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Litton Loan Servicing, L.P. v. Dennis Schubert

Summarizing by Amir Shachmurove

Su v. C Whale

Case Type:
Case Status:
21-20147 (5th Circuit, Jan 13,2022) Published
Fifth Circuit affirmed ruling of U.S. District Court (SD Tx.) which affirmed bankruptcy court order approving sale of ship over objection of debtor's principal. Section 363(m) and objector's failure to obtain stay pending appeal mooted appeal. There was no evidence of bad faith or collusion in sale and objector's purported patents, unreferenced in loan documents and not sought until after sale process commenced, were not grounds for reversal.
Procedural context:
Bankruptcy court granted creditor's 363 motion to approve sale of ship under credit bid over objection of debtor's former CEO. Objector appealed to U.S. District Court (SD Tx.), which affirmed. Objector appealed to 5th Cir.
Appellant Su is the former owner, president, and director of Appellee C Whale Corporation (“C Whale Corp.”). Around March 2007, C Whale Corp. entered into a loan agreement with Mega International Commercial Bank Co., Ltd. (“Mega Bank”) and a syndicate of lenders (“Lenders”) as part of a larger contract in which Su agreed to build a fleet of cargo vessel carriers. These cargo carriers used technology known as “under-deck piping” which allowed them to alternate carrying ore and oil. Su personally guaranteed the loan with Mega Bank. Su’s contracted cargo carriers failed to generate sufficient revenue. Those carriers included the C Whale, a vessel built by C Whale Corp. with funds obtained from Mega Bank and the Lenders. So, in June 2013, Su filed multiple petitions for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of Texas (“bankruptcy court”). The bankruptcy court authorized the C Whale’s return to service to generate revenue, but the vessel was unable to acquire enough charters to support its operations. Mega Bank filed a motion for relief from the automatic bankruptcy stay so it could sell the C Whale pursuant to the loan agreement. On March 28, 2014, the bankruptcy court authorized Mega Bank to sell the C Whale on behalf of the Lenders (“the Sale Order”). The Sale Order authorized the Lenders to submit a credit bid if no other party offered a cash bid that exceeded the existing debt. Approximately one week into the sale process, Su informed the Lenders that he had applied for patents in Japan, Korea, and China for his design of the under-deck piping. Regardless of any patent protections, Su has acknowledged that C Whale Corp. had the right to use the under-deck piping “for free” and without royalty payments or licensing fees. No loan documents or other written or oral agreements between the parties discuss patents. During the sale process, Su resigned as president and manager of C Whale Corp. The bankruptcy court appointed Esben Christensen to oversee the sale process and run C Whale Corp.’s operations. Neither Su nor any other party contested this appointment. Highest purchase offer was $58.2 million which allowed Lenders to submit credit bid. Debt was $64.8 million. Lenders submitted credit bid of $58.45 million, winning the auction. Bankruptcy court held evidentiary hearing to review sale process and approved sale.
Stewart, Haynes, Graves

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