If you recall anything you learned about the legal system in your high school civics class, it’s probably the fact that the United States Supreme Court is the highest court in the land. Your teacher might even have told you that any case could eventually end up there if the parties involved keep appealing.
It turns out that is a bit of an overgeneralization. While most cases can be appealed, there are some that simply cannot. Earlier this month, the Justices actually heard a bankruptcy case where the main question is whether a creditor can appeal certain bankruptcy court rulings.
The Hanson & Payne team is paying attention to this case because we represent Milwaukee area creditors and debtors in commercial bankruptcy cases, and knowing what may happen after a bankruptcy judge issues a ruling is just as important as knowing what factors will influence the ruling in the first place.
What is the case?
The case is MOAC Mall Holdings LLC v. Transform Holdco LLC, and it involves a disagreement between the Mall of America and the holding company that purchased most of the marketable assets held by Sears when the retail giant filed for bankruptcy.
Transform Holdco LLC, which was formed by a former Sears exec, got permission from the bankruptcy court to take over Sears’ assets — including the option to take over the company’s commercial leases — under Section 363(b) of the Bankruptcy Code. The transfer agreement gave Transform Holdco LLC a few months to figure out which of the leases it wanted to take over and then get those transfers approved by the bankruptcy court under Section 365 of the bankruptcy code.
Transform Holdco LLC decided it wanted to take over the lease Sears had for a three story store at the Mall of America. MOAC Mall Holdings LLC, which owns the Mall of America, did not want this to happen, and it urged the bankruptcy court to reject this transfer under Section 365. “The Mall of America argued that Transform doesn’t intend to occupy the premise and instead was looking to sublease the location. The lease transfer allows Transform to sublet the three-story Mall of America location while paying the mall owner only $10 a year.”
The bankruptcy court ended up approving the transfer of the Mall of America lease to Transform Holdco LLC, and MOAC Mall Holdings LLC appealed that decision. The district court, and the Second Circuit Court of Appeals agreed with Transform Holdco LLC’s argument that section 363(m) of the bankruptcy code prevents this particular type of bankruptcy court ruling from being appealed.
MOAC Mall Holdings LLC then appealed to the United States Supreme Court, which agreed to decide if the statute allows for appeals.
What happens next?
Oral arguments were held on December 5, and an option is expected by the end of June. The transfer of commercial leases during bankruptcy cases is something the Hanson & Payne team deals with, so we care about the outcome of this case. But we are also interested in any general guidance the Court will offer on what makes any bankruptcy court ruling appealable.
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