the cause of 

action; the required intent is an intent to induce action.” Beckwith v. Dahl, 205 Cal. App. 4th 

1039, 1062 (2012) (internal citations omitted). 

As demonstrated above, Defendants knew that Toys “R” Us’ business model required 

that Trade Vendors continue shipping goods on credit and Defendants desired to induce Trade 

Vendors to continue shipping. Defendants knew that the Trade Vendors would stop shipping 

goods if they became concerned about Toys “R” Us’ ability to pay. And they knew that the DIP 

financing was what gave the Trade Vendors comfort that Toys “R” Us would have the ability to 

pay. 

Defendants further knew that Trade Vendors would stop shipping goods to the company 

on credit if they learned the concealed facts. They knew that by concealing information about 

Toys “R” Us’ projected loss of its DIP financing, need for additional financing, and liquidation 

planning, Trade Vendors would continue shipping. As detailed in the sections above discussing 

Defendants’ intent, this evidence precludes summary judgment. 

1093 See, e.g., Ex. 171 (Vendor Call spreadsheet (Barry Ex. 16) [TRU-Trust0000364251]). 

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2. Defendants’ cited securities law cases are inapposite. 

Defendants attempt to use cases in the context of securities litigation under Rule 10b-5 

and Section 10(b) to support their assertion that Defendants lacked scienter. But the intent 

required under securities law fraud cases is not analogous to the intent requirement for common 

law fraud. 

“[T]he body of law that has developed under Rule 10b-5 is not sufficiently analogous to 

the law of fraud to justify its importation into the latter.” Mirkin v. Wasserman, 5 Cal. 4th 1082, 

1093 (1993); see Strauss v. Long Island Sports, Inc., 60 A.D.2d 501, 509 (App. Div. 2nd Dept. 

1978) (“section 10b-5 cases are very much distinguishable from common-law fraud cases”).

Several of Defendants’ cases deal with the intent required in securities litigation. See 

Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976) (assessing intent requirement “for 

civil liability under §10(b) and Rule 10b-5”); In re Triangle Capital Corp. Sec. Litig., 988 F.3d 

743, 750-51 (4th Cir. 2021) (discussing intent requirements for claims based on Section 10(b) 

and the Private Securities Litigation Reform Act); Kalnit v. Eichler, 264 F.3d 131, 138-39 (2d 

Cir. 2001) (summarizing evolution of intent requirements in the context of the Private Securities 

Litigation Reform Act). These cases do not establish the appropriate standard for scienter in 

common law fraud claims. 

3. Defendants’ March board minutes argument fails. 

Defendants assert that board minutes in March constitute “undisputed evidence” that 

“Defendants did not want to deceive the trade vendors.” Mot. at 45. This argument fails for two 

reasons.

First, the Trust has extensively demonstrated above that Defendants possessed the 

requisite fraudulent intent between September 2017 and late February 2018. Defendants wanted 

Trade Vendors to ship goods to Toys “R” Us. Defendants knew that Trade Vendors would stop 

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shipping if they learned the concealed facts. And Defendants not only concealed those facts 

from Trade Vendors, they made additional misrepresentations to the Trade Vendors so that they 

would continue shipping. The March minutes do not contradict that showing of intent. 

Second, the March board minutes do not reflect that Defendants had an intent to stop 

deceiving the Trade Vendors as of March. To the contrary, the minutes reflect that “the Board 

advised management” to inform vendors that payment “is not guaranteed” only “if asked.” 1094 If 

a Trade Vendor did not ask, that Trade Vendor would have no way of knowing about the 

concealed information. Defendants did not make an additional disclosure to Trade Vendors 

warning them about the risks of shipping. Defendants did not direct the Company’s employees 

to stop ordering goods on credit. And Defendants did not take down the Vendor FAQ, which 

continued, even as of this date, to reassure vendors that “Toys “R” Us will pay for all goods and 

services” and that the DIP financing provided “sufficient liquidity” for Toys “R” Us to meet its 

business obligations. 1095 

Third, Defendants’ argument fundamentally misunderstands the appropriate summary 

judgment standard. Defendants attempt to draw inferences from the March board minutes that 

support a purported lack of intent. See Mot. at 45-46. But this is not the purpose of summary 

judgment. For summary judgment to be appropriate, Defendants must demonstrate that when all 

inferences are drawn in favor of the Trust, there is no genuine issue about Defendants’ intent. 

Defendants fall far short of meeting this burden. 

 

1094 Ex. 196 (3’4’18 Board minutes [TRU-Trust0000375064]). 

1095 Ex. 172 (Vendor FAQ [TRU-Trust0000349256]). 

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4. Defendants’ “public disclosure” argument fails. 

Defendants assert that a “public disclosure” in a “contemporaneous SEC filing at the 

beginning of the Chapter 11 proceeding” prevents any showing that “Defendants acted with an 

intent to deceive.” Mot. at 46. This argument fails for multiple reasons. 

First, Defendants made numerous affirmative statements to Trade Vendors to convince 

them to ship goods. At the same time that this SEC disclosure was submitted, Defendants were 

making statements directly to Trade Vendors assuring them that the DIP financing would be 

available throughout the bankruptcy and that Trade Vendors would be paid for all goods that 

they shipped to Toys “R” Us during the bankruptcy. Defendants understood that the purpose of 

these statements was to have Trade Vendors begin shipping to the company again. Defendants 

did not tell Trade Vendors anything about the potential dangers of covenant compliance, or that 

Toys “R” Us might be unable to pay for goods during the bankruptcy. That the company 

submitted a separate voluminous disclosure to the SEC (not to the Trade Vendors) with various 

boilerplate warnings does not negate the direct statements that Defendants made and authorized 

to be made in September 2017. 

Second, a form statement in an SEC disclosure in September has no bearing on 

Defendants’ intent to conceal additional facts between December and March. As discussed 

above, intent is established by “knowledge of falsity” and “an intent to induce action.” Beckwith 

v. Dahl, 205 Cal. App. 4th 1039, 1062 (2012). Defendants became aware of additional facts 

after the initial SEC disclosure was published, and made the decision to withhold those facts 

from Trade Vendors. Defendants did not make any additional disclosure about impending 

covenant breaches, that the Company required $150-$200 million in new financing to meet its 

obligations, or was engaged in liquidation planning. 

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Third, none of Defendants’ inapplicable securities law cases establish that an SEC 

disclosure absolves directors of fraudulent intent in common law fraud claims. See In re Triangle 

Capital, 988 F.3d at 756 (discussing that disclosures to investors meant that plaintiff had “not 

satisfied the PSLRA’s [Private Securities Litigation Reform Act’s] heightened burden for 

pleading scienter”); City of Coral Springs Police Officers’ Ret. Plan v. Farfetch Ltd., 2021 U.S. 

Dist. LEXIS 189502, at *10 (S.D.N.Y. Sept. 30, 2021) (discussing scienter requirements under 

Section 10(b) and Rule 10b-5); Lucas v. Icahn, 616 F. App’x 448, 450 (2d Cir. 2015) (holding 

that plaintiff had not “adequately pleaded that the 10b-5 Defendants acted with scienter” and 

laying out requirements for pleading scienter in a claim for securities fraud).

5. Defendants’ argument that vendors testified that Defendants had no 

intent to deceive is irrelevant as a matter of law, and grossly 

mischaracterizes the facts. 

Defendants assert that because some Vendors testified that they did not “believe that 

Defendants had an intent to deceive,” the Trust cannot “pursue tort claims on behalf of those” 

Trade Vendors. Mot. at 46-47. 

First, the question of Defendants’ intent is not determined by whether a Trade Vendor 

believed that a Defendant had a particular intent. The required element for fraud is “an intent to 

deceive” not “a plaintiff’s belief that a Defendant had an intent to deceive.” That a Trade 

Vendor believed a Defendant had a particular intent is not relevant to, much less dispositive of, 

Defendants’ actual intent. Rather, the appropriate evidence for intent comes from Defendants’ 

own testimony, which, as discussed above, demonstrates the requisite intent. 

Second, Defendants do not identify any Trade Vendor that actually provided testimony 

that Defendants lacked an intent to deceive. In support of their proposition, Defendants cite a 

single Trade Vendor witness. That Trade Vendor witness was not the 30(b)(6) designee for 

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statements made by Defendants to that Trade Vendor. 1096 And the witness did not testify that 

Defendants lacked an intent to deceive. Here is the full question and answer that Defendants 

misleadingly excerpt:

 7 Sitting here today, does R.R. Donnelley contend

 8 that any of the statements in this document are -- were

 9 false?

10 A. Well, hindsight is 20/20. Right?

11 Did they pay vendors for all goods and services

12 received after the filing date? No. Because I've got

13 a claim for that.

14 On or before, I didn't get paid for everything,

15 but I agreed to not get paid for everything. So

16 it's --

17 Q. Right.

18 Because R.R. Donnelley had an agreement with

19 Toys "R" Us, correct?

20 A. Yeah. Yeah. So, you know, it's a little

21 complicated. I don't think they meant to deceive.

