KELLEY DRYE & WARREN LLP 

Joseph D. Wilson (VSB No. 43693)

Washington Harbour, Suite 400 

3050 K Street, NW 

Washington, D.C. 20007 

Telephone: (202) 342-8504 

Facsimile: (202) 342-8451 

Email: jwilson@kelleydrye.com 

KELLEY DRYE & WARREN LLP 

James S. Carr (admission pro hac vice pending) 

Jason R. Adams (admission pro hac vice pending) 

Maeghan J. McLoughlin (admitted pro hac vice) 

101 Park Avenue 

New York, New York 10178 

Tel: 212-808-7800 

Fax: 212-808-7897 

Email: jcarr@kelleydrye.com 

jadams@kelleydrye.com 

 mmcloughlin@kelleydrye.com 

Counsel for MGA Entertainment, Inc. 

IN THE UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF VIRGINIA 

RICHMOND DIVISION 

In re: 

TOYS “R” US, INC., et al., 

Debtors. 

Chapter 11 

Case No. 17-34665 (KLP) 

(Jointly Administered) 

MOTION OF MGA ENTERTAINMENT, INC. FOR ALLOWANCE 

AND PAYMENT OF ADMINISTRATIVE EXPENSE CLAIMS 

AND RETURN OF POSTPETITION SHIPMENTS 

MGA Entertainment, Inc. (“MGA”) by and through its attorneys, Kelley Drye & Warren 

LLP, hereby submits this motion (the “Motion”) for (i) allowance and immediate payment of its 

administrative expense claim for postpetition goods provided to the above-captioned debtors (the 

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“Debtors”) pursuant to section 503 of the Bankruptcy Code and (ii) the return of postpetition goods 

provided to the Debtors. In support of the Motion, MGA respectfully states as follows: 

JURISDICTION AND VENUE 

1. This Court has jurisdiction over the Motion pursuant to 28 U.S.C. §§ 157 

and 1334. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (O). 

2. Venue in this district is proper pursuant to 28 U.S.C. §§ 1408 and 1409. 

3. The statutory predicate for the relief requested herein is section 503 of the 

Bankruptcy Code. 

BACKGROUND

4. On September 18, 2017 (the “Petition Date”), the Debtors filed voluntary 

petitions for relief under chapter 11 of the Bankruptcy Code. The Debtors continue to operate 

their business and manage their property as debtors-in-possession pursuant to sections 1107(a) and 

1108 of the Bankruptcy Code. 

5. The Debtors operate approximately 800 toy and children’s apparel stores in 

the United States. Prior to the Petition Date, MGA provided the Debtors with goods for the 

Debtors to sell in the ordinary course of their business. 

6. On October 24, 2017, this Court entered the Final Order Authorizing 

Debtors to Pay Certain Prepetition Claims of Critical Vendors and Granting Related Relief (the 

“Critical Vendor Order”)1 which authorized the Debtors to enter into trade agreements (each a 

“Trade Agreement”) with certain critical suppliers. 

1 Docket No. 708. 

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7. MGA and the Debtors executed a Trade Agreement pursuant to the Critical 

Vendor Order.2 Under the Trade Agreement, MGA agreed to supply goods to the Debtors and the 

Debtors agreed to accept and pay for goods according to certain customary trade terms. Since the 

Petition Date, MGA has continued to ship and provide goods to the Debtors in accordance with 

the Trade Agreement. 

8. On March 15, 2018, the Debtors filed a motion to, among other things, 

wind-down their United States operations and close all of their stores located in the United States.3

9. As of the date of the Motion, MGA has open invoices for approximately 

$11 million in goods (the “Goods”) shipped to and received by Debtors. Although the Debtors 

have received the benefit of MGA’s Goods postpetition, the Debtors are in breach of the Trade 

Agreement and have failed to timely pay invoices for the postpetition Goods. The invoices for at 

least $798,960.35 in goods shipped to the Debtors postpetition are past due (the “Administrative 

Claim”). Given the liquidation of the Debtors’ assets, TRU may never pay MGA for the Goods, 

which will be sold to satisfy the claims of the Debtors’ secured lenders. 

10. MGA has demanded that the Debtors immediately pay the Administrative 

Claim. The Debtors have not responded to the demand and have not paid the past due amounts. 

As a result, the Debtors are in breach of the Trade Agreement and MGA (i) demands the return of 

the Goods and (ii) submits that it is not obligated to continue supplying goods to the Debtors 

without payment. 

