In Re: Sears Holdings Corporation

Background

The dispute concerns a Sears lease at the Mall of America. The court explained that its February 27, 2020 order had vacated Sears’s assumption of the lease and its assignment to Transform Holdco LLC because Transform was disqualified from receiving the assignment under 11 U.S.C. § 365(b)(3)(A). The Second Circuit later affirmed that ruling.

In a May 3, 2024 order, the court reinstated the earlier ruling, dismissed MOAC Mall Holdings LLC’s appeal because the court found no remaining remedy beyond vacating the assignment to Transform, and directed that the lease be returned to the Sears bankruptcy estate through the liquidating trustee. MOAC appealed the portions of the May 3 order concerning the lease’s return and dismissal of its appeal, and it moved to stay those portions while the appeal proceeded.

Judge Preska, sitting in the court’s absence, entered an interim stay and set a rapid briefing schedule. Transform and Sears opposed a continuing stay. They argued that MOAC was effectively seeking an injunction that would prevent a possible lease transaction, that MOAC had not shown a sufficient likelihood of success or irreparable injury, and that any stay should require a bond in the full amount of the pending offer for the lease.

Court’s Analysis

The court treated MOAC’s request as seeking a stay of the part of the May 3 order that dismissed its appeal for lack of a further remedy. The stay would not return the lease to Transform because the court’s vacatur of Transform’s assignment remained in effect. Instead, the stay would prevent the liquidating trustee from taking ownership of the lease or entering into a transaction concerning it while MOAC sought reversion of the lease to itself.

The court stated that a stay pending appeal ordinarily depends on the likelihood of success on appeal and irreparable harm without a stay. Judge McMahon said she could not find that MOAC was likely to succeed, but she found sufficiently serious questions about the merits to justify a properly secured stay during an expedited appeal. The court also found that MOAC could suffer irreparable harm because an assignment might force it to spend a considerable sum to exercise its right of first refusal, while the Sears bankruptcy estate might be unable to compensate MOAC if MOAC later prevailed.

Ruling and Conditions

The court granted MOAC’s motion for a stay pending appeal on specified conditions. First, MOAC had to post a $2.5 million bond within ten days. The court selected that amount because a pending offer valued the lease at $43 million, but the court did not believe the lease’s value would necessarily fall to zero during the appeal. The stay became effective immediately but would expire if MOAC failed to post the bond within ten days.

Second, the court conditioned the stay on MOAC’s fulfilling its promise to seek an expedited appeal and telling the Second Circuit that the case needed to be decided quickly. The court did not decide the merits of MOAC’s appeal in this order and did not direct the Second Circuit to act by a particular deadline.