UNITED STATES BANKRUPTCY COURT 

EASTERN DISTRICT OF VIRGINIA 

Richmond Division 

In re: 

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

Debtors. Chapter 11 

 (Jointly Administered) 

AMENDED MEMORANDUM OPINION AND ORDER 

 Toys “R” Us – Delaware, Inc. (“TRU”), one of the Debtors in these 

jointly administered chapter 11 cases, currently rents space in a retail 

shopping center from Brea Union Plaza I (“Brea I”). TRU, in connection with 

a court-approved auction of certain real property and unexpired leases, is 

seeking final approval of the assumption and assignment of its lease with 

Brea I to Burlington Coat Factory Warehouse Corporation (“Burlington”). 

Brea I objects to the proposed assignment, asserting that TRU has not 

satisfied the adequate assurance of future performance requirements of 11 

U.S.C. § 365(b)(3) because the assignment to Burlington would violate the 

exclusivity provision of another lease in the shopping center and would 

disrupt the shopping center’s tenant mix and balance. 

 An evidentiary hearing was conducted on May 10, 2018. At the Court’s 

direction, each party thereafter submitted proposed findings of fact and 

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

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

of Chapter 11 Cases and (II) Granting Related Relief [Dkt. No. 78]. 

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conclusions of law. The Court has carefully considered the evidence2 and 

submissions of the parties. For the following reasons, Brea I’s objections are 

overruled. 

Facts 

 Brea I, successor in interest to Brea Union Partners, as landlord, and 

TRU, as tenant, are parties to a ground lease (the “Lease”) entered into on 

December 20, 1996, for a parcel (the “Premises”) in Brea Union Plaza, a retail 

shopping center lying on a 42-acre contiguous tract of land in Brea, 

California. TRU operated a Babies “R” Us retail store at the Premises, which 

is referred to by the Debtors as Store No. 5672. 

 On March 23, 2018, the Court entered the Order (I) Establishing 

Bidding Procedures and (II) Granting Related Relief [Dkt. No. 2351] (the 

“Bidding Procedures Order”), approving the Debtors’ sale, and assumption 

and assignment, of certain real property and unexpired leases and auction 

and bidding procedures for soliciting and selecting the best offers for those 

assets. The Lease was one of the assets included in the Bidding Procedures 

Order. 

2 The parties have stipulated to most of the facts. See “Stipulation for Limited 

Purpose of Hearing Regarding Undisputed Facts and Issues and Admitted Evidence 

in Connection with Contested Matter Relating To (1) the Debtors’ Proposed 

Assumption and Assignment of Unexpired Lease Relating to Store No. 5672 and (2) 

the Debtors’ Proposed Form of Adequate Assurance of Future Performance of Such 

Lease by the Designated Backup Bidder” (the “Stipulation”) [Dkt. No. 3013]. The 

documents described in paragraph 2 of the Stipulation were admitted into evidence 

at the May 10, 2018, hearing by agreement. 

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 At an auction conducted on March 29, 2018, pursuant to the Bidding 

Procedures Order, the Debtors received multiple qualified bids and 

designated Festival Development Corporation as the successful bidder for the 

Lease, with Burlington as the backup bidder. On April 9, 2018, Brea I filed 

an objection to the proposed assumption and assignment of the Lease. 

Festival subsequently withdrew its bid and, on April 13, 2018, the Debtors 

filed a notice proposing to assume and assign the Lease to Burlington, with 

no backup bidder. Burlington bid $1,150,000 for the Lease and intends to use 

the Premises to operate a Burlington Coat Factory department store for the 

“off-price” sale of apparel and other merchandise. On April 24, 2018, Brea I 

filed a supplemental objection opposing the Debtors’ proposed assumption 

and assignment of the Lease to Burlington. 

 Currently, there are approximately 43 tenants or subtenants at Brea 

Union Plaza, operating primarily retail stores. The major tenants or 

subtenants of the Plaza operate the following stores: Walmart, Home Depot, 

PetSmart, Sears Outlet, Nordstrom Rack, Ross Dress for Less (“Ross”), 

Staples, Michaels, Tilly’s, Party City, and Pier 1 Imports. Nordstrom Rack 

and Ross are off-price retailers of apparel. 

 Brea I executed its lease with Ross on October 1, 2009 (the “Ross 

Lease”). The Ross Lease contains an exclusive use clause that prohibits Brea 

I from leasing any space in Brea Union Plaza to a party that would use its 

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premises for off-price sales.3 Ross is located adjacent to the Premises and has 

not consented to Burlington’s intended use, which would compete with Ross 

and Nordstrom Rack. 

