DECISION AND ORDER DISMISSING APPEAL AS MOOT FOR LACK OF REMEDY This matter has been returned to the Court it left over four years ago for an assessment of whether the appeal should be dismissed for lack of any remedy — notwithstanding the Second Circuit’s affirmance of this Court’s February 27, 2020 order, which vacated the assumption and assignment of the lease on the Sears Roebuck premises at the Mall of America in Minneapolis (the “Lease”). As I conclude that there is no available remedy beyond that vacatur, I direct that the order vacating the assumption and assignment be reinstated; order the Lease returned to the possession of the Sears Liquidating Trustee; and dismiss MOAC’s appeal as moot for lack of any further remedy. FACTS & PROCEDURAL HISTORY The Bankruptcy Proceedings The tortured history of this case represents the antithesis of what a bankruptcy is supposed to be: a relatively quick and comprehensive resolution of a debtor’s issues with its creditors. The iconic retailer Sears filed for bankruptcy in October 2018. It had leases on hundreds of properties throughout the United States; its real estate holdings were a principal, if not the principal, asset of a corporation whose retail businesses had been spiraling downhill for years. One of those leases was at the Mall of America in Minneapolis. Sears was an original anchor tenant at Mall of America. It negotiated an extremely favorable lease — indeed, for a retail store, an almost unheard-of lease — in exchange for anchoring the new mall and building its store at its own expense. The unusual terms of the lease are summarized in the previous opinions of this and other courts. See, e.g., MOAC Mall Holdings LLC v. Transform Holdco LLC (In re Sears Holding Corp.), 613 B.R. 51, 56-58 (S.D.N.Y. 2020) (“Sears I”). Among the most salient of these terms was the length of the lease — 100 years — at an annual compensation package consisting of $10 in rent (which was prepaid through 2021 at the time the Lease was signed (see Bankr. Dkt. No. 3927, Ex. A, APX2199 (“Lease”) 21.1)1), plus liability for taxes, insurance and common charges, but with no obligation to pay percentage rent. This effectively capped the total rent due for this massive property at somewhere in the neighborhood of $1 million to $1.2 million per year. (See April 10, 2024 Hr’g Tr. at 39:7-8). Another highly unusual feature of the Lease was that Sears had the absolute right to “go dark” (close the store) after completing 15 years of operation (which occurred in 2007), at which point it was free to sublease any portion of its space — and even to assign its lease without the consent of the landlord (MOAC) or any other tenant in the Mall, including the other anchor tenants — for virtually any conceivable use, as long as that use (1) did not qualify as illegal or a nuisance or (2) would cause the space to be used “primarily” for offices. In most shopping center leases, the landlord retains veto power over the assignment of tenant leases. See Retail Lease: Key Provisions, Practical Law Practice Note 4-507-0793 (Westlaw 2020) (“Retail leases usually contain explicit restrictions on a tenant’s ability to assign its lease or sublease its premises to third parties. These provisions typically provide that the landlord’s consent is required before an assignment or sublease.”). They certainly do not allow tenants to cease operations and leave a massive space unoccupied for three quarters of a century. Yet Sears could do precisely that, in exchange for constructing the space in the first place. In February 2019, an entity called Transform Holdco LLC (“Transform” or “Holdco”) paid a substantial sum2 to purchase substantially all of Sears’ assets, including its real estate, in the bankruptcy. Transform was the creation of former Sears executives, who wanted to capture for themselves the value of Sears’ many substantial assets. Transform Holdco’s subsidiary, Transform Leaseco, was, as its name suggests, formed for the purpose of leasing, rather than operating, properties owned by Sears. The Asset Purchase Agreement (“APA”) between Sears and Transform was approved by order of the Bankruptcy Court, which issued after a §363(b)3 sale. (Bankr. Dkt. No. 2507, APX87 (“Sale Order”)). Among the bundle of assets purchased by Transform pursuant to the APA were (1) certain specifically “Assigned