Hsin-Chi-Su v. Vantage Drilling Co.

• Citation: 474 S.W.3d 284
• Decision Date: 14 July 2015
• Docket Number: NO. 14–14–00461–CV,14–14–00461–CV
• Parties: Hsin–Chi–Su aka Nobu Su, Appellant v. Vantage Drilling Company, Appellee
• Court: Court of Appeals of Texas

474 S.W.3d 284

Hsin–Chi–Su aka Nobu Su, Appellant

v.Vantage Drilling Company, Appellee

NO. 14–14–00461–CV

Court of Appeals of Texas, Houston (14th Dist.).

Opinion filed July 14, 2015

Dissenting Opinion on Denial of En Banc Rehearing November 3, 2015

Vineet Bhatia, Joseph O. Slovacek, Houston, TX, for appellant.

Robin C. Gibbs, Houston, TX, for appellee.

Panel consists of Justices Boyce, Jamison, and Donovan.

OPINION

John Donovan, Justice

Appellee, Vantage Drilling Company ("Vantage"), sued appellant, Hsin–Chi–Su aka Nobu Su ("Su"), seeking, inter alia, to recover Vantage shares held by Su's wholly-owned affiliate, F3 Capital, on the ground the stock was acquired via Su's fraud and breach of fiduciary duties. The trial court signed a temporary injunction precluding Su from disposing of, or otherwise encumbering, the shares pending final judgment.

In five appellate issues, Su attacks the merits of the injunctive relief and the amount of the temporary-injunction bond that Vantage was ordered to post. Su has also filed in our court a "Motion to Void State Court Proceedings, Or Alternatively Motion To Increase Temporary Injunction Bond Pending Interlocutory Appeal of Injunction Order." We ordered the motion taken with the case. We deny the motion and affirm the temporary injunction.

I. BACKGROUND

A. Factual History¹

Vantage was formed in 2006 as a special-purpose-acquisition entity to acquire drilling assets for lease to oil-and-gas operators.² Vantage sought to acquire jack-up rigs and ultra-deepwater drillships because it discerned a need for those assets in the industry. In 2007, Vantage officers were introduced to Su, a shipping magnate. Su, through his affiliates, had deals in place to build the type of assets that Vantage sought to acquire.

1. The Transactions

Vantage and Su or his affiliates entered into multiple transactions, including the following:³

July 2007 Memorandum of Understanding

In July 2007, Vantage and Su executed a non-binding Memorandum of Understanding expressing their intent that Su or his nominee would sell Vantage two jack-up rigs and an option to acquire an ultra-deepwater drillship—the Platinum Explorer. That document set forth the contemplated consideration for the sale: (1) Vantage would pay $440 million for the jack-up rigs, including $145 million in Vantage shares and warrants payable to Su or his nominee; (2) Vantage would pay $660 million for the drillship option, with 30% due upon exercise of the option and 70% due upon delivery of the ship; and (3) Su and his representative would receive seats on the Vantage board of directors.

According to Vantage, Su represented that this 30/70 payment structure for the drillship option would correspond with the payment structure on his underlying contract with Daewoo Shipbuilding & Marine Engineering ("Daewoo") for construction of the ship. For example, when Vantage paid 30% upon exercising its option, Su would have paid 30% to Daewoo, thereby making Su effectively a "pass through" for payments. These representations regarding the corresponding payment structures were material to Vantage because they affected its ability to obtain financing for the purchase. Specifically, the fact that payments would have already been made to Daewoo when Vantage made its payments to Su would guarantee Vantage a refund from Daewoo if it defaulted on delivery of the ship; in contrast, financers would detect an unnecessary risk with respect to Vantage receiving a refund in the event of a Daewoo default if payments had been made to Su only. Vantage maintains that Su knew this aspect of corresponding payment structures was material to Vantage because it is a common concept in the shipbuilding industry.

Su then formed F3 Capital to receive the shares of Vantage stock to be transferred in the transaction. Su is F3 Capital's sole shareholder, sole director, and president. F3 Capital's sole assets are the Vantage shares and some funds owed to it by the U.S. Government.

August 2007 Share Purchase Agreement

In August 2007, a Share Purchase Agreement was executed between Vantage and a Su affiliate, which held the underlying contracts to build the jack-up rigs. This agreement formalized and expanded the Memorandum of Understanding. Under the agreement, Vantage would purchase the jack-up rigs (now four rigs) by (1) transferring $275 million worth of Vantage stock and warrants to F3 Capital upon closing of the purchase, (2) paying $56 million in cash, and (3) assuming $517 million due on the underlying construction contracts for the rigs. The parties also agreed that Vantage and another Su affiliate would execute an option contract for the Platinum Explorer by the date for closing the purchase of the jack-up rigs—with the option exercisable within six months after the closing.

