Mall of America Lease Appeal Heads to the U.S. Supreme Court

The U.S. Supreme Court has agreed to hear the appeal of a case involving MOAC Mall Holdings LLC, the owner of Mall of America, involving a lease dispute with Transform Holdco LLC. The dispute arose when Sears Holdings Corporation, in its chapter 11 bankruptcy case, sought to assign its $10 per year Mall of America lease to Transform.

In 2019 the bankruptcy court authorized Sears’s assignment of its lease with Mall of America to Transform. On appeal, the district court overturned the bankruptcy court’s authorization and agreed with MOAC that Sears’ assignment of the lease violated section 365(b)(3) of the Bankruptcy Code. That section protects shopping center landlords when its bankrupt tenant attempts to assign its lease. Specifically, it enumerates conditions that must be met to ensure “adequate assurance of future performance” of a shopping center lease, including “that the financial condition and operating performance” of the assignee (here, Transform) is “similar to the financial condition and operating performance of the debtor” (Sears) as of the time MOAC and Sears entered the original lease.

After the district court ruled in MOAC’s favor, Transform argued for the first time that section 363(m) of the Bankruptcy Code deprived the district court of jurisdiction to hear the appeal. The district court reluctantly agreed that it lacked jurisdiction and reversed its prior ruling, and the Second Circuit affirmed the district court’s ruling that it lacked jurisdiction.

MOAC sought Supreme Court review by arguing that section 363(m) does not deprive appellate courts of jurisdiction and that in this case Transform waived any argument that section 363(m) provides a defense to Transform. Deciding whether section 363(m) is a jurisdictional statute would resolve a split among the circuits, with the Second Circuit in the minority of appellate courts that have held that the statute deprives jurisdiction on appeal.

Larkin Hoffman has represented MOAC since the beginning of the dispute with Transform. Ropes and Gray is co-counsel in the Supreme Court appeal.