R.R. Donnelley (Elliott) depo. 77:7-21

This excerpt does not address all of the Defendants’ representations to R.R. Donnelly; it 

concerns a single representation. And it describes only what this witness “thinks”—a witness 

who was fooled by Defendants and who did not have the evidence from Defendants’ depositions 

establishing that, in fact, they did intend to induce action. And the opinion offered by the 

witness addresses whether “they meant to deceive,” it does not address whether Defendants 

intended to induce action by Trade Vendors, which is the relevant issue. This does not have any 

bearing on Defendants’ intent, much less does it conclusively demonstrate that there is no 

disputed issue of fact regarding fraudulent intent. 

In sum, Defendants fail to meet their burden to show that there are no issues of material 

fact on the question of scienter. Intent is a question of fact for the jury to evaluate. “Issues of 

1096 Ex. 391 (Elliott (R.R. Donnelley) depo.) 14:19-16:6. 

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fraud and intent to deceive present questions of fact particularly inappropriate for resolution on a 

motion for summary judgment.” Tenax Corp. v. Tensar Corp., 743 F. Supp. 1204, 1211 (D. Md. 

1990); Kilroy v. Alpharetta Fitness, Inc., 295 Ga. App. 274, 280 (2008) (“the question 

of scienter is an issue of fact for jury determination”);

F. Defendants’ “reliance” argument fails. 

Defendants assert that the testimony of “the vast majority of trade vendors at their 

30(b)(6) depositions” is grounds for dismissing tort claims on behalf of those vendors. Mot. at 

47. This argument fails.

Reliance can be shown by demonstrating “that the misrepresentations were material, and 

that therefore a reasonable trier of fact could infer reliance from such misrepresentations ... 

absent evidence conclusively rebutting reliance.” Engalla v. Permanente Med. Grp., Inc., 15 

Cal. 4th 951, 977 (1997). As discussed above, the Trust has evidence that the misrepresentations 

were material. And Defendants’ arguments fail to rebut reliance. 

First, “Rule 30(b)(6) testimony is not ‘binding’ in the sense that it precludes the deponent 

from correcting, explaining, or supplementing its statements.” ADT Holdings, Inc. v. Harris, No. 

2017-0328-JTL, 2017 Del. Ch. LEXIS 163, at *4 (Ch. Sep. 7, 2017). At Trade Vendor 

depositions, Defendants would commence the questioning, and would ask broad questions 

without referencing specific documents. The Trust then examined the witnesses using the 

contemporaneous documents from Defendants that contained their representations and using 

emails Trade Vendor representatives had written at the time discussing Defendants’ statements. 

Not surprisingly, these documents often refreshed the witness’s recollection and resulted in 

specific and compelling testimony of reliance.

As detailed in the Trust’s Statement of Facts Trade Vendor’s testified statements made by 

Defendants or at Defendants’ direction were material factors in each Trade Vendor’s decision to 

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ship goods on credit. See SOF ¶¶ 402, 408, 414, 420, 426, 432, 438, 444, 450, 456, 462, 468, 

474, 479, 484, 489, 494, 500, 506, 511, 517, 523, 529, 535, 540, 546, 551, 557, 563, 569, 574, 

579, 584, 590, 595, 601, 606. 

For example, no fact “was more important to Basic Fun in deciding whether to ship on 

credit than Richard Barry’s statements and his word.” 1097 As another example, Step2 “believed 

what [they] learned” from Defendants, and continued “supporting Toys “R” Us’ business with 

the flow of goods.” 1098 As yet another example, the statement on the Vendor FAQ about the 

DIP financing and its availability throughout the bankruptcy was “the most critical factor” in 

Jakks’ decision to ship. 1099 And the statement that Toys “R” Us had received 

 Ex. 321 (Kamler (Kent) depo.) 165:11-166:16. Further evidence for 

the decisions to ship can be found in Trust SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 451, 

457, 463, 469, 475, 480, 485, 490, 495, 501, 507, 512, 518, 524, 530, 536, 541, 547, 552, 558, 

564, 570, 575, 580, 585, 591, 596, 602, 607. 

Furthermore, to the extent that there is any contradiction within a 30(b)(6) witness’ own 

deposition testimony, such contradiction cannot be resolved at the summary judgment stage. “[I]f 

there are inconsistencies in a witness’ testimony, [i]t is the exclusive province of the trier of fact 

to weigh conflicting testimony and make determinations of credibility, crediting some, all or 

none of any given witness’ testimony.” Wall Sys. v. Pompa, 324 Conn. 718, 741 (2017) (internal 

quotes omitted); Lennon v. Christoph, No. 94 C 6152, 1997 U.S. Dist. LEXIS 1231, at *14 (N.D. 

Ill. Feb. 4, 1997) (“conflicts within deposition testimony create credibility issues which should 

1097 Ex. 232 (Foreman (Basic Fun)) 270:22-271:13. 

1098 Ex. 409 (McCallum (Step2)) 24:9-15, 177:13-178:2. 

1099 Ex. 307 (Cooney (Jakks) depo.) 159:19-160:5, 145:16-22. 

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be considered by the fact-finder”); Mata v. Brooks Petroleum Co., No. 12-02-00075-CV, 2003 

Tex. App. LEXIS 3511, at *12 (Tex. App. Apr. 23, 2003) (“conflicting testimony of the same 

witness on the same issue creates a fact issue for the fact finder to decide”).

Second, Defendants’ assertion that Trade Vendors testifying that they were not present at 

the Hong Kong or New York Toy Fair means that those vendors “disavowed the Trust’s claims 

on their behalf” is wrong. Mot. at 47. 

That certain Trade Vendor witnesses were not present at the Hong Kong or New York 

Toy Fairs or did not rely on statements at those events does not negate those vendors’ reliance on 

Defendants’ representations. Indeed, each of the Trade Vendors that Defendants cite gave 

testimony that they relied on other statements that Defendants made. 1100 A lack of reliance on 

one representation does not establish a lack of reliance on other statements.

Moreover, each Trade Vendor’s testimony establishes that the Trade Vendor relied on 

Defendants’ September statements, and that Trade Vendors had a continuing expectation that 

those statements remained true. No vendor had access to any of the information that was 

concealed by Defendants, and no vendor was told the truth, whether at a Toy Fair or in any other 

setting. Just because certain Trade Vendors did not receive additional statements at the Hong 

Kong or New York Toy Fairs does not negate their reliance on other statements made by 

Defendants. 

Third, Defendants’ argument about Trade Vendors that received representations that were 

“not reassuring” fails to establish a basis for granting summary judgment. Mot. at 48. No Trade 

1100 See Ex. 401 (Stewart (Spinmaster) depo.) 213:6-24 (“conversations that SpinMaster had with 

Short and Barry” were “one of the factors in deciding to ship”); Ex. 315 (Emby (Just Play) 

depo.) 113:9-17 (“100 percent” true that “conversation with Mr. Brandon influence[d] Just 

Play’s decision to ship goods”); Ex. 249 (Hoff (Crayola) depo.) 242:13-243:2 (statement made 

about DIP financing “was an important factor” in Crayola’s decision to ship).

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Vendor testified that they were told any of the concealed facts by Defendants in February. See 

Trust SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 451, 457, 463, 469, 475, 480, 485, 490, 

495, 501, 507, 512, 518, 524, 530, 536, 541, 547, 552, 558, 564, 570, 575, 580, 585, 591, 596,

602, 607. And no Trade Vendor testified that they stopped shipping as a result of a statement 

made by a Defendant—as the lack of any citation or evidence for Defendants’ assertion reflects. 

On the contrary, Trade Vendors uniformly testified that they continued to ship due to the 

continued availability of the DIP financing and that they believed that Toys “R” Us had the 

ability to pay for purchase orders when it placed them. 

G. Defendants’ “reasonable reliance” arguments fail. 

Defendants assert that the Trust cannot prove reasonable reliance because (1) Toys “R” 

Us’ SEC filing included a statement about “the risk that it might not emerge,” (2) because the 

“DIP financing agreements were publicly filed” and that the vendors, as “sophisticated 

companies,” could have “known about the risk of shipping goods” if they “review[ed] these 

disclosures,” and (3) vendors could not “reasonably believe that shipping goods to a company 

during a Chapter 11 proceeding was risk free.” Mot. at 48-49. Each of these arguments fail.

1. Defendants’ “SEC filings” argument fails.

First, the SEC filing Defendants reference could not possibly disclose the facts identified 

above as concealments. The SEC filing was on September 29, 2017. 1101 Defendants’ fraudulent 

concealments occurred between October and March. The SEC filing did not contain any of that 

concealed information: for example, that the Company was projecting that it would default on its 

financial covenants, that Toys “R” Us had a $200 million hole in its budget that was required to 

emerge from bankruptcy, that there was a $500 million dollar shortfall from the DIP budget, and 

1101 Ex. 198 (Toys “R” Us Form 10-Q, Sept. 29, 2017). 

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that liquidation planning was underway. Thus, the SEC filing has no bearing on Defendants’ 

fraudulent concealments. 

Second, the SEC filings did not actually disclose the magnitude of the risks associated 

with the DIP financing. Instead, the SEC filing buried discussion of the DIP financing in various 

boilerplate warnings such as “We may be subject to claims that will not be discharged,” and a 

warning that “ability to maintain contracts” was a risk factor that Toys “R” Us faced in 

bankruptcy. 1102 To evaluate those risks, Trade Vendors would need access to the additional 

information that Defendants concealed from them. 

