      Case: 13-20622          Document: 00512755251     Page: 1    Date Filed: 09/03/2014




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT   United States Court of Appeals
                                                     Fifth Circuit

                                                                              FILED
                                                                         September 3, 2014
                                           No. 13-20622
                                  Consolidated with No. 13-20715            Lyle W. Cayce
                                                                                 Clerk


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
v.

VANTAGE DRILLING COMPANY,

                                                   Appellant
    Case: 13-20622   Document: 00512755251     Page: 2   Date Filed: 09/03/2014



                                No. 13-20622
                              c/w No. 13-20715



               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


Before HIGGINBOTHAM, DAVIS, and HAYNES, Circuit Judges.
PER CURIAM:
     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.
                                      I
                                      A
     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
                                      2
       Case: 13-20622     Document: 00512755251         Page: 3    Date Filed: 09/03/2014



                                      No. 13-20622
                                    c/w No. 13-20715
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. 1 Vantage moved to remand, which the district court
denied. 2 On appeal, this Court reversed and remanded the Vantage Litigation
to the district court with instructions to remand the case to state court. 3
                                             B
        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. 4 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



        1See Notice of Removal, Vantage Drilling Co. v. Su, No. 4:12-CV-03131 (S.D. Tex. Oct.
22, 2012), Dkt. No. 1.
       2 See Opinion on Remand, Vantage Drilling Co. v. Su, No. 4:12-CV-03131 (S.D. Tex.

Apr. 3, 2013), Dkt. No. 43.
       3 Vantage Drilling Co. v. Su, 741 F.3d 535, 539 (5th Cir. 2014).
       4 The shipping companies were: (1) A Whale Corporation; (2) B Whale Corporation; (3)

C Whale Corporation; (4) D Whale Corporation; (5) E Whale Corporation; (6) G Whale
Corporation; (7) H Whale Corporation; (8) A Duckling Corporation; (9) F Elephant
Corporation; (10) F Elephant Inc.; (11) A Ladybug Corporation; (12) C Ladybug Corporation;
(13) D Ladybug Corporation; (14) A Handy Corporation; (15) B Handy Corporation; (16) C
Handy Corporation; (17) B Max Corporation; (18) New Flagship Investment Co., Ltd.; (19)
RoRo Line Corporation; (20) Ugly Duckling Holding Corporation; (21) Great Elephant
Corporation; (22) TMT Procurement Corporation; and (23) TMT USA Shipmanagement LLC.
                                             3
    Case: 13-20622        Document: 00512755251        Page: 4   Date Filed: 09/03/2014



                                      No. 13-20622
                                    c/w No. 13-20715
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. 5 In that motion, F3 Capital and Su represented and warranted
that they could “enter into the Share Escrow Agreement and deliver the Good



      5   The Debtors later filed an amended motion.
                                             4
     Case: 13-20622      Document: 00512755251        Page: 5     Date Filed: 09/03/2014



                                     No. 13-20622
                                   c/w No. 13-20715
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.” 6 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.” 7
      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

      6  Vantage Drilling Co.’s Application for Preliminary Injunction and Motion for
Expedited Discovery at 1, Vantage Drilling Co. v. Su, No. 4:12-cv-03131 (S.D. Tex. Aug. 14,
2013), Dkt. No. 75.
       7 Order on Stock Encumbrance at 1, Vantage Drilling Co. v. Su, No. 4:12-cv-03131

(S.D. Tex. Aug. 14, 2013), Dkt. No. 79.
                                            5
    Case: 13-20622    Document: 00512755251       Page: 6   Date Filed: 09/03/2014



                                  No. 13-20622
                                c/w No. 13-20715
            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, agents or directors.” Vantage
filed an interlocutory appeal of the Escrow Order with the United States
District Court for the Southern District of Texas.
                                        C
      The district court withdrew the reference to the bankruptcy court and
denied leave to appeal. It then set a hearing to reconsider, among other issues,
Vantage’s objections to the Escrow Order. Before the hearing, the Debtors filed
an emergency motion in which they requested permission to borrow up to $20
million in post-petition financing (the “DIP Facility”), including up to $6
million on an interim basis pursuant to an attached term sheet. The district
court approved in principle the emergency motion and entered an order (the
“Interim DIP Order”), which authorized an initial loan of $6 million under the
DIP Facility. The Interim DIP Order granted Macquarie Bank Limited (the
“DIP Lender”) a first priority lien and security interest in the deposited shares
of Vantage stock.    The Interim DIP Order further provided that the DIP
Lender’s interests in the deposited shares of Vantage stock “shall not be
                                        6
    Case: 13-20622        Document: 00512755251           Page: 7   Date Filed: 09/03/2014



