Supreme Court hears arguments over control of former Mall of America Sears store

A lawyer representing the Mall of America told the U.S. Supreme Court on Monday that it should be allowed to fight for control of the former Sears store, which has been vacant since 2019.

But a lawyer representing Transform Holdco, a company controlled by the former Sears CEO, argued it was too late to reverse its acquisition of the Mall of America lease from Sears during the retailer’s bankruptcy restructuring.

For the judges, the crux of the matter revolves around whether an appellate court has jurisdiction to review bankruptcy court decisions. But what’s practically at stake is whether the mall will be able to control one of its four anchor corners, which has 200,000 square feet of space over three floors.

“The text explicitly presupposes the exercise of appellate jurisdiction, including to rescind or vary a sell order,” Douglas Hallward-Driemeier of Ropes & Gray, the firm representing the Mall of America, told judges in reference. to the main law in question.

Sears was still a strong name in American retail when it signed a lease in 1991 for the Mall of America space. The mall owners offered the retailer a great deal: an annual rent of just $10 with a 100-year lease.

An attorney for Transform, G. Eric Brunstad Jr. of Dechert LLP, told the judges that Sears paid to build that part of the mall. He said Transform met its obligations to the property.

“Transform owns and maintains the building and has occupied it for three years, paid taxes, paid utilities, paid rent, fixed the roof,” he said.

Sears filed for bankruptcy in October 2018. CEO Eddie Lampert resigned from the filing, then brought together Transform Holdco to buy Sears’ assets out of bankruptcy. The bankruptcy court approved the sale of certain assets to Transform in February 2019.

At issue was a subsequent “designation right” for the Mall of America lease. The designation would allow Transform to sublet the space while continuing to pay the Mall of America $10 per year.

The Mall of America argues that Transform is not an appropriate named person because it is not a retailer, and it has asked the federal courts to invalidate Transform’s designation as the lease owner.

“Had they named an assignee – it could have been anyone, it could have been Target, it could have been Bloomingdales – which had similar financial condition and operating experience to Sears in 1991, that would have been great. Instead, they appointed a holding company that had never had such an experience,” Hallward-Driemeier said.

Several justices asked Hallward-Driemeier whether the Supreme Court had the power to void a bona fide settlement.

During Brunstad’s interrogation, Judge Neil Gorsuch said, “I am deeply confused by this case.” He then attempted to summarize Transform’s argument about federal court jurisdiction after a bankruptcy court approved a transaction.

In the past, circuit courts have held that federal courts can review decisions of bankruptcy courts.

“This is one where the circuits disagree,” said Paul Vaaler, a professor at the University of Minnesota Law School and the Carlson School of Management. He added that the Supreme Court is often drawn to cases where US appellate courts disagree on an issue.

Sears was one of the original anchor tenants when the mall opened in Bloomington in 1992. The mall was developed and remains owned by the Edmonton-based Triple Five Group.

Alex Wolf of Bloomberg Industry News contributed to this report.

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