Crown Equipment Corporation v. Toys "R" Us, Inc., 3:18-cv-00810

Crown Equipment and Toys "R" Us (TRU) entered a Master Services Agreement (MSA) in 2007 for forklift maintenance; the MSA auto-renewed annually.
TRU filed for bankruptcy in September 2017 and the Bankruptcy Court issued a Procedure Order requiring court approval to assume or reject executory contracts.
Crown and TRU negotiated updates (changed effective date and labor rates) after the bankruptcy filing; Crown continued to provide services and TRU paid for post-petition services.
Crown contends TRU (by words and conduct) agreed to assume the MSA; TRU sought Bankruptcy Court approval to reject the MSA instead.
The Bankruptcy Court allowed rejection, finding assumption requires court approval, implied assumption was unwarranted, and equitable powers could not compel assumption. The district court affirmed.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether TRU validly assumed the MSA under § 365	Crown: TRU agreed (by executives' statements and conduct) and continued performance, so MSA was assumed	TRU: No court-approved assumption occurred; it followed Procedure Order and sought rejection	Held: No statutory assumption—court approval required and was not obtained
Whether TRU impliedly assumed the MSA by conduct	Crown: TRU’s post-petition modifications, statements, and acceptance of services show implied assumption	TRU: Payments for post-petition services and continued performance do not create implied assumption; Crown not disadvantaged	Held: No implied assumption—rare doctrine inapplicable where creditor was paid for post-petition benefits and not prejudiced
Whether the bankruptcy court could use equity (§ 105) to compel assumption	Crown: Court should use equitable powers to force assumption to protect Crown’s position	TRU: § 105 cannot override § 365; equitable compulsion is improper	Held: § 105 cannot be used to compel assumption; court properly declined equitable relief
Whether allowing assumption by conduct would defeat Procedure Order and § 365 policy	Crown: Allowing assumption by conduct is acceptable here	TRU: Allowing that would prioritize Crown over other creditors and frustrate estate maximization	Held: Allowing implied assumption would subvert § 365’s purpose; rejection affirmed

In re Merry-Go-Round Enters., 400 F.3d 219 (4th Cir. 2005) (assumption or rejection of executory contracts requires court approval)
Law v. Siegel, 571 U.S. 415 (U.S. 2014) (bankruptcy equitable powers limited by the Bankruptcy Code)
In re A.H. Robins Co., 68 B.R. 705 (Bankr. E.D. Va. 1986) (rejecting implied assumption where creditor received post-petition benefits and no unusual prejudice)
In re Clavis Smith Bldg., Inc., 112 B.R. 768 (Bankr. E.D. Va. 1990) (permitting implied assumption in rare circumstances)
In re Thinking Machines Corp., 67 F.3d 1021 (1st Cir. 1995) (exercise of bankruptcy court’s equitable discretion reviewed for abuse)
In re Anderson, 811 F.3d 166 (4th Cir. 2016) (standard of review: factual findings for clear error, legal questions de novo)