                                      No. 13-20622
                                    c/w No. 13-20715
withdrawn, modified, abridged, compromised, stayed, reprioritized or
otherwise affected in any matter by any subsequent order [of] the Bankruptcy
Court . . . in the Chapter 11 [actions] or that [the District Court] might enter
in either the Chapter 11 [actions] or in [the Vantage Litigation].” It also
provided that the DIP Lender had extended financing to the Debtors in good
faith and was entitled to “the full protections of sections 363(m) and 364(e) of
the Bankruptcy Code.” It further ordered that “[i]f any or all of the provisions
of [the Interim DIP Order] are hereafter reversed, modified, vacated or stayed,
that action will not affect . . . the validity and enforceability of any lien . . .
authorized or created hereby or pursuant to [the term sheet], including . . . the
special provisions concerning [the deposited shares of Vantage stock].”
      The next day, the district court entered an order (the “DIP Addendum”),
in which it ordered F3 Capital to deposit an additional 4 million shares of
Vantage stock (together with the 25,107,142 shares of Vantage stock originally
deposited, the “Vantage Shares”) with the clerk of the court to be held in
custodia legis.      The district court also entered another order (the “Order
Affirming Escrow”), which provided that the Vantage Shares would “remain
under the control” of the bankruptcy court. The district court then re-referred
the action to the bankruptcy court.           Vantage timely appealed these three
district court orders to this Court. 8
                                             D
      After holding hearings, the bankruptcy court entered two orders (the
“Final DIP Order” and the “Cash Collateral Order”) over the objections of
Vantage. The Final DIP Order approved the remaining $14 million in post-
petition financing under the DIP Facility requested by the Debtors on terms



      8   The appeal was filed under Case No. 13-20622.
                                             7
    Case: 13-20622      Document: 00512755251        Page: 8    Date Filed: 09/03/2014



                                    No. 13-20622
                                  c/w No. 13-20715
substantially identical to those memorialized in the Interim DIP Order. Like
the Interim DIP Order, the Final DIP Order granted the DIP Lender a first
priority lien and security interest in the Vantage Shares. The Final DIP Order
also provided that the “DIP Lender [was] extending financing to the [Debtors]
in good faith and in express reliance upon the protections afforded by sections
363(m) and 364(e) of the Bankruptcy Code and the DIP Lender is entitled to
the benefits of the provisions of sections 363(m) and 364(e) of the Bankruptcy
Code.” 9 The Cash Collateral Order granted the Debtors’ pre-petition lenders a
first priority lien in the 4 million shares of Vantage stock deposited pursuant
to the DIP Addendum “to secure any rights, claims or grants that were given
to the [pre-petition lenders] in any prior order” of the bankruptcy court. Among
other things, it also provided that “[a]ny rights in [the Vantage Shares] are
fully subordinated to the rights granted in [the Final DIP Order] to the DIP
Lender.”
      Vantage timely appealed these two bankruptcy court orders.                    The
bankruptcy court certified the appeal for direct review by this Court. This
Court accepted that direct appeal 10 and consolidated it with the prior pending
appeal of the district court orders.
                                           II
      In reviewing the rulings of the bankruptcy court on direct appeal and the
district court sitting in bankruptcy, we review findings of fact for clear error




      9  The bankruptcy court also reiterated its finding twice that the DIP Lender had
negotiated in good faith and “should be deemed a good faith lender in accordance with the
Bankruptcy Code” on the record at the hearing.
       10 The appeal was filed under Case No. 13-20715.

                                           8
     Case: 13-20622      Document: 00512755251         Page: 9    Date Filed: 09/03/2014



                                     No. 13-20622
                                   c/w No. 13-20715
and conclusions of law de novo. 11 We review mixed questions of law and fact
de novo. 12
                                            III
       The Debtors assert that Vantage’s appeal of all the orders is moot under
11 U.S.C. § 363(m) and 11 U.S.C. § 364(e). The Bankruptcy Code contains
statutory mootness provisions in § 363(m) and § 364(e).                  Section 363(m)
provides:
              The reversal or modification on appeal of an
              authorization under subsection (b) or (c) of this section
              of a sale or lease of property does not affect the validity
              of a sale or lease under such authorization to an entity
              that purchased or leased such property in good faith,
              whether or not such entity knew of the pendency of the
              appeal, unless such authorization and such sale or
              lease were stayed pending appeal. 13

Section 364(e) provides:
              The reversal or modification on appeal of an
              authorization under this section to obtain credit or
              incur debt, or of a grant under this section of a priority
              or a lien, does not affect the validity of any debt so
              incurred, or any priority or lien so granted, to an entity
              that extended such credit in good faith, whether or not
              such entity knew of the pendency of the appeal, unless
              such authorization and the incurring of such debt, or
              the granting of such priority or lien, were stayed
              pending appeal. 14




       11 See In re Vitro S.A.B. de CV, 701 F.3d 1031, 1042 (5th Cir. 2012); In re Martinez,
564 F.3d 719, 725–26 (5th Cir. 2009).
       12 In re ASARCO, L.L.C., 702 F.3d 250, 257 (5th Cir. 2012).
       13 11 U.S.C. § 363(m).
       14 Id. § 364(e).

                                             9
    Case: 13-20622         Document: 00512755251            Page: 10      Date Filed: 09/03/2014



                                         No. 13-20622
                                       c/w No. 13-20715
As noted by the Ninth Circuit, § 364(e) was modeled after § 363(m). 15 A failure
to obtain a stay of an authorization under these sections moots an appeal of
that authorization where the purchaser or lender acted in good faith. 16 It is
undisputed that Vantage did not seek or obtain a stay of any of the orders.
Vantage argues that this appeal is not statutorily moot for several reasons.
       We begin first with Vantage’s assertion that the appeal is not moot under
either § 363(m) or § 364(e) because § 363 and § 364 only authorize actions in
connection with “property of the estate,” 17 and the Vantage Shares are not
“property of the estate.”          This is essentially a statutory attack, but with
undertones of subject-matter jurisdiction. This is because whether something
is “property of the estate” is an inquiry also relevant to determining subject-
matter jurisdiction. 18 Consistent with our precedent, we do not reach the issue
of whether the Vantage Shares are “property of the estate” before deciding the
statutory mootness issue because of Vantage’s failure to obtain a stay pending
appeal. 19 For the same reason, even though Vantage raises a challenge to
subject-matter jurisdiction, we do not reach that issue before deciding the
statutory mootness issue. 20