November 2007 Letter of Intent for Drillship Option

In November 2007, Vantage and another Su affiliate entered into a Letter of Intent specifying further details for purchase of the Platinum Explorer. These details again called for an initial down payment of 30% of the $660 million purchase price upon exercise of the option and the remainder due on delivery of the ship. According to Vantage, its representatives again relied on Su's representations that this payment structure corresponded with the payment structure for the underlying contract with Daewoo.

March 2008 Drillship Purchase Agreement

Instead of an option contract, in March 2008, Vantage and a Su affiliate entered into an agreement for Vantage to outright purchase the Platinum Explorer from the affiliate for $676 million. The agreement required Vantage to make a 30% down payment on September 13, 2008 and remit the remaining 70% upon delivery of the ship in November 2010. The agreement also provided that Su retained control over the underlying Daewoo contract, including ensuring that it would be paid timely. Additionally, Su's affiliate agreed to perform all actions necessary to consummate the transactions with Vantage, which would include cooperating in Vantage's financing efforts and disclosing the terms of the Daewoo contract. That aspect was important to Vantage because it was relinquishing control over the Daewoo contract, yet, as explained above, the fact that Vantage's payments to Su's affiliate would correspond with his payments to Daewoo was vital to obtaining financing. However, Su provided only a redacted version of the Daewoo contract, which lacked details regarding when payments were due, while he continued to represent the Daewoo contract's payment structure was the same as the 30/70 payment structure in the March 2008 Drillship Purchase Agreement between Su's affiliate and Vantage.

The Drillship Purchase Agreement also gave Vantage the option to purchase a second ultra-deepwater drillship, the Titanium Explorer, under construction by Daewoo.

The Share Purchase Agreement and the Drillship Purchase Agreement closed on June 12, 2008. Upon closing, F3 Capital received $275 million in Vantage stock and warrants, thereby owning 40% of its shares, plus $56 million in cash. Su joined the Vantage board of directors and gained the right to nominate two additional members of the nine-member board.

2. Post-closing Events

After the closing, Vantage began preparing a road show to obtain financing for its obligation to make a 30% down payment toward purchase of the Platinum Explorer. However, Su, who was now a fiduciary, took actions which Vantage characterized as detrimental to its financing efforts and its interests in general.⁴

In particular, despite repeated requests, Su still refused for several months to provide a complete copy of the Daewoo contract and provided only a redacted copy which lacked payment terms. Su claimed he had a special arrangement with Daewoo to keep the terms secret. Vantage informed Su that such refusal would harm Vantage's ability to obtain financing. According to Vantage, Su also tied his willingness to provide the complete Daewoo contract and otherwise comply with his affiliates' contractual obligations to attempts to re-trade the parties' agreements.

For instance, Su repeatedly demanded early remittance of some or all of the down payment, although it was not due until September 13, 2008. The first demand was actually made shortly before the closing when Su demanded the entire down payment ($200 million) immediately after the closing—when the special-purpose-acquisition funds were to be released. Vantage responded that early payment was impossible because (1) financers would require the funds be paid directly to Daewoo and view payment under Su's proposal as preferential and not arm's length, and (2) the SEC would frown on a substantial advance payment to a party who controlled 40% of Vantage's shares and would likely remove the board.

During July and August 2008 (after the closing), Su requested respectively (as each request was refused by Vantage) that it pay $46 million, then $30 million, and then "3 weeks funding" in exchange for Su pledging some Vantage shares held by F3 Capital. When refusing, Vantage replied that prepayment was impossible because existing funds were earmarked for purchase of the jack-up rigs but it was working on obtaining the funds for the Platinum Explorer down payment. Then, Su threatened that unless he received an advanced payment, he would not transfer to Vantage the right to decide specifications for the drillship, to which Vantage was entitled under the Drillship Purchase Agreement. Vantage responded that such a position would be a breach of Su's fiduciary duties to Vantage and the agreement.

In late August 2008, several days before Vantage was scheduled to begin its financing roadshow, Su proposed changing the parties' agreement regarding the option for the second drillship—the Titanium Explorer. Instead of an option to purchase, Su proposed a 50% joint-venture. Vantage replied that it would further discuss the proposal regarding the second drillship but it was concentrating on obtaining financing for the ...