ABSOLUTE ACTIVIST VALUE MASTER FUND LIMITED, ABSOLUTE EAST WEST FUND LIMITED, et al. v. SUSAN ELAINE DEVINE
No. 20-10237
United States Court of Appeals, Eleventh Circuit
May 28, 2021
[PUBLISH] D.C. Docket No. 2:15-cv-328-JES-MRM
Appeal from the United States District Court for the Middle District of Florida
(May 28, 2021)
Before WILSON, GRANT, and TJOFLAT, Circuit Judges.
Susan Devine, who was sued for her alleged involvement in money laundering and market manipulation schemes, appeals the District Court‘s denial of her motion to modify a protective order.1 To briefly summarize, Devine sought to modify a joint, stipulated protective order so that she could use certain confidential materials obtained from the plaintiffs—a group of hedge funds (“the Funds“)—to defend herself against a possible Swiss prosecution for her role in the schemes. But before Devine could file her motion to modify, the Funds voluntarily dismissed their case under
I.
The events giving rise to this case stretch back to 2002 and wind from the Cayman Islands, to Switzerland, to Naples, Florida. So, for simplicity‘s sake, we outline only the most relevant facts here.
Absolute Activist and the other Plaintiffs-Appellees are a group of hedge funds registered as limited liability corporations in the Cayman Islands. In 2002, Florian Homm, Susan Devine‘s then-husband, founded a company—Fortune Management Limited—in the Cayman Islands. In 2005, Fortune Management merged into Absolute Capital Management Holdings Limited (“ACM“), which served as the Funds’ investment manager. Homm served
Homm‘s abrupt exit from ACM was apparently triggered by his participation in a massive market manipulation scam, which the Funds have dubbed the “Penny Stock Scheme.” From at least September 2004 through September 2007, Homm invested the Funds’ money in the securities of thinly capitalized companies. These securities, sometimes referred to as “pink sheet” securities or “penny stocks,” were cheap and infrequently traded, and thus they were allegedly very susceptible to price manipulation. To capitalize on the opportunity for price manipulation, Homm and his conspirators would raise money for the Funds to obtain control of a dormant or near-dormant Penny Stock Company. Once Homm had control of the Penny Stock Company, he would use the Funds’ money to purchase shares of the Company through private offerings. Critically, at the time Homm made these purchases for the Funds, he and his conspirators also held shares of their own—or received shares in exchange for investing—in the Penny Stock Companies.
While holding their personal shares, Homm and the conspirators would artificially inflate the prices of the Penny Stocks by trading the Funds’ shares amongst the Funds and with outside investors. After the prices of the Penny Stock Companies’ securities were sufficiently inflated by the massive influx of trades, Homm would use the Funds to purchase the Penny Stock shares that he and the other conspirators held in their own names. Homm allegedly made more than $115 million from the Penny Stock Scheme, and the Funds estimate that they lost more than $200 million.
But presumably recognizing that his ill-gotten gains might eventually be exposed, Homm enlisted his then-wife, Devine, to conceal the fruits of the Penny Stock Scheme. This second plot—the “Money Laundering Enterprise“—began with a series of “fraudulent loan agreement[s]” in which Devine purported to rent over $2 million of furniture and art from New York Art Trading, even though she and Homm owned the pieces. In essence, this agreement (1) made Homm and Devine‘s assets harder to trace and (2) gave the appearance that the couple was less wealthy than they actually were.
Then, in 2006, Devine and Homm “strategic[ally]” divorced. In the Funds’ telling, this divorce allowed Devine to obtain control of some of the proceeds of the Penny Stock Scheme while simultaneously distancing herself from any criminal activity. Despite the divorce, Devine and Homm allegedly “continued to interact as spouses” by “sending each other personal and intimate emails, purchasing a home together, living together, traveling together, and moving money between each other.” The Funds also allege that the Homm-Devine divorce petition identified only “a small fraction” of the couple‘s actual assets, omitted numerous real estate holdings, and hid “tens of millions of dollars” in ACM shares.