       15 In re Adams Apple, Inc., 829 F.2d 1484, 1489 (9th Cir. 1987).
       16  See In re Pac. Lumber Co., 584 F.3d 229, 240 n.15 (5th Cir. 2009); In re Gilchrist,
891 F.2d 559, 560–61 (5th Cir. 1990); In re First S. Sav. Ass’n, 820 F.2d 700, 704 (5th Cir.
1987).
       17 See 11 U.S.C. § 363(b)(1) (“The trustee . . . may use, sell, or lease . . . property of the

estate . . . .”); Id. § 364(c) (“[T]he trustee . . . may authorize the obtaining of credit or the
incurring of debt . . . secured by a lien on property of the estate . . . or secured by a junior lien
on property of the estate . . . .”).
       18 See infra Part IV(B).
       19 See In re Gilchrist, 891 F.2d 559, 561 (5th Cir. 1990); In re Ginther Trusts, 238 F.3d

686, 689 (5th Cir. 2001).
       20 See In re Gilchrist, 891 F.2d at 561; In re Ginther Trusts, 238 F.3d at 689.

                                                10
    Case: 13-20622        Document: 00512755251          Page: 11      Date Filed: 09/03/2014



                                       No. 13-20622
                                     c/w No. 13-20715
       We next turn to Vantage’s argument that the appeal is not moot under
either § 363(m) or § 364(e) because the DIP Lender did not act in “good faith.” 21
The Debtors contend that we should not reach the issue of “good faith” because
Vantage failed to contest that issue below and is only raising it for the first
time on appeal. “It is well established that we do not consider arguments or
claims not presented to the bankruptcy court.” 22                 Vantage argues that it
sufficiently raised the issue before the courts below by repeatedly asserting
that F3 Capital had fraudulently obtained the Vantage Shares; Vantage had
an adverse claim to the Vantage Shares; and Vantage’s right to assert a
constructive trust over the Vantage Shares would survive any attempt to
pledge, sell, or transfer the Vantage Shares to a purchaser or lender who was
on notice of Vantage’s adverse claim, including the DIP Lender. We agree.
Vantage sufficiently raised the issue of the DIP Lender’s “good faith” so as to
pursue this issue on appeal. Therefore, we must determine whether the DIP
Lender acted in “good faith” within the meaning of § 363(m) and § 364(e).
       The proponent of “good faith” bears the burden of proof. 23 Both the
district court sitting in bankruptcy and the bankruptcy court held that the DIP
Lender was acting in good faith. Whether a determination by a lower court



       21  Because we find Vantage’s “good faith” argument persuasive, we do not address the
two additional reasons offered against mootness. First, Vantage argues that only the Interim
DIP Order and the Final DIP Order refer to § 363(m) or § 364(e); authorize post-petition
financing; or contain an explicit finding of “good faith.” Because the Order Affirming Escrow,
the DIP Addendum, and the Cash Collateral Order do not refer to § 363(m) or § 364(e), do
not authorize a sale, lease, or post-petition financing, and do not contain an explicit finding
of “good faith,” Vantage argues that the appeal is not moot as to these orders. Second,
Vantage asserts that the protections enumerated in § 363(m) do not apply because none of
the orders authorizes “a sale or lease of property” pursuant to § 363.
        22 In re Gilchrist, 891 F.2d at 561 (refusing to address the appellant’s challenge to the

buyer’s good faith under § 363(m) because it had not been raised before the bankruptcy court);
see also In re Ginther Trusts, 238 F.3d 686, 689 (5th Cir. 2001).
        23 In re M Capital Corp., 290 B.R. 743, 747 (B.A.P. 9th Cir. 2003).

                                              11
    Case: 13-20622        Document: 00512755251          Page: 12      Date Filed: 09/03/2014



                                       No. 13-20622
                                     c/w No. 13-20715
that a party acted in “good faith” should be review de novo or under clear error
is a matter of some confusion in our circuit. 24 However, under either standard
of review, we find that the determination of good faith does not pass muster.
       The Bankruptcy Code does not explicitly define “good faith.” In the
context of § 363(m), we have defined the term in two ways. On the one hand,
we have defined a “good faith purchaser” as “one who purchases the assets for
value, in good faith, and without notice of adverse claims.” 25 On the other hand,
we have noted that “the misconduct that would destroy a purchaser’s good faith
status . . . involves fraud, collusion between the purchaser and other bidders
or the trustee, or an attempt to take grossly unfair advantage of other
bidders.” 26 Here, there is no suggestion of fraud, collusion, or an attempt to
take grossly unfair advantage by the DIP Lender. Rather, Vantage only argues
that the DIP Lender was on notice of Vantage’s adverse claim to the Vantage
Shares.
       Before we turn to whether the DIP Lender had notice of an adverse
claim, however, we must address a threshold argument.                       Essentially, the


