TRU Creditor Litigation Trust v. UPS Supply Chain Solutions Inc.

UNITED STATES BANKRUPTCY COURT’

EASTERN DISTRICT OF VIRGINIA

Richmond Division

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

Debtors. Chapter 11

Jointly Administered

TRU Creditor Litigation Trust, Plaintiff,

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

UP Supply Chain Solutions Inc.,

Defendant.

MEMORANDUM OPINION

(Amended to correct technical error only)

Before the Court are motions for summary judgment filed by the Defendant,

UPS Supply Chain Solutions, Inc. (“UPS”), and by the Plaintiff, TRU Creditor

Litigation Trust (the “Trust”). For the reasons set forth below, the Court will grant

summary judgment to UPS and deny the Trust’s Motion for Summary Judgment.

The Trust filed the complaint (the “Complaint”) that initiated this adversary

proceeding on September 16, 2019. In the Complaint, the Trust seeks the avoidance

of certain allegedly preferential transfers and the return of $12,186,529.05, plus

interests and costs.1 On May 26, 2020, the Court denied the Trust’s motion to

dismiss the Complaint (the “Dismissal Motion”), finding that the Complaint met the

requirements of Rule 12(b)(6) of the Federal Rules of Civil Procedure, Fed. R. Civ. P.

1 The Trust bases the Complaint on § 547 of the Bankruptcy Code, 11 U.S.C. § 547.

12(b)(6), made applicable in this adversary proceeding by Bankruptcy Rule 7012(b),

and had stated a claim upon which relief could be granted.2

The Dismissal Motion was based on UPS’s assertion that it had been released

from any Chapter 5 claims by virtue of a prior settlement agreement (the

“Settlement Agreement”) and the language of debtor Toys “R” Us–Delaware, Inc.’s3

confirmed Chapter 11 Plan (the “Plan”). The Court determined that the question of

whether UPS had been released was not ripe for resolution and indicated that UPS

could raise the defense at the appropriate time.4 With the filing of the summary

judgment motions, the appropriate time has arrived.

The Court’s May 26, 2020, decision on the Dismissal Motion addressed the

Court’s jurisdiction over this adversary proceeding and included a review of the

relevant history of the case.5 Those portions of the Memorandum and Order are

incorporated herein by reference and made a part hereof.

STANDARD OF REVIEW

Under Federal Rule of Civil Procedure 56(a), made applicable herein by

Bankruptcy Rule 7056, the Court “shall grant summary judgment if the movant

shows that there is no genuine dispute as to any material fact and the movant is

entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a); Fed. R. Bankr. P.

7056. The movant has the burden of establishing that there is no genuine dispute of

2 See Memorandum Opinion and Order, AP ECF 27. All references to ECF entries in this

adversary proceeding will be prefaced by “AP.” Unless otherwise noted, all other references

to ECF are to the Debtors’ main case, 17-34665-KLP.

3 See infra note 3 and accompanying text.

4 See supra note 2, at 9.

5 Id. at 1–6.

material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 321–23 (1986). When the

moving party has met its initial burden, the burden then shifts to the nonmoving

party to present specific facts demonstrating that there is a genuine issue for trial.

Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986)

(citing Fed. R. Civ. P. 56(e)).6

The Fourth Circuit has recently addressed the standard for summary

judgment:

To defeat summary judgment, however, a plaintiff must present

sufficient evidence to allow reasonable jurors to find she has proven her

claims by a preponderance of the evidence. See Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248-49, 106 S. Ct. 2505, 91 L. Ed. 2d 202

(1986). To accomplish this task, a plaintiff “must do more than simply

show that there is some metaphysical doubt as to the material facts.”

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586,

106 S. Ct. 1348, 89 L. Ed. 2d 538 (1986). Indeed, to avoid summary

judgment, a plaintiff “must rely on more than conclusory allegations,

mere speculation, the building of one inference upon another, or the

mere existence of a scintilla of evidence.” Dash v. Mayweather, 731 F.3d

303, 311 (4th Cir. 2013).

Jones v. United Health Grp., Inc., 802 F.App’x 780, 781 (4th Cir. 2020). This

standard has been applied to motions for summary judgment for both

plaintiffs and defendants. See, e.g., Penn. Nat. Mut. Casualty Ins. Co. v.

River City Roofing, L.L.C., No. 3:21cv365, 2022 WL 626765 (E.D. Va. Mar. 3,

2022).

