Commentary: Did the Decisions in Mall of America Create Uncertainty for Owners of Shopping Centers Concerning a Debtor’s Ability to Assume and Assign a Retail Lease?*​​​

by David R. Kuney
Georgetown University Law Center; Washington, D.C.

On May 3, 2024, the U.S. District Court for the Southern District of New York handed down its decision and order, following the remand from the Supreme Court in the long-running dispute among Sears Holdings Corp., MOAC Mall Holdings, LLC and Transform Holdco LLC. The remand decision by the district court is the fifth court decision in this four-year odyssey concerning the Mall of America and its former anchor tenant, Sears. The MOAC legal odyssey will likely have widespread consequences. The number of retail bankruptcies has sharply increased in the past year. Many of these bankruptcy cases involve national chain stores in major shopping centers and malls. The bankruptcy cases often lead to legal clashes between the debtor-tenant, which wishes to assign its valuable leases to new tenants, and the mall owner-landlord, which seeks to prevent the assignment of leases to less desirable new tenants, which can upset tenant mix and even violate reciprocal agreements with other tenants. Congress had intended for the rights and obligations of both shopping center owners and tenants to be governed by a specific statutory regime known as the “Shopping Center Amendments.” Later, Congress further clarified the rights of landlords by imposing stricter requirements for the time period to assume a lease. However, this clarity and predictability has been disrupted by the MOAC cases. The MOAC decisions contain important analyses of the application and meaning of the Shopping Center Amendments and BAPCPA, and reflect disagreement and uncertainty over key issues that deal with the assumption and assignment statutory process. Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.
 

Student Loan Bills Are Dropping Next Month for Many, but There’s a Hiccup​​​

On July 1, millions of federal student loan borrowers will see their monthly bills drop — some by as much as half — as the Biden administration’s new income-driven payment plan, known as SAVE, takes full effect. But first, the government and its four loan servicers have to resolve a major hiccup, the New York Times reported. Starting next month, borrowers enrolled in the SAVE plan with only undergraduate loans will have their monthly payments capped at 5 percent of their discretionary income, down from the current 10 percent limit. (Graduate school loan payments will remain at a maximum of 10 percent, while people with a mix of undergrad and graduate loans will have a weighted payment.) The loan servicers are relying on the Education Department to send them the new loan amounts for every borrower. But the department has not yet finished making calculations, according to three people familiar with the process. To buy time, the department instructed its servicers to place borrowers with payments due in early July into an administrative forbearance for the month, which means no payment from them will be required. More than 8 million borrowers have enrolled in the SAVE plan. Many received notices this month saying that their account had been placed into forbearance, sparking widespread surprise and confusion. Read more.

Number of Americans Filing for Jobless Benefits Jumps to the Highest Level in 10 Months​​​

The number of Americans filing for jobless benefits jumped to the highest level in 10 months last week, a sign that the labor market is likely cooling under the weight of high interest rates, the Associated Press reported. Unemployment benefit applications for the week ending June 8 rose by 13,000 to 242,000, up from 229,000 the week before, the Labor Department reported Thursday. That's significantly more than the 225,000 new claims analysts were expecting and the most since August 2023. The four-week average of claims, which softens some of the week-to-week volatility, rose to 227,000. That's an increase of 4,750 from the previous week and the highest since September, but still less than the average one year ago. Though this week’s number seems relatively high, it’s still within a range that reflects a healthy labor market. However, sustained layoffs at this level could have some influence on Federal Reserve officials, who keep a close watch on the labor market when considering interest rate decisions. America’s employers added a strong 272,000 jobs in May, accelerating from April and a sign that companies are still confident enough in the economy to keep hiring despite persistently high interest rates. But last week’s report from the government included some signs of a potential slowdown. The unemployment rate edged up for a second straight month, to a still-low 4%, from 3.9%, ending a 27-month streak of unemployment below 4%. That streak had matched the longest such run since the late 1960s. Read more.

PCAOB Expands Liability for Auditors Involved in Firm Violations​​​

The Public Company Accounting Oversight Board expanded liability for individuals involved in firm violations and proposed tighter rules around one of the ways auditors gather evidence to detect financial misstatements, the Wall Street Journal reported. The U.S. audit watchdog on Wednesday voted 5-0 to change the threshold for liability for contributors to accounting firms’ violations of auditing standards, lowering it to negligence from recklessness. The contributors are usually partners in charge of an audit or another firm that assisted in the work. Under the existing rule, which dates to 2005, the PCAOB can hold contributors liable for firm violations if they act recklessly, meaning they took an extreme departure from the standard of ordinary care either known to them or so obvious they must have been aware. If the PCAOB finds that the contributors acted recklessly, they need to have directly and substantially contributed to the firm’s violation to face a fine or other penalty. The audit watchdog defines negligence as the failure to exercise reasonable care or competence, covering a wider range of potential behavior in carrying out an audit. Auditors are already held to this standard in other situations. The Securities and Exchange Commission, which oversees the PCAOB, already has the ability to seek civil penalties against these parties when they negligently cause firm violations, but the audit watchdog doesn’t. The rule, for which a proposal was issued last September, permits the PCAOB to penalize partners or assisting firms that played a direct, substantial role in conflicts of interest, as well as failures related to the controls that firms use to assess the quality of audits. Read more. (Subscription required.) 