       24  On the one hand, we have stated that when a district court hearing a bankruptcy
appeal dismisses an appeal from the bankruptcy court as moot, we review that dismissal de
novo. In re Ginther Trusts, 238 F.3d at 688. Similarly, the Sixth Circuit has held that “good
faith” is a mixed question of law and fact. In re Revco D.S., Inc., 901 F.2d 1359, 1366 (6th
Cir. 1990) (reviewing finding of “good faith” under § 364(e)). This would suggest that the
good faith determinations by the lower courts are subject to a de novo determination. On the
other hand, we have previously reviewed a bankruptcy court’s “good faith” determination
under § 363(m) for clear error. In re Beach Dev. LP, No. 07-20350, 2008 WL 2325647, at *2
(5th Cir. Jun. 6, 2008). District courts in our circuit have done the same. In re Camp
Arrowhead, Ltd., 429 B.R. 546, 550–52 (W.D. Tex. 2010).
        25 Hardage v. Herring Nat’l Bank, 837 F.2d 1319, 1323 (5th Cir. 1988) (quoting In re

Willemain, 764 F.2d 1019, 1023 (4th Cir. 1985)); see also SEC v. Janvey, 404 F. App’x 912,
916 (5th Cir. 2010) (applying the “good faith” standard set forth in Hardage); see also
Jeremiah v. Richardson, 148 F.3d 17, 23 (1st Cir. 1998) (“A ‘good faith’ purchaser is one who
buys property in good faith and for value, without knowledge of adverse claims.” (internal
quotation marks omitted) (emphasis in original)).
        26 In re Bleaufontaine, Inc., 634 F.2d 1383, 1388 n.7 (5th Cir. 1981) (quoting In re Rock

Indus. Mach. Corp., 572 F.2d 1195, 1198 (7th Cir. 1978)).
                                              12
    Case: 13-20622       Document: 00512755251          Page: 13     Date Filed: 09/03/2014



                                      No. 13-20622
                                    c/w No. 13-20715
Debtors want us to discard one of the definitions of “good faith.” The Debtors
argue that knowledge of an adverse claim should not preclude a finding of
“good faith” because this requirement would undermine the purposes of §
363(m) and § 364(e). We acknowledge that there is some power in this
argument. The purpose of § 363(m)’s stay requirement “is in furtherance of
the policy of not only affording finality to the judgment of the bankruptcy court,
but particularly to give finality to those orders and judgments upon which third
parties rely.” 27 Similarly, the purpose of § 364(e) is “to overcome a good faith
lender’s reluctance to extend financing in a bankruptcy context by permitting
reliance on a bankruptcy judge’s authorization.” 28 Thus, both § 363(m) and
§ 364(e) contemplate situations where the good faith purchaser or lender has
knowledge of the pendency of an appeal. Yet the good faith purchaser or lender
“does not forfeit the protections of the statute,” “even though such knowledge
implies the further knowledge that there are objections to the order.” 29 “[I]t is
clear as we have said that knowledge that there are objections to the
transaction is not enough to constitute bad faith.” 30 We do not disagree with
this accent on the meaning of “good faith.” But we think it is irrelevant here.
There is a difference, as demonstrated by this case, between simply having
knowledge that there are objections to the transaction and having knowledge
of an adverse claim.        Having knowledge that there are objections to the
transaction usually involves those situations in which “some creditor is
objecting to the transaction and is trying to get the district court or the court



       27 In re Sax, 796 F.2d 994, 998 (7th Cir. 1986) (internal quotation marks omitted).
       28 In re Adams Apple, 829 F.2d at 1488; see also In re W. Pac. Airlines, Inc., 181 F.3d
1191, 1195 (10th Cir. 1999); In re Saybrook Mfg. Co., 963 F.2d 1490, 1493 (11th Cir. 1992);
In re EDC Holding Co., 676 F.2d 945, 947 (7th Cir. 1982).
       29 In re EDC Holding Co., 676 F.2d at 947.
       30 Id.

                                             13
    Case: 13-20622       Document: 00512755251          Page: 14     Date Filed: 09/03/2014



                                       No. 13-20622
                                     c/w No. 13-20715
of appeals to reverse the bankruptcy judge.” 31 Having knowledge of an adverse
claim requires something more. That is why the former does not preclude a
finding of good faith, whereas the latter does.                 Here, the DIP Lender’s
knowledge was not simply limited to objections by creditors of the Debtors. The
DIP Lender had knowledge that a third-party, entirely unrelated to the
bankruptcy proceedings, had an adverse claim to the Vantage Shares. On
these facts, the DIP Lender does not qualify as a good faith purchaser or lender.
To our eyes, both definitions have to be applied. 32
       We turn our attention, then, to whether the DIP Lender had notice of an
adverse claim. The Bankruptcy Code does not provide a definition of “adverse
claim.” But it defines “claim” broadly to include a right to payment or a right
to equitable remedy. 33 The Debtors assert that there was no “adverse claim”
because F3 Capital, the owner of the Vantage Shares, was not a named
defendant in the Vantage Litigation. But Vantage instituted the Vantage
Litigation to, among other things, recover the Vantage Shares and has
repeatedly asserted before the bankruptcy court and the district court that F3
Capital had fraudulently obtained the Vantage Shares and that Vantage had
an adverse claim to the Vantage Shares. We find that this was enough: the
DIP Lender had adequate notice of the adverse claim, and the DIP Lender does