2 The Trade Agreement requires MGA to keep the terms of the Trade Agreement confidential. 

3 Docket No. 2050. 

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ARGUMENT 

A. The Debtors Are Obligated to Pay the Administrative 

Claim Pursuant to Section 503(b) of the Bankruptcy Code 

11. Section 503(b)(1) of the Bankruptcy code provides that “[a]fter notice and 

a hearing, there shall be allowed, administrative expenses . . . including . . . the actual and 

necessary costs and expenses of preserving the estate . . . .” 11 U.S.C. § 503(b)(1). To qualify as 

an “actual” and “necessary” administrative expense, (1) the claim must arise out of 

a postpetition transaction between the creditor and the debtor in possession and (2) the 

consideration supporting the claimant’s right to payment must be supplied to and beneficial to the 

debtor in possession in the operation of the business. See In re Health Diagnostic Lab., Inc., 557 

B.R. 885, 894 (Bankr. E.D. Va. 2016). 

12. The Administrative Claim satisfies both factors and must be accorded 

administrative expense status under section 503(b)(1) of the Bankruptcy Code. MGA provided 

the Goods to the Debtors postpetition for which the Debtors have failed to timely pay in breach of 

the Trade Agreement. The Goods underlying the Administrative Claim were supplied to the 

Debtors in the operation of the Debtors’ business and the Debtors have used or sold the Goods, or 

intend to use or sell the Goods, as they liquidate their assets and wind down their operations. 

B. MGA is Authorized to Cease Shipping Under Contract Law Principles 

(i) Doctrine of Impossibility 

13. The Debtors are in the process of liquidating all of their assets and MGA’s 

obligations to perform under the Trade Agreement are discharged under the doctrine of 

impossibility or impracticability. Courts in this Circuit have described the doctrine as follows: 

“Where, after a contract is made, a party’s principal purpose is substantially frustrated without his 

fault by the occurrence of an event, the non-occurrence of which was a basic assumption on which 

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the contract was made, his remaining duties to render performance are discharged, unless the 

language or the circumstances indicate the contrary.” See, e.g., Opera Co. of Boston v. Wolf Trap 

Found. for Performing Arts, 817 F.2d 1094, 1099 (4th Cir. 1987) (citing § 265 of the Restatement 

(Second) of Contracts). A party’s duties can be discharged upon a showing that (1) an unexpected 

intervening act occurred, (2) the non-occurrence of the intervening act was a basic assumption of 

the agreement of the parties, and (3) the occurrence of the intervening act made performance 

impracticable. Id. at 1102. 

14. This standard is easily satisfied here. A liquidation constitutes an 

unexpected and intervening act that eliminates both (i) the Debtors’ need for further shipments and 

(ii) the Debtors’ ability to pay their creditors for shipments. The Debtors’ ability to operate in and 

emerge from chapter 11 was a basic assumption of the Trade Agreement, which necessarily 

contemplated the ongoing supply of and payment for inventory during the chapter 11 cases. 

Therefore, a liquidation frustrated the essential purpose of the Trade Agreement and MGA’s 

obligations to supply goods has ceased under the doctrine of impossibility. 

(ii) Breach of Contract 

15. MGA is also authorized to stop shipping under basic contract principles 

governing breaches of contract. The elements of a breach of contract action are (1) a legally 

enforceable obligation of a defendant to a plaintiff; (2) the defendant’s violation or breach of that 

obligation; and (3) injury or damage to the plaintiff caused by the breach of obligation. Virginia 

Elec. & Power Co. v. Bransen Energy, Inc., 850 F.3d 645, 655 (4th Cir. 2017). “[A] party who 

commits the first breach of contract,” if material, “is not entitled to enforce the contract” and 

thereby excuses the nonbreaching party from performance. Id. at 655 (citing Horton v. Horton, 

254 Va. 111, 487 S.E.2d 200, 203–04 (1997)). A material breach is a failure to do something that 

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is so fundamental to the contract that the failure to perform that obligation defeats an essential 

purpose of the contract. Horton, 254 Va. at 204. 

16. Here, in violation of the legally enforceable Trade Agreement, the Debtors 

have failed to timely pay MGA for the Goods which has caused damages to MGA for at least the 

Administrative Claim and likely a much larger amount. Notably, since the Petition Date, MGA 

continued to perform and supply goods to the Debtors so that the Debtors could pursue their 

reorganization efforts, which ultimately failed. MGA is no longer obligated to continue supplying 

additional goods when the Debtors are in the process of liquidating all of their assets. 

