In the Matter of: TMT PROCUREMENT CORPORATION; A WHALE CORPORATION; B WHALE CORPORATION; C WHALE CORPORATION; D WHALE CORPORATION; E WHALE CORPORATION; G WHALE CORPORATION; H WHALE CORPORATION; A DUCKLING CORPORATION; F ELEPHANT INCORPORATED; A LADYBUG CORPORATION; C LADYBUG CORPORATION; D LADYBUG CORPORATION; A HANDY CORPORATION; B HANDY CORPORATION; C HANDY CORPORATION; B MAX CORPORATION; NEW FLAGSHIP INVESTMENT COMPANY LIMITED; RORO LINE CORPORATION; UGLY DUCKLING HOLDING CORPORATION; GREAT ELEPHANT CORPORATION, Debtors; TMT PROCUREMENT CORPORATION; A WHALE CORPORATION; B WHALE CORPORATION; C WHALE CORPORATION; D WHALE CORPORATION; E WHALE CORPORATION; G WHALE CORPORATION; H WHALE CORPORATION; A DUCKLING CORPORATION; F ELEPHANT INCORPORATED; A LADYBUG CORPORATION; C LADYBUG CORPORATION; D LADYBUG CORPORATION; A HANDY CORPORATION; B HANDY CORPORATION; C HANDY CORPORATION; B MAX CORPORATION; NEW FLAGSHIP INVESTMENT COMPANY LIMITED; RORO LINE CORPORATION; UGLY DUCKLING HOLDING CORPORATION; GREAT ELEPHANT CORPORATION, Appellees
VANTAGE DRILLING COMPANY, Appellant
[Copyrighted Material Omitted]
Appeals from the United States District Court for the Southern District of Texas and the United States Bankruptcy Court for the Southern District of Texas.
For Tmt Procurement Corporation, A Whale Corporation, B Whale Corporation, C Whale Corporation, D Whale Corporation, E Whale Corporation, G Whale Corporation, H Whale Corporation, A Duckling Corporation, F Elephant Incorporated, A Ladybug Corporation, C Ladybug Corporation, D Ladybug Corporation, A Handy Corporation, B Handy Corporation, C Handy Corporation, B Max Corporation, New Flagship Investment Company Limited, Roro Line Corporation, Ugly Duckling Holding Corporation, Great Elephant Corporation (13-20622, 13-20715), Appellees: Evan Daniel Flaschen, Ilia M. O'Hearn, Bracewell & Giuliani, L.L.P., Hartford, CT; Jason G. Cohen, William Alfred Wood III, Bracewell & Giuliani, L.L.P., Houston, TX.
For Vantage Drilling Company (13-20622, 13-20715), Appellant: William Richard Greendyke, Robert Andrew Black, Jason Lee Boland, Esq., Fulbright & Jaworski LLP, Houston, TX; Robin C. Gibbs, Gibbs & Bruns, L.L.P., Houston, TX; Vidal Gregory Martinez, Martinez Partners, L.L.P., Houston, TX.
Before HIGGINBOTHAM, DAVIS, and HAYNES, Circuit Judges.
Vantage Drilling Company (" Vantage" ) appeals three orders from the district court and two orders from the bankruptcy court. The orders were entered during the course of the Chapter 11 proceedings of twenty-one shipping companies. Their combined effect was to place certain shares of Vantage stock in custodia legis with the clerk of the court. Because we find that both courts below lacked subject-matter jurisdiction, we VACATE and REMAND.
In 2012, Vantage, an offshore drilling company, brought an action in Texas state court against Hsin-Chi Su, also known as Nobu Su, alleging breach of fiduciary duty, fraud, fraudulent inducement, negligent misrepresentation, and unjust enrichment (the " Vantage Litigation" ). In its original petition, Vantage alleged that Su made material misrepresentations to induce Vantage to contract with companies controlled by Su for the acquisition of certain offshore drilling rigs and drillships. Vantage alleges that, in exchange, it issued approximately 100 million shares of Vantage stock to F3 Capital, an entity solely owned and wholly controlled by Su, and granted Su three seats on Vantage's board of directors, including a seat for himself. According to Vantage, the subsequent disclosure of Su's misrepresentations placed Vantage in severe financial duress, threatening its ability to obtain necessary financing
and its ability to perform on several critical contracts. Vantage alleges that Su leveraged Vantage's financial crisis to extract additional Vantage stock and other benefits. Among other relief, Vantage sought a " [j]udgment imposing a constructive trust upon all profits or benefits, direct or indirect, obtained by Su."