 Aside from provisions unrelated to the issues before the Court, the 

language of the Lease does not restrict the use of the Premises by TRU or its 

assignee. One provision of the Stipulation submitted by the parties is that: 

In some cases, the provisions regarding a tenant’s use of leased 

premises in a later-entered lease within a multi-tenant 

commercial property include language that provides that the 

tenant’s use of such premises is subject to or limited by the 

exclusive-use or prohibited-use clauses contained in alreadyexisting leases within the same property. And in some cases, the 

provisions regarding a tenant’s ability to assign a lease include 

language that prohibit[sic] an assignment to an assignee whose 

3 Section 15.3 of the Ross Lease states, in relevant part: “Without the prior written 

consent of Tenant, which consent may be withheld in the absolute and sole 

discretion of Tenant, no tenant or occupant of the Shopping Center (other than 

Tenant) may use, and Landlord, if it has the capacity to do so, shalt not permit any 

other tenant or occupant of the Shopping Center to (a) use its premises for the Off 

Price Sale (as hereinafter defined) of apparel, or (b) use more than ten thousand 

(10,000) square feet of Leasable Floor Area of its premises for the sale of apparel 

(except for discount department stores in excess of eighty-five thousand (85,000) 

square feet of Leasable Floor Area). For purposes of this exclusive, “Off Price Sale” 

shall mean the retail sale of merchandise on an everyday basis at prices reduced 

from those charged by full price retailers, such as full price department stores; 

provided, however, this definition shall not prohibit sales events by a retailer at a 

price discounted from that retailer’ s everyday price. (Off Price Sale retailers include 

such retailers as T.J Maxx, Marshalls, A.J Wright, Fallas Paredes, Nordstrom Rack, 

Goody’s, Factory 2U, Burlington Coat Factory, Steinmart, Filene’ s Basement and 

Beall’ s Outlet.) If any of the foregoing provisions is violated (“Protection Violation”), 

commencing on the first day of the Protection Violation and continuing throughout 

the period of the Protection Violation, Tenant, in addition to all other remedies 

available at law or in equity, including injunctive relief, shall have the ongoing right, 

exercisable by written notice to Landlord, either to terminate this Lease or to pay 

Substitute Rent within fifteen (15) days after the close of each calendar month. The 

parties agree that the monetary damages to be suffered by Tenant as a result of a 

breach by Landlord (or Landlord’s tenant(s)) of the provisions of this Section 15.3 are 

difficult to ascertain and that the payment of Substitute Rent, after negotiation, 

constitutes the best estimate by the parties of the amount of such damage.” 

Stipulation, Exhibit 7 (emphasis added). 

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use of the assigned leased premises would conflict with or violate 

the exclusive-use or prohibited-use clauses contained in thenexisting leases within the same property. 

Stipulation, ¶ 1(y). The Lease does not include language similar to that 

contained in other leases as described in the portion of the Stipulation set 

forth above. More specifically, there is no anti-assignment provision 

referencing exclusive or prohibited use clauses contained in leases with other 

tenants of Brea Union Plaza. 

Jurisdiction 

 Pursuant to 28 U.S.C. §§ 157(a) and 1334(b) and the general order of 

reference for the U.S. District Court for the Eastern District of Virginia dated 

August 15, 1984, this Court has subject matter jurisdiction over the Debtors’ 

bankruptcy cases and this contested matter relating to the Debtors’ proposed 

assumption and assignment of the Lease. This is a core proceeding pursuant 

to 11 U.S.C. § 157(b)(2)(A),(N) and (O). Venue is proper pursuant to 28 

U.S.C. §§ 1408 and 1409. 

Discussion 

The parties agree that Brea Union Plaza constitutes a “shopping 

center” as that term is used in 11 U.S.C. § 365(b)(3) and that the Lease is “an 

unexpired lease of nonresidential real property under which the debtor is the 

lessee” as that phrase is used in 11 U.S.C. § 365(d)(4)(A). The Debtors’ 

proposed assignment of the Lease to Burlington must therefore satisfy the 

“adequate assurance of future performance of a lease of real property in a 

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shopping center” requirement set forth in 11 U.S.C. § 365(b)(3). In re HeiligMeyers Co., 294 B.R. 660, 662 (Bankr. E.D. Va. 2001). 