17. The nonpayment was a material breach because the failure to timely pay for 

the Goods defeats the purpose of Trade Agreement. The parties never envisioned that MGA would 

provide the Goods for free. Honoring the trade terms and compensating MGA for goods supplied 

to the Debtors was a fundamental feature of the Trade Agreement. As a result of the Debtors’ 

breach under the Trade Agreement, MGA is excused from further action under the Trade 

Agreement, including its obligation to supply goods to the Debtors. 

18. Even if an actual breach of the Trade Agreement has not yet occurred, MGA 

is also authorized to cease shipping under the doctrine of anticipatory breach. Under the doctrine 

of anticipatory breach, when one party repudiates its obligations under a contract, the unperformed 

contractual rights and duties of the contract cease to be binding on the non-repudiating party. 

Studio Frames Ltd. v. Standard Fire Ins. Co., 369 F.3d 376, 381 (4th Cir. 2004) (citing Restatement 

(Second) of Contracts § 253(2)); Homeland Training Ctr., LLC v. Summit Point Auto. Research 

Ctr., 594 F.3d 285, 292 (4th Cir. 2010) ) (“Under contract law, an anticipatory breach occurs when 

‘one party to a contract renounces its future contractual obligations, in essence promising ahead of 

time not to perform when performance comes due.’ ”) (internal citations omitted). 

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19. Here, MGA demanded payment of the Administrative Claim shortly after 

the invoices were due. The Debtors have failed to respond to the demand and have not paid the 

Administrative Claim and have not paid for or returned the Goods. The Debtors have commenced 

a full chain liquidation and there is little likelihood that they will cure the defaults under the Trade 

Agreement. As a result, the Debtors’ failure to satisfy the Administrative Claim following the 

demand constitutes anticipatory repudiation of the Trade Agreement and MGA is under no further 

obligation to ship goods pursuant to the Trade Agreement. 

CONCLUSION 

20. MGA, therefore, requests entry of an order in the form annexed hereto as 

Exhibit A (i) allowing the Administrative Claim; (ii) compelling the Debtors to pay the 

Administrative Claim within three days of entry of the order; (iii) confirming that MGA has no 

obligation to supply goods to the Debtors; (iv) compelling the Debtors to return the Goods; and 

(v) compelling the Debtors to pay all amounts for the Goods if the Goods are not returned. 

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WHEREFORE, MGA respectfully requests that this Court (i) enter the proposed 

order and (ii) grant such relief as the Court deems just and proper. 

Dated: March 16, 2018 Respectfully submitted, 

KELLEY DRYE & WARREN LLP

By:/s/ Joseph D. Wilson 

Joseph D. Wilson

Washington Harbour, Suite 400 

3050 K Street, NW 

Washington, D.C. 20007 

Telephone: (202) 342-8504 

Facsimile: (202) 342-8451 

Email: jwilson@kelleydrye.com 

KELLEY DRYE & WARREN LLP 

James S. Carr (admission pro hac vice pending) 

Jason R. Adams (admission pro hac vice pending) 

Maeghan J. McLoughlin (admitted pro hac vice) 

101 Park Avenue 

New York, New York 10178 

Tel: 212-808-7800 

Fax: 212-808-7897 

Email: jcarr@kelleydrye.com 

jadams@kelleydrye.com 

 mmcloughlin@kelleydrye.com 

Counsel for MGA Entertainment, Inc. 

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CERTIFICATE OF SERVICE 

I hereby certify that on the 16th day of March 2018, I caused a copy of the foregoing pleading to 

be served by electronic means through the Court’s ECF system to all parties receiving notices in this case 

and by first class mail to the following parties: 

