Old vs. New Sears: Legal Dispute Settled for More Than $18M

The former and current owners of the Sears department store chain have settled a months-long legal dispute.

On Friday, the department store’s former owner, Sears Holding Corp., which declared bankruptcy in October 2018, and current owner Transform Holdco LLC agreed to settle a lawsuit. Under the settlement, Transform Holdco will pay roughly $18.3 million to Sears Holding Corp., including about $13 million in cash.

In early 2019, Sears Holding Co.(or “Old Sears”) agreed to sell its remaining stores to Transform Holdco, a subsidiary of Sears chairman Eddie Lampert’s ESL Investments Inc. hedge fund for $5.2 billion, but issues between the two parties rose almost immediately.

In March 2019, just one month after the asset purchase agreement was completed, Old Sears filed a suit asserting it was owed over $57.5 million from Transform. In May, Transform filed an adversary complaint alleging breach of contract on the part of Old Sears, including intentional delay of vendor payments and failure to deliver on promised inventory.

In July, the court for the Southern District of New York established a cash reconciliation process for the old and new Sears owners to settle their dispute, but the matter was at an “impasse” as of late November, according to a Friday court filing. The $18.3 million agreement was reached only after the appointment in December of an expert to oversee negotiations, which were held at “arm’s length.”

The settlement does not impact another lawsuit by Old Sears against ESL and Lampert, filed in April 2019, in which Sears Holding Corp. alleges Lampert illegally siphoned off billions of dollars in assets, raking in profits for himself and his hedge fund as Sears closed 3,500 stores and shed 250,000 jobs.

Under Transform Holdco ownership, store closures have continued for Sears as it struggles to compete with big-box retailers such as Target and Walmart. In November, the company announced it would shutter 96 Sears and Kmart doors by the end of February, leaving just 182 locations between the two nameplates. Transform further hinted at the potential for more closures, saying it would “continue to evaluate our Sears and Kmart footprint.”

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