UNDISPUTED FACTS

6 The purpose of summary judgment is to “pierce the pleadings and to assess the proof in

order to see whether there is a genuine need for trial.” Advisory Committee Note to 1963

Amendment of Fed. R. Civ. P. 56(e), 28 U.S.C.A.

Both parties have asserted that there is no disputed issue of material fact.

Having reviewed the record, the Court finds the following facts to be both

undisputed and material.

The Trust’s predecessor-in-interest, Toys “R” Us–Delaware, Inc. (“Toys

Delaware”), filed a Chapter 11 bankruptcy petition in this Court on or about

September 19, 2017 (the “Petition Date”). Case No. 17-34669-KLP. After the filing,

the Toys Delaware bankruptcy case was jointly administered with the cases of

numerous other debtors (collectively, the “Debtors”).7 The lead case is Toys “R” Us,

Inc, Case No. 17-34665-KLP, with the Debtors operating their businesses as

debtors-in-possession.

Toys Delaware served as the operating company in the United States for the

Debtors’ businesses.8 Toys Delaware also coordinated and provided various

7An order was entered on September 19, 2017, in accordance with Rule 1015(b) of the

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

the United States Bankruptcy Court for the Eastern District of Virginia directing joint

administration for procedural purposes only of the chapter 11 cases of: Toys “R” Us, Inc.,

Case No. 17-34665-KLP; Geoffrey Holdings, LLC, Case No. 17-34660-KLP; Geoffrey

International, LLC, Case No. 17-34666-KLP; Geoffrey, LLC, Case No. 17-34667; Giraffe

Holdings, LLC, Case No. 17-34661; Giraffe Junior Holdings, LLC, Case No. 17-34662-KLP;

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

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

Inc., Case No. 17-34669-KLP; Toys “R” Us Europe, LLC, Case No. 17-34670-KLP; Toys “R”

Us Property Company II, LLC, Case No. 17-34671-KLP; Toys Acquisition, LLC, Case No.

17-34672-KLP; TRU Asia, LLC, Case No. 17-34673-KLP; TRU Guam, LLC, Case No. 17-

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

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

Finance, Inc., Case No. 17-34678-KLP; TRU Taj Holdings 1, LLC, Case No. 17-34679-KLP;

TRU Taj Holdings 2 Limited, Case No. 17-34680-KLP; TRU Taj Holdings 3, LLC, Case No.

17-34681-KLP; TRU Taj LLC, Case No. 17-34682-KLP; TRU-SVC, Inc., Case No. 17-34659-

KLP; Wayne Real Estate Parent Company, LLC, Case No. 17-34683-KLP.

8 Disclosure Statement for the Second Amended Chapter 11 Plans of the Toys Delaware

Debtors and Geoffrey Debtors (the “Disclosure Statement”), Art. II(A)(1). ECF 4543.

essential functions for certain international and North American operations,

including store operations, and supply chain management. Id.

UPS is a service provider that, among other things, provided customs

brokerage services to Toys Delaware pursuant to customs brokerage fee schedules.

Ex. 1, Sherman Dep. at 61:3–62:2 (describing the Brokerage Schedules) AP ECF

116; Ex. 2, AP ECF 116; Ex. 3, AP ECF 116.

On the Petition Date, Toys Delaware owed UPS a total amount of

$9,484,856.98 on outstanding invoices. Ex. D, AP ECF 104; Ex. E, AP ECF 104.

Toys Delaware scheduled UPS as a prepetition unsecured creditor holding an

unliquidated claim for an undetermined amount. Case No. 17-34669-KLP, ECF 5,

Schedule E/F, p. 1470, Item 3.7305. As such, UPS was a creditor as of the petition

date. Ex. 31, Trust Response to UPS, AP ECF 114, at 4.

On or about the Petition Date, the Debtors filed several first day motions

seeking authority from this Court to, among other things, pay certain prepetition

creditors as either critical vendors and/or critical shippers. ECF 6 and 14.

Thereafter, the Court entered interim orders [ECF 81 and 84] and final orders

[ECF. 708 and 723] (collectively, the “Critical Vendor/Shipper Orders”) authorizing

the Debtors, including Toys Delaware, to pay prepetition claims of certain critical

vendors, including UPS.