Joshua A. Sussberg, Esquire 

Kirkland & Ellis LLP 

601 Lexington Avenue 

New York, New York 10022 

Counsel to Debtors 

Michael A. Condyles, Esquire 

Kutak Rock LLP 

901 East Byrd Street, Suite 1000 

Richmond, Virginia 23219 

Counsel to Debtors 

Tyler P. Brown, Esquire 

Henry P. Long, III, Esquire 

Justin F. Paget, Esquire 

Hunton & Williams LLP 

Riverfront Plaza, East Tower 

951 East Byrd Street 

Richmond, Virginia 23219 

Counsel to the ABL/FILO DIP Agent 

Chad J. Husnick, Esquire 

Robert Britton, Esquire 

Kirkland & Ellis LLP 

300 North LaSalle Street 

Chicago, Illinois 60654 

Counsel to Debtors 

Marshall S. Huebner, Esquire 

Eli Vonnegut, Esquire 

Davis Polk & Wardwell LLP 

450 Lexington Avenue 

New York, New York 10017 

Counsel to the ABL/FILO DIP Agent 

Dion W. Hayes, Esquire 

Douglas M. Foley, Esquire 

Sarah B. Boehm, Esquire 

McGuire Woods LLP 

800 East Canal Street 

Richmond, Virginia 23219 

Counsel to the Term DIP Agent and 

Ad Hoc Group of B-4 Lenders 

Joshua A. Feltman, Esquire 

Emil A. Kleinhaus, Esquire 

Neil K. Chatani, Esquire 

Wachtell, Lipton, Rosen & Katz 

51 West 52nd Street 

New York, New York 10019 

Counsel to the Term DIP Agent and 

Ad Hoc Group of B-4 Lenders 

Cullen D. Speckhart, Esquire 

Wolcott Rivers Gate 

200 Bendix Road, Suite 300 

Virginia Beach, Virginia 23452 

Counsel to the Official Committee 

of Unsecured Creditors 

Paul Leake, Esquire

Shana A. Elberg, Esquire 

George R. Howard, Esquire 

Skadden, Arps, Slate, Meagher 

& Flom, LLP 

4 Times Square 

New York, New York 10036 

Counsel to the Prepetition 

ABL/FILO Secured Parties 

Judy A. Robbins 

Office of the U.S. Trustee - Region 4 -R 701 

E. Broad Street, Suite 4304 

Richmond, Virginia 23219 

U.S. Trustee 

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Kenneth H. Eckstein, Esquire 

Robert T. Schmidt, Esquire 

Stephen D. Zide, Esquire 

Rachael L. Ringer, Esquire 

Kramer Levin Naftalis & Frankel LLP 

1177 Avenue of the Americas 

New York, New York 10036 

Counsel to the Official Committee of 

Unsecured Creditors Committee 

Olya Antle, Esquire 

Wolcott Rivers Gate 

919 East Main Street, Suite 1040 

Richmond, Virginia 23219 

Counsel to the Official Committee 

of Unsecured Creditors 

Jonathan L. Hauser, Esquire

Troutman Sanders LLP 

222 Central Park Avenue Suite 2000 

Virginia Beach, Virginia 23462 

Counsel to the Prepetition 

ABL/FILO Secured Parties 

Shannon Pecoraro, Esquire 

Office of the U.S. Trustee 

701 East Broad Street, Suite 4304 

Richmond, Virginia 23219 

Counsel to U.S. Trustee 

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IN THE UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF VIRGINIA 

RICHMOND DIVISION 

In re: 

TOYS “R” US, INC., et al., 

Debtors. 

Chapter 11 

Case No. 17-34665 (KLP) 

(Jointly Administered) 

ORDER GRANTING MOTION OF MGA ENTERTAINMENT, INC. 

FOR ALLOWANCE AND PAYMENT OF ADMINISTRATIVE 

EXPENSE CLAIMS AND RETURN OF POSTPETITION SHIPMENTS 

Upon the Motion of MGA Entertainment, Inc. for Allowance and Payment of Administrative 

Expense Claims and Return of Postpetition Shipments (the “Motion”) in the above-captioned 

debtors’ (the “Debtors”) jointly administered bankruptcy cases; and due and adequate notice 

having been served upon all parties entitled thereto; and it appearing that there is good cause to 

grant relief requested and that there is no objection to the relief requested left unresolved; it is 

hereby 

ORDERED that the Motion is granted; and it is further 

ORDERED that MGA Entertainment, Inc. shall have an allowed administrative expense 

claim in the amount of $798,960.35; and it is further 

ORDERED that the Debtors are directed to pay MGA Entertainment, Inc. the allowed 

administrative expense claims within three days of entry of this Order; and it is further 

ORDERED that MGA Entertainment, Inc. has no obligation to supply goods to the 

Debtors; and it is further 

ORDERED that the Debtors are obligated to return the Goods to MGA within three days 

of entry of this Order; and it is further 

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ORDERED that this Court shall retain jurisdiction over the implementation of the relief 

granted herein. 

The Honorable Keith L. Phillips 

United States Bankruptcy Judge 

I ask for this: 

James S. Carr 

Jason R. Adams 

Maeghan J. McLoughlin 

Kelley Drye & Warren LLP 

101 Park Avenue 

New York, New York 10178 

Tel: 212-808-7800 

Fax: 212-808-7897 

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