Section 365(b)(3) of the Bankruptcy Code has four subsections 

applicable to shopping centers, including subsections (C) and (D), which are 

at issue in this case. Subsection (C) requires adequate assurance “that 

assumption or assignment of such lease is subject to all the provisions 

thereof, including (but not limited to) provisions such as a radius, location, 

use, or exclusivity provision, and will not breach any such provision 

contained in any other lease, financing agreement, or master agreement 

relating to such shopping center.” 11 U.S.C. § 365(b)(3)(C). Subsection (D) 

requires adequate assurance “that assumption or assignment of such lease 

will not disrupt any tenant mix or balance in such shopping center.” 11 

U.S.C. § 365(b)(3)(D). 

Section 365(b)(3)(C). 

 The Fourth Circuit Court of Appeals has acknowledged that the 

purpose of § 365(b)(3)(C) “is to preserve the landlord’s bargained-for 

protections with respect to premises use and other matters that are spelled 

out in the lease with the debtor-tenant.” Trak Auto Corp. v. West Town Center 

LLC (In re Trak Auto Corp.), 367 F.3d 237, 244 (4th Cir. 2004) (emphasis 

added) (citing In re Ames Dep’t Stores, Inc. 121 B.R. 160, 165 n.4 (Bankr. 

S.D.N.Y. 1990)). This provision is “intended to protect the landlord’s 

economic expectations rather than those of the other tenants.” In re Martin 

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Paint Stores, 199 B.R. 258, 262 (Bankr. S.D.N.Y. 1996). Its intent is not to 

bestow upon landlords new contractual rights but rather to preserve contract 

provisions at risk of being stricken as de facto anti-assignment clauses under 

the provisions of 11 U.S.C § 365(f). 

The Lease was executed in 1996, long before the Ross Lease came into 

existence, and it contains no provision that requires compliance with the Ross 

Lease use restrictions. Cf. Heilig-Myers at 662 (“the Heilig lease provides 

that debtors will not ‘. . . assign or sublet the premises to any business that 

would violate any non[-]compete agreements in which [l]andlord has with 

other [t]enants in the Shopping Center.’ Because of this lease provision, 

Mitchell’s lease with Fabric must be considered . . . .”) (emphasis added). 

Brea I’s reliance on Heilig-Myers to support its “plain language” argument 

that the proposed assignment must not breach a restriction in any other 

lease, “regardless of whether that other lease is referred to in the lease 

sought to be assigned” is misplaced. That is not the ruling in Heilig-Myers, 

nor is it the ruling in any other case cited by Brea I. 

 Alternatively, the Court finds that assumption and assignment of the 

Lease to Burlington will not breach the exclusivity provision contained in the 

Ross Lease. The provision prohibiting Brea I from allowing a tenant to use 

the Premises to sell off-price apparel applies only if Brea I “has the capacity 

to do so.” As the court observed in Martin Paint Stores, a court order 

approving the assumption and assignment of a lease is a judicial action that 

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may render the landlord unable to comply with a restriction contained in 

another lease. “The law excuses performance that has been rendered legally 

impossible.” 199 B.R. at 265. Here, approval of the assumption and 

assignment of the Lease to Burlington pursuant to § 365 renders Brea I 

without the capacity to prevent Burlington’s intended use, an occurrence that 

may have been contemplated when the terms of the Ross Lease were 

negotiated. Accordingly, there has been no showing that the adequate 

protection requirement of § 365(b)(3)(C) is unmet. 

Section 365(b)(3)(D). 

 Brea I’s contention that the Debtors are unable to provide adequate 

assurance under 11 U.S.C. § 365(b)(3)(D) fails in light of the record and legal 

precedent. The court in In re Ames Department Stores, Inc., 121 B.R. 160 

(Bankr. S.D.N.Y. 1990), stated that § 365(b)(3)(D) “must be interpreted to 

refer to contractual protections and not undefined notions of tenant mix.” Id. 

at 165. Finding no contractual provisions requiring the assignee to comply 

with the requirements of any master agreement or to preserve tenant mix 

and location, the court found that the assignment sought in Ames did not 

violate § 365(b)(3)(D). Id.4 Similarly, Brea I has pointed to no provisions in 

the Lease or any applicable master agreement relating to tenant mix and 

balance that would prohibit the assignment of the Lease to Burlington. 

4 The District Court for the Eastern District of Virginia cited Ames when it stated 

that “[i]ntent to create a diverse tenant mix must be established in light of the lease 

terms.” Lasalle Nat’l Trust, N.A. v. Trak Auto Corp., 288 B.R. 114, 125 (E.D. Va. 

2003), rev’d on other grounds, Trak Auto Corp. v. West Town Center LLC (In re Trak 

Auto Corp.), 367 F.3d 237 (4th Cir. 2004). 