For example, to evaluate the risk whether Toys “R” Us would breach a covenant, the 

Trade Vendors would need information about the Company’s recent and projected financial 

results, including sales, margins, costs, and capital expenditures, and the Company’s projected 

compliance with the covenant. But, as demonstrated above, the Defendants intentionally 

withheld that information, because, as they admitted, disclosing the terrible holiday results was 

likely to cause the Trade Vendors to stop shipping. By knowingly concealing this information, 

they knowingly induced Trade Vendors to continue shipping, which constitutes fraudulent 

concealment. 

The 10-Q did not contain any information that would allow Trade Vendors to evaluate 

the risks. The 10-Q did not mention covenant 6.16 or its requirements, nor did it disclose that 

the DIP Term Loan lender had required the covenant in lieu of other deleted milestones. It did 

not provide any probability of default or likelihood that a covenant would be breached. It did not 

disclose that Brandon and Short had determined that the covenants left an insufficient liquidity 

1102 Ex. 198 (Toys “R” Us Form 10-Q, Sept. 29, 2017) at 38-39. 

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cushion. And it did not inform anyone about the Directors’ lack of analysis on the Company’s 

ability to comply with the covenants or the flawed projections in the DIP budget.

Third, the SEC filing did not give Trade Vendors the information that they needed 

to evaluate the risks of shipping to Toys “R” Us during the bankruptcy. Trade Vendors knew there 

was a risk that Toys ‘R’ Us might not emerge from bankruptcy. But they also testified that what 

was critical to evaluating that risk was the availability of accurate information from the 

Company. See Trust SOF ¶¶ 404, 410, 416, 422, 428, 434, 440, 446, 452, 458, 464, 470, 476, 481, 

486, 491, 496, 502, 508, 513, 519, 525, 532, 537, 542, 548, 553, 559, 565, 571, 576, 581, 586, 

592, 597, 603, 608. Without that information, the risk disclosure on the 10-Q provided vendors 

no information that they could use to make an accurate risk determination. 

2. Defendants’ “DIP financing agreements” argument fails. 

The public availability of the DIP financing documents, including the language of the 

covenants has no bearing on reasonable reliance. 

The public availability of the DIP financing agreements would only inform Trade 

Vendors of the presence of covenants. It would provide vendors with absolutely no way to 

determine whether Toys “R” Us was in compliance with those covenants. Because “current 

income and balance sheet accounts and rolling forecasts—which were necessary to determine 

whether the DIP budget and covenants were achievable” were not available to Trade Vendors, 

the Vendors “did not have the financial information necessary to determine whether or not [Toys 

“R” Us] was meeting or was likely to meet its financial covenants.” 1103 A vendor looking at the 

DIP financing agreements in February 2018 would have no ability to determine whether 

1103 Ex. 70 (Greenspan) ¶533. 

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covenants were in danger of being breached without knowing the information that Defendants 

concealed.

Thus, the public availability of the DIP financing covenants gave vendors no information 

about, and no ability to assess, whether Toys “R” Us would be able to comply with the covenants 

in the DIP financing or whether the DIP financing was sufficient to enable Toys “R” Us to meet 

its obligations during the bankruptcy. 

3. Defendants’ “no risk” and “guaranteed” argument mischaracterizes 

the Trust’s contentions and attacks a straw man. 

Defendants’ claim that summary judgment is appropriate because vendors could not 

reasonably believe that the “DIP financing was guaranteed” or that shipping goods during 

bankruptcy “was risk free” misstates the Trust’s allegations, and distorts the factual record. Mot. 

at 49. 

First, the Trust’s list of fraudulent misrepresentations does not include the statement “the 

DIP financing was guaranteed.” Mot. at 49. Thus, Defendants’ argument fails at the threshold.

Second, Trade Vendor testimony does not indicate that any vendor believed shipping 

goods was risk free. Instead, based on the representations that Trade Vendors received from 

Defendants, and the lack of any follow up information, Trade Vendors believed that the DIP 

financing was available and provided Toys “R” Us with sufficient liquidity to meet its 

obligations. As long as the DIP financing was available to satisfy Toys “R” Us’ obligations, 

Trade Vendors believed their risk of shipping was very low, because of the statements that 

assured them that the DIP financing would pay them for all of the goods that they shipped postpetition. 1104 Defendants did not inform Trade Vendors that the Company was projecting a 

1104 See, e.g., Ex. 330 (Woldenberg (Learning Resources) depo.) 212:9-19 (Learning Resources 

was “comfortable extending 90-day terms” because of the “very large DIP line” and statements 

about “excess liquidity); Ex. 415 (Gamble (Warner Brothers) depo.) 240:25-241:10, 242:17-

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F.3d 507, 516 (6th Cir. 1999) (reversing grant of summary judgment and concluding that 

boilerplate language did not preclude justifiable reliance); In re Nat'l Century Fin. Enters., 846 

F. Supp. 2d 828, 882 (S.D. Ohio 2012) (denying summary judgment on the issue of reasonable 

reliance when Defendant argued that its disclosures contained “cautionary language” and 

“advised potential investors to make their own assessments”).

Moreover, if there is a factual dispute about whether the plaintiff had the same access to 

information as the defendant, there is a question of fact that precludes summary judgment on the 

issue of reasonable reliance. See In re Refco Inc. Sec. Litig., No. 07 MDL 1092 (JSR), 2011 U.S. 

Dist. LEXIS 33554, at *53-54 (determining that summary judgment on reliance was 

inappropriate because “there is a significant factual dispute on whether the two parties had 

reasonable access to the same information”). Here, as discussed above, the Trade Vendors did 

not have reasonable access to the information known to, and concealed by, Defendants. And 

Trade Vendors uniformly testified that they could not discover that information from outside 

sources. See Trust SOF ¶¶ 404, 410, 416, 422, 428, 434, 440, 446, 452, 458, 464, 470, 476, 481, 

486, 491, 496, 502, 508, 513, 519, 525, 532, 537, 542, 548, 553, 559, 565, 571, 576, 581, 586, 

592, 597, 603, 608. Whether their reliance on Defendants statements was reasonable is thus a 

material issue of fact precluding summary judgment. 

H. Defendants’ “causation” argument fails.

Defendants assert that for the Trust to “prove causation,” the Trust must “prove that 

Defendants’ statements are what caused” Trade Vendors to ship. Mot. 49-50. This contention 

fails on the law and the facts.

1. The Trust has ample evidence of causation.

“It is not . . . necessary that [a plaintiff's] reliance upon the truth of the fraudulent 

misrepresentation be the sole or even the predominant or decisive factor in influencing his 

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conduct. . . . It is enough that the representation has played a substantial part, and so has been a 

substantial factor, in influencing his decision.” Engalla v. Permanente Med. Grp., Inc., 15 Cal. 

4th 951, 976-77 (1997) (quoting Restatement (Second) of Torts § 546, com. b, p. 103). 

“Plaintiffs are required to prove only that defendant's conduct was a cause of damages. 

They need not prove that [Defendant’s] conduct was the sole cause of loss.” Varacallo v. Mass. 

Mut. Life Ins. Co., 332 N.J. Super. 31, 48 (Super. Ct. App. Div. 2000). “[T]here can be more 

than one proximate cause contributing to any one injury.” Capiccioni v. Brennan Naperville, 

Inc., 339 Ill. App. 3d 927, 937-38 (2003). “It need not be the sole cause or the last or nearest 

cause.” Id. 

As demonstrated above, Defendants’ representations and concealments was a substantial 

factor in causing Trade Vendors to suffer harm. As discussed at length above, Defendants’ 

statements about the presence of the DIP financing, its availability throughout the bankruptcy, 

and its ability to provide Toys “R” Us with sufficient liquidity to meet its obligations were 

important factors in the Trade Vendors’ decision to resume shipping. 

Moreover, the concealment of facts between December and March—for example, that the 

Company required a $150-$200 million cash infusion, that it was $500 million below the DIP 

budget projections, and that liquidation planning was underway—caused Trade Vendors to 

continue shipping. Trade Vendors uniformly testified that if these concealed facts had been 

disclosed to them, they would have stopped shipping goods to Toys “R” Us on credit. See Trust 

SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 451, 457, 463, 469, 475, 480, 485, 490, 495, 501, 

507, 512, 518, 524, 530, 536, 541, 547, 552, 558, 564, 570, 575, 580, 585, 591, 596, 602, 607.

2. Defendants’ cited cases are inapposite. 

Defendants’ two cited cases are inapplicable to the facts of this case. In Caviness v. 

DeRand Res. Corp., 983 F.2d 1295, 1305 (4th Cir. 1993), the plaintiff failed to present any

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“evidence of reliance or damage.” There was “no assertion by the plaintiffs that the stated 

misrepresentations were even material” in their decision-making process. Id. By contrast, the 

Trust has powerful evidence of materiality, including admissions from Defendants. And Trade 

Vendors testified that the statements about the DIP financing made by Defendants were “critical” 

in their decision making. 1105 The Trade Vendors further testified about the importance of each 

of the concealed facts in that they would have led the vendors to stop shipping goods on credit. 

1106 And in Revak v. SEC Realty Corp., 18 F.3d 81, 89-90 (2nd Cir. 1994), the plaintiffs “failed 

to allege any injury caused proximately (or otherwise)” and thus could not as a matter of law 

prove harm. By contrast, here there is ample evidence of injury to Trade Vendors and that 

Defendants’ conduct caused that harm. 

