The owner of Sears promised to pay out tens of millions of dollars in severance to employees who lost their jobs. Now he wants to get out of it.
Former Sears Holdings chairman and CEO Eddie Lampert — who bought the remains of the bankrupt company earlier this year — is threatening not to make $43 million in pension payments to thousands of workers who have lost their jobs over the last year in multiple rounds of store closings.
Lampert disclosed that plan in court documents filed recently, the existence of which were first reported late Tuesday.
Lampert also denied that he is responsible for making some payments to creditors he says Sears Holdings is trying to force him to pay, according to the filing. Sears Holdings is the bankrupt remnants of the old Sears. It exists only to settle claims against it involving its few remaining assets.
Lampert had previously agreed to pay the severance to workers who lost their jobs before and during Sears’ bankruptcy. Creditors objected to Sears paying severance to people laid off before the bankruptcy, so those workers never received an exit package.
Lampert’s attorneys told the bankruptcy court that Lampert and his hedge fund ESL were the best owners to help workers who lost their jobs in various rounds of store closings.
But in the latest court documents, ESL said it wouldn’t make the severance payments because Sears didn’t give the hedge fund all of the assets it spelled out in ESL and Lampert’s agreement to buy Sears. That included the amount of store inventory originally promised by Sears, as well as the company’s headquarters in suburban Chicago.
“Because of these shortfalls, [ESL] believes it has no obligation to assume $43 million in severance,” the firm’s lawyers argued in a recent filing.
Sears Holdings, meanwhile, filed a motion with the court Tuesday arguing that ESL is not due any additional assets under terms of the sale.
The latest developments came just ahead of a Wednesday bankruptcy court hearing involving the retailer. The dispute between Lampert’s firm and Sears was alluded to just briefly in court.
“We do have a number of disputes about the plan, but we will put those to the side right now,” said Sean O’Neal, an attorney for ESL.
The dispute is part of a broader, continuing battle between ESL and the other parties in the bankruptcy case.
“This is all a part of a bigger negotiation. It’s all about leverage,” said Sarah Foss, legal analyst at Debtwire.
United for Respect, which advocates on behalf of Sears workers and other retail employees, said Wednesday that it was wrong for Lampert not to pay the promised severance.
“Sears wouldn’t be in this case right now if not for the asset stripping Eddie Lampert has put people through,” said Lily Wang, deputy campaign director for the group.
ESL agreed to buy the most valuable assets of Sears and Kmart for $5.2 billion in February. That gave the company a new lease on life, but legal problems remain.
In addition to the bankruptcy case, Sears Holdings has filed a separate lawsuit against Lampert and ESL. Sears Holdings claims that during the years Lampert ran Sears, he made deals to loan the company money, only to strip it of its most valuable assets. Lampert and ESL deny that charge, arguing the loans were made only to give the company a financial lifeline it needed to survive.