       31  Id.
       32   See In re Rock Indus. Mach. Corp., 572 F.2d at 1197–98 (defining “good faith
purchaser” as “one who purchases the assets for value, in good faith, and without notice of
adverse claims” while also noting that “the misconduct that would destroy a purchaser’s good
faith status at a judicial sale involves fraud, collusion between the purchaser and other
bidders or the trustee, or an attempt to take grossly unfair advantage of other bidders”).
        33 11 U.S.C. § 101(5). A claim means a “right to payment, whether or not such right

is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured, or unsecured.” Id. Similarly, a claim means
“right to an equitable remedy for breach of performance if such breach gives rise to a right to
payment, whether or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured, unmatured, disputed, undisputed, secured, or unsecured.” Id.
                                             14
    Case: 13-20622       Document: 00512755251          Page: 15     Date Filed: 09/03/2014



                                       No. 13-20622
                                     c/w No. 13-20715
not come within the meaning of “good faith” as envisioned by § 363(m) and §
364(e). The statutory mootness provisions are not applicable here, and Vantage
may challenge the orders issued by the bankruptcy court and the district court.
                                             IV
       Vantage argues that the district court and the bankruptcy court erred in
entering the orders because they lacked subject-matter jurisdiction over both
the Vantage Shares and the Vantage Litigation. 34
                                              A
       Jurisdiction for bankruptcy cases is defined by 28 U.S.C. § 1334. 35 Under
§ 1334, district courts have exclusive jurisdiction of “all cases under title 11,” 36
including over “all the property, wherever located, of the debtor as of the
commencement of such case, and of property of the estate.” 37 Districts courts
also have “original but not exclusive jurisdiction of all civil proceedings arising
under title 11, or arising in or related to cases under title 11.” 38 The district
court can refer cases to the bankruptcy court, 39 whose jurisdiction is more
limited. 40




       34  See In re Querner, 7 F.3d 1199, 1201 (5th Cir. 1993) (“Where a federal court lacks
jurisdiction, its decisions, opinions, and orders are void.”).
        35 In re Walker, 51 F.3d 562, 568 (5th Cir. 1995).
        36 28 U.S.C. § 1334(a).
        37 28 U.S.C. § 1334(e)(1); see also Kane Enters. v. MacGregor (USA) Inc., 322 F.3d 371,

374 (5th Cir. 2003) (“The district in which a chapter 11 petition is filed has exclusive
jurisdiction over the property of the estate.”).
        38 See 28 U.S.C. § 1334(b).
        39 28 U.S.C. § 157(a).
        40 Bankruptcy judges “may hear and determine all cases under title 11 and all core

proceedings arising under title 11, or arising in a case under title 11” and “enter appropriate
orders and judgment.” 28 U.S.C. § 157(b); In re Wood, 825 F.2d 90, 95 (5th Cir. 1987). In
contrast to core proceedings, bankruptcy judges have the limited power to “hear a proceeding
that is not a core proceeding but that is otherwise related to a case under title 11” and to
“submit proposed findings of fact and conclusions of law to the district court,” subject to de
novo review. 28 U.S.C. § 157(c); In re Wood, 825 F.2d at 95.
                                             15
    Case: 13-20622      Document: 00512755251         Page: 16     Date Filed: 09/03/2014



                                     No. 13-20622
                                   c/w No. 13-20715
      Because § 1334(b) defines jurisdiction conjunctively, “a district court has
jurisdiction over the subject matter if it is at least related to the underlying
bankruptcy.” 41 A matter is “related to” the bankruptcy if “the outcome of that
proceeding could conceivably have any effect on the estate being administered
in bankruptcy.” 42
                                            B
      Vantage first asserts that the district court and the bankruptcy court
lacked jurisdiction over the Vantage Shares because they are not property of
the Debtors or “property of the estate.”
      Although the Bankruptcy Code does not define “property of the debtor,”
the meaning of the term “property of the estate” is outlined in 11 U.S.C. § 541.
Under § 541(a)(1), “property of the estate” includes “all legal or equitable
interests of the debtor in property as of the commencement of the case.” 43
Under § 541(a)(6), it includes “[p]roceeds, product, offspring, rents, or profits
from property of the estate.” 44 Finally, under § 541(a)(7), it also includes “[a]ny
interest in property that the estate acquires after the commencement of the
case.” 45 “The party seeking to include property in the estate bears the burden
of showing that the item is property of the estate.” 46
      To begin, it is undisputed that the Debtors had no legal or equitable
interest in the Vantage Shares at the commencement of the case. The Vantage
Shares thus could not have been “property of the estate” under § 541(a)(1).
Similarly, they could not be “[p]roceeds, product, offspring, rents, or profits



      41 In re Querner, 7 F.3d at 1201.
      42 In re Wood, 825 F.2d at 93.
      43 11 U.S.C. § 541(a)(1).
      44 Id. § 541(a)(6).
      45 Id. § 541(a)(7).
      46 In re Klein-Swanson, 488 B.R. 628, 633 (B.A.P. 8th Cir 2013).