Buyers Snap Up Aging and Empty Office Buildings for Deep Discounts​​​

A perfect storm of plunging property values for aging buildings, weak tenant demand coming out of the pandemic, and high interest rates for new loans and refinancing has left the $2.4 trillion office building sector wobbling. For some real estate investors, that may be a good thing, according to a New York Times analysis. Several big office buildings nationwide — including in Manhattan — have recently sold at steep discounts of as much as 70 percent to opportunistic buyers, who are gambling that they will score big profits when prices eventually rebound. In April, a little-known firm, Yellowstone Real Estate Investments, paid $185 million for 1740 Broadway, a storied office tower near Columbus Circle in Manhattan. The investment giant Blackstone had paid $600 million for the building a decade earlier. And this week, two real estate firms snapped up a Midtown Manhattan tower for less than $50 million, according to Bloomberg. Even though these are relatively small buyers, their emergence is a sign of the pain building in the U.S. commercial real estate market. Distressed deal-making is one of the more visible illustrations of trouble brewing in the sector that could lead to large losses for hundreds of banks and investors in real-estate-backed loans. Some industry analysts have cautioned that the bargain hunting is the tip of the iceberg, more a sign of quick deal-making than an indication that prices of office buildings have hit rock bottom — especially ones built decades ago. Read more.

Donations to the Kevin J. Carey Memorial Scholarship ​​​

As we continue to mourn the passing of ABI Past President Hon. Kevin J. Carey (ret.), please find information below from Judge Carey’s family regarding their formation of a scholarship in Judge Carey’s name at Villanova University School of Law to assist students with financial need. The Carey family appreciates your continued prayers and support.

To donate in support of the Kevin J. Carey Memorial Scholarship, please send a check to Villanova University at 299 North Spring Mill Road, Villanova, PA 19085 with “The Kevin J. Carey Memorial Scholarship” in the memo. Or you can donate online by clicking here. From there, select “Other/Your Choice” to write in “The Kevin J. Carey Memorial Scholarship”. The Kevin J. Carey Memorial Scholarship will be awarded to academically talented students enrolled in the Charles Widger School of Law at Villanova University with demonstrated financial need. 

Pick Up Your Copy of Driving the Recovery Bus​​​

Make sure to pick up your copy of Driving the Recovery Bus: Augmenting Creditor Recoveries Through Claims Brought by a Litigation Trustee. Written by Gordon Z. Novod, this book is not only for litigation trustees, but also for creditors who serve on official committees of unsecured creditors, attorneys and other professionals who frequently represent official committees of unsecured creditors, and others with a general interest in the pursuit of causes of action by litigation trustees. Get your copy of Driving the Recovery Bus. 
 

Application and Nomination Period for ABI’s 2024 “40 Under 40” Class Open Through June 30 ​​​

The ABI "40 Under 40" annual program continues to highlight the best up-and-comers in the industry. If you are, or know of, a dynamic insolvency professional who is committed to growth and excellence both professionally and in your community, this is one opportunity not to be missed! Nominations and applications are due June 30. Click here for more information and to submit a nomination or application. 

Get Your Copy of The Purdue Papers to access Amicus Briefs and Commentaries Related to Purdue Pharma Case!​​​

A petition by the U.S. Trustee regarding the case of Purdue Pharma L.P. is currently being considered by the U.S. Supreme Court. Regardless of how the Court rules, the case has already generated a mountain of commentary in the form of amicus briefs, petitions and other related background material. ABI, guided by editor David R. Kuney (who represented one group of amicus filers), has gathered together all of this material in a fully searchable form — more than 3,000 pages worth! This collection will be updated with the final Supreme Court decision — expected later in 2024 — as well as a final commentary by ABI Editor-at-Large Bill Rochelle, who writes Rochelle’s Daily Wire. This collection is an invaluable resource for anyone working in the area of third-party releases, either as a practitioner, an academic or just an interested party. Get your digital copy for only $25!

Have an Idea for a Topic for an ABI Conference Session? Submit Your Proposal via ABI’s “Call for Abstracts” Page!​​​

ABI has launched an online portal for professionals to submit proposals for educational sessions at future ABI conferences. Submitters can describe their proposed topic, outline the session’s focus and learning goals, suggest speakers, and provide contact information via the portal’s detailed form. The portal can be accessed here.

All submissions will be reviewed by an internal Education Committee, which will contact the submitter to ask questions as needed and to discuss the status of the proposal. Submissions will be reviewed on a rolling basis.

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