In Re: Sears Holdings Corporation

Background

This appeal arose from the Chapter 11 bankruptcy case of Sears Holdings Corporation and its affiliates. Nina Greene and Gerald Greene were class representatives in a 2015 class action against Sears entities in the Northern District of Illinois. That lawsuit alleged that the defendants sold Master Protection Agreements for appliance repairs or replacements that they did not intend to perform. The claims included breach of contract, unjust enrichment, and violations of consumer-protection laws in Illinois and Pennsylvania. The Illinois court certified two classes.

Sears filed for bankruptcy on October 15, 2018, which automatically paused the class action. Greene and Greene filed proofs of claim in the bankruptcy case on behalf of the two certified classes and themselves.

During the bankruptcy case, Sears sold substantially all of its assets to Transform Holdco, LLC, Transform SR Protection, LLC, and Transform SR LLC. The bankruptcy court approved the asset-sale agreement in February 2019, and the sale closed on February 11, 2019. In December 2019, the Greenes asked the bankruptcy court to lift the pause so they could continue the class action with the Transform entities substituted as defendants. They argued that the sale agreement required Transform to assume the class-action liabilities.

The bankruptcy court denied that request on May 27, 2021, and barred the Greenes from joining Transform as defendants or pursuing the class-action claims against Transform. The Greenes appealed.

Issue and arguments

The appeal presented one issue: whether the bankruptcy court incorrectly interpreted the asset-sale agreement as preventing the Greenes from joining Transform as defendants or pursuing the class-action claims against it. The Greenes relied primarily on section 2.3(e), which required Transform to assume all liabilities for warranties, protection agreements, or other service contracts involving goods and services sold or performed before the sale closed. They argued that the agreement’s broad definition of liability included their claims.

Court’s analysis

The district court reviewed the bankruptcy court’s factual findings for clear error and its legal conclusions independently. Because the appeal involved contract interpretation, the court applied Delaware law, which governed the agreement. Under Delaware law, a court first determines whether a contract is ambiguous and, if it is unambiguous, applies the meaning that an objective reasonable person would give the agreement when read as a whole.

The court agreed that the agreement was unambiguous. Although section 2.3(e), read alone, could support the Greenes’ interpretation, section 2.4(c) listed excluded liabilities. That section stated that Transform would not assume liabilities arising from or related to pending or threatened claims, lawsuits, or other proceedings involving pre-closing circumstances against Sears or its affiliates, except for liabilities specifically assumed under the agreement.

Reading sections 2.3(e) and 2.4(c) together, the court concluded that Transform assumed liabilities connected to the protection agreements themselves but did not assume liabilities arising from the Greenes’ pending civil class action. The court also applied the contract-interpretation rule that a specific provision ordinarily limits a more general one. It reasoned that accepting the Greenes’ interpretation would make the excluded-liabilities provision largely redundant.

Ruling

Judge Nelson S. Roman concluded that the bankruptcy court did not err in interpreting the asset-sale agreement. The district court affirmed the bankruptcy court’s decision in its entirety, and the clerk was directed to close the case.