By the middle of March 2018, UPS had been paid in full for all its prepetition

claims. Ex. 1, Sherman Dep., 54:17–22, AP ECF 116. UPS also provided

postpetition services to Debtors on credit. Ex. 31, Trust Response to UPS

Statement, AP ECF 114, at 7. By the end of April 2018, UPS had been paid all

issued and outstanding invoices for postpetition services that had been rendered to

that date. Ex. 1, Response to Statement of Undisputed Facts, AP ECF 112, at 28;

Ex. 1, Sherman Dep., 134:22–135:10.

On April 3, 2018, the Debtors filed a Notice of Rejection of Certain Executory

Contracts and Unexpired Leases (the “Rejection Notice”). ECF 2521 The Rejection

Notice included the contract with UPS. UPS failed to assert any claim with respect

to the rejection of the services agreement, nor did UPS file a proof of claim in

connection with any prepetition claims. See

https://cases.primeclerk.com/toysrus/Home-ClaimInfo (claims agent’s website with

respect to scheduled claims and proofs of claim and showing no filed proofs of claims

for any “UPS” entity or any entity whose name includes the phrase “United

Parcel”).

In early 2018, the Debtors announced their plan to pursue an orderly wind-

down and liquidation of their U.S. business and filed a motion seeking to wind-down

their U.S. operations (the “Wind-Down Motion”). ECF 2050. At the time,

administrative creditors held millions of dollars in unsatisfied claims. Transcript of

Aug. 17, 2018, hearing, 143:10-144:2 (statement of Kenneth Eckstein, counsel for

the Official Committee of Unsecured Creditors). ECF 4092. As part of the Debtors’

wind-down, the Court entered an order authorizing the wind-down of the Debtors’

operations and establishing administrative claims procedures (the “Wind-Down

Order”). ECF 2344. Paragraph 33 of the Wind-Down Order authorized the Debtors

to notify vendors and service providers that the wind-down period services were

covered by a wind-down budget, and the Debtors would be permitted to pay these

obligations. ECF 2344.

Paragraph 29 of the Wind-Down Order provided that the Debtors would file

an administrative claims procedures motion seeking the entry of an administrative

claims procedures order. ECF 2344. On May 25, 2018, the Court entered an order

establishing an administrative claim bar date and providing for related notices and

procedures (the “Administrative Claims Bar Date Order”). ECF 3260. Section I,

¶¶ a–b of the Administrative Claims Bar Date Order provided that July 16, 2018,

was the deadline for administrative claimants to file proofs of claim for

administrative claims arising on or prior to June 30, 2018 (the “Administrative

Claims Bar Date”), and provided creditors notice thereof. Id. at Ex. 2. Having been

paid in full prior to the administrative claim bar date, UPS did not file an

administrative claim. htps://cases.primeclerk.com/toysrus/Home-DocketInfo, and

https://cases.primeclerk.com/toysrus/Home-ClaimInfo (reflecting no filed

administrative proofs of claim on the Debtors’ claims docket or requests for

allowance of administrative claims filed on the general docket in the Debtors’

bankruptcy cases by UPS).

After the wind-down process commenced, various parties began investigating

potential causes of action and working on a possible resolution of their pending

disputes.9 On July 17, 2018, Toys Delaware and certain other Debtors filed a

motion [ECF 3814] seeking approval of a settlement agreement (the “Settlement

Agreement”)10 that granted releases of certain claims the Debtors’ estates held

against the Debtors’ private equity sponsors and certain secured lenders, among

others.11 In turn, the Debtors’ creditors (unsecured creditors, through the Creditors

Committee, as well as administrative claim holders) would release their potential

claims against the sponsors, the secured lenders, and the professionals and agreed

to limitations on their rights to recover on claims against the Debtors’ directors and

officers.12 Further, the Settlement Agreement provided up to $180 million to fund a

partial distribution to the holders of certain allowed administrative expense claims

against the Debtors.13

Under the Settlement Agreement administrative claim holders were

permitted to receive distributions.14 So long as these administrative claims holders

did not timely opt-out of the Settlement Agreement, they were entitled to receive

distributions from fund that had been established for their benefit, which was

9 Most creditors, including administrative creditors, did not receive payment in full. Many

administrative claimants were left with a limited amount of cash (exclusively funded with

the proceeds of the settlement contribution made by secured creditors pursuant to the

Settlement Agreement) and the right to contingent future payments tied to Trust

recoveries. They are facing hundreds of millions of dollars in losses. See Plan [ECF 5746],

Ex. A at Art. II, § A; Settlement Agreement [ECF 4083], Ex. 1 at § 3.1(c); see also Disclosure

Statement [ECF 4543], at Art. IV. § A.