Agreements,” and (2) “Designation Rights” for contracts identified as “Designatable Leases.” (Id. at 3). “Designation Rights” are the right to designate to whom a lease between Sears (or an affiliate, such as Kmart) and some landlord should be assigned. Because Transform had purchased Designation Rights, once it identified an assignee, Sears was required, per the terms of the APA, to assume the designated lease and then assign it to Holdco’s chosen assignee, subject to certain conditions specified in the APA. (Sale Order, Ex. B, APX184, as amended by Bankr. Dkt. No. 2599, Ex. F, APX3593 (“APA”) §2.6). All told, there were hundreds of “Designatable Leases,” one of which was Sears’ lease at the Mall of America. Transform intended to continue to operate about 425 of those properties as Sears or Kmart stores. It planned to use its Designation Rights to bring about the assignment of the rest of the Designatable Leases to itself (through an affiliate, such as Transform Leaseco), and then to sublease the spaces covered by those leases to new tenants at what it hoped would be a handsome profit. Pursuant to §2.6 of the APA, Transform Holdco purchased the Designation Rights for all Designatable Leases on the closing date. (Id.) Its right to designate assignees for all those leases vested upon the closing of the APA. (Id. §§2.6, 5.2(a)). But the APA made clear, “For the avoidance of doubt, the sale…of the Designation Rights provided for herein on the Closing Date shall not effectuate a sale, transfer, assignment or conveyance of any Designatable Lease to Buyer [Transform] or any other Assignee….” (Id. §2.6 (emphasis added)). Any such “sale, transfer, assignment or conveyance” would only occur on something called the “Designation Assignment Date” — defined in the APA as the date of the “sale, transfer, assignment, conveyance and delivery” of the designated lease by Sears to Holdco’s designee. (See id. §§2.6, 5.2(d)). The APA also specified precisely when and how Sears’ interest in any individual Sears lease would pass to Holdco’s designee: On each Assumption Effective Date,4 pursuant to section 365 of the Bankruptcy Code and the Approval Order, Sellers shall assume and assign to the applicable Assignee any Designatable Lease so designated by Buyer for assumption and assignment in accordance with the terms of this Agreement, and Buyer shall pay all or be responsible for Cure Costs with respect to such Designatable Leases. (Id. §2.7(c)). Transform’s payment of cure costs was required because Sears could only assume a lease with the consent of the Bankruptcy Court, and the Code sets out numerous preconditions to obtaining such approval — including a requirement that existing defaults be cured, or assurance of prompt cure be provided, before a debtor may assume a lease. See 11 U.S.C. §365(b). Certain leases were assigned to Holdco as designee simultaneously with the closing of the APA and Holdco’s acquisition of Designation Rights. (See APA §2.7(b)). On or around April 2, 2019, Judge Drain entered an order establishing a procedure for Holdco to follow when exercising its Designation Rights for other Designatable Leases. (Bankr. Dkt. No. 3008, APX1290). Once Holdco identified an additional lease to be designated for assumption and assignment, the Debtors (Sears) were to file a notice (not a new motion) with the court. Any party objecting to such assignment had to serve and file a written objection with the Bankruptcy Court eight days after the filing of (i) the notice, or (ii) evidence that the assignee could provide adequate assurance of future performance pursuant to §365(b)(3) — whichever was later. (Id.) MOAC raised no objection to this procedure. Two weeks later, on April 19, 2019, Holdco filed a notice of “additional designatable leases” for assignment to itself or an affiliated entity. (Bankr. Dkt. No. 3298, APX1331 (the “Notice”)). Among the additional designated leases was the MOAC Lease. Holdco designated its affiliate, Leaseco, as the assignee of that particular lease. As one might surmise from the name of Holdco’s designee, Transform intended to market the MOAC Lease to a new tenant or tenants not yet identified. One thing was clear: the parties have stipulated that Holdco had no intention of operating a Sears store at the Mall of America. (Bankr. Dkt. No. 4865, APX1780 (“Aug. 16, 2019 Stip.”)
