In Re: Sears Holdings Corporation

Background

MOAC Mall Holdings LLC appealed a Southern District of New York Bankruptcy Court order approving the assumption and assignment of a lease for a Sears store at the Mall of America to Transform Leaseco LLC. The district court initially overturned the bankruptcy court’s order. On a prior rehearing, however, the district court vacated that decision after concluding that the appeal had become legally moot under 11 U.S.C. § 363(m). The lease assignment had been completed, and MOAC had not obtained a stay of the order pending appeal.

Section 363(m) generally protects a completed sale or lease from being reversed on appeal when the purchaser or lessee acted in good faith, unless the transaction was stayed. The court explained that, after the transaction closed, it retained authority to consider a challenge to the purchaser’s good faith. MOAC had not raised that challenge during the original appeal or in its response to Transform’s earlier rehearing request.

MOAC’s Motion

MOAC sought another rehearing under Bankruptcy Rule 8022. That rule requires the moving party to identify specifically a legal or factual point that the court overlooked or misunderstood. It does not permit a party to raise a new argument or simply reargue its case.

MOAC argued that it had preserved the good-faith issue in its earlier response. The court rejected that characterization. MOAC’s earlier arguments asserted that Transform had waived protection under § 363(m) and should be prevented from relying on the statute because of judicial estoppel. The court distinguished those arguments from a claim that Transform was not a good-faith purchaser under the statute itself.

The court also rejected MOAC’s reliance on two references to “bad faith.” One reference appeared in a quotation and discussion of the statute and precedent; the other asserted that Transform’s representations supported judicial estoppel. According to the court, neither reference presented and developed the separate factual issue of whether Transform took title to the lease in bad faith.

Ruling

Judge Colleen McMahon denied MOAC’s motion for rehearing. She stated that good or bad faith would require a factual inquiry into Transform’s and its lawyers’ knowledge and state of mind. The record contained no evidence resolving that issue, and MOAC had raised it too late to obtain a remand for factual development. The court therefore concluded that it had not overlooked or misunderstood an argument properly presented earlier.

The order states: “MOAC’s motion for rehearing is DENIED.” The clerk was directed to close the motion at docket entry 35. The court noted that the parties could take the matter to the United States Court of Appeals for the Second Circuit, but this order did not decide whether judicial estoppel could establish jurisdiction or whether the court had misunderstood any timely bad-faith argument.