SCOTUS Unanimously Rules Mall of America Can Challenge Sears’ $10-Per-Year Lease
AGG Litigation attorneys David Marmins and Dymond Anthony authored an article titled, “SCOTUS Unanimously Rules Mall of America Can Challenge Sears’ $10-Per-Year Lease,” for the American Bar Association’s Real Estate, Condemnation, and Trust Litigation Committee. The article, published on May 3, 2023, discusses MOAC Mall Holdings LLC v. Transform Holdco LLC, in which the U.S. Supreme Court ruled in favor of landlord MOAC Mall Holdings LLC in a dispute over a 100-year lease signed in 1991 with Sears Holding Corporation.
The lease allowed Sears to pay $10 per year in rent for a three-story, 120,000-square foot location at Mall of America (“MOA”) in Bloomington, Minnesota. Sears filed for bankruptcy in 2018 and closed its MOA location in 2019. The space remains vacant, but Sears transferred its lease to Transform Holdco LLC, owned by former Sears CEO Eddie Lampert. Transform is expected to sublease the space for substantially more than $10 a year.
MOAC objected to the assignment “on the ground that Sears had failed to provide the requisite adequate assurance of future performance by Transform.” MOAC contended Transform had no intention of occupying the lease space for retail purposes, but planned to sublease the space and unfairly profit from the terms of the original agreement. The bankruptcy court disagreed and approved Transform’s lease assignment. MOAC appealed to the United States District Court for the Southern District of New York, which ruled in favor of MOAC and concluded that Transform did not satisfy the pertinent bankruptcy code adequate assurance provisions.
However, on rehearing, Transform argued for the first time that 11 U.S.C. section 363(m) deprived the district court of jurisdiction, thereby depriving MOAC of its requested relief. The Supreme Court unanimously decided that section 363(m)’s strictures were not jurisdictional.
The MOAC decision resolves the jurisdictional debate of section 363(m) and will impact bankruptcy courts dealing with commercial leases across the country. However, the decision permits appellate courts to exercise jurisdiction over a covered authorization, where appropriate, and will not require automatic dismissal of an appeal in the absence of a stay pending the appeal of a sale order.
To read the full article, ABA members may click here. For more information, please contact David or Dymond.
- David J. Marmins
- Dymond A. Anthony