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

An attorney 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 that has been vacant since 2019.

But a lawyer representing Transform Holdco, a firm controlled by the former CEO of Sears, argued that it's too late to unwind its acquisition of the Mall of America lease from Sears during the retailer's bankruptcy restructuring.

For the justices, the crux of the case revolves around whether an appellate court has jurisdiction to review bankruptcy court decisions. But what's at stake practically 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 reverse or modify a sale order," Douglas Hallward-Driemeier of Ropes & Gray, the firm representing the Mall of America, told the justices in reference to the main statute at issue.

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

An attorney for Transform, G. Eric Brunstad Jr. of Dechert LLP, told the justices that Sears paid to build that portion of the mall. He said that Transform is meeting its obligations to the property.

"Transform has owned and maintained the building and occupied it for the last three years, has paid the taxes, has paid the utilities, has paid the rent, is fixing the roof," he said.

Sears filed bankruptcy in October 2018. CEO Eddie Lampert stepped down with the filing and then assembled Transform Holdco to buy Sears assets out of bankruptcy. The bankruptcy court approved the sale of some assets to Transform in February 2019.

In dispute was a subsequent "designation right" for the Mall of America lease. The designation would allow Transform to sublease the space while continuing to pay the Mall of America $10 per year.

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

"Had they designated an assignee — it could have been any, it could have been Target, it could have been Bloomingdales — that had a similar financial situation and operating experience as Sears in 1991, that would have been fine and good. Instead, they designated a holding company that had never had any such experience," Hallward-Driemeier said.

Several justices pressed Hallward-Driemeier on whether the Supreme Court had any authority to reverse a good faith transaction.

While questioning Brunstad, Justice Neil Gorsuch said, "I am deeply confused by this case." He then tried to summarize Transform's argument over the jurisdiction of federal courts after a bankruptcy court has signed off on a transaction.

In the past, circuit courts have found that federal courts can review bankruptcy court decisions.

"This is one where the circuits disagree," said Paul Vaaler, a professor at the University of Minnesota Law School and Carlson School of Management. He added that the Supreme Court is often drawn to cases where U.S. appellate courts have disagreed 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.