10 The executed Settlement Agreement is attached to the order approving the motion. ECF

4083, Ex. 1.

11 Settlement Agreement, § 3.4(b)(2)-(3).

12Settlement Agreement, § 3.4(a).

13 Settlement Agreement, § 3.1(c)(1)(A)-(B).

14 Settlement Agreement, § 3.1(c).

defined in the Settlement Agreement as the Administrative Claims Distribution

Pool. Those creditors that did not opt out also received various releases from the

Debtors and other parties.15 In return, those claimants that did not opt out,

including UPS, provided broad releases to numerous parties, including certain

lenders, sponsors, and other parties from whom they might otherwise have pursued

recoveries arising from the Debtors’ financial meltdown.16

Section 4.1 of the Settlement Agreement provides that the settlement would

become effective when the Settlement Order was entered. On August 8, 2018, the

Court entered an order granting the Settlement Motion and approving the

Settlement Agreement (the “Settlement Order”). ECF 4083.

The Settlement Agreement released:

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

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

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

equivalents of chapter 5 of the Bankruptcy Code, including state

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

any non-insider pre- or postpetition creditors, whether or not they are

eligible to participate in the Administrative Claims Distribution Pool

(including, without limitation, vendors, suppliers, landlords, employees,

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

Administrative Claim Holders that affirmatively opt-out of participation

in the Administrative Claims Distribution Pool.

Settlement Agreement, § 3.4(b)(5). UPS did not affirmatively opt out of the

Settlement Agreement. UPS Statement of Facts, AP ECF 104, at 2–3; Trust

Response, AP ECF 111, at 6 n.3.

15 Settlement Agreement, § 3.4(a), (b).

16 Settlement Agreement, § 3.4(a).

On November 21, 2018, the Court entered an order (the “Confirmation

Order”) [ECF 5746] confirming the Fourth Amended Chapter 11 Plans of the Toys

Delaware Debtors and Geoffrey Debtors (as amended and supplemented, and as

confirmed, Ex. A to the Confirmation Order, the “Plan”). The Confirmation Order

and Plan both provide for avoidance claim releases by the Debtors under the Plan,

including Toys Delaware, providing that “[o]n and after the Effective Date, the

Debtors waive, release and discharge any and all Avoidance Actions against . . . all

Released Parties, and each avoidance Action Released Party.” Confirmation Order,

at Art. II. § O(b) ¶107, Plan, Ex. A, at Art. VII, § D, ECF 5746. The Plan’s definition

of “Released Party” includes “all Holders of Administrative Claims . . . .” Art. I,

§ A.154(j). Similarly, the Plan’s definition of “Avoidance Action Released Party”

includes “(a) any non-insider holder of a prepetition or postpetition Claim against

the Debtors . . ..” Art. I, § A.28(a). UPS was not an insider of the Debtors. UPS

Statement of Facts, AP ECF 104, at 2; Trust Response, AP ECF 111, at 6 n.3.

The Plan became effective on January 20, 2019. See ECF 6247. UPS’s

postpetition claims were paid in full by January 15, 2019, prior to the Plan’s

Effective Date. Ex. 8, Sherman Dep. Ex. 10 (the “Small Claims Spreadsheet”), AP

EFC 116; Ex. 9, Defendant UPS Supply Chain Solutions Inc.’s Amended Responses

to Plaintiff’s First Set of Requests for Admission, AP ECF 116 (the “UPS RFA

Responses”) (see responses generally and specifically responses to Request Nos. 1

and 20.)

ANALYSIS

As it argued in the Motion to Dismiss, UPS asserts in its summary judgment

motion that all Chapter 5 claims the Trust may have against it, including the

avoidance action set forth in the Complaint, were released by the terms of the

Settlement Agreement. The Court’s denial of UPS’s Motion to Dismiss was

“without prejudice to the right of the Defendant to raise the defense of release at the

appropriate time . . . .” AP ECF 27, at 9. With the filing of its summary judgment

motion, UPS is again asking the Court to find that it was released from the Trust’s

avoidance claims and therefore enter judgment in its favor and against the Trust.

If the facts and the law establish beyond dispute that UPS was released, then

granting summary judgment in its favor is warranted. “[T]he burden of

establishing [an] affirmative defense rests on the defendant.” Goodman v. PraxAir,

Inc., 494 F.3d 458, 464 (4th Cir. 2007). Thus, the burden is on UPS to establish

that it was a Released Party as defined in the Settlement Agreement and Plan just

as it is to establish that there are no material facts in dispute.

