Absolute Activist Value Master Fund Ltd. v. DeVine

• Decision Date: 28 May 2021
• Docket Number: No. 20-10237,20-10237
• Citation: 998 F.3d 1258
• Parties: ABSOLUTE ACTIVIST VALUE MASTER FUND LIMITED, Absolute East West Fund Limited, et al., Plaintiffs-Appellees, v. Susan Elaine DEVINE, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

998 F.3d 1258

ABSOLUTE ACTIVIST VALUE MASTER FUND LIMITED, Absolute East West Fund Limited, et al., Plaintiffs-Appellees,

v.Susan Elaine DEVINE, Defendant-Appellant.

No. 20-10237

United States Court of Appeals, Eleventh Circuit.

May 28, 2021

Dwayne Antonio Robinson, Kenneth Ralph Hartmann, Kozyak Tropin & Throckmorton, PA, Coral Gables, FL, Christopher W. Dysard, Linda C. Imes, David Spears, Spears & Imes, LLP, New York, NY, Thomas Ronzetti, Tucker Ronzetti, PA, for Plaintiffs-Appellees.

Carl Francis Schoeppl, Jr., Attorney, Schoeppl Law, PA, Boca Raton, FL, Ian Michael Comisky, Fox Rothschild, LLP, Matthew D. Lee, Kevin M. Passerini, Blank Rome, LLP, Philadelphia, PA, for Defendant-Appellant.

Before WILSON, GRANT, and TJOFLAT, Circuit Judges.

TJOFLAT, Circuit Judge:

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 Federal Rule of Civil Procedure 41(a)(1)(A)(i). Because the Funds’ voluntary dismissal stripped the District Court of jurisdiction to consider Devine's post-dismissal motion to modify, we must vacate the District Court's order.

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 as ACM's Chief Investment Officer, and as a result, was responsible for the Funds’ investments. But on September 18, 2007, Homm suddenly resigned from ACM and allegedly went into hiding for five years.

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 him—but not his wife or his children—from selling ACM shares without prior agreement from the ACM board of directors. After the beneficiary structure was altered, Devine claimed she was designated the primary beneficiary so that she could receive future profits from the ACM shares, but the Funds claim this explanation is inconsistent with, among other things, the designation of Homm as CSI's economic beneficiary just one month before the divorce petition.

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 identifying "all" of her assets from "anywhere in the world." Anticipating that this process would involve the release of personal financial information, Devine moved for a protective order to prevent the public disclosure of certain financial information that the parties designated as "confidential." The parties negotiated the terms of the protective order before jointly submitting it to the District Court for approval. The proposed order provided that, "[a]t the conclusion of this litigation (including any appeals) all material designated Confidential pursuant to the terms...