Sears Owner, Mall of America Lose Lease to Bankruptcy Trustee

Sears Holdings Corp.'s liquidating trustee secured possession of a $10-a-year lease with Mall of America that was the subject of a winding legal battle that reached the US Supreme Court last year.

Neither Minnesota-based Mall of America nor Transform Holdco LLC, the successor to Sears Holdings Corp., are entitled to the 100-year lease, Judge Colleen McMahon of the US District Court for the Southern District of New York ruled Friday. The lease was originally awarded in 2019 to Transform, an Eddie Lampert-owned shell company. McMahon later vacated a bankruptcy court decision awarding the lease to Transform.

The judge said in her Friday decision that she couldn’t void her prior ruling.

MOAC Mall Holdings LLC, which owns North America’s largest mall, had challenged the assignment of the below-market lease of the former three-story Sears location when Transform bought the department store out of bankruptcy. The legal dispute landed in several courts before working its way up to the Supreme Court, which found the district court had jurisdiction to decide who was entitled to the assignment of the lease.

While Transform can’t gain control of the lease, neither can MOAC, McMahon wrote in her order. MOAC argued it should’ve been given control of the lease because it was the landlord of where the store was located, the order said.

However, “MOAC received all the benefits, financial and otherwise, to which it as Sears’ landlord is entitled to” under the bankruptcy code, McMahon said. Those benefits didn’t include the lease, the judge said.

She threw out MOAC’s appeal “as moot for lack of any remedy.”

Sears filed for Chapter 11 in 2018 after years of struggling brought on by online competition, sluggish sales, and other operational issues.

Patterson, Belknap, Webb & Tyler LLP and Ropes & Gray LLP represents MOAC. Weil, Gotshal & Manges LLP represents the Sears liquidating trustee. Dechert LLP and DLA Piper LLP represent Transform.

The case is In re: Sears Holdings Corp., S.D.N.Y., No. 19-cv-09140, 5/3/24.