The parties agree that the law of the State of New York applies to the

Settlement Agreement. Section 4.8 of the Settlement Agreement, “Governing Law;

Jurisdiction” provides, “[t]his Settlement Agreement shall be construed and

enforced in accordance with, and the rights of the Parties shall be governed by, the

laws of the State of New York. . . .” New York law dictates that “[a] written

agreement that is clear, complete and subject to only one reasonable interpretation

must be enforced according to the plain meaning of the language chosen by the

contracting parties.” Brad H. v. City of New York, 951 N.E.2d 743, 746 (N.Y. 2011).

“[U]nder the normal rules of contract interpretation: words and phrases should be

given their plain meaning and ‘a contract should be construed so as to give full

meaning and effect to all of its provisions.’” Orchard Hill Master Fund Ltd. v. SBA

Commc’ns Corp., 830 F.3d 152, 157 (2d Cir. 2016) (internal citation omitted). “Only

when a court finds ambiguity in the parties’ written agreement may it look to

extrinsic evidence to discern the parties’ intent.” Luitpold Pharm., Inc. v. Ed.

Geistlich Sohne A.G. Fur Chemische Industrie, 784 F.3d 78, 87 (2d Cir. 2015).

The Plan is silent as to its governing law. To the extent Virginia law applies,

its governing principles are similar to principles of New York law. Under Virginia

contract law, “[w]hen an agreement is plain and unambiguous on its face, the Court

will not look for meaning beyond the instrument itself. However, when a contract is

ambiguous, the Court will look to parol evidence to determine the intent of the

parties.” Eure v. Norfolk Shipbuilding & Drydock Corp., 263 Va. 624, 632 (2002)

(internal citations omitted); accord Drake v. Franklin Equip. Co. (In re Franklin

Equip. Co.), 418 B.R. 176, 205 (Bankr. E.D. Va. 2009) (“Virginia courts have

consistently applied the parol evidence rule to exclude extrinsic evidence except

where an ambiguity is present.”). Language in a contract “is ambiguous when it

may be understood in more than one way or when it refers to two or more things at

the same time. However, a contract is not ambiguous merely because the parties

disagree as to the meaning of the terms used.” Eure, 263 Va. at 632 (internal

citations omitted).

The cases cited above are consistent. Whether the Court applies New York or

Virginia principles of law, the standard is the same; if the operative language in a

contract is plain and unambiguous, if reasonable minds would not disagree over its

interpretation, and if the language cannot be reasonably susceptible to two different

meanings, then parol evidence is inadmissible.

Having reviewed the record, the Court finds that the following facts are not

in dispute. The Trust has commenced an avoidance claim under 11 U.S.C. §547

against UPS. UPS held, at various points in time, both prepetition and postpetition

claims against Toys Delaware. UPS did not opt out of the Settlement Agreement or

the Plan releases. It is not an insider of the Debtors.

Under the plain language of the Settlement Agreement and Plan, the Debtors

released avoidance action claims against all “non-insider pre- or post-petition

creditors” and any “non-insider holder of a prepetition or post-petition Claim” that

did not opt out of the Settlement Agreement or the Plan releases. There are no

temporal or other limitations in either document. Neither document, either directly

or implicitly, limits the releases to creditors that held unpaid claims as of a

particular date. Reasonable minds would not disagree over the interpretation of

any relevant portion of the Settlement Agreement or Plan; neither is the language

reasonably susceptible to two different meanings. In short, the operative language

in both documents is plain and unambiguous.

The Trust maintains that the releases are limited to creditors that had

unpaid claims “at the time those agreements went into effect and [that] would

suffer a loss in the Debtors’ bankruptcy cases” (AP ECF 111, at 9-10) and asserts

that UPS does not meet either criterion, having been paid prior to those “effective

dates” and not having suffered a loss as a result of the Debtors’ bankruptcy. The

operative language, however, contains no such qualifications, either expressly or

implicitly.

It is difficult to fathom how UPS, a creditor owed millions of dollars at the

time of the bankruptcy filing and that also extended postpetition credit to the

Debtors, could be neither a prepetition creditor nor a postpetition creditor.