                                           16
    Case: 13-20622             Document: 00512755251         Page: 17     Date Filed: 09/03/2014



                                            No. 13-20622
                                          c/w No. 13-20715
from property of the estate” under § 541(a)(6). Therefore, they could not be
considered “property of the estate” under these provisions.
          But the Debtors assert that the Vantage Shares are “property of the
estate” under § 541(a)(7) because they are “interest[s] in property that the
estate acquire[d] after the commencement of the case.”                         Specifically, the
Debtors assert that they acquired an interest in the Vantage Shares after the
Vantage Shares were deposited in custodia legis pursuant to the orders.
Vantage asserts that the Vantage Shares are not property of the estate under
§ 541(a)(7) for several reasons.
          Vantage contends that the Debtors never acquired an interest in the
Vantage Shares. “Property interests are created and defined by state law,” in
this case Texas law. 47 The Escrow Order required the Debtors to deposit “non-
estate property” with the clerk of the court. F3 Capital deposited the Vantage
Shares in custodia legis; however, F3 Capital continues to retain title to the
Vantage Shares and control their voting rights. Moreover, the deposit of the
Vantage Shares is neither a loan nor a gift. The Debtors also did not acquire
the right to control or retain the Vantage Shares. 48 As a result, Vantage argues
that the Debtors have not acquired any cognizable interest. The Debtors reply
that they acquired an interest in the Vantage Shares because they can use the
Vantage Shares as collateral to secure loans from the DIP Lender pursuant to
the Escrow Order. But Vantage correctly notes that courts have consistently



          47   In re Swift, 129 F.3d 792, 795 & n.12 (5th Cir. 1997); In re Klein-Swanson, 488 B.R.
at 633.
         See In re IFS Fin. Corp., 669 F.3d 255, 262 (5th Cir. 2012) (noting that, under Texas
          48

law, “control over funds in an account is the predominant factor in determining an account’s
ownership”); see also In re Kemp, 52 F.3d 546, 551–53 (5th Cir. 1995) (per curiam) (holding
that funds held in escrow are “property of the estate” only to the extent of the debtor’s
independent right to that property); In re Missionary Baptist Found. of Am., Inc., 792 F.2d
502, 505–06 (5th Cir. 1986) (same).
                                                  17
    Case: 13-20622        Document: 00512755251          Page: 18      Date Filed: 09/03/2014



                                       No. 13-20622
                                     c/w No. 13-20715
held that other forms of collateral do not constitute “property of the estate”
under § 541. 49 Vantage therefore asserts that the Debtors did not acquire an
interest in the Vantage Shares simply by using them as collateral to secure
lending from the DIP Lender.
       We need not decide this question of state law, however. Even assuming
arguendo that the Debtors acquired an interest, Vantage asserts that the
Vantage Shares are not property of the estate under § 541(a)(7) because that
provision is limited to property interests that are themselves traceable to
“property of the estate” or generated in the normal course of the debtor’s
business. We agree. As we previously recognized in In re McLain, 50 “Congress
enacted § 541(a)(7) to clarify its intention that § 541 be an all-embracing
definition and to ensure that property interests created with or by property of
the estate are themselves property of the estate.” 51 Other courts have adopted
similar reasoning. 52 Thus, the Vantage Shares are not “property of the estate”



       49  In re Stonebridge Techs., Inc., 430 F.3d 260, 269 (5th Cir. 2005) (per curiam) (“It is
well-established in this circuit that letters of credit and the proceeds therefrom are not
property of the debtor’s bankruptcy estate.”); see also In re Lockard, 884 F.2d 1171, 1178 (9th
Cir. 1989) (“[W]e conclude that the surety bond at issue in this case is not ‘property of the
estate,’ within the meaning of 11 U.S.C. § 541.”).
        50 516 F.3d 301 (5th Cir. 2008).
        51 Id. at 312 (internal quotation marks omitted).
        52 In re Trinity Gas Corp. (Reorganized), 242 B.R. 344, 350 (Bankr. N.D. Tex. 1999)

(“[T]he obvious purpose of § 541(a)(7) is to include property and rights which are acquired in
the estate’s normal course of business in property of the estate.”); In re Doemling, 116 B.R.
48, 50 (Bankr. W.D. Pa. 1990) (“Relatively few courts have been called upon to determine
whether a property interest which was acquired postpetition in a Chapter 11 case qualifies
as property of the estate pursuant to § 541(a)(7). The following principle can, however, be
extracted from certain of those cases: a property interest acquired postpetition during the
pendency of a Chapter 11 case qualifies as property of the estate, for purposes of § 541(a)(7),
only if said property interest is traceable to (or arises out of) some prepetition property
interest which already is included in the bankruptcy estate.”); see also Segal v. Rochelle, 382
U.S. 375, 380 (1966) (holding that whether property is included in an estate depends on
whether it “is sufficiently rooted in the pre-bankruptcy past and so little entangled with the
bankrupts’ ability to make an unencumbered fresh start”).
                                              18
    Case: 13-20622       Document: 00512755251          Page: 19     Date Filed: 09/03/2014



                                       No. 13-20622
                                     c/w No. 13-20715
under § 541(a)(7) because they were not created with or by property of the
estate, they were not acquired in the estate’s normal course of business, and
they are not traceable to or arise out of any prepetition interest included in the
bankruptcy estate.
       The Debtors do not assert that they have an interest in the Vantage
Shares that was created with or by other “property of the estate” or that arose
in the normal course of business. But they assert that these tracing limitations
apply to individual debtors in Chapter 7 or Chapter 11 bankruptcies, not to
corporate debtors in Chapter 11 bankruptcies.                  For corporate debtors in
Chapter 11 bankruptcies, the Debtors assert that § 541(a)(7) covers ““[a]ny
interest in property that the estate acquires after the commencement of the
case.” 53 But the Debtors cite no case standing for the proposition that these
restrictions on the application § 541(a)(7) do not apply to the estate of a
corporate debtor in a Chapter 11 proceeding, and we refuse to adopt such a
holding.
       Finally, Vantage points out that the Debtors cannot rely on the orders as
the means by which the Vantage Shares became “property of the estate”
because the bankruptcy court and the district court had no authority to issue
the orders unless the Vantage Shares were already “property of the estate.”
The bankruptcy court and the district court could not manufacture in rem
jurisdiction over the Vantage Shares by issuing orders purporting to vest the
Debtors with a post-petition interest in the Vantage Shares. 54 We agree. The


