US Supreme Court allows Mall of America to fight cheap Sears lease

5:30 pm Thursday, April 20th, 2023

By Dietrich Knauth

(Reuters) – The U.S. Supreme Court on Wednesday ruled that the Mall of America outside Minneapolis – the nation’s largest shopping complex – can challenge an extremely cheap lease it made decades ago with Sears Holdings Corp, which was subsequently sold to a new owner during the department store chain’s bankruptcy.

In a 9-0 ruling written by Justice Ketanji Brown Jackson, the Supreme Court overturned a lower court’s decision against MOAC Mall Holdings LLC, the parent company of the mega-mall located in Bloomington, Minnesota. The ruling means that MOAC Mall Holdings can proceed with its challenge to the lease in a lower court as it seeks the ability to charge more to rent the space that Sears had occupied.

The company has argued that it should no longer be bound by a 100-year lease initially signed in 1991 with Sears, long a retail giant but a company that has since withered. The lease provided Sears with a three-story, 120,000-square foot (11,000 square meters) location at the mall for a rent of just $10 a year.

The Sears location has been closed since 2019, and Mall of America said in court filings it wanted to start over with a new lease rather than allowing the new leaseholder to sublease the space at the cheap rate.

After Sears went bankrupt in 2018, it sold its assets for $5.2 billion to former chairman Eddie Lampert and his hedge fund ESL Investments Inc, and the lease was transferred months later to Transform Holdco LLC, a company formed by the new Sears owners.

Mall of America went to court to try to stop the lease transfer during the Sears bankruptcy process. A federal judge in New York threw out the lawsuit and the Manhattan-based 2nd U.S. Circuit Court of Appeals found in 2021 that bankruptcy law does not allow for appeals of court-approved bankruptcy sales.

While bankruptcy law limits the ability of courts to unwind a sale after appeal, it does not prevent appeals entirely, the Supreme Court ruled.

(Reporting by Dietrich Knauth in New York; Editing by Will Dunham)