As part of their divorce, Homm and Devine were able to repeatedly alter the beneficiary structure of CSI Asset Management Establishment (“CSI“), a legal entity established in Liechtenstein that holds ACM shares on behalf of Devine, Homm, and their children. Essentially, the couple made retroactive some beneficiary arrangements in their divorce settlement to give the appearance that Devine—and not Homm—was the primary beneficiary of CSI. This beneficiary structure allowed Homm to circumvent a deed that prohibited
Following the couple‘s divorce, Homm sent two “revelatory” emails to Devine regarding the family‘s financial situation. On August 28, 2007, Homm wrote that if he “c[ould] succeed [in his plan,] the children and [Devine] will sit on a multigenerational fortune,” and if he could not, Devine was “fantastically protected already, the optimal outcome has been achieved in that regard.” Later that same day, Homm wrote to Devine to tell her that he had “sold a good part of [his] soul and health to protect [Devine] and [their] children under the most extreme business and lifestyle duress for 18 months.” Homm resigned from ACM and went into hiding less than one month later.
Ultimately, as a result of the Penny Stock Scheme, the Money Laundering Scheme, and her allegedly fraudulent divorce, Devine was able to amass assets exceeding $63,000,000. To make this money difficult to trace, she purchased a waterfront property in Naples, Florida; a seaside villa in Marabella, Spain; real estate in Mallorca, Spain; and millions of dollars’ worth of gold coins. The remaining proceeds of the pre- and post-divorce schemes are, according to the Funds, spread throughout at least 20 different bank accounts around the world.
But easy come, easy go. Since 2009, the Office of the Attorney General of Switzerland has been conducting a criminal investigation into Homm‘s money laundering activities. As part of that investigation, Swiss prosecutors have frozen five bank accounts that were either in Devine‘s name or of which she was the beneficiary. Devine has given testimony and produced documents for the Swiss prosecutor, and a May 2015 indictment of another individual involved in the Penny Stock and Money Laundering Schemes makes clear that the Swiss Attorney General‘s investigation extends to Devine‘s own conduct.
Simultaneously, in the United States, Devine was under investigation by the Department of Justice, which froze one of Devine‘s bank accounts containing $1,000,000 and issued a grand jury subpoena for her holdings. An arrest warrant was also issued for Homm in the Central District of California after he was charged with one count of conspiracy to commit securities and wire fraud, eight counts of securities fraud, and one count of wire fraud. In March 2013, Homm was arrested in Italy on a provisional arrest warrant, but while extradition proceedings were pending, he was released and fled to Germany. As a result, Homm landed on the FBI‘s “Most Wanted” list.
On May 29, 2015, the Funds filed a criminal complaint with the Swiss Attorney General against Devine. Devine was not given notice of the Swiss complaint.
The Funds then filed this action on June 1, 2015, alleging that Devine committed numerous acts of money laundering and other criminal offenses in violation of the federal RICO statute, the Florida RICO statute, and the Florida Civil Remedies for Civil Practices Act. The Funds also alleged that Devine was unjustly enriched, and that her conduct resulted in the creation of a constructive trust of the assets belonging to the funds.
As part of a temporary restraining order entered by the District Court in July 2015, Devine was required to produce documents
The parties then engaged in extensive discovery: the Funds produced 624,291 documents and designated 5,456 of those documents as “Confidential.” For her part, Devine produced 14,441 documents and designated 8,808 of those documents as “Confidential.” And after a few motions to dismiss, the Funds’ case was ultimately pared down to a single unjust enrichment claim contained in their Second Amended Complaint.2 Then, on February 14, 2018, the Funds voluntarily dismissed their case under
In April 2018, Devine, now aware of the Swiss criminal complaint the Funds filed against her, moved to modify the joint, stipulated protective order. In essence, Devine sought to alter the protective order so that she could (1) use the Funds’ confidential documents to “defend[] herself against [the Funds‘] legal offensives in Switzerland and the United States,” and (2) retain copies of the Funds’ confidential documents. Devine claimed that the Funds’ case in the District Court was little more than a scheme to “abuse[] the liberal discovery permitted under U.S. law” and funnel her confidential documents to the Swiss Attorney General, with whom the Funds had filed the private criminal complaint. And by negotiating the protective order without notifying her of the Swiss complaint, the Funds fraudulently induced her to agree to its terms. Modification of the protective order, Devine asserted, was simply a matter of “basic fairness.”
