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Plaut v. Spendthrift Farm

April 18, 1995

ED PLAUT, ET UX., ET AL., PETITIONERS

v.

SPENDTHRIFT FARM, INC., ET AL.



SYLLABUS BY THE COURT

Certiorari to the United States Court of Appeals for the Sixth Circuit.

No. 93-1121.

Argued November 30, 1994

Decided April 18, 1995

In a 1987 civil action, petitioners alleged that in 1983 and 1984 respondents committed fraud and deceit in the sale of stock in violation of Section(s) 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission. The District Court dismissed the action with prejudice following this Court's decision in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U. S. 350, 364, which required that suits such as petitioners' be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation. After the judgment became final, Congress enacted Section(s) 27A(b) of the 1934 Act, which provides for reinstatement on motion of any action commenced pre-Lampf but dismissed thereafter as time barred, if the action would have been timely filed under applicable pre-Lampf state law. Although finding that the statute's terms required that petitioners' ensuing Section(s) 27A(b) motion be granted, the District Court denied the motion on the ground that Section(s) 27A(b) is unconstitutional. The Court of Appeals affirmed.

Held: Section 27A(b) contravenes the Constitution's separation of powers to the extent that it requires federal courts to reopen final judgments entered before its enactment. Pp. 3-30.

(a) Despite respondents' arguments to the contrary, there is no reasonable construction on which Section(s) 27A(b) does not require federal courts to reopen final judgments in suits dismissed with prejudice by virtue of Lampf. Pp. 3-5.

(b) Article III establishes a ``judicial department'' with the ``province and duty . . . to say what the law is'' in particular cases and controversies. Marbury v. Madison, 1 Cranch 137, 177. The Framers crafted this charter with an expressed understanding that it gives the Federal Judiciary the power, not merely to rule on cases, but to decide them conclusively, subject to review only by superior courts in the Article III hierarchy. Thus, the Constitution forbids the Legislature to interfere with courts' final judgments. Pp. 7-14.

(c) Section 27A(b) effects a clear violation of the foregoing principle by retroactively commanding the federal courts to reopen final judgments. This Court's decisions have uniformly provided fair warning that retroactive legislation such as Section(s) 27A(b) exceeds congressional powers. See, e.g., Chicago & Southern Air Lines, Inc. v. Waterman S. S. Corp., 333 U. S. 103, 113. Petitioners are correct that when a new law makes clear that it is retroactive, an appellate court must apply it in reviewing judgments still on appeal, and must alter the outcome accordingly. However, once a judgment has achieved finality in the highest court in the hierarchy, the decision becomes the last word of the judicial department with regard to the particular case or controversy, and Congress may not declare by retroactive legislation that the law applicable to that case was in fact something other than it was. It is irrelevant that Section(s) 27A(b) reopens (or directs the reopening of) final judgments in a whole class of cases rather than in a particular suit, and that the final judgments so reopened rested on the bar of a statute of limitations rather than on some other ground. Pp. 14-19.

(d) Apart from Section(s) 27A(b), the Court knows of no instance in which Congress has attempted to set aside the final judgment of an Article III court by retroactive legislation. Fed. Rule Civ. Proc. 60(b), 20 U. S. C. Section(s) 1415(e)(4), 28 U. S. C. Section(s) 2255, 50 U. S. C. App. Section(s) 520(4), and, e.g., the statutes at issue in United States v. Sioux Nation, 448 U. S. 371, 391-392, Sampeyreac v. United States, 7 Pet. 222, 238, Paramino Lumber Co. v. Marshall, 309 U. S. 370, and Pennsylvania v. Wheeling & Belmont Bridge Co., 18 How. 421, distinguished. Congress's prolonged reticence would be amazing if such interference were not understood to be constitutionally proscribed by the Constitution's separation of powers. The Court rejects the suggestion that Section(s) 27A(b) might be constitutional if it exhibited prospectivity or a greater degree of general applicability. Pp. 19-30. 1 F. 3d 1487, affirmed.

Scalia, J., delivered the opinion of the Court, in which Rehnquist, C. J., and O'Connor, Kennedy, Souter, and Thomas, JJ., joined. Breyer, J., filed an opinion concurring in the judgment. Stevens, J., filed a dissenting opinion, in which Ginsburg, J., joined.

Justice Scalia

On Writ of Certiorari to the United States Court of Appeals for the Sixth Circuit.

