The U.S. Supreme Court has agreed to hear Mall of America's challenge to a lower court ruling that it had to honor an extremely tenant-friendly lease it had made with Sears Holdings Corp.
The lease at issue, signed in 1991, offered Sears rent of just $10 a year for 100 years at the Mall of America. The Sears at the Bloomington megamall closed in March 2019 and has remained empty.
After Sears went bankrupt in 2018, it sold its assets for $5.2 billion to Sears Holdings Corp. former chairman Eddie Lampert and his hedge fund ESL Investments Inc., and the Mall of America lease was transferred to Transform Holdco, a new company formed by Sears' new owners.
In its March petition, Mall of America urged the high court to take the case, asking it to review the extent to which U.S. bankruptcy law limits the appeals of bankruptcy sales. Mall of America argued appeals related to asset sales and lease transfers are common in Chapter 11 cases, but that appeals courts have split on the extent to which they were allowed.
Mall of America attempted to stop the lease transfer during the bankruptcy case. But the 2nd U.S. Circuit Court of Appeals found in December 2021 that bankruptcy law did not allow it to appeal a lease transfer that was "integral" to a court-approved bankruptcy sale.
In its petition, Mall of America argued that bankruptcy law limits the ability of courts to unwind a sale after appeal, but it did not prevent appeals entirely.
An attorney for Mall of America, Douglas Hallward-Driemeier of Ropes & Gray, said that Transform's legal "gamesmanship" had threatened to deprive his client of its right to appeal.
Transform did not initially oppose Mall of America's District Court appeal of the lease transfer. But when that court ruled against it, Transform filed its own appeal to the 2nd Circuit, where it argued that the dispute should never have been heard in the District Court at all.
"Only after losing on appeal did Transform change its tune," Hallward-Driemeier said.
Transform did not respond to a request for comment.
Transform, in a reply to the petition, said that Sears' long-term retail leases were "a substantial portion of the value of what it purchased." Preventing appeals over bankruptcy sales generally benefits both buyers and sellers, because it allows buyers to offer higher prices rather than hedging against the risk of a successful appeal, Transform said.