Reasonable minds would not disagree that a prepetition creditor is one whose claim

existed at the time of the bankruptcy filing and a postpetition creditor is one whose

claim arises after the filing. UPS clearly meets both criteria. It was owed money by

the Debtors at the time of their bankruptcy filings, and it extended credit to the

Debtors after their filings. Had there been an intention to incorporate a temporal or

other limiting qualification into the Settlement Agreement or Plan to the effect that

a creditor would only qualify for the releases if it did not ultimately receive full

payment or if was owed money only at undefined points in time, the parties failed to

address it. There are no expressed limitations, and imposing or including them

would require the Court to ignore the plain meaning of the language of the Plan and

Settlement Agreement.

Under the Bankruptcy Code, a “creditor” is an entity that has a claim against

the debtor. 11 U.S.C. § 101(10)(A). A claim is a “right to payment, whether or not

such right is reduced to judgment, liquidated, unliquidated, fixed, contingent,

matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.”

11 U.S.C. § 101(5)(A) (emphasis added). Section 101(10)(B) specifies that an entity

with a “claim” against the estate of the kind specified in § 502(h)17 is a “creditor.”

The prepetition receipt of alleged preferential transfers establishes a right to

payment contingent on those transfers being avoided. Thus, UPS had a contingent

section 502(h) claim that made it a “creditor” under section 101(10)(B) of the

Bankruptcy Code.18

17 11 U.S.C. § 502(h) states that “[a] claim arising from the recovery of property under

section 522, 550, or 553 of this title shall be determined, and shall be allowed . . . the same

as if such claim had arisen before the date of the filing of the petition.” The Complaint

seeks a recovery under § 550. See AP ECF 1, pp. 6-7.

18 UPS contends that its contingent § 502(h) claim existed because it received payments in

the 90 days before the Debtors’ bankruptcy filing, a fact that has been established by the

Trust’s filing of the Complaint in an attempt to recover over $12,000,000 that was allegedly

preferentially transferred. Applying the Fourth Circuit’s rule that the definition of “claim”

should be interpreted broadly, See L.K. Comstock & Co. v. Reibie (In re RailWorks Corp).,

621 B.R. 635, 643 (Bankr. D. Md. 2020) (“Courts traditionally interpret the term ‘claim,’ as

defined in section 101 of the Code, broadly.”); Dubois v. Atlas Acquisitions LLC (In re

Dubois), 834 F.3d 522, 529 (4th Cir. 2016) (“By using the broadest possible definition, the

Code contemplates that all legal obligations of the debtor, no matter how remote or

contingent, will be able to be dealt with in the bankruptcy case, thereby providing the

debtor the broadest possible relief.” (internal citation omitted)); Grady v. A.H. Robins Co.,

839 F.2d 198, 200 (4th Cir. 1988) (“Congress intended that the definition of claim in the

Code be as broad as possible, noting that ‘the bill contemplates that all legal obligations of

the debtor, no matter how remote or contingent, will be able to be dealt with in the

bankruptcy. It permits the broadest possible relief in the bankruptcy court.’” (internal

citations omitted)), the Court agrees that UPS was, and is, a creditor by virtue of its

contingent claim. Consequently, the Court need not address when and if UPS held

additional claims as a result of the Debtors’ rejection of its services agreement or an

administrative claim in connection with its postpetition services.

The Trust’s position employs circular reasoning; it asks the Court to determine that

UPS was not released because it was not a “creditor” at the time the Settlement Agreement

and Plan became effective, but if the Trust succeeds in its avoidance action against UPS,

UPS would unquestionably be a “creditor” by virtue of its then having a non-contingent

§502(h) claim, thus entitling it to the release. This paradox would not exist under UPS’s

interpretation of the Settlement Agreement and Plan. In any event, the Court adopts the

reasoning advocated by UPS and adopted by the courts in Slone v. M2M Int’l (In re G-P

Plastics, Inc.), 320 B.R. 861, 866 (E.D. Mich. 2005) (“in accepting [the preferential

The Trust, seeking to have summary judgment entered in its favor, argues

that the Settlement Statement and the Plan unambiguously exclude UPS from the

release provisions. Simultaneously, the Trust urges the Court to consider parol

evidence, most notably the recollections of certain parties involved in negotiation

the Settlement Agreement and Plan.19 Having found that the language at issue is

plain and unambiguous, this extrinsic evidence is not admissible and has no

relevance.