3. Proximate causation is a question of fact not amenable to resolution at 

summary judgment. 

“[T]he question of proximate causation generally belongs to the trier of fact because 

causation is essentially a factual issue.” Eaton v. Weichert Workforce Mobility, Inc., No. 

X10UWYCV186040244S, 2021 Conn. Super. LEXIS 73, at *25 (Super. Ct. Feb. 3, 2021)

(internal quotes omitted). Because “[t]he present case is not one where no reasonable person 

could conclude that the defendant's acts caused the plaintiffs' alleged injuries,” summary 

judgment is inappropriate on the issue of proximate causation. Eaton, 2021 Conn. Super. LEXIS 

73, at *25.

1105 See, e.g., Ex. 307 (Cooney (Jakks) depo.) 149:3-7; Ex. 321 (Kamler (Kent) depo.) 167:18-

168:7. 

1106 See, e.g., Ex. 335 (Kodak (LEGO) depo.) 354:25-355:24; Ex. 244 (Schellhase (Bestway) 

depo.) 205:13-206:8.

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I. Defendants’ “duty to disclose” arguments fail. 

As demonstrated above, the Trust has evidence establishing Defendants’ duty to disclose 

on four separate bases: (i) Defendants had a duty to disclose subsequently acquired information 

that made their earlier statements untrue or misleading. (ii) Defendants had a duty to disclose all 

material facts when they continued making representations. (iii) Defendants had a duty to 

disclose the concealed facts because they possessed superior knowledge and knew that Trade 

Vendors were acting on the basis of mistaken facts. (iv) The Trade Vendors had a relationship of 

trust and confidence with Defendants that created a duty to disclose. 

Defendants assert that “Defendants had no obligation” to disclose the concealed facts “in 

the manner the Trust alleges.” Mot. at 50. Every part of this argument fails. 

1. Defendants’ proof of “swindling” argument fails. 

Defendants assert that a duty to disclose because of superior knowledge requires conduct 

that will “amount to a form of swindling,” quoting a phrase from a comment in the Restatement 

(Second) of Torts. Mot. 51 (quoting Restatement (Second) of Torts § 551, comment l). 

Defendants omit the rest of that sentence from the Restatement, which explains “swindling” as a 

situation “in which the plaintiff is led by appearances into a bargain that is a trap, of whose 

essence and substance he is unaware.” Id. That description of “swindling” is exactly what 

happened here. Trade Vendors were led by appearances to fill purchase orders and ship goods 

on credit, unaware of key material facts establishing that the Company did not have the ability to 

pay. 

Moreover, the Restatement comments clarify this branch of the duty to disclose, by 

stating that it would not arise “[w]hen the facts are patent, or when the plaintiff has equal 

opportunity for obtaining information ... or when the defendant has no reason to think that the 

plaintiff is acting under a misapprehension.” Restatement (Second) of Torts § 551, comment k. 

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That description does not apply to any of the concealed facts here. The Trust’s evidence 

establishes that the concealed facts were not patent, the Trade Vendors did not have an equal 

opportunity for obtaining the information, and the Defendants had good reason to think—in fact 

they knew— that the Trade Vendors were acting under a misapprehension.

In the Ferry case cited by Defendants, the plaintiff “was able to ascertain” the key 

information at issue “from sources other than Defendants.” Ferry v. Black Diamond Video, Inc., 

No. 15-7723 (RBK/AMD), 2016 U.S. Dist. LEXIS 76893, at *23-24 (D.N.J. June 13, 2016). 

Because the relevant information “was equally available to both parties,” the court determined 

that there was no duty to disclose. Id. As demonstrated above, that is not the situation here. The 

concealed facts were available only to insiders at Toys ‘R’ Us and was not information that was 

equally available to Trade Vendors and Defendants. Indeed, it was information that even the 

vendors who were UCC members did not have. 1107

2. Defendants’ “trust and confidence” argument fails.

Defendants’ assertion that “there is no evidence in the record that the vendors ‘reposed a 

trust and confidence’ in Defendants is false. Mot. 52. As discussed at length above, vendors had 

more than simple arms-length relationships with Toys “R” Us. Multiple vendors testified that 

they had a long-standing relationship of mutual trust with Barry, and that they relied upon Barry 

to provide them with accurate updates about the Toys “R” Us business. 1108 

1107 See Ex. 357 (Stefanick (Mattel) depo.) 144:22-145:14, 148:19-149:8; Ex. 335 (Kodak 

(LEGO) depo.) 341:20-342:7; Ex. 297 (O’Gara-Kerr (Huffy) depo.) 127:18-128:9, 132:23-

133:8; Ex. 273 (Chamberlain (Evenflo) depo.) 37:24-38:8.

1108 See, e.g., Ex. 255 (Shamie (Delta) depo.) 171:3-172:3 (“I trusted [Barry] immensely); Ex. 

232 (Foreman (Basic Fun) depo.) 216:1-217:1 (“didn’t believe [Barry]” “would tell us anything 

but the truth”). Barry himself admitted that he had a relationship of “mutual trust and 

partnership” with executives at many major trade vendors. Ex. 89 (Barry depo.) 471:5-10.

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Moreover, as demonstrated above, Trade Vendors were beholden to the knowledge of 

Defendants because vendors did not have any access to the internal financial situation of Toys 

“R” Us beyond what they were being told by Defendants. News reports and speculation about

Toys “R” Us’ liquidity was not accurate or reliable information. 1109 

The sole case cited by Defendants to support this argument is inapposite. Grumman 

Allied Indus. v. Rohr Indus., 748 F.2d 729 (2d Cir. 1984). In that case, the plaintiff had 

“unrestricted access to all personnel and records” of the defendant. Grumman, 748 F.2d at 731-

32. It was that “unrestricted access to [defendant’s] facilities, personnel, and records” that led 

the Court to conclude that the claim of “superior knowledge” was “without merit.” Id. at 739. 

Here, Trade Vendors had no access—much less unrestricted access—to the Company’s internal 

financial situation. 

3. Defendants’ “the UCC knew” argument fails. 

Defendants’ claim that their conduct did not amount to “swindling” because the UCC and 

its lawyers “were well aware that the company was having financial difficulties” similarly fails. 

Mot. 52.

First, only four of the thirty-seven Trade Vendors in this action were members of the 

UCC: Mattel, Huffy, the LEGO Group, and Evenflo. And the UCC members were not permitted 

to disclose information that they learned from their membership on the UCC to other Trade 

Vendors or to any other source. 1110 Indeed, much of the material provided to the advisors for 

the UCC was not even provided to those four vendors, because it was marked “FOR 

1109 See, e.g., Ex. 330 (Woldenberg (Learning Resources) depo.) (no way to obtain that 

information “[s]hort of hacking or spying); Ex. 258 (Rana (Dorel) depo.) 247:6-12 (“We could 

not get any information); Ex. 369 (Wysocki (Merchsource) depo.) 150:19-151:14 (no way to get 

“accurate information from a source outside of Toys “R” Us”).

1110 See Ex. 297 (Huffy (O’Gara-Kerr) depo.) 131:13-21. 

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PROFESSIONAL EYES ONLY.” 1111 Contrary to Defendants’ assertion, the UCC could not 

disclose this information to other Trade Vendors. 

Second, even the four UCC members did not have knowledge of the truth. Knowledge 

that Toys “R” Us was having “financial difficulties” is not a disclosure of the concealed facts, 

such as that the Company had determined that it could not possibly comply with covenant 6.16 

in the Term DIP loan. For example, in February, Mattel reached out to Toys “R” Us to confirm 

“compliance with existing covenants.” 1112 Short developed a strategy to respond: “we are going 

to tell Gregg [Stefanick] that if we were in covenant default, we would have had to issue an 8K” 

so that Mattel “would assume that we are not in breach.” 1113 And Brandon executed that 

strategy by telling Mattel that “Toys “R” Us would have been required to file an 8-K if it was not 

in compliance with its covenants.” 1114 Mattel never knew about the covenant: “it was a big 

surprise” that the budget covenant was the basis for default and there were never discussions 

with Brandon or Barry or the UCC “that there was a risk of default at all on the budget 

covenant.” 1115 

As another example, the LEGO Group signed an NDA with Toys “R” Us to obtain 

information about covenant compliance. 1116 But Short chose to withhold information about 

covenant 6.16, instead informing the LEGO Group that Toys “R” Us had “two financial 

covenants”—cash flow and liquidity—and that it would be “in compliance with both of those 

1111 See, e.g., Ex. 197 (11’30’17 Business Update [REV03792918]). 1112 Ex. 185 (2’16’18 Stefanick to Short [MATTEL00000537]). 

1113 Ex. 184 (2’16’18 Short to Kosturos [TRU-Trust0000299828]). 

1114 Ex. 357 (Mattel (Stefanick) depo.) 177:23-179:14. 

1115 Ex. 357 (Mattel (Stefanick) depo.) 148:19-149:8.

1116 Ex. 335 (Kodak (Lego) depo.) 340:18-342:7. 

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covenants.” 1117 Short did not mention the budget covenant (6.16) that he knew Toys “R” Us 

would breach days later. 

4. Statements made in September and October created a duty to correct 

those statements when they became false. 

Defendants do not actually address their duty to disclose subsequently acquired 

information. Instead, Defendants simply assert that because the September statements “were true 

when made” and were “promissory statements not cognizable as tort claims,” there was no duty 

to update them. Mot. at 54. Defendants are wrong on both counts.