The Funds responded that they were already in the process of complying with the protective order‘s destroy-or-return mandate, and Devine should not be permitted to “retroactively rewrite the terms of [the] protective order.” The Funds also denied funneling documents to any government authority without the District Court‘s express permission.
A Magistrate Judge denied Devine‘s motion to modify the protective order, and Devine subsequently objected to the Magistrate‘s order. The District Court, on Devine‘s objections to the order, assumed jurisdiction over the proceedings but denied Devine her requested relief. The Court reasoned that Devine was not fraudulently induced to agree to the protective order because the Funds were under no duty to disclose the Swiss criminal complaint. Moreover, the Court emphasized that Devine knew that she was under Swiss investigation long before she negotiated the protective order, so the nondisclosure of the Funds’ private Swiss complaint was not a material omission.
II.
We review questions regarding a district court‘s subject matter jurisdiction de novo. United States v. Wilson, 979 F.3d 889, 902 n.6 (11th Cir. 2020). “[P]arties cannot waive subject matter jurisdiction,” Scarfo v. Ginsberg, 175 F.3d 957, 960 (11th Cir. 1999), and we are “obligated to inquire into subject matter jurisdiction sua sponte whenever it may be lacking.” Univ. of S. Ala. v. Am. Tobacco Co., 168 F.3d 405, 410 (11th Cir. 1999). Further, “[a]n appellate federal court must satisfy itself not only of its own jurisdiction, but also of that of the lower courts in a cause under review.” Mitchell v. Maurer, 293 U.S. 237, 244 (1934).
III.
Below, we begin with overviews of
A.
Voluntary dismissal of an action is governed by
(1) By the Plaintiff.
(A) Without a Court Order. . . . [A] plaintiff may dismiss an action without a court order by filing:
(i) a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment; or
(ii) a stipulation of dismissal signed by all parties who have appeared.
(B) Effect. Unless the notice or stipulation states otherwise, the dismissal is without prejudice. But if the plaintiff previously dismissed any federal- or state-court action based on or including the same claim, a notice of dismissal operates as an adjudication on the merits.
(2) By Court Order; Effect. Except as provided in Rule 41(a)(1), an action may be dismissed at the plaintiff‘s request only by court order, on terms that the court considers proper. If a defendant has pleaded a counterclaim before being served with the plaintiff‘s motion to dismiss, the action may be dismissed over the defendant‘s objection only if the counterclaim can remain pending for independent adjudication. Unless the order states otherwise, a dismissal under this paragraph (2) is without prejudice.
Relevant here is
This Court has made abundantly clear that a
The district court does retain jurisdiction, however, to consider a limited set of issues after the action is voluntarily dismissed. Cooter & Gell, 496 U.S. at 395. In Cooter & Gell, the United States Supreme Court considered a challenge to an order imposing sanctions pursuant to
The Supreme Court‘s conclusion was consistent with the purposes of
Consistent with Cooter & Gell, this Circuit has permitted the post-voluntary-dismissal imposition of sanctions, see Matthews, 902 F.2d at 880–81 (imposing sanctions relating to a false
We have also extended Cooter & Gell slightly beyond the categories of collateral issues (costs, fees, contempt sanctions, and Rule 11 sanctions) the Supreme Court identified. In PTA-FLA, Inc. v. ZTE USA, Inc., we considered whether a voluntary dismissal stripped a district court of jurisdiction to consider a pre-dismissal motion to confirm an arbitral award. Id. at 1299. There, an arbitrator issued an award, the defendant moved to confirm the award, and the plaintiff then voluntarily dismissed its case pursuant to
Reading
B.