The question presented in this case is whether Section(s) 27A(b) of the Securities Exchange Act of 1934, to the extent that it requires federal courts to reopen final judgments in private civil actions under Section(s) 10(b) of the Act, contravenes the Constitution's separation of powers or the Due Process Clause of the Fifth Amendment.

I.

In 1987, petitioners brought a civil action against respondents in the United States District Court for the Eastern District of Kentucky. The complaint alleged that in 1983 and 1984 respondents had committed fraud and deceit in the sale of stock in violation of Section(s) 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission. The case was mired in pretrial proceedings in the District Court until June 20, 1991, when we decided Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U. S. 350 (1991). Lampf held that "[l]itigation instituted pursuant to Section(s) 10(b) and Rule 10b-5 . . . must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation." Id., at 364. We applied that holding to the plaintiff-respondents in Lampf itself, found their suit untimely, and reinstated a summary judgment previously entered in favor of the defendant-petitioners. Ibid. On the same day we decided James B. Beam Distilling Co. v. Georgia, 501 U. S. 529 (1991), in which a majority of the Court held, albeit in different opinions, that a new rule of federal law that is applied to the parties in the case announcing the rule must be applied as well to all cases pending on direct review. See Harper v. Virginia Dept. of Taxation, 509 U. S. ___, ___ (1993) (slip op., at 7-9). The joint effect of Lampf and Beam was to mandate application of the 1-year/3-year limitations period to petitioners' suit. The District Court, finding that petitioners' claims were untimely under the Lampf rule, dismissed their action with prejudice on August 13, 1991. Petitioners filed no appeal; the judgment accordingly became final 30 days later. See 28 U. S. C. Section(s) 2107(a) (1988 ed., Supp. V); Griffith v. Kentucky, 479 U. S. 314, 321, n. 6 (1987).

On December 19, 1991, the President signed the Federal Deposit Insurance Corporation Improvement Act of 1991, 105 Stat. 2236. Section 476 of the Act-a section that had nothing to do with FDIC improvements-became Section(s) 27A of the Securities Exchange Act of 1934, and was later codified as 15 U. S. C. Section(s) 78aa-1 (1988 ed., Supp. V). It provides:

"(a) Effect on pending causes of action

"The limitation period for any private civil action implied under section 78j(b) of this title [Section(s) 10(b) of the Securities Exchange Act of 1934] that was commenced on or before June 19, 1991, shall be the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991.

"(b) Effect on dismissed causes of action

"Any private civil action implied under section 78j(b) of this title that was commenced on or before June 19, 1991-

"(1) which was dismissed as time barred subsequent to June 19, 1991, and

"(2) which would have been timely filed under the limitation period provided by the laws applicable in the jurisdiction, including principles of retroactivity, as such laws existed on June 19, 1991, shall be reinstated on motion by the plaintiff not later than 60 days after December 19, 1991."

On February 11, 1992, petitioners returned to the District Court and filed a motion to reinstate the action previously dismissed with prejudice. The District Court found that the conditions set out in Section(s) 27A(b)(1) and (2) were met, so that petitioners' motion was required to be granted by the terms of the statute. It nonetheless denied the motion, agreeing with respondents that Section(s) 27A(b) is unconstitutional. Memorandum Opinion and Order, Civ. Action No. 87-438 (ED Ky., Apr. 13, 1992). The United States Court of Appeals for the Sixth Circuit affirmed. 1 F. 3d 1487 (1993). We granted certiorari. 511 U. S. ___ (1994). *fn1

II.