As demonstrated above, the statements made in September were not true when made. 

More importantly, statements that are true when made create a duty to update those statements if 

the maker of the statements learns of information that makes those statements false. For 

example, if it was true in September that the DIP financing was sufficient to enable Toys “R” Us 

to meet its obligations, it certainly was not true in January, when the Defendants knew that Toys 

“R” Us required an additional $200 million cash infusion to meet its obligations. 

Further, as demonstrated above, each of the representations made by Defendants in 

September were actionable statements because they are subject to empirical verification, because 

they imply the existence of facts justifying the statement and imply that Defendants are unaware 

of any facts that would make the statement improbable, and because Defendants had superior 

knowledge on the subject. 

The Medtronic case cited by Defendants is inapposite. Medtronic Sofamor Danek, Inc. v. 

Michelson, 2004 U.S. Dist. LEXIS 26385, at * 48 (W.D. Tenn. May 20, 2004). The statements 

at issue in Medtronic, were that “it was possible for Medtronic to sell up to $35 million per year” 

and that “it could potentially achieve sales of $40 million.” Id. at *46 (emphasis added). By 

1117 Ex. 151 (3’1’18 financial covenant forecast). 

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contrast, Defendants here did not merely tell vendors that it was “possible” that the Company 

would obtain $3 billion in DIP financing, or that the Company “potentially” might receive DIP 

financing. Instead, Defendants’ representations stated as a fact that the Company had secured 

more than $3.0 billion in DIP financing that would be available throughout the restructuring 

process. 1118 

5. Defendants’ no duty to update with “real-time confidential 

information” argument fails. 

Defendants claim that “there was no duty to update the trade vendor community with 

real-time confidential information while the outcome of these discussions and state of the 

company’s access to liquidity remained highly uncertain.” Mot. 54. This argument fails for two 

reasons.

First, there was no information that was confidential that Defendants were prohibited 

from disclosing. The information was only “confidential” because Defendants were concealing 

it.

And there was no legal obstacle preventing Defendants from telling Trade Vendors the 

truth. SEC selective disclosure rules did not prohibit Defendants from sharing information about 

Toys “R” Us’ financial condition with Trade Vendors. The SEC rule provides that (“Whenever 

an issuer, or any person acting on its behalf, discloses any material nonpublic information 

regarding that issuer or its securities to any person described in paragraph (b)(1) of this section, 

the issuer shall make public disclosure of that information as provided in § 243.101(e).” 17 

C.F.R. § 243.100 (a). None of the vendors were brokers, dealers, investment advisors, or 

investment companies such that this SEC selective disclosure rule would apply to them. 1119 

1118 See, e.g., Ex. 315 (Just Play (Emby) depo.) 64:4-65:7.

1119 Greenspan ¶508. 

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Further, under the SEC disclosure rule, Defendants could have entered into nondisclosure 

agreements with each of the Trade Vendors, and told them the truth about Toys “R” Us’ 

financial condition. 1120 And the SEC disclosure rule “does not prohibit making accurate 

disclosure to everyone simultaneously.” 1121 Defendants could have simply told the truth 

publicly. 

Moreover, Defendants cite no SEC disclosure rule that would excuse their conduct. SEC 

disclosure rules do not permit a party to make affirmative misrepresentations or engage in 

fraudulent concealment. 1122 Having made disclosures to the Trade Vendors in September and 

October, and continuing to make misleading half-true statements throughout the bankruptcy, 

created a duty on Defendants to disclose the concealed information. 

Second, Defendants’ claim about “real-time confidential information” attacks a 

strawman. The Trust has never claimed that Defendants were under a duty to provide every 

minute detail about negotiations (e.g. terms proposed in emails or the number of times an advisor 

was called on a given day). Instead, the Trust has established that Defendants were under a duty 

to disclose key facts that contradicted Defendants’ earlier and ongoing representations about the 

Company’s liquidity and ability to pay. For example, when Defendants knew in January that the 

DIP financing would no longer be sufficient to allow Toys “R” Us to meet its financial 

obligations, they had an obligation to disclose that fact. 

Moreover, the “uncertainty” that Defendants identify in the January and February time 

period shows that Defendants’ earlier statements about the definite availability of the DIP 

financing and Toys “R” Us’ ability had become false. Trade Vendors had no knowledge that 

1120 Ex. 70 (Greenspan) ¶509. 

1121 Ex. 70 (Greenspan) ¶513. 1122 Ex. 70 (Greenspan) ¶512. 

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Toys “R” Us’ “access to liquidity” was “highly uncertain.” To the contrary, the vendors had 

been assured (and reassured) that the DIP financing provided the company with ample liquidity 

that it could use to pay its obligations throughout the bankruptcy. 

There was no uncertainty that Defendants’ own projections showed that the Company 

would default on its financial covenants for the DIP financing. There was no uncertainty that 

Defendants had determined that the Company could not possibly comply with the January 

revised budget covenant, 6.16. Defendants knew that the Trade Vendors did not have that 

information, knew that the Trade Vendors needed that information (and in fact Trade Vendors 

were constantly asking for this information), and Defendants withheld that information precisely 

because they knew it would cause the Trade Vendors to stop shipping goods on credit.

Third, Defendants cited cases are inapplicable to common law fraud claims. Each of the 

cases that Defendants cite in support of their arguments deal with a violation of federal securities 

statutes that have specific knowledge and duty requirements. By contrast, in this case all of the 

claims are common law fraud claims governed by state law. Defendants’ cited cases are thus 

inapposite. 

In re Express Scripts Holdings Co. Sec. Litig., 773 F. App’x 9, 14 (2nd Cir. 2019), 

involved duties in the context of securities litigation, and is inapposite to this case. (“Section 

10(b) and Rule 10b-5 do not create an affirmative duty”) (internal citation omitted). Coyne v. 

Gen. Elec. Co., 2010 U.S. Dist. LEXIS 70879, at *21 (D. Conn. July 15, 2010) similarly 

involved duties in the securities fraud context and is inapplicable. Walker v. Action Indus. Inc.,

is another securities case in which the court stressed that “[w]e do not hold that there is no duty 

to disclose financial projections under any circumstances. To that extent, the district court’s 

instruction arguably was error.” Walker v. Action Indus., 802 F.2d 703, 710 (4th Cir. 1986). 

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Defendants cite In re Convergent Techs. Sec. Litig., 948 F.2d 507, 516 (9th Cir. 1991), as 

purportedly “explaining that a company is generally ‘not obliged to disclose [its] internal 

projections.’” Mot. at 55. The court made no such finding. The court merely made a 

determination that based on the company continuing “to warn investors of the risks posed by 

NGEN” the company did not have a duty to disclose certain “more detailed internal NGEN 

projections.” Id. at 515-516. By contrast, Defendants did not warn trade vendors about its 

covenant breaches in any way, much less disclose the underlying projections. 

And the court in In re Duane Reade Inc. Sec. Litig., 2003 U.S. Dist. LEXIS 21319, at *35 

(S.D.N.Y. Nov. 24, 2003), held that there was no evidence that Defendants had scienter, not that 

there was no duty to update. The court rejected the fraud claim because plaintiff had only 

“unsupported claims” that Defendant “was aware of facts or had access to information 

suggesting that their public statements were inaccurate.” Id. By contrast, as demonstrated 

above, the factual record in the present case is replete with evidence of Defendants’ knowledge 

that the statements being made to Trade Vendors were false. 

6. Defendants’ negligent misrepresentation arguments fail. 

Defendants assert that the “Trust is unable to prove” three factors purportedly required 

for a negligent misrepresentation claim 

a. The Trust has evidence of each of the elements of negligent 

misrepresentation

“The elements of negligent misrepresentation are substantially similar to those of 

fraudulent misrepresentation, except that the required mental state is less stringent.” Schrager v. 

N. Cmty. Bank, 328 Ill. App. 3d 696, 703 (2002). “Negligent misrepresentation is a lesser 

included claim of fraudulent misrepresentation. It differs only in that while [fraudulent 

misrepresentation] requires knowledge that the pertinent statement was false, [negligent 

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misrepresentation] merely requires that the person who made the statement failed to exercise 

reasonable care or competence to obtain or communicate true information.” Ferris Ave. Realty, 

LLC v. Huhtamaki, Inc., No. PB 07-1995, 2011 R.I. Super. LEXIS 25, at *32 (Super. Ct. Feb. 18, 

2011) (internal quotes and citations omitted). 

As discussed above, the Trust has evidence establishing each of elements of fraudulent 

misrepresentation. Because the only difference between fraudulent and negligent 

misrepresentation is that the intent requirement for negligent misrepresentation is lower, the 

Trust’s evidence for each of the elements of fraudulent misrepresentation establishes each of the 

elements of negligent misrepresentation. And the evidence of fraudulent intent discussed above 

easily satisfies the “less stringent” mental state requirement for negligent misrepresentation. 

b. There is no requirement that Defendants and vendors be in a 

“special or privity-like relationship.”

Defendants claim that the Trust must prove “a special or privity-like relationship” to 

establish a claim for negligent misrepresentation. Mot. at 55. Defendants are wrong. 

Defendants make no effort to demonstrate that the special relationship requirement applies 

outside of New York. And they cannot do so, because other states do not require that a special 

relationship exist for a negligent misrepresentation claim. 

