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- The Supreme Court unanimously decided that the Mall of America can challenge a lease it has with Sears.
- In 1991, the mall gave Sears a 100-year lease on a three-story location for just $10 per year.
- After Sears went bankrupt in 2018, the retailer's owner sought to sublet the store to another tenant.
The US Supreme Court has given the Mall of America a chance to get out of a deal that it made more than 30 years ago to lease space to Sears for just $10 a year.
It's a case that Cornell's Legal Information Institute says has implications for how mall owners and bankrupt tenants are protected as companies navigate the reorganization process.
The matter dates back to 1991, when the biggest shopping mall in the US was lining up tenants for its grand opening. For one of its four anchor stores, the Mall of America booked what at the time appeared to be a can't-lose deal with an icon of American retail: Sears.
The deal gave Sears a 100-year lease on a 120,000-square foot space spanning three floors at the Bloomington, Minnesota, mall for less than a dollar per month.
Fast-forward 20-odd years and the company's prospects looked decidedly less bright.
By 2017, Sears' sales had tumbled to $17 billion from more than $36 billion in 2013, and in 2018 Sears filed for bankruptcy. Its store at Mall of America closed a year later and has remained empty since then.
As part of its reorganization, Sears sold $5.2 billion of its assets to its former chairman's hedge fund, which placed them under a company called Transform Holdco. Sears later told the bankruptcy court that it wanted to transfer its lease on the Mall of America store to Transform Holdco, so that another Transform subsidiary could sublet the $10-per-year space to new tenants – presumably at a higher price to pocket the difference.
Mall of America objected, saying that landlords have a right to "adequate assurance of future performance" by whoever took over Sears' lease. It also cited concerns about how subletting the space would affect the mall's business.
The bankruptcy court overruled the mall's objection. The mall then appealed to the US District Court for the Southern District of New York, which said appeals weren't allowed because of a procedural decision from the 2nd US Circuit Court of Appeals. The mall then appealed the 2nd Circuit decision. That appeal too was dismissed, which led the mall to petition the Supreme Court.
In its unanimous decision Wednesday, the Supreme Court held that appeals are in fact allowed, even if there are other limits to what bankruptcy courts can do to reverse a deal.
In other words, the Mall of America isn't getting the newly negotiated lease it wants on the highly prized space, but it is allowed to continue fighting for it.