Of course, the question in this case is whether a district court‘s post-voluntary-dismissal jurisdiction further extends to a motion to modify a protective order. We conclude it does not.
As an initial matter, a motion to modify a protective order does not fit neatly into the types of “collateral issues” the Supreme Court and this Court have identified.
A motion to modify a joint, stipulated protective order does not present the same concerns.6 Here, the parties negotiated the terms of the protective order more than five years ago and submitted the order for the
District Court‘s approval. Devine knew at the time the order was negotiated that she was under investigation by Swiss authorities, and she could have pushed for a stipulation allowing her to use the Funds’ confidential documents in her Swiss defense. Simply put, by voluntarily dismissing their case, the Funds did not somehow abuse the judicial process,7 manipulate the protective order, or place Devine at any strategic disadvantage. To the contrary, the Fund‘s
The District Court‘s lack of jurisdiction to consider the motion to modify does not harm the Funds, either. When denying Devine‘s efforts to modify the protective order, the District Court ordered Devine to comply with the terms of the protective order—that is, destroy or return the Funds’ confidential documents—and ordered the Funds to retain copies of their documents “until the conclusion of the Swiss proceedings so that those materials will be available should the Swiss seek to obtain them.” As a result, the Funds’ confidential documents are no longer in Devine‘s possession and are instead being held by the clerk of court. This alleviates
any concern that, by divesting the District Court of jurisdiction and vacating the Court‘s order, we would somehow allow Devine to simply run off with the Funds’ confidential documents to defend herself in the Swiss proceedings.
But what if the District Court had correctly concluded, prior to enforcing the
First, the Funds could have dismissed under
Second, in the event a party attempts to use a voluntary dismissal as an opportunity to violate a protective order—here, the hypothetical in which Devine runs off with the Funds’ documents following a
pursuant to district court‘s inherent authority even when the court lacks subject matter jurisdiction from the outset). So, even if a district court is divested of jurisdiction over some issues following a
Finally, in the context of a joint, stipulated protective order, there may be a third solution. For the purposes of enforcement, we treat a stipulated order as though it is a contract. See United States v. ITT Cont‘l Baking Co., 420 U.S. 223, 238, 95 S. Ct. 926, 935 (1975) (“[A] consent decree or order is to be construed for enforcement purposes basically as a contract.“). Consequently, if a party wishes to enforce the terms of a stipulated protective order following a
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In sum, the law provides that a district court has jurisdiction to consider only a small set of “collateral issues” following a plaintiff‘s voluntary dismissal of its case. Those issues are, by this Court‘s read, narrowly tailored to prevent “abuses of the judicial system” that would otherwise “burden[] courts and individuals alike with needless expense and delay.” Cooter & Gell, 496 U.S. at 397-98, 110 S. Ct. at 2457. Motions to modify protective orders do not serve those same ends, and thus we decline to expand the set of “collateral issues” to cover them.10
IV.
Because the Funds’
VACATED.
GRANT, Circuit Judge, dissenting:
I agree that Susan Devine cannot prevail in her attempt to modify the protective order. But while the majority reaches that result by concluding that the district court lacked jurisdiction over her motion, I think that a motion to modify a protective order is exactly the sort of collateral issue that a district court may consider after voluntary dismissal. Because I believe the district court had jurisdiction over Devine‘s motion, I respectfully dissent.
I.
As the majority explains, a motion to dismiss under
But even though the district court lost jurisdiction to consider the merits of this case, it retained the power to “decide certain ‘collateral’ issues related to the case.” Hyde v. Irish, 962 F.3d 1306, 1309 (11th Cir. 2020) (citing Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 395 (1990)). The Supreme Court recognized that principle in Cooter & Gell v. Hartmarx Corp., when it
To decide whether a district court has continuing jurisdiction over an issue, we consider two criteria. First, we ask whether exercising jurisdiction over the issue is “constitutionally permissible.” Hyde, 962 F.3d at 1309. And second, we ask whether it is “practically important.” Id. Starting with “constitutionally permissible,” we have said that deciding the issue must “not signify a district court‘s assessment” of the legal merits of the case. Id. (quoting Willy, 503 U.S. at 138). That‘s because doing so would mean that a court was considering a case or controversy, even when it lacked jurisdiction to do so. Id. But when a district court considers questions that are completely separate from the merits, it does not violate that constitutional limit.