For example, under California law, “[t]he elements of negligent misrepresentation are (1) 

a misrepresentation of a past or existing material fact by one who has no reasonable ground for 

believing it to be true; (2) justifiable reliance; and (3) resulting damage.” Torralbo v. Davol, 

Inc., 2017 U.S. Dist. LEXIS 218339, at *14 (C.D. Cal. Oct. 19, 2017); see West v. JPMorgan 

Chase Bank, N.A., 214 Cal. App. 4th 780, 792 (2013). California law does not require that a 

special relationship exist between the parties to establish liability for negligent misrepresentation. 

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Similarly, in Georgia, “[t]o prevail on a claim of negligent misrepresentation, a party 

must prove the following essential elements: (1) the defendant's negligent supply of false 

information to foreseeable persons, known or unknown; (2) such persons’ reasonable reliance 

upon that false information; and (3) economic injury.” First Bank v. Robertson Grading, Inc., 

328 Ga. App. 236, 246 (2014) (internal quotes omitted). No requirement of a special 

relationship appears in Georgia law. 

And in New Jersey, “[t]he elements of negligent misrepresentation are an ‘incorrect 

statement, negligently made, and justifiably relied on’ resulting in economic loss.” Pim Brands 

LLC v. Cabot Acquisition, LLC, 2008 N.J. Super. Unpub. LEXIS 3075 at *35 (quoting Kaufman 

v. I-Stat Corp., 165 N.J. 94, 109 (2000)). No special relationship requirement appears in New 

Jersey law. 

c. The single New York Trade Vendor satisfies the special 

relationship test. 

Defendants cite New York law for the proposition that “[a] special relationship requires a 

closer degree of trust between the parties than that of the ordinary buyer and seller.” Mot. at 56 

(citing Alley Sports Bar, LLC v. SimplexGrinnell, LP, 58 F. Supp. 3d 280, 293-94 (W.D.N.Y. 

2014)). The sole New York Trade Vendor, Delta Enterprises, easily meets this test. 

Joe Shamie, the president of Delta Enterprises, had a close relationship with Richard 

Barry far beyond that “of the ordinary buyer and seller.” Shamie testified that he “trusted 

[Barry] immensely” because of their years-long relationship. 1123 Shamie asked Barry to be an 

“honree” at his charity, involved Barry’s wife in the charity, and Shamie told Barry’s children 

“how much the community, vendor community, spoken in a more personal way, loved and 

1123 Ex. 255 (Shamie (Delta) depo.) 171:3-12. 

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respected” Barry. 1124 Because of their extremely close relationship and friendship, Shamie 

“really trusted” Barry and did not expect that Barry would tell him anything that was false. 1125 

When Barry reached out and “reassured” Delta that it would be protected and could feel safe 

shipping under the protection of the DIP financing, and repeated those assurances during the 

bankruptcy, Delta believed Barry and shipped to Toys “R” Us. 1126 

Defendants own cited case confirms that this is sufficient to establish a special 

relationship: “the relationship between parties could extend beyond the typical arm's-length 

business transaction where defendants initiated contact with plaintiffs, induced them to forebear 

from performing their own due diligence, and repeatedly vouched for the veracity of the 

allegedly deceptive information.” Alley Sports Bar, LLC v. Simplexgrinnell, LP, 58 F. Supp. 3d 

280, 293 (W.D.N.Y. 2014) (internal quotes omitted).

Moreover, New York courts have concluded that specialized knowledge and expertise in 

a particular business is enough to find that a special relationship exists between two parties such 

that a duty of care exists. See Kimmell v. Schaefer, 89 N.Y.2d 257, 264 (1996). In Kimmel, the 

court concluded that a defendant “uniquely situated to evaluate the economics” as the “chief 

financial officer and chairman” possessed specialized knowledge. Id. The defendant sought to 

“induce plaintiffs to invest” by “[meeting] with each plaintiff,” and the court determined that this 

combination sufficed to show specialized knowledge or experience. Id. 

As discussed above, Barry had the requisite special knowledge of Toys “R” Us’ internal 

finances and projected failure to comply with financial covenants. 

1124 Ex. 255 (Shamie (Delta) depo.) 169:23-171:2. 

1125 Ex. 255 (Shamie (Delta) depo.) 169:18-172:3.

1126 Ex. 255 (Shamie (Delta) depo.) 178:6-25, 183:2-13.

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Finally, the question of whether a special relationship existed between Delta and Barry is 

a question of fact. “Whether such a special relationship exists in the commercial context is 

highly fact specific and is not generally amenable to summary disposition.” Silvercreek Mgmt. v. 

Citigroup, Inc., 346 F. Supp. 3d 473, 504-05 (S.D.N.Y. 2018) (internal quotes omitted); AFA 

Protective Sys. v. AT&T, 57 N.Y.2d 912, 914 (1982) (“The issue of whether a ‘special 

relationship exists sufficient to make out a cause of action for negligent misrepresentation should 

also be left to the finder of fact”); see Murphy v. Kuhn, 90 N.Y.2d 266, 270 (1997).

J. Defendants’ argument regarding reliance on omitted information fails. 

Defendants assert that the Trust cannot prove “reasonable reliance” because Trade 

Vendors “knew or could have known the allegedly omitted information.” Mot. at 57. 

Defendants identify only three facts that Trade Vendors purportedly were aware of and that 

Defendants assert “cannot give rise to a tort claim”: (1) that the DIP financing agreement 

contained covenants, (2) that Toys “R” Us’ holiday sales were poor, and (3) that Toys “R” Us 

was in danger of breaching its covenants. Mot. at 57-58. 

Defendants do not address the extensive additional concealments made by Defendants, 

that Trade Vendors had no way of knowing. For example: 

• December 13, 2017: that Toys “R” Us would end the year with an EBITDA that would 

result in a default under the financing milestones. 1127

• January 24, 2018: that the 2017 EBITDA is projected to be under $300 million—

significantly short of the Company’s $640 million projection in the DIP budget. As a 

result, the Company anticipated a breach of covenants in February or March. 1128 

1127 Ex. 164 (12’13’17 minutes [DEFS_0061932]).

1128 Ex. 139 (1’24’18 minutes [TRU-Trust0000374989]).

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• January 28, 2018: that Toys “R” Us would need at least $200 million in additional 

capital to emerge. 1129

• February 16, 2018: The company was preparing plans around a liquidation process 

including a liquidation analysis and wind-down budget. 

Defendants make no attempt to argue that the Trust cannot prove reasonable reliance on 

any of this concealed information. Nor could they. None of this information was publicly 

available. Each Trade Vendor testified that they were unaware of this information, and could not 

have learned it from any source other than Toys “R” Us. See Trust SOF ¶¶ 403, 409, 415, 421, 

427, 433, 439, 445, 451, 457, 463, 469, 475, 480, 485, 490, 495, 501, 507, 512, 518, 524, 530, 

536, 541, 547, 552, 558, 564, 570, 575, 580, 585, 591, 596, 602, 607. Summary judgment thus 

cannot be granted on any of these concealed facts. 

Moreover, Defendants’ arguments fail on the three facts they do address fail.

1. The Trust has never asserted a claim based on the mere fact that the 

DIP financing contained covenants. 

Defendants assert that because “covenants were contained in the publicly filed DIP 

financing agreements” the Trust’s purported claim that Defendants “failed to tell [Trade 

Vendors] that the DIP financing agreements contained covenants” fails. Mot. at 57. This 

argument attacks nothing but straw. The Trust has not asserted that the mere existence of 

covenants is the basis of a fraud claim. 

Rather, as demonstrated above, Defendants failed to disclose facts establishing that Toys 

‘R’ Us would default on those covenants. This was information that the Trade Vendors could 

not learn from public sources. For example, as demonstrated above, Defendants made the 

1129 Ex. 140 (1’28’18 minutes [DEFS_0059009]) at 1-2.

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deliberate decision to withhold their holiday financial results precisely because Defendant knew 

that, unless they disclosed holiday results to Trade Vendors, Trade Vendors could not get that 

information and would continue to ship goods on credit.

Trade Vendors could not learn that the Company was projected to default on its financial 

covenants. As one vendor explained: “I could see the covenants, yeah. Doesn’t mean I would be 

able to assess all the financials of Toys ‘R’ Us, if they were meeting the covenants or not.” 1130 

2. Defendants intentionally withheld the holiday sales results data, and 

then lied about what holiday sales meant for the Company’s ability to 

pay.

Defendants claim that because “multiple vendors” saw “news of TRU’s poor holiday 

results,” the omission of holiday results “cannot give rise to a tort claim.” Mot. at 57-58. This 

argument fails for multiple reasons.

First, information that holiday results were disappointing is not the same as having data 

that can be used to project that the Company will default on its financial covenants. Do “poor” 

holiday results mean that the Company is on the verge of liquidation, or that the Company is on 

track to emerge from bankruptcy? For example, if the Company’s DIP budget had been based 

on realistic projections that anticipated the Company’s declining holiday sales, then the presence 

of poor holiday sales would be consistent with projecting compliance with the financial 

covenants. Trade Vendors lacked the information that Defendants had and that the Trade 

Vendors needed: the data for recent sales, margin, and costs, and the Company’s projected sales, 

margin, and costs for 2018, which demonstrated that it was impossible for the Company to 

comply with its financial covenants. 

