In Absolute Activist Value Master Fund Ltd. v. Devine, No. 20-10237 (11th Cir. May 28, 2021), the panel majority holds that the plaintiffs hedge funds’ (the Funds) filing of a Rule 41(a)(1)(A)(i) “voluntary dismissal stripped the District Court of jurisdiction to consider [defendant] Devine’s post-dismissal motion to modify” a protective order.
Defendant Devine and her husband Homm were allegedly engaged in a scheme from 2004 to 2007 to defraud Absolute Capital Management Holdings Limited (ACM) out of millions of dollars. Homm, who served as ACM’s Chief Investment Officer, allegedly conspired to use his position to trade for his own (and other conspirators’) benefit and at ACM’s loss (the Penny Stock Scheme). Then, though a series of complex international financial transactions, Homm was allegedly able to hide those funds (the Money Laundering Scheme).
“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.”
Homm became a fugitive after an indictment in California. “On May 29, 2015, the Funds filed a criminal complaint with the Swiss Attorney General against Devine.” Finally, the Funds filed a civil action against Devine in Florida for racketeering and unjust enrichment, seeking recovery of the wealth extracted from the funds.
During discovery, the parties entered into a protective order governing discovery providing that “[a]t the conclusion of this litigation (including any appeals) all material designated Confidential pursuant to the terms of this Protective Order shall either be destroyed or returned to the designating Party, within sixty (60) days after the conclusion of the litigation.”
“Then, on February 14, 2018, the Funds voluntarily dismissed their case under Federal Rule of Civil Procedure 41(a)(1)(A)(i).” Shortly after the dismissal, Devine filed a post-judgment motion to modify the protective order to allow her to keep documents obtained in discovery to defend against any prosecution in Switzerland. The district court ultimately denied that relief, entering an order on the merits finding that the was no equitable reason to modify the order.
The panel majority vacates that order, holding that the district court lacked jurisdiction to modify the agreement. “This Court has made abundantly clear that a Rule 41(a)(1) voluntary dismissal disposes of the entire action, not just some of the plaintiff’s claims.”
The panel majority notes that courts have authority to engage in certain post-judgment “collateral” proceedings: costs, fees, contempt sanctions, Rule 11 sanctions, and motions to confirm arbitral awards. But modification of a protective order is not one of them. The limited category of authorized post-judgment proceedings protects the integrity of the judicial process against abuse by plaintiffs, who might otherwise escape penalties by voluntarily dismissing their actions. Here, though, by voluntarily dismissing their case, the Funds did not somehow abuse the judicial process, manipulate the protective order, or place Devine at any strategic disadvantage.”
The panel majority also notes that there are alternatives that, in other circumstances, would bolster the court’s capacity to act post-judgment, such as dismissal under Fed. R. Civ. P. 41(a)(2), pursuant to which “the court has discretion to dismiss the case through an order and to specify the terms of that dismissal.” Courts can also, even post-judgment, enforce existing orders through sanctions and contempt. “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 …. Consequently, if a party wishes to enforce the terms of a stipulated protective order following a Rule 41(a)(1)(A)(i) dismissal in federal court, the party can take the stipulated protective order to a state court of general jurisdiction [or federal court if there is diversity] and file a run-of-the-mill breach of contract claim.”
Judge Grant, while agreeing that Devine should not be permitted a modification of the protective order, dissents from the panel majority’s jurisdictional ruling. The dissent observes that the panel majority puts the Eleventh Circuit at odds with other circuits that have found jurisdiction under comparable circumstances. “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.”
The dissent would hold that modification of protective orders is itself a collateral action that protects the integrity of judicial proceedings. “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.’ … 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 process and to serve the interests of confidentiality or fairness.”
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