Su removed the Vantage Litigation pursuant to 28 U.S.C. § 1446 to the United States District Court for the Southern District of Texas, alleging diversity jurisdiction. Vantage moved to remand, which the district court denied. On appeal, this Court reversed and remanded the Vantage Litigation to the district court with instructions to remand the case to state court.
Meanwhile, in 2013, twenty-three foreign marine shipping companies, each owned directly or indirectly by Su, filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas. Certain creditors of the shipping companies moved to dismiss the bankruptcy actions, arguing, among other things, that: (a) the shipping companies had filed the petitions in bad faith to delay or withhold any recovery by the creditors; (b) the shipping companies had manufactured jurisdiction to stay the creditors' collection efforts; and (c) there was not a reasonable likelihood of rehabilitating the shipping companies.
The bankruptcy court held an evidentiary hearing on the motion to dismiss. At the hearing, Su offered to place approximately 25 million shares of Vantage stock held by F3 Capital into an escrow to be administered by the bankruptcy court to secure the shipping companies' compliance with court orders and to serve as collateral for post-petition borrowing or working capital. The bankruptcy court denied the motion to dismiss, except with respect to F Elephant Corporation and TMT USA Shipmanagement LLC. In its order (the " Dismissal Order" ), the bankruptcy court ordered that the twenty-one remaining shipping companies (the " Debtors" ) " must cause non-estate property (the 'Good Faith Property') with a fair market value of $40,750,000 to be provided to the Estates," and that, if the Good Faith Property was not provided in cash, then it " must include at least 25,000,000 shares of the common stock of" Vantage. The bankruptcy court provided that the Good Faith Property would be used to, among other things: (a) ensure compliance with court orders; (b) pay sanctions; (c) serve as collateral for working capital loans; and (d) satisfy any amounts arising under § 507(b) of the Bankruptcy Code.
The Debtors moved the bankruptcy court to approve a proposed escrow agreement, by which F3 Capital would deposit 25 million shares of Vantage stock with the clerk of the court to be held in custodia legis for the benefit of the Debtors. In that motion, F3 Capital and Su represented and warranted that they could " enter into the Share Escrow Agreement and deliver the Good Faith Property to the Court without violating any requirements of, or injunctive relief granted in, the [Vantage Litigation]."
Vantage responded in two ways. First, Vantage filed an application for a preliminary injunction with the district court in the Vantage Litigation, requesting that Su be enjoined from " transferring, selling, pledging or otherwise encumbering any of the Vantage stock . . . obtained as a result of his fraud and breaches of fiduciary duty to [Vantage], including by placing the shares into escrow to serve as collateral in an unrelated bankruptcy recently initiated by twenty-three insolvent foreign companies that are wholly-owned and controlled by Su."  In response, the district court entered an order in which it stated: (a) " [c]omplaints about the encumbrance of [Vantage's] stock arising out of the bankruptcy must be addressed to the bankruptcy court," and (b) Su " may not otherwise sell, transfer, pledge, or encumber his Vantage stock without court permission." 
Second, Vantage also appeared as a " party in interest" before the bankruptcy court and opposed the Debtors' motion to approve the proposed escrow agreement. The bankruptcy court held a hearing on the Debtors' motion, at which it concluded that:
[T]he shares owned by F3 Capital are not subject to a constructive trust as a matter of law and, therefore, may be placed in custodia legis without complaint by any other party who has claimed ownership of the shares. . . .
. . . .
I find that this is a due process issue and that an entity that is not a party to a lawsuit, which is the situation with F3 Capital in [the Vantage Litigation], may not be deprived of its property in a suit in which, (a) it is not a party, and (b) it received the assets prior to the commencement of the lawsuit.
The bankruptcy court entered an order (the " Escrow Order" ) in which, among other things, it: (a) authorized the deposit of 25,107,142 shares of Vantage stock with the clerk of the court in custodia legis ; (b) provided that the deposited shares of Vantage stock would be used for the same reasons enumerated in the Dismissal Order; (c) required F3 Capital to deposit an additional 900,000 shares of Vantage stock; (d) provided that F3 Capital would retain its voting rights in the deposited shares of Vantage stock; and (e) required F3 Capital to transfer to the Debtors " all of its interests in any chose of action arising against [Vantage], its officers, ...