1130 Ex. 255 (Shamie (Delta) depo.) 132:16-133:1.

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Second, because the Trade Vendors lacked the data, for them to learn what “poor” 

holiday results meant, they could do nothing more than ask Defendants that question. And, as 

demonstrated above, when Trade Vendors asked Defendants about the holiday results and what 

that meant for the Company’s liquidity and plans for emergence, Defendants elected to “provide 

vendors additional comfort so they do not determine to stop shipping.” 1131 

Defendants knew that they could not “procure the funding for emergence and ... emerge 

from chapter 11 and continue operating the current business plan” as they had been telling Trade 

Vendors. 1132 As Defendant Macnow admitted, Defendants knew they were down to two 

options:

5 Q. So as of January 28, 2018, Toys

6 "R" Us and the board was aware that the

7 two likely outcomes were, one, the total

8 liquidation; or two, the shrink and

9 rethink plan selling off a portion of Toys

10 "R" Us; is that correct?

12 A. Again, I think that's what these

13 minutes state.

Ex. 83 (Macnow depo.) 166:5-13.

But even as liquidation planning was underway, Defendants assured vendors that 

management was totally focused on its plans for emergence.

Those vendors that did hear word of Toys “R” Us’ poor holiday sales were “asking for 

and receiving assurances that things were all right,” notwithstanding the holiday sales results. 

1133 

1131 Ex. 148 (2’12’18 minutes [DEFS_0059030]).

1132 Ex. 140 (1'28'18 minutes [DEFS_0059009]). 

1133 Ex. 409 (McCallum (Step2) depo.) 110:2-16; see Ex. 330 (Woldenberg (Learning Resources) 

depo.) 134:3-13 (“The company itself denied that there was a problem”). 

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For example, Step2 was assured that the “sales trend was ok” and that it was “part of the 

plan,” and encouraged “not to worry about” holiday sales numbers because their “job is to 

ship.” 1134 At the New York Toy Fair, Brandon sat with McCallum, “literally knew to knee,” 

and looked McCallum “straight in the eye” and said “we’re coming out this fast,” “load the 

trucks, and get ready to ship because we're going to need goods.” 1135 

As another example, Barry assured Jada Toys that “[Toys “R” Us] came out of the 

holidays well positioned” and was “looking forward to brighter times ahead.” 1136 None of the 

Defendants told Trade Vendors the truth—that Toys “R” Us’ disastrous holiday season meant 

that it would breach financing covenants and lose access to the DIP financing. 

3. Trade Vendors did not have, and could not obtain, any of the 

concealed facts regarding the Company’s covenant breaches.

Defendants assert that the Trust “cannot bring tort claims on behalf of vendors” who 

“knew the information that the Trust alleges was hidden from them and chose to ship goods to 

TRU anyway.” Mot. at 58. Defendants characterize that information as “TRU was in danger of 

breaching its covenants.” Id. Defendants mischaracterize the Trust’s assertions. 

No Trade Vendor knew any of the concealed facts that are discussed at length above. 

The Trust is not asserting that the information that Defendants concealed was the “danger of 

breaching [the DIP] covenants.” Instead, the Trust is alleging that Defendants concealed 

concrete factual information that demonstrated that the covenant breaches would occur by a date 

certain and that Toys “R” Us did not have any feasible way of addressing those covenant 

breaches. For example, Defendants did not disclose that Toys “R” Us’ projections were over 

1134 Ex. 409 (McCallum (Step2) depo.) 113:8-114:18. 

1135 Ex. 409 (Step 2 (McCallum) depo.) 149:16-150:5, 184:19-185:10.

1136 Ex. 301 (Simons (Jada Toys) depo.) 196:25-197:10. 

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$500 million below what was required by the DIP financing budget. 1137 No Defendant informed 

Trade Vendors of any of the concealed facts discussed above, and the Trade Vendors could not 

learn any of those facts from public sources.

Moreover, the public information that was available provided no substantive information 

about covenant breaches, and Defendants denied any rumors of covenant breaches. The 

“publicly reported” danger of covenant breaches that Defendants refer to was a CNBC article 

that included the statement that “Toys “R” Us is at risk of breaching a covenant on one of its 

loans.” 1138 The article did not say what the covenant was, give any indication of the timeframe 

in which the covenant was at risk of being breached, or give any indication how high or low the 

risk was. Moreover, the Company’s spokesperson issued a denial that this article was 

accurate. 1139 The spokesperson promptly let Brandon know what she was communicating, and 

Brandon did not direct her to correct the record, or do anything to discourage such denials. His 

only comment in response was to express his “thanks.” 1140 

Trade Vendors uniformly testified that they could not rely or act on industry rumors or 

speculation in making their business decisions. 1141 And Trade Vendors that read the article did 

not believe that covenant default was imminent, or likely. 1142 

1137 Ex. 141 (1'31'18 2b. Project Sunrise - Forecast Model 2018-01-31 (Liquidity Bridge) 

[DEFS_0002878]).

1138 Ex. 194 (2’21’18 Theriot to von Walter [TRU-Trust0000374936]). 

1139 See, e.g., Ex. 195 (2’22’18 Woldenberg to McCabe [LR_002754]) (“TRU denies this 

report”); Ex. 193 (2’21’18 von Walter to Verdon [TRU-Trust0000363153]) (“the story is full of 

speculation”). 

1140 Ex. 192 (2’21’18 Brandon to von Walter [TRU-Trust0000313052]).

1141 See, e.g., Ex. 307 (Jakks (Cooney) depo.) 97:8-12 (“Nobody had real facts, but it was a lot of 

speculation”), 188:17-189:17 (“we couldn’t act on rumor”); Ex. 330 (Woldenberg (Learning 

Resources) depo.) 207:2-208:18 (“whatever grim stories were being told in the press ... [t]hey 

just kept sending the orders, letting us ship stuff, talking about the future, asking for 

exclusives”).

1142 See, e.g., Ex. 372 (Elliott (MGA) depo.) 213:18-214:7.

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No Trade Vendor had any of the concealed information that showed that Toys ‘R” Us 

was hundreds of millions of dollars away from being able to comply with its covenants. See

Trust SOF ¶¶ 403, 409, 415, 421, 427, 433, 439, 445, 451, 457, 463, 469, 475, 480, 485, 490, 

495, 501, 507, 512, 518, 524, 530, 536, 541, 547, 552, 558, 564, 570, 575, 580, 585, 591, 596, 

602, 607. They could not learn those facts from news articles, or from any source other than 

Defendants. 

Moreover, even those Trade Vendors that received more detailed information from Toys 

“R” Us after signing non-disclosure agreements received false and misleading information from 

Defendants after the article was published. For example, the LEGO Group entered into a nondisclosure agreement with Toys “R” Us to obtain information about Toys “R” Us’ covenant 

compliance. 1143 When Short sent the LEGO Group a financial covenant forecast deck on March 

1, 2018, that deck included no mention of covenant 6.16 or Toys “R” Us’ projected breach of 

that covenant just two days later. 1144 The slide deck asserted that Toys “R” Us had only “two 

financial covenants” and that Toys “R” Us would be “in compliance with both of these 

covenants” through March 3, 2018. 1145 In reality, Short knew that the Company was projected 

to breach both of those covenants. And Short knew about a third covenant, the January revised 

budget covenant, and also knew that the Company did not comply with the covenant’s January 

31 deadline, that the Company could not possibly comply with it, and that the Company had 

obtained a waiver that would expire on March 3, 2018. Those facts materially qualified Short’s 

statements, but Short concealed them. 

1143 Ex. 335 (Lego (Kodak) depo.) 156:20-157:9. 

1144 Ex. 343 (LEGO (Kodak depo. Ex. 113)), Ex. 335 (LEGO depo.) 340:18-342:7. 

1145 Ex. 343 (LEGO (Kodak depo. Ex. 113)) at 3. 

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In sum, the publicly reported information did not contain any of the concealed facts. It 

did not warn Trade Vendors of the impending covenant breach that was just days away. And 

Trade Vendors uniformly testified that information in the popular press was not a reliable source 

of information that they could use to make decisions. 

K. Defendants’ arguments based on the Trade Vendors’ 30(b)(6) testimony fail.

Defendants present a series of tables with selectively excerpted vendor testimony that 

they purport constitutes “undisputed evidence” that “none of the trade vendors’ tort claims...can 

survive summary judgment.” Mot. at 58. Defendants’ tables present an incomplete and 

misleading view of the facts, and completely ignore the testimony supporting the Trust’s claims. 

To respond to Defendants’ table, the Trust presents testimony for each Trade Vendor in the 

Trust’s Appendix A in response to Defendants’ tables of vendor testimony, and that Appendix is 

being filed as a separate document. The Trust’s appendix addresses each vendor and each issue 

identified in the Defendants’ tables, and does so in the ordered presented by Defendants.

L. Defendants’ argument on the negligence claim fails.

Defendants’ argument concerning the Trust’s negligence claim is addressed above in Part 

IX, Section B.

