The U.S. Supreme Court has sided with the Mall of America in a dispute regarding a lease with the now bankrupt Sears corporation.
Former Sears CEO Eddie Lampert’s intent to pay $10 a year for the chain’s former anchor space at Mall of America and re-lease it has been derailed by the Supreme Court. Lampert’s ESL Investments hedge fund bought Sears’s assets for $5.2 billion when it went bankrupt in 2018. One of those assets was a 100-year lease maintaining an annual rent of a mere $10 for a 120,000-sq.-ft. space at the nation’s largest mall in Bloomington, Minn.
The lease was later transferred to Transform Leaseco—a company formed by Lampert to deal with assets obtained in the Sears acquisition--which intended to sub-lease the space to tenants of its own choosing.
In 2020, the United States District Court for the Southern District of New York upheld Mall of America’s right to turn down Transform’s intention to serve as the broker of a huge space in the property.
Citing a precedent from the Second Circuit U.S. Court of Appeals based on Section 363(m) of the Bankruptcy Code, Transform then successfully argued that the District Court had no jurisdiction to hear MOA’s appeal, and the decision was thrown out by a federal judge in New York.
This week’s unanimous decision by the Supreme Court rejected the contention that Section 363(m) was a limit on jurisdiction that Transform could not waive.
Written by Justice Ketanji Brown Jackson, the decision decried Transform’s “egregious conduct” in trying to raise the section after disclaiming before the Bankruptcy Court that it would. The Court also rejected Transform’s “creative” arguments as to why the appellate courts could not provide Mall of America, a Triple Five property, with relief if it vacated the order authorizing the lease’s assignment.
“This is a pivotal moment for Mall of America. Sears improperly assigned its lease to Transform, which is a holding company that has never operated as a retailer and never had plans to occupy Mall of America for retail purposes,” said MOA’s CEO Tony Ghermezian. “We are grateful for this decision in our favor as we continue to bring innovative concepts into our tenant spaces.”