As for practical importance, a key marker has been whether the ability (or inability) to consider a matter would have a serious impact outside the contours of a particular case. Id. at 1309-10. The “interest in having rules of procedure obeyed,” for example, “outlives the merits of a case.” Id. (quoting Willy, 503 U.S. at 139); see also Straub, 508 F.3d at 1009 (“The interest of the court in imposing punitive sanctions under Rule 11 does not disappear if the court lacks subject matter jurisdiction, because the court retains an interest in parties’ obedience to its authority.“). This point recognizes the institutional interests of courts, which cannot be left to the mercy of enterprising litigants.
A post-dismissal motion to modify a protective order satisfies both factors; it is both “constitutionally permissible” and “practically important” for district courts to hear that kind of motion. First, it is “constitutionally permissible” because these motions typically present only collateral issues—that is, they have nothing to do with the merits. Hyde, 962 F.3d at 1309. The parties’ arguments here illustrate that point. In their extensive briefing, neither party relies—at all—on whether Devine is liable under the allegations in the Funds’ complaint. So the district court‘s power to consider a motion like this one does not involve it in the substantive issues of the case.
Second, practical importance. It goes without saying that parties share sensitive information in reliance on both the protective order and the court‘s power to modify that order as necessary. The federal courts’ interest in maintaining control over discovery materials produced under protective orders extends far beyond any single action. Similarly, the need to foster confidence that these orders will be appropriately enforced or modified “does not rise or fall with any particular case.” Id. And though district courts have—at least—an indirect power to enforce protective orders after dismissal, that power must go hand in hand with the power to modify them. After all, the scope of a protective order may lead to unanticipated consequences years after it was negotiated or entered. Likewise, the district court may need to close a loophole that escaped its attention at the time the order was entered. Modification, then, can sometimes be necessary to facilitate an open discovery
The majority‘s contrary conclusion puts this Court out of step with our sister circuits. Every other circuit to consider this issue has approved of district courts exercising jurisdiction over motions like these, even after the underlying case had been resolved. Their reasoning has largely focused on a district court‘s inherent powers over this sort of continuing order—and those inherent powers are yet another reason we should tread carefully. The First Circuit explained that “a protective order, like any ongoing injunction, is always subject to the inherent power of the district court to relax or terminate the order, even after judgment.” Poliquin v. Garden Way, Inc., 989 F.2d 527, 535 (1st Cir. 1993) (emphasis added). Along similar lines, the Second Circuit found that a district court may modify a protective order even after a Rule 41 stipulation of dismissal was filed. See Gambale v. Deutsche Bank AG, 377 F.3d 133, 139-42 (2d Cir. 2004). The Third, Tenth, and D.C. Circuits have also found continuing jurisdiction to modify protective orders. See Pansy v. Borough of Stroudsburg, 23 F.3d 772, 780 (3d Cir. 1994) (third parties can intervene to modify a protective order even after the underlying dispute has been settled); United Nuclear Corp. v. Cranford Ins. Co., 905 F.2d 1424, 1427 (10th Cir. 1990) (“As long as a protective order remains in effect, the court that entered the order retains the power to modify it, even if the underlying suit has been dismissed.“); EEOC v. Nat‘l Children‘s Ctr., Inc., 146 F.3d 1042, 1047 (D.C. Cir. 1998) (same).