The Trust also argues that, because UPS had already been paid at the time

the Settlement Agreement and Plan became effective, UPS gave no consideration in

exchange for the release. This argument overlooks the fact that the Plan also

payments], M2M became a creditor of the Debtor and, by virtue thereof, became a holder of

an unliquidated, unmatured, and contingent right to the payment (i.e., a ‘claim’ for

reimbursement) that G&P could have avoided during bankruptcy proceedings”), and

ResCap Liquidating Tr. v. Liebert Corp. (In re Residential Capital, LLC), No. 12-12020,

2015 WL 3507128 (Bankr. S.D.N.Y. June 2, 2015), and finds that UPS, having a contingent

right to the payments that could have been avoided, was a creditor even though it received

payment of its prepetition claim.

19 Even if the Court were to find that parol evidence is admissible, it would not be

persuaded by the Trust’s offerings. At the hearing on approval of the Settlement

Agreement on August 7, 2018, Debtors’ counsel made statements consistent with the

Court’s understanding that the Chapter 5 releases were intended to cover all non-insider

unsecured creditors. Debtor’s counsel made the following statement: “All potential

preference actions against unsecured creditors, including administrative vendors, are

waived. And in the ninety-day period, as reflected in the debtors’ schedules and

statements, there were more than a billion [dollars] of transfers made to various parties,

leading up to the filing of these bankruptcy cases.” No. 17-34665-KLP, ECF 4029 at 9, Ex.

R. Counsel for the Unsecured Creditor’s Committee added: “[W]e also minimized the risk to

the unsecured creditors to be sued, sort of to add insult to injury, to be sued for preference”

and “if you want a release that the committee is going to support, you have to release all

vendors, all unsecured creditors for preference claims . . . . And I believe that when we look

back on this case, not having to have creditors in this court, five, six, seven years from now

defending preference litigation is a benefit that we were able to bring to unsecured creditors

. . . .” Id. at 145-147. From the Trust’s perspective, this would, at best, establish an issue of

fact precluding summary judgment for the Trust.

provided that the “Releasing Parties” (which included UPS since it did not opt out of

the Settlement Agreement) granted third-party releases to numerous parties,

including the prepetition secured lenders, the Sponsors, and the Unsecured

Creditors’ Committee. The granting of the third-party releases by UPS was

consideration for its release under the Settlement Agreement.

CONCLUSION

The Settlement Agreement, as approved by the Court, expressly released

avoidance claims against all prepetition and postpetition creditors, other than

insiders and holders of administrative claims that opted out of participation in the

Administrative Claims Distribution Pool. Section 3.4 of the Settlement Agreement

explicitly releases any causes of action under chapter 5 of the Bankruptcy Code

“against any non-insider pre- or postpetition creditors, whether or not they are

eligible to participate in the Administrative Claims Distribution Pool (including,

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

each in their capacity as such) other than any Administrative Claim Holders that

affirmatively opt-out of participation in the Administrative Claims Distribution

Pool.” This language is plain and unambiguous.

UPS was not an insider. It held both prepetition and postpetition claims

against the Debtors, having extended credit both before and after the bankruptcy

filings and having a contingent claim under 11 U.S.C.§502(h). It did not opt out of

participation in the Administrative Claims Distribution Pool. These facts are

sufficient to establish that UPS was released from liability for any avoidance

claims, including those set forth in the Complaint, and they are not subject to

dispute. Accordingly, UPS has carried its burden of establishing its affirmative

defense that it was released from liability to the Trust.

For these reasons, the Court will grant summary judgment to UPS and deny

the Trust’s Motion for Summary Judgment. A separate order will issue.

Signed: April 21, 2022

/s/ Keith L. Phillips

United States Bankruptcy Judge

Copies:

Entered on Docket: Apr 21 2022

Joshua David Stiff

Adam M Carroll.

Wolcott Rivers Gates

200 Bendix Road

Suite 300

Virginia Beach, VA 23452

Henry J. Jaffe

Kenneth A. Listwak

PEPPER HAMILTON LLP

1313 N. Market Street, Suite 5100

Wilmington, Delaware 19899-1709

James K. Donaldson

LimNexus LLP

919 East Main Street

Suite 1000

Richmond, VA 23219

Amber D. Shubin

Natalie Fleming Nolan

MORRISON & FOERSTER LLP

1650 Tysons Blvd., Suite 400

McLean, VA 22102

Theresa A. Foudy

Natalie A. Fleming Nolen

MORRISON & FOERSTER LLP

250 West 55th Street

New York, New York 10019