M. Defendants’ “received more than they lost” argument fails.

Defendants assert that if Defendants had disclosed the concealed information, “the 

company would have needed to liquidate,” as of December 13, 2017, and that “the trade vendors 

would not have received any of the payments they received from this date forward during the 

Chapter 11 proceeding.” Mot. at 100. Based on those premises, Defendants claim that Trade 

Vendors “benefitted from TRU’s continuing to operate” because “payments from December 13, 

2017 onward” were in excess of “the invoiced amounts of the goods [Trade Vendors] shipped 

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after this time,” and because of that benefit many of the vendors did not suffer damages, 

precluding a fraud claim. Mot. at 101. Each part of this argument is wrong.

1. Toys “R” Us would not have had to liquidate on December 13, 2017, if 

Defendants had decided to not engage in fraud. 

Defendants claim that if Defendants had informed Trade Vendors of “liquidity issues” as 

of December 13, 2017, “the company would have needed to liquidate as of this date.” Mot. at 

100. This unsupported assertion is both wrong and beside the point.

“Defendants were not forced to announce a liquidation on December 13, 2017.” 1146 On 

December 13, 2017, Toys “R” Us had not defaulted on its loan covenants or lost access to its 

DIP financing. 1147 This meant that the company “had approximately $258 million of 

unrestricted cash and $1,109 million of reported ABL availability.” 1148 Because at that time, 

“the entire vendor and tax accounts payable was $972 million,” Toys “R” Us could “have 

satisfied [those obligations] in full.” 1149 And Toys “R” Us then “could have continued in 

operation past December 23, without incurring any trade debt.” 1150 

Indeed, even at the end of January, “the Company’s advisors confirmed that, so long as 

the Company had not actually defaulted,” it would be able to “continue to draw on its DIP 

loans.” 1151 “[U]ntil [Toys “R” Us] reached the covenant test date, [the] lenders could not stop 

[Toys “R” Us] from” using its credit lines to “pay [its] obligations.” 1152 There was no 

requirement to liquidate “before the DIP lenders declared a default and forced liquidation.” 1153 

1146 Ex. 70 (Greenspan) ¶570. 

1147 Ex. 70 (Greenspan) ¶568. 

1148 Id. 

1149 Id. 

1150 Id.

1151 Ex. 70 (Greenspan) ¶570; Ex. 142 (1'31'18 minutes [DEFS_0059013]) at 3. 

1152 Ex. 86 (Greenspan depo.) 170:11-171:14. 

1153 Ex. 70 (Greenspan) ¶571. 

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Defendants simply assume that there would have been “a rushed liquidation in December 

2017 that results in the vendors not being paid on account of their outstanding accounts 

receivable.” 1154 But this assumption is false. 

Moreover, the premise of Defendants’ argument—that telling Trade Vendors about 

“liquidity issues” was the only way to avoid a fraud—is false. For Defendants to avoid engaging 

in fraud as of December 13 did not require that they inform Trade Vendors of liquidity issues. 

Instead, Defendants could have simply avoided engaging in fraudulent conduct from that point 

forward “by not ordering any goods after December 13” or ordering them on a “cash basis.” 1155 

Defendants’ assertion that they were required to continue their fraud for the benefit of Trade 

Vendors is simply false.

2. Trade Vendors would have received payments after December 13, 

2017, if Defendants had not engaged in fraud. 

Defendants claim that if Defendants had told Trade Vendors the truth about Toys “R” Us’ 

liquidity, “the trade vendors would not have received any of the payments they received from 

this date forward during the Chapter 11 proceeding.” Mot. at 100. Defendants are wrong.

As discussed above, Toys “R” Us had sufficient available liquidity to pay all of the 

outstanding vendor balances as of December. Toys “R” Us could thus have paid for all of the 

goods that vendors shipped before December 13, 2017. Moreover, Defendants could have

continued to operate Toys “R” Us after December 13, 2017, without engaging in fraud and while 

ensuring that vendors were paid in full. “Had the Defendants reduced orders or shortened terms” 

as of December 13, “there would have been no vendor accounts payable.” 1156 Trade Vendors 

would have continued shipping goods to the extent that the company paid for them. And Trade 

1154 Ex. 70 (Greenspan) ¶567. 

1155 Ex. 70 (Greenspan) ¶569. 

1156 Ex. 70 (Greenspan) ¶571. 

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Vendors would not have shipped hundreds of millions of dollars of invoices that Toys “R” Us 

did not pay for. 1157 

3. Defendants’ payment offset argument fails for multiple additional 

reasons. 

Defendants assert that the Trust “cannot establish that the majority of Trade Vendors 

suffered damages as a result of the alleged fraud,” because Trade Vendors received payments in 

the period between January and March that were greater than the ultimate amount of unpaid 

invoices. Mot. at 101. This theory is counter to the law, and “makes no sense as a matter of 

economics or logic.” 1158 

First, this theory fails as a matter of law. As demonstrated above, as a result of 

Defendants’ misrepresentations and concealments, Trade Vendors suffered damages because 

they shipped millions of dollars of goods to Toys “R” Us on credit for which they were never 

paid. Those damages can be offset only where those misrepresentations and concealments are 

the cause of the benefit gained by the plaintiff. Restatement (Second) of Torts § 920. For a 

benefit gained “to justify a diminution of damages the benefit must result from the tortious 

conduct.” Id. at cmt. d. 

The payments that Trade Vendors received from Toys “R” Us between December and 

March were not were payments that resulted from Defendants’ misrepresentations and 

concealments. 1159 Rather, Toys “R” Us was contractually obligated to make payments to 

vendors because it had placed purchase orders to those vendors. As discussed above, Toys “R” 

1157 Ex. 70 (Greenspan) ¶¶569-571. 

1158 Ex. 70 (Greenspan) ¶556. 

1159 Ex. 70 (Greenspan) ¶566. 

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Us could have fulfilled each of those obligations without the Defendants engaging in fraudulent 

conduct. 1160 Thus, as a matter of law, those payments cannot serve as offsets to damages. 

Second, Defendants’ theory does not make economic or logical sense. The Trust’s expert 

illustrated why this theory is flawed using am example scenario:

“On December 1, 2017, a vendor sends the Company shipment A, which is $500 in 

goods. On January 15, as the result of Defendants’ wrongful conduct, the vendor sends shipment 

B, which is also $500 in goods. On February 1, the Company pays $500 for shipment A. The 

Company never pays for shipment B.”

“In this Scenario the vendor’s damages are $500. That is the amount of the vendor’s loss 

for shipment B and that loss was caused by Defendants’ wrongful conduct. But, according to Mr. 

Kost [Defendants’ expert], the vendor has no damages because the vendor received $500 for 

shipment A during a period in which wrongful conduct had begun, and that $500 must therefore 

be deducted from the $500 loss for shipment B. Mr. Kost’s reasoning makes no economic sense. 

The vendor was entitled to, and in fact received, payment for shipment A—that payment was due 

and owing. Because the vendor received a payment to which it was entitled does not lessen its 

damages on account of an entirely separate shipment for which it was not paid.”

“Moreover, if one were going to include the $500 payment for shipment A in the 

accounting (i.e. as a subtraction from vendor losses), one would also have to include the order 

for shipment A in the accounting. In such an accounting, the result would be $1,000 in 

shipments, less $500 in payments, for a loss of $500. In either case, the damages equal the 

1160 Ex. 70 (Greenspan) ¶¶565-566. 

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amount of goods for which the vendor was wrongly induced to ship and for which payment was 

not received.” 1161 

Defendants make no attempt to address the illogic of their theory. There is no basis for 

offsetting the losses caused by Defendants fraudulent conduct with payments that Toys “R” Us 

was contractually obligated to make. 

XI. Conclusion.

For the forgoing reasons, the Trust respectfully requests that the Court deny Defendants’ 

motion for summary in its entirety.

1161 Ex. 70 (Greenspan) ¶¶557-564.

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399 

TRU CREDITOR LITIGATION TRUST

By: /s/ Michael Wilson 

 Counsel 

Greg Dovel (admitted pro hac vice) 

DOVEL & LUNER, LLP

201 Santa Monica Blvd., Suite 600 

Santa Monica, California 90401 

Tel: 310-656-7066 

Email: greg@dovel.com 

- and - 

Michael Wilson (VSB No. 48927) 

MICHAEL WILSON PLC

12733 Storrow Rd. 

Henrico, Virginia 23233 

Tel: 804-614-8301 

Email: mike@mgwilsonlaw.com

Counsel for Plaintiff 

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CERTIFICATE OF SERVICE 

I hereby certify that on the 18th day of January 2022, I caused a copy of the foregoing 

pleading to be served by electronic means through the Court’s ECF system and emailed to 

counsel for the Defendants. 

James C. Cosby, Esq. (VSB No. 25992) 

J. Brandon Sieg, Esq. (VSB No. 84446) 

O’HAGAN MEYER, PLLC 

411 E. Franklin Street, Suite 500 

Richmond, Virginia 23219 

jcosby@ohaganmeyer.com 

bsieg@ohaganmeyer.com 

-andRobert I. Bodian, Esq. 

Scott A. Rader, Esq. 

Amanda B. Asaro, Esq. 

Kerime S. Akoglu, Esq\ 

MINTZ LEVIN COHN FERRIS 

GLOVSKY and POPEO, P.C. 

Chrysler Center 

666 Third Avenue, 25th Floor 

New York, New York 10017 

RIBodian@mintz.com 

SARader@mintz.com 

ABAsaro@mintz.com 

KSAkoglu@mintz.com 

 /s/ Michael Wilson 

 Michael G. Wilson 

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