       53 11 U.S.C. § 541(a)(7) (emphasis added).
       54 See Celotex Corp. v. Edwards, 514 U.S. 300, 327 (1995) (holding that a bankruptcy
court could not use “jurisdictional bootstrap[s]” to “exercise jurisdiction that would not
otherwise exist”); In re Guild & Gallery Plus, Inc., 72 F.3d 1171, 1182 (3d Cir. 1996) (holding
that a consent order purporting to exert jurisdiction over non-estate property cannot “be
utilized to support a finding of subject matter jurisdiction over claims that otherwise could
not be heard in bankruptcy court”).
                                              19
    Case: 13-20622       Document: 00512755251          Page: 20     Date Filed: 09/03/2014



                                      No. 13-20622
                                    c/w No. 13-20715
Debtors cannot use the orders as “jurisdictional bootstrap[s]” to allow the
district court and bankruptcy court to “exercise jurisdiction that would not
otherwise exist.” 55
       For these reasons, we conclude that the Vantage Shares are not property
of the Debtors or “property of the estate.” 56 Therefore, the district court and
the bankruptcy court lacked jurisdiction on this basis.
                                              C
       Vantage next asserts that the district court and bankruptcy court lacked
jurisdiction to adjudicate Vantage’s claim in the Vantage Litigation because it
is not “related to” the Debtors’ Chapter 11 proceedings. A matter is “related
to” a bankruptcy proceeding if “the outcome of the proceeding could conceivably
affect the estate being administered in bankruptcy.” 57 Certainty, therefore, is
“unnecessary; an action is ‘related to’ bankruptcy if the outcome could alter,
positively or negatively, the debtor’s rights, liabilities, options, or freedom of
action or could influence the administration of the bankrupt estate.” 58 But
“‘related to’ jurisdiction cannot be limitless.” 59
       Vantage asserts that the bankruptcy court and the district court lacked
jurisdiction to interfere with its rights in the Vantage Shares, which are the
subject of the Vantage Litigation, because the outcome of that proceeding could
not conceivably affect the Debtors’ estates.              We agree.       This Court has
previously held that bankruptcy jurisdiction does not extend to state law



       55  Celotex, 514 U.S. at 327.
       56  Because we conclude that the Vantage Shares are not “property of the estate,” the
Interim DIP Order and the Final DIP Order were not authorized under § 364 which only
authorizes the imposition of liens on “property of the estate.” See 11 U.S.C. § 364(c)(2)–(3),
(d)(1).
        57 In re TXNB Internal Case, 483 F.3d 292, 298 (5th Cir. 2007).
        58 Id.
        59 Celotex, 514 U.S. at 308.

                                             20
    Case: 13-20622       Document: 00512755251         Page: 21     Date Filed: 09/03/2014



                                      No. 13-20622
                                    c/w No. 13-20715
actions between non-debtors over non-estate property. 60 The Supreme Court
in Celotex read the “related to” prong more broadly to cover non-debtor actions
involving non-estate property that nonetheless affect the estate:
              [T]he ‘related to’ language of § 1334(b) must be read to
              give district courts (and bankruptcy courts under §
              157(a)) jurisdiction over more than simple proceedings
              involving the property of the debtor or the estate. We
              also agree . . . that a bankruptcy court’s ‘related to’
              jurisdiction cannot be limitless. 61

However, even under Celotex’s broad reading, there is no justifiable basis for
exercising jurisdiction over the Vantage Litigation. The only discernable link
between the Vantage Litigation and the Debtors’ Chapter 11 proceedings is
that F3 Capital and the Debtors’ have a common owner. This is not enough.
The resolution in the Vantage Litigation would not have had any effect on the
bankruptcy.      As a result, the bankruptcy court and the district court
improperly interfered with the Vantage Litigation by ordering that the
Vantage Shares be deposited in custodia legis with the clerk of the court; that
no subsequent orders in the Vantage Litigation could impair the DIP Lender’s
interest in the Vantage Shares; that any rights in the Vantage Shares,
including those of Vantage, are subordinated to those of the DIP Lender; and
that the Vantage Shares are not subject to a constructive trust as a matter of
law.




