U.S. Supreme Court sides with Mall of America in lease battle over former Sears space

The U.S. Supreme Court has sided with the owners of the Mall of America in a complex, long-running legal battle about the vacant retail space that once housed a Sears store.

The 9-0 ruling allows mall owners to continue to challenge a holding company's $10-a-year lease for the empty space. The unanimous opinion vacates a judgement of the U.S. Court of Appeals for Second Circuit and sends it back to lower courts for further proceedings.

"I will say that this portends well for the MOA," said Deborah Carlson, director of brokerage services for the Twin Cities office of Cushman & Wakefield.

She said the decision could have long-term benefits for the Mall, which has transformed other retail spaces large anchor tenants have vacated into multiple offerings for smaller retailers.

"They are clearly playing the long game here," she said. "If they can prevail and get the space back, it could still be a long time before it's leased, and probably to more than one tenant, similar to what they did with other vacant big-box space."

The Supreme Court heard arguments for the case in December and issued its opinion Wednesday, which Justice Ketanji Brown Jackson wrote.

A jurisdictional debate as to whether or not appellate courts can challenge bankruptcy court decisions has been the core of the dispute.

Sears was an original anchor tenant when the Bloomington-based Mall of America opened in 1992. The retailer filed for bankruptcy in 2018. Its 200,000-square-foot space at the mall has been empty since 2019.

Former Sears CEO Eddie Lampert assembled Transform Holdco LLC to buy the retailer's assets out of bankruptcy.

Transform acquired the Sears lease at the Mall of America, which gave it a designation right for the space. Transform assigned the lease to a subsidiary, allowing it to sublease the space to other tenants while continuing to pay the Mall of America only $10 per year. The bankruptcy court approved the arrangement.

Transform had argued the lease terms were key to the sale, and appellate courts faced limits to review bankruptcy deals.

The high court rejected that argument in Wednesday's decision, saying the bankruptcy statute in question doesn't limit a court's ability to hear the issue, per the opinion.

Paul Vaaler, a professor at the University of Minnesota Law School and Carlson School of Management, noted it's not common to see a unanimous decision from the Supreme Court, which conflicting political philosophies often split.

As the legal fight continues, the opinion gives Mall of America leverage to argue any future tenant for the space needs to be in line with its previous use as a retail store.

"It's not over with," Vaaler said.