The majority‘s analysis does not persuade me to break with the other circuits. To begin, I am not sure that the majority considers the two factors we set out in Hyde. And to the extent that it does, it condenses the “practically important” question down to whether divesting the district court of jurisdiction would allow opportunistic litigants to “abuse the judicial process.” Maj. Op. at 19. That is more limited than what I read our precedents to support. But even if “practically important” were completely coextensive with “allows abuse of the judicial process,” motions to modify protective orders would fit within that category. After all, the “enterprising plaintiff” who would Rule-41 his way out of sanctions could use the same move to quickly (and, apparently, permanently) lock in an advantageous protective order—perhaps one that allowed him to misuse documents in ways that were not obvious when the order was first issued.
Additionally, most of the majority‘s analysis centers on the facts of this case, rather than on whether exercising jurisdiction over motions to modify protective orders—as a general matter—satisfies Hyde‘s two-factor framework. But the Supreme Court in Cooter & Gell did not focus on whether Cooter & Gell deserved Rule 11 sanctions. And in Hyde, we did not base our analysis on whether § 1927 sanctions were merited for George Hyde. The reasoning in those cases instead rested on whether exercising jurisdiction over such motions was constitutionally permissible and practically important as a general matter. That is the mode of analysis that we should undertake here.
The majority itself recognizes that its holding presents practical problems. Maj Op. at 20. For example, it observes that its holding could open the door for Devine to use the documents she obtained under the protective order “for her Swiss defense” in violation of the protective order. Maj. Op. at 20. It offers several potential solutions, ranging from a different
For instance, the majority says that the dismissing party could choose to obtain an order of dismissal under
The majority also points out that a party could enforce a protective order in state court as a contract. Maj. Op. at 22. That solution is incomplete at best. As the majority concedes, protective orders do not always represent an agreement between the parties—which means that the contract-enforcement solution will not always be available. But there is a larger issue: whatever else state courts can do, they cannot modify a federal protective order, no matter how necessary it becomes. So whatever limited ability litigants have to enforce a protective order under the majority‘s holding, they are completely barred from seeking modification.
In sum, a motion to modify a protective order is a collateral issue. It also implicates judicial interests apart from a single case. That means retaining jurisdiction over these orders after dismissal is both “constitutionally permissible” and “practically important.” Hyde, 962 F.3d at 1309. I would hold that the district court has jurisdiction to consider Devine‘s request to modify.
II.
While I disagree with the majority‘s jurisdictional holding, I agree that Devine should not be able to modify the protective order at this point. Devine needed to show the district court “good cause” to modify the protective order. Carrizosa v. Chiquita Brands Int‘l, Inc., 965 F.3d 1238, 1250 (11th Cir. 2020). And we review the district court‘s decision on that issue for an abuse of discretion. Id. at 1249. After all, “[d]istrict courts are in a superior position to decide whether to enter or modify protective orders, and it is well established that ‘the decision as to access is one best left to the sound discretion of the trial court.‘” FTC v. AbbVie Prods. LLC, 713 F.3d 54, 61 (11th Cir. 2013) (quoting Nixon v. Warner Commc‘ns, Inc., 435 U.S. 589, 599 (1978)).
To show that the district court abused its discretion when it denied her motion to modify, Devine raises her need for the Funds’ documents, her alleged ignorance of the Swiss authorities’ involvement in this case, and the classic umbrella of “equitable arguments.” But the district court didn‘t ignore these arguments—it just did
Devine also asserts that she was fraudulently induced to enter the protective order, but this argument fares no better.1 As the majority notes, Devine knew that she was under investigation by the Swiss authorities when she negotiated the protective order; she could have asked then for the relief she seeks now. And in any event, I see no evidence that the Funds made any false statements or otherwise misled Devine. She has not shown an abuse of discretion on this point either.
On these facts, it was always going to be difficult for Devine to show that the district court abused its considerable discretion. If we had reached the question, I would have found that Devine failed to do so.
* * *
It is important for courts to act with restraint when it comes to subject matter jurisdiction. We are courts of limited jurisdiction, and I admire the majority‘s commitment to that principle. But I do not believe our jurisdiction is limited in the way the majority suggests. I respectfully dissent.