Respondents bravely contend that Section(s) 27A(b) does not require federal courts to reopen final judgments, arguing first that the reference to "the laws applicable in the jurisdiction . . . as such laws existed on June 19, 1991" (the day before Lampf was decided) may reasonably be construed to refer precisely to the limitations period provided in Lampf itself, in which case petitioners' action was time barred even under Section(s) 27A. *fn2 It is true that "[a] judicial construction of a statute is an authoritative statement of what the statute meant before as well as after the decision of the case giving rise to that construction." Rivers v. Roadway Express, Inc., 511 U. S. ___, ___ (1994) (slip op., at 14); see also id., at ___, n. 12 (slip op., at 14, n. 12). But respondents' argument confuses the question of what the law in fact was on June 19, 1991, with the distinct question of what Section(s) 27A means by its reference to what the law was. We think it entirely clear that it does not mean the law enunciated in Lampf, for two independent reasons. First, Lampf provides a uniform, national statute of limitations (instead of using the applicable state limitations period, as lower federal courts had previously done. See Lampf, supra, at 354, and n. 1). If the statute referred to that law, its reference to the "laws applicable in the jurisdiction" (emphasis added) would be quite inexplicable. Second, if the statute refers to the law enunciated in Lampf it is utterly without effect, a result to be avoided if possible. American Nat. Red Cross v. S. G., 505 U. S. ___, ___ (1992) (slip op., at 16-17); see 2A N. Singer, Sutherland on Statutory Construction Section(s) 46.06 (4th ed. 1984). It would say, in subsection (a), that the limitation period is what the Supreme Court has held to be the limitation period; and in subsection (b), that suits dismissed as untimely under Lampf which were timely under Lampf (a null set) shall be reinstated. To avoid a constitutional question by holding that Congress enacted and the President approved a blank sheet of paper would indeed constitute "disingenuous evasion." George Moore Ice Cream Co. v. Rose, 289 U. S. 373, 379 (1933).

As an alternative reason why Section(s) 27A(b) does not require the reopening of final judgments, respondents suggest that the subsection applies only to cases still pending in the federal courts when Section(s) 27A was enacted. This has only half the defect of the first argument, for it makes only half of Section(s) 27A purposeless-Section(s) 27A(b). There is no need to "reinstate" actions that are still pending; Section(s) 27A(a) (the new statute of limitations) could and would be applied by the courts of appeals. On respondents' reading, the only consequence of Section(s) 27A(b) would be the negligible one of permitting the plaintiff in the pending appeal from a statute-of-limitations dismissal to return immediately to the district court, instead of waiting for the court of appeals' reversal. To enable Section(s) 27A(b) to achieve such an insignificant consequence, one must disregard the language of the provision, which refers generally to suits "dismissed as time barred." It is perhaps arguable that this does not include suits that are not yet finally dismissed, i.e., suits still pending on appeal; but there is no basis for the contention that it includes only those. In short, there is no reasonable construction on which Section(s) 27A(b) does not require federal courts to reopen final judgments in suits dismissed with prejudice by virtue of Lampf.

III.

Respondents submit that Section(s) 27A(b) violates both the separation of powers and the Due Process Clause of the Fifth Amendment. *fn3 Because the latter submission, if correct, might dictate a similar result in a challenge to state legislation under the Fourteenth Amendment, the former is the narrower ground for adjudication of the constitutional questions in the case, and we therefore consider it first. Ashwander v. TVA, 297 U. S. 288, 347 (1936) (Brandeis, J., concurring). We conclude that in Section(s) 27A(b) Congress has exceeded its authority by requiring the federal courts to exercise "the judicial Power of the United States," U. S. Const., Art. III, Section(s) 1, in a manner repugnant to the text, structure and traditions of Article III.

Our decisions to date have identified two types of legislation that require federal courts to exercise the judicial power in a manner that Article III forbids. The first appears in United States v. Klein, 13 Wall. 128 (1872), where we refused to give effect to a statute that was said "[t]o prescribe rules of decision to the Judicial Department of the government in cases pending before it." Id., at 146. Whatever the precise scope of Klein, however, later decisions have made clear that its prohibition does not take hold when Congress "amend[s] applicable law." Robertson v. Seattle Audubon Society, 503 U. S. 429, 441 (1992). Section 27A(b) indisputably does set out substantive legal standards for the Judiciary to apply, and in that sense changes the law (even if solely retroactively). The second type of unconstitutional restriction upon the exercise of judicial power identified by past cases is exemplified by Hayburn's Case, 2 Dall. 409 (1792), which stands for the principle that Congress cannot vest review of the decisions of Article III courts in officials of the Executive Branch. See, e.g., Chicago & Southern Air Lines, Inc. v. Waterman S. S. Corp., 333 U. S. 103 (1948). Yet under any application of Section(s) 27A(b) only courts are involved; no officials of other departments sit in direct review of their decisions. Section 27A(b) therefore offends neither of these previously established prohibitions.

We think, however, that Section(s) 27A(b) offends a postulate of Article III just as deeply rooted in our law as those we have mentioned. Article III establishes a "judicial department" with the "province and duty . . . to say what the law is" in particular cases and controversies. Marbury v. Madison, 1 Cranch 137, 177 (1803). The record of history shows that the Framers crafted this charter of the judicial department with an expressed understanding that it gives the Federal Judiciary the power, not merely to rule on cases, but to decide them, subject to review only by superior courts in the Article III hierarchy-with an understanding, in short, that "a judgment conclusively resolves the case" because "a `judicial Power' is one to render dispositive judgments." Easterbrook, Presidential Review, 40 Case W. Res. L. Rev. 905, 926 (1990). By retroactively commanding the federal courts to reopen final judgments, Congress has violated this fundamental principle.

A.

The Framers of our Constitution lived among the ruins of a system of intermingled legislative and judicial powers, which had been prevalent in the colonies long before the Revolution, and which after the Revolution had produced factional strife and partisan oppression. In the 17th and 18th centuries colonial assemblies and legislatures functioned as courts of equity of last resort, hearing original actions or providing appellate review of judicial judgments. G. Wood, The Creation of the American Republic 1776-1787, pp. 154-155 (1969). Often, however, they chose to correct the judicial process through special bills or other enacted legislation. It was common for such legislation not to prescribe a resolution of the dispute, but rather simply to set aside the judgment and order a new trial or appeal. M. Clarke, Parliamentary Privilege in the American Colonies 49-51 (1943). See, e.g., Judicial Action by the Provincial Legislature of Massachusetts, 15 Harv. L. Rev. 208 (1902) (collecting documents from 1708-1709); 5 Laws of New Hampshire, Including Public and Private Acts, Resolves, Votes, etc., 1784-1792, p. ___ (Metcalf ed. 1916). Thus, as described in our discussion of Hayburn's Case, supra, at 6-7, such legislation bears not on the problem of interbranch review but on the problem of finality of judicial judgments.

The vigorous, indeed often radical, populism of the revolutionary legislatures and assemblies increased the frequency of legislative correction of judgments. Wood, supra, at 155-156, 407-408. See also INS v. Chadha, 462 U. S. 919, 961 (1983) (Powell, J., concurring). "The period 1780-1787 . . . was a period of `constitutional reaction' " to these developments, "which . . . leaped suddenly to its climax in the Philadelphia Convention." E. Corwin, The Doctrine of Judicial Review 37 (1914). Voices from many quarters, official as well as private, decried the increasing legislative interference with the private-law judgments of the courts. In 1786 the Vermont Council of Censors issued an "Address of the Council of Censors to the Freemen of the State of Vermont," to fulfill the Council's duty, under the State Constitution of 1784, to report to the people " `whether the legislative and executive branches of government have assumed to themselves, or exercised, other or greater powers than they are entitled to by the Constitution.' " Vermont State Papers 1779-1786, pp. 531, 533 (Slade ed. 1823). A principal method of usurpation identified by the Censors was "[t]he instances . . . of judgments being vacated by legislative acts." Id., at 540. The Council delivered an opinion

"that the General Assembly, in all the instances where they have vacated judgments, recovered in due course of law, (except where the particular circumstances of the case evidently made it necessary to grant a new trial) have exercised a power not delegated, or intended to be delegated, to them, by the Constitution. . . . It supercedes the necessity of any other law than the pleasure of the Assembly, and of any other court than themselves: for it is an imposition on the suitor, to give him the trouble of obtaining, after several expensive trials, a final judgment agreeably to the known established laws of the land; if the Legislature, by a sovereign act, can interfere, reverse the judgment, and decree in such manner, as they, unfettered by rules, shall think proper." Ibid.

So too, the famous report of the Pennsylvania Council of Censors in 1784 detailed the abuses of legislative interference with the courts at the behest of private interests and factions. As the General Assembly had (they wrote) made a custom of "extending their deliberations to the cases of individuals," the people had "been taught to consider an application to the legislature, as a shorter and more certain mode of obtaining relief from hardships and losses, than the usual process of law." The Censors noted that because "favour and partiality have, from the nature of public bodies of men, predominated in the distribution of this relief . . . these dangerous procedures have been too often recurred to, since the revolution." Report of the Committee of the Council of Censors 6 (Bailey ed. 1784).

This sense of a sharp necessity to separate the legislative from the judicial power, prompted by the crescendo of legislative interference with private judgments of the courts, triumphed among the Framers of the new Federal Constitution. See Corwin, The Progress of Constitutional Theory Between the Declaration of Independence and the Meeting of the Philadelphia Convention, 30 Am. Hist. Rev. 511, 514-517 (1925). The Convention made the critical decision to establish a judicial department independent of the Legislative Branch by providing that "the judicial Power of ...


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