U.S. Supreme Court takes dispute over extremely cheap mall lease

3 minute read

REUTERS/Larry Downing

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  • Mall of America is attempting to stop transfer of Sears' historical lease
  • The lease has rent of just $10 per year, for 100 years
  • The lease was acquired as part of Sears' $5.2 billion bankruptcy sale

(Reuters) - The U.S. Supreme Court on Monday agreed to hear Mall of America's challenge to a lower court ruling finding it had to honor an extremely tenant-friendly lease it had made with Sears Holdings Corp, which was sold to a new owner during the U.S. department store chain's bankruptcy case.

In its March petition Mall of America had 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.

The lease at issue, signed in 1991, offered Sears rent of just $10 a year for 100 years at the Mall of America in Minneapolis, Minnesota. 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 LLC, a new company formed by Sears' new owners.

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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 immediately 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.

The case is MOAC Mall Holdings LLC v. Transform Holdco LLC, U.S. Supreme Court, No. 21-1270

For petitioner: Douglas Hallward-Driemeier, Gregg Galardi, Andrew Devore and Daniel Egan of Ropes & Gray; and Gregory Otsuka of Larkin Hoffman Daly & Lindgren

For Transform Holdco: Eric Brunstad of Dechert; Amy Wolf of Wachtell, Lipton, Rosen & Katz; and Craig Martin of

DLA Piper

Read more:

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Sears sues Lampert, claiming he looted assets and drove it into bankruptcy

Lampert wins Sears bankruptcy auction with $5.2 billion bid

U.S. Supreme Court finds 2017 bankruptcy fee increase was unconstitutional

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