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 Moreover, there is insufficient evidence to support a finding that 

assignment of the Lease to Burlington will disrupt the existing tenant mix 

and balance in Brea Union Plaza. The Stipulations include a brief 

description of the nature of the other tenants’ businesses, but these brief 

descriptions fall short of establishing that there was an intended tenant mix. 

In a shopping center with 43 tenants, only two primarily sell “off-price” 

apparel. Brea I has not demonstrated that a third “off-price” retailer will 

disrupt the tenant mix and balance. 

 In light of Brea I’s failure to show that its contractual rights will be 

violated by the assignment of the Lease to Burlington, the Court will not 

prohibit the proposed assumption and assignment.5 The Debtors have met 

their burden under § 365(b)(1) and (3) of providing adequate assurance of 

5 The assumption and assignment to Burlington will result in the payment of 

$1,150,000 to TRU, which fulfills § 365’s intended purpose of maximizing the value 

of the bankruptcy estate. As Judge Gerber stated in In re Ames Department Stores, 

Inc:

 In a legislative judgment built into the Code, Congress has 

determined that, subject only to certain statutory safeguards, the 

value of a debtor's leases should go to the debtor's creditors, and that 

leases can be sold to achieve that end—with or without landlord 

consent. Here, Colonial has shown no legally cognizable basis for 

interfering with the assumption and assignment of this lease—which 

is, after all, the norm in bankruptcy, to implement that Congressional 

policy in order to benefit the general body of the debtor's creditors, and 

not the single creditor landlord that would like to get a lease back. I 

fully understand why a landlord would like to terminate a 1973 lease 

under which it gets a below market rate, but Congress has determined 

that the economic value in below market leases is to go to creditor 

bodies generally, and not to a windfall for a single creditor. 

In re Ames Dep't Stores, Inc., 348 B.R. 91, 98 (Bankr. S.D.N.Y. 2006). Likewise, in 

the present case, Brea I has shown no basis for interfering with TRU’s proposed 

assumption and assignment. 

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future performance. The Court finds that the assumption and assignment of 

the Lease to Burlington is in the best interests of the Debtors’ estates. 

Conclusion 

 For the foregoing reasons, Brea I’s objections to the proposed 

assumption and assignment of the Lease are overruled. 

IT IS SO ORDERED. 

Date: May 30, 2018 /s/ Keith L. Phillips 

 United States Bankruptcy Judge 

Copies to: 

Peter J. Barrett, Esq. 

Kutak Rock LLP 

901 East Byrd Street, Suite 1000 

Richmond, VA 23219-4071 

Michael A. Condyles, Esq. 

Kutak Rock LLP 

901 East Byrd Street, Suite 1000 

Richmond, VA 23219-4071 

Jeremy S. Williams, Esq. 

Kutak Rock LLP 

901 East Byrd Street, Suite 1000 

Richmond, VA 23219-4071 

Edward O. Sassower, Esq. 

Edward O. Sassower, P.C. 

Kirkland & Ellis LLP 

Kirkland & Ellis International LLP 

601 Lexington Ave. 

New York, NY 10022 

 

Entered on Docket: May 30, 2018

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Joshua A. Sussberg, Esq. 

Joshua A. Sussberg, P.C. 

Kirkland & Ellis LLP 

Kirkland & Ellis International LLP 

601 Lexington Avenue 

New York, NY 10022 

James H.M. Sprayregen, Esq. 

James H.M. Sprayregen, P.C. 

Kirkland & Ellis LLP 

Kirkland & Ellis International LLP 

300 N. LaSalle 

Chicago, IL 60654 

Anup Sathy, Esq. 

Anup Sathy, P.C. 

Kirkland & Ellis LLP 

Kirkland & Ellis International LLP 

300 N. LaSalle 

Chicago, IL 60654 

Chad J. Husnick, Esq. 

Chad J. Husnick, P.C. 

Kirkland & Ellis LLP 

Kirkland & Ellis International LLP 

300 N. LaSalle 

Chicago, IL 60654 

Emily E. Geier, Esq. 

Kirkland & Ellis LLP 

Kirkland & Ellis International LLP 

300 N. LaSalle 

Chicago, IL 60654 

Sean C. Griffin, Esq. 

Dykema Gossett PLLC 

1301 K Street, NW 

Washington, DC 20005 

Dean G. Rallis Jr., Esq. 

Anglin, Flewelling, Rasmussen, Campbell & Trytten LLP 

301 N. Lake Avenue, Suite 1100 

Pasadena, CA 91101-4158 

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