TMT Procurement Corp. v. Vantage Drilling Co. (In Re TMT Procurement Corp.)
764 F.3d 512
5th Cir.2014Background
- Vantage Drilling sued Su (Nobu Su / F3 Capital) in Texas state court alleging fraud and seeking, among other relief, constructive trust over ~100 million Vantage shares F3 obtained. Su removed; removal was later reversed and remanded to state court.
- Twenty‑three foreign shipping companies owned by Su filed Chapter 11 in Southern District of Texas; creditors moved to dismiss as bad‑faith filings.
- At hearings, Su/F3 offered ~25 million Vantage shares as "good faith property" to secure the Debtors; the bankruptcy court ordered deposit of those shares in custodia legis and required additional shares.
- The district court (after withdrawing the reference) authorized interim and final DIP financing that granted the DIP lender first‑priority liens on the deposited Vantage shares and ordered additional shares deposited; orders also protected the DIP lender under §§ 363(m)/364(e).
- Vantage appealed multiple bankruptcy and district‑court orders. The Fifth Circuit consolidated direct appeals and considered (1) statutory mootness under §§ 363(m)/364(e), (2) whether the DIP lender acted in good faith, and (3) whether the courts had subject‑matter jurisdiction over the Vantage shares and the Vantage Litigation.
Issues
| Issue | Plaintiff's Argument (Vantage) | Defendant's Argument (Debtors / DIP Lender) | Held |
|---|---|---|---|
| Whether appeals are statutorily moot under 11 U.S.C. § 363(m) and § 364(e) | § 363/364 mootness shouldn't apply because DIP lender lacked good faith and no stay was obtained | Appeals are moot because orders were not stayed and DIP lender acted in good faith | Not moot — DIP lender was not in good faith because it had notice of an adverse claim |
| Whether DIP lender acted in "good faith" under §§ 363(m)/364(e) | DIP lender had notice of Vantage's adverse claim and thus is not a good‑faith purchaser/lender | Good faith exists; knowledge of objections alone does not destroy good faith | DIP lender lacked good faith: knowledge of an unrelated third party's adverse claim defeats protection |
| Whether the Vantage shares are "property of the estate" under 11 U.S.C. § 541 | Shares are not estate property: F3 retained title and voting; deposit/custodia legis does not create estate property; § 541(a)(7) limited to interests traceable to estate property | Debtors argue they acquired an interest postpetition (e.g., as collateral) and statute covers interests acquired after commencement | Vantage shares are NOT property of the estate; § 541(a)(7) limited to interests traceable to estate property; courts cannot bootstrap jurisdiction by orders |
| Whether bankruptcy/district courts had "related to" jurisdiction over the Vantage Litigation | Vantage Litigation between non‑debtors over non‑estate property is not related to the bankruptcies and cannot conceivably affect the estates | Debtors argue proceedings touch core estate matters (administration, credit, cash collateral) and thus are within jurisdiction | No related‑to jurisdiction: the Vantage Litigation would not conceivably affect the Debtors’ estates; orders interfering with Vantage's rights were beyond jurisdiction |
Key Cases Cited
- Vantage Drilling Co. v. Su, 741 F.3d 535 (5th Cir. 2014) (prior appellate disposition of Vantage removal)
- Celotex Corp. v. Edwards, 514 U.S. 300 (1995) (limits on bankruptcy "bootstrap" jurisdiction and scope of related‑to jurisdiction)
- In re McLain, 516 F.3d 301 (5th Cir. 2008) (interpretation of § 541(a)(7) as tied to property traceable to the estate)
- In re Wood, 825 F.2d 90 (5th Cir. 1987) (distinguishing core vs. non‑core proceedings and related‑to jurisdiction)
- In re Querner, 7 F.3d 1199 (5th Cir. 1993) (bankruptcy subject‑matter jurisdiction principles)
- Hardage v. Herring Nat’l Bank, 837 F.2d 1319 (5th Cir. 1988) (definition of a good‑faith purchaser under § 363(m))
Decision: The Fifth Circuit held the statutory mootness provisions do not bar Vantage's appeals (DIP lender lacked good faith), concluded the Vantage shares were not property of the estate, and held the bankruptcy and district courts lacked subject‑matter jurisdiction to enter the challenged orders — vacating and remanding the orders.