Almost four months ago, the bankrupt estate of Sears Holdings Corp. sued Eddie Lampert and U.S. Treasury Secretary Steven Mnuchin over allegedly wrongful transfers of US$2 billion in company assets. Now lawyers representing the two men have asked the federal judge overseeing the retailer’s Chapter 11 case to lift the bankruptcy stay so Sears insurance policies can pay their legal fees, according to a new court filing.
Before Sears went bankrupt in October, the company carried a US$150 million insurance policy that covered its officers and directors against legal fees and expenses, according to the filing. Lampert was chairman of the Sears board starting in 2005 and chief executive officer from 2013, while Mnuchin was a director of Sears from 2005 until 2016, court papers show.
“The director defendants should be permitted to immediately obtain reimbursement for their fees and expenses in accordance with the policies’ terms,” the filing states. Lawyers for a handful of other Sears directors, including Thomas Tisch, Alesia Haas, Kunal Kamlani and Bruce Berkowitz, also asked for the stay to be lifted so the insurance could pay their clients’ legal fees.
The estate doesn’t object to lifting the stay for the insurance payments, according to the filing. A bankruptcy stay stops any money from flowing out of the estate before the case is settled.
The Sears estate filed a lawsuit in April that accused Lampert of wrongly transferring company assets beyond the reach of creditors in the years leading up to the retailer’s bankruptcy, and alleged that company directors like Mnuchin let him do it.
“Had defendants not taken these improper and illegal actions, Sears would have had billions of dollars more to pay its third-party creditors today,” lawyers for the estate said in the court filing. The lawsuit also notes that Mnuchin and Lampert are personal friends who were roommates at Yale University and colleagues at Goldman Sachs Group Inc.
ESL representatives have said in the past that the transactions named in the estate’s April lawsuit were based on fair and reasonable terms, approved by independent directors and show the firm’s consistent support for Sears in its efforts to return to profitability. And for his part, Lampert filed a lawsuit in May that accused the Sears estate of failing to deliver “hundreds of millions of dollars of assets” called for by the sales agreement, intentionally delaying payments to vendors and trying to shift US$166 million in accounts payable costs.
The lawsuit over the asset transfers is just one of a series of conflicts between Lampert and the Sears estate, the legal shell that was left over after the chain’s bankruptcy to pay remaining claims. The Sears estate has also accused the company formed by Lampert to buy its stores of withholding US$57.5 million and the two sides have clashed over US$718 million in claims and a US$1.4 billion surcharge.
Lawyers representing the Sears estate didn’t respond to a request for comment, and ESL declined to comment. Representatives for the U.S. Department of Treasury also didn’t respond to a request for comment.
The case is Sears Holdings Corp., 18-23538, U.S. Bankruptcy Court, Southern District of New York (White Plains)