In Re: Sears Holdings Corporation

Background

This document concerns MOAC Mall Holdings LLC’s appeal against Transform Holdco LLC and Sears Holdings Corporation in connection with bankruptcy proceedings involving Sears Holdings Corporation and other debtors. The opinion states that Judge McMahon had previously reversed an order by Judge Drain authorizing a sale, and that the reversal had been upheld on appeal. The sale, however, had been completed without a stay pending appeal.

Questions Requested by the Court

After oral argument, Judge McMahon asked the parties to submit written responses to several questions:

1. Whether Transform could rely on the federal bankruptcy-sale protection in 11 U.S.C. § 363(m), despite having waived reliance on that provision. The court questioned whether Transform could obtain the same protection by invoking a common-law rule that generally directs an injured party to seek the sale proceeds rather than undo a completed sale to a good-faith purchaser.

2. Assuming that the common-law rule applied, whether courts may set aside a judicial sale when applying the rule would make the court an “instrument of injustice,” and whether that exception would apply here.

3. Assuming the lease could not be recovered, what Bankruptcy Code provision, if any, supported MOAC’s alternative request for monetary relief. The court described that request as seeking the benefit Transform would receive from subleasing the former Sears store for the next 65 years. The opinion states that the protection provided by the Bankruptcy Code’s shopping-center provisions was that the lease would not be assigned to an entity disqualified under § 365(b)(3), and that Transform’s disqualified status was established as law of the case.

4. Whether monetary relief could be sought from Sears under a “follow the proceeds” theory if no relief were available against Transform. The court also asked whether an exculpation order protected Sears from such relief and what effect a post-confirmation agreement between Sears and Transform had on that question.

5. The opinion labels this subquestion “a.” It asks whether the transfer order became effective when Judge Drain announced the decision on August 23 or when the written order was signed on September 5. The court noted that August 31 fell between those dates and was a critically important date in the case.

6. Assuming the alternative remedy proposed by Transform and Sears was correct, the court asked how to conduct a counterfactual analysis beginning on August 23. In particular, it asked whether Sears could assume the lease during the following eight days and then assign it to Transform or to another entity, and what effect that analysis would have on confirmation of the bankruptcy plan in October 2019.

Disposition

This document is a request for post-argument briefing, not a final decision on the appeal or on the questions presented. The opinion does not grant, deny, dismiss, or otherwise dispose of a motion or claim. Judge McMahon stated that she still needed to determine the answer.