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

> United States Bankruptcy Court, E.D. Virginia · March 29, 2022

URL: https://www.frixlaw.com/law-library/cases/10463051

## Case

- **Court:** United States Bankruptcy Court, E.D. Virginia
- **Decided:** March 29, 2022
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

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
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.20
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- part 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: March 28, 2022
/s/ Keith L. Phillips
United States Bankruptcy Judge

Copies:
Entered on Docket: Mar 29 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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10463051. Public record. Not legal advice.