       60  See In re Paso Del Norte Oil Co., 755 F.2d 421, 424 (5th Cir. 1985) (“A court of
bankruptcy has no power to entertain collateral disputes between third parties that do not
involve the bankrupt or its property, nor may it exercise jurisdiction over a private
controversy which does not relate to matters pertaining to bankruptcy.” (citations omitted));
see also In re Vitek, Inc., 51 F.3d 530, 533–38 (5th Cir. 1995).
        61 514 U.S. at 308; see also In re Prescription Home Health Care, Inc., 316 F.3d 542,

547 (5th Cir. 2002) (“It is well-established that, to be ‘related to’ a bankruptcy, it is not
necessary for the proceeding to be against the debtor or the debtor’s property.”).
                                             21
    Case: 13-20622       Document: 00512755251         Page: 22     Date Filed: 09/03/2014



                                      No. 13-20622
                                    c/w No. 13-20715
        The Debtors maintain that the bankruptcy court and the district court
had jurisdiction to enter the orders because the orders deal with core
proceedings involving the administration of the estate, the acquisition of
credit, and the use of property, including cash collateral. 62 This argument
muddies the water somewhat because before a court can decide whether an
action is a core or a non-core proceeding, it must first determine whether
subject-matter jurisdiction under § 1334 even exists. 63 But in any event, we
can reject this argument without much explanation. The Vantage Litigation
does not fall within the meaning of core proceedings. Our sister circuits have
previously rejected this kind of argument in cases where bankruptcy courts
adjudicated a non-debtor’s right in non-estate property. 64 Similarly, in In re
Wood, 65 we held that the term “core proceedings” under 28 U.S.C. § 157 did not
cover unrelated and independent state court proceedings, such as the Vantage
Suit:
              We hold, therefore, that a proceeding is core under
              section 157 if it invokes a substantive right provided
              by title 11 or if it is a proceeding that, by its nature,
              could arise only in the context of a bankruptcy case.
              The proceeding before us does not meet this test and,
              accordingly, is a non-core proceeding. The plaintiff’s
              suit is not based on any right created by the federal
              bankruptcy law. It is based on state created rights.
              Moreover, this suit is not a proceeding that could arise


        62See 28 U.S.C. § 157(b)(2)(A), (D) & (M).
        63In re Wood, 825 F.2d at 92–95.
       64 See In re Guild & Gallery Plus, 72 F.3d at 1180 (“Since the Summertime painting

was not part of the bankrupt estate, then a fortiori this matter cannot fall within §
157(b)(2)(A), which can only be applied to matters concerning the administration of the
bankrupt estate. . . . The plain language of § 157(b)(2)(A) applies only to property of the
bankrupt estate.”); Howell Hydrocarbons, Inc. v. Adams, 897 F.2d 183, 190 (5th Cir. 1990)
(“Whatever else a core proceeding must be, it must involve a decision that ultimately affects
the distribution of the debtor’s assets.”).
       65 825 F.2d 90 (5th Cir. 1987).

                                             22
    Case: 13-20622      Document: 00512755251       Page: 23    Date Filed: 09/03/2014



                                    No. 13-20622
                                  c/w No. 13-20715
             only in the context of a bankruptcy. It is simply a state
             contract action that, had there been no bankruptcy,
             could have proceeded in state court. 66

But as explained above, not only was the Vantage Litigation not a core
proceeding, it was not even a non-core proceeding because there is no “related
to” jurisdiction in this case. Simply put, the Debtors confuse the argument by
putting the matter of placement of jurisdiction (core versus non-core
proceedings) before the matter of the existence of subject-matter jurisdiction.
      The Debtors also assert that the orders did not interfere with or impair
the Vantage Litigation or Vantage’s claim to the Vantage Shares. They note
that the bankruptcy court and the district court expressed no views on the
collateral estoppel effect of their rulings in the Vantage Litigation.            This
argument fails to persuade because the orders authorized the imposition of
liens on the Vantage Shares, subordinated Vantage’s rights in the Vantage
Shares to those of the DIP Lender, prevented the district court in the Vantage
Litigation from impairing the DIP Lender’s interest in the Vantage Shares,
and held that the Vantage Shares were not subject to a constructive trust as a
matter of law. Finally, the Debtors contend that, in any event, Vantage’s right
to due process under the Fifth Amendment was not infringed because it had
the opportunity to be heard at every stage of the proceedings that resulted in
the orders. 67 This argument misses the mark—the question is whether the
bankruptcy court and the district court had jurisdiction to enter the orders, not
whether Vantage’s right to due process was violated.




      66 Id. at 97.
      67 See Mathews v. Eldridge, 424 U.S. 319, 333 (1976) (“The fundamental requirement
of due process is the opportunity to be heard at a meaningful time and in a meaningful
manner.” (internal quotations omitted)).
                                          23
   Case: 13-20622          Document: 00512755251     Page: 24   Date Filed: 09/03/2014



                                        No. 13-20622
                                      c/w No. 13-20715
      For these reasons, we conclude that Vantage’s claim in the Vantage
Litigation was not “related to” the Debtors’ Chapter 11 proceedings. Before
the district court and the bankruptcy court exercised jurisdiction over the
Vantage Shares, the outcome of the Vantage Litigation could not have had any
conceivable effect on the Debtors’ estate. In essence, the Debtors have again
attempted to use the orders as “jurisdictional bootstrap[s]” by arguing that the
Vantage Litigation is “related to” the Debtors’ Chapter 11 proceedings because
the orders have linked them. 68 This we cannot allow.
                                             V
      We conclude that the appeals are not moot, that the Vantage Shares are
not “property of the estate,” and that the Vantage Litigation is not “related to”
the bankruptcy proceedings. The district court and the bankruptcy court had
no subject-matter jurisdiction to enter the orders. The orders of the district
court and the bankruptcy court are VACATED and this case is REMANDED
for proceedings consistent with this opinion. Accordingly, the Debtors’ Motion
to Dismiss Appeals is DENIED.




      68   See Celotex, 514 U.S. at 327.
                                            24
