New owner of Sears may not get its $10-a-year lease after all

WASHINGTON (CN) — The Supreme Court handed the Mall of America a unanimous victory Wednesday, allowing it to challenge the transfer of its generous 100-year lease to the company that bought Sears Roebuck in bankruptcy.

Justice Ketanji Brown Jackson penned the opinion for the court, gently ribbing Sears' new owner, Transform Holdco., for the “creative arguments” that it had made to keep its $10-a-year lease at the iconic mall in Bloomington, Minnesota.

As noted in the decision, back in Bankruptcy Court, Transform had expressly represented that it would not make this very argument, which leans on a law called section 363(m) to quash the Mall of America's appeal.

It was only after Transform lost on the merits and a federal judge vacated its lease assignment that Transform reneged, arguing that §363(m) deprived the court of jurisdiction to intervene in the matter. Both the lower court and the Second Circuit accepted this argument, but Jackson and her colleagues vacated the judgment

“Transform’s contentions merely offer a reason to think Congress intended §363(m) to be jurisdictional,” the 15-page opinion states. “That, without more, does not show a clear jurisdictional statement.”

At December arguments, Transform's attorney, Eric Brunstad with Dechert, warned that a loss of this nature threatens to invalidate the $5.2 billion acquisition of Sears.

Brunstad said his client, a subsidiary of ESL Investments, bought Sears in good faith, and that the generous lease was a key term of that sale.

The Mall of America called it unfair, however, for the lease to survive Transform Holdco's expected cannibalization of the currently vacant three-floor space, which it has no intention of reopening.

In its petition to the high court, the mall emphasized that the generous lease it gave to Sears in 1991 for a term of 100 years spoke to the luster of its now-bygone anchor tenant.

"At that point, Sears had been in business for nearly 100 years. It virtually created 'big box' retailing, and its massive catalogues were the progenitor of Amazon’s internet omni-market. It has few equals in the history of American business," attorneys at Ropes & Gray wrote for the 5.6 million square-foot shopping and entertainment center in the filing.

"As might be inferred from its name, Transform Leaseco plans to market the Sears space to as yet unidentified subtenants who are willing to pay the highest price in order to maximize the value of the real estate," the petition continues.

The attorney for Mall of America championed their win Wednesday.

“This decision restores integrity to the appellate process and precludes the type of gamesmanship that Transform engaged in, providing important protections for mall owners and all other types of landlords following bankruptcy of tenants,” said Douglas Hallward-Driemeier with the firm Ropes & Gray.

Transform's lawyer did not respond to a request for comment Wednesday.

At oral argument, Brunstad focused on time that has elapsed since the sale closed on Oct. 4, 2019. He said there was no remedy available for his adversaries once the transfer of property was complete.

Jackson meanwhile called the arguments that 363(m) could limit the district court’s jurisdiction “red herrings." 

“Congress has not clearly stated that the provision is a limit on judicial power, rather than a mere restriction on the effects of a valid exercise of that power when a party successfully appeals a covered authorization,” she wrote.

Follow @@lexandrajones

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit