Plaut v. Spendthrift Farm, Inc.

1995-04-18

Headline: Court strikes down law that would force federal judges to reopen final securities fraud judgments, blocking Congress from retroactively reviving many dismissed shareholder suits and limiting legislative reopenings.

Holding: The Court held that Congress exceeded its authority by requiring federal courts to reopen final civil judgments under §27A(b), making that statutory reopening provision unconstitutional.

Real World Impact:

Prevents Congress from forcing federal courts to reopen final federal civil judgments.
Leaves many securities suits dismissed after Lampf final and unreinstated under §27A(b).
Limits Congress’s ability to revive closed lawsuits by retroactive statute.

Topics: separation of powers, reopening closed court cases, securities fraud suits, retroactive laws

Summary

Background

A group of investors filed a fraud suit in 1987 about the sale of stock. After this Court changed the limitations rule in Lampf (June 20, 1991), the district court dismissed the investors' suit as untimely and that dismissal became final. In December 1991 Congress enacted a provision (commonly called §27A) that, among other things, instructed courts to reinstate certain 10b-5 securities suits dismissed after Lampf if they would have been timely under the old law. The investors moved to reinstate; the district court and the Sixth Circuit held the reinstatement command unconstitutional, and the Supreme Court agreed.

Reasoning

The key question was whether Congress may require federal courts to reopen final Article III judgments. The Court held that §27A(b), to the extent it commanded courts to set aside final judgments and reopen cases, violated the constitutional separation of powers. The majority relied on Article III’s structural protection of final judicial decisions and historical practice that rejected legislative nullification of final court judgments. The Court treated the separation-of-powers issue as the narrower ground and did not resolve the separate due-process argument.

Real world impact

The ruling prevents Congress from using retroactive legislation to force federal courts to reopen final 10b-5 securities judgments of the type at issue here. Plaintiffs who let final dismissals stand cannot be reinstated under §27A(b); courts retain control over whether to reopen cases under their own doctrines. The decision constrains Congress’s ability to revive closed federal civil suits by retroactive statute.

Dissents or concurrances

Justice Breyer concurred in the judgment on narrower grounds (citing the statute’s retroactivity and limited class). Justice Stevens (joined by Justice Ginsburg) dissented, arguing remedial legislation and historical practice support Congress’s power to allow reopenings and that §27A was a permissible corrective measure.