Facts
- Shareholders sued Spendthrift Farm, Inc. in federal district court under § 10(b) and SEC Rule 10b-5 for alleged fraud in 1983–84 stock sales.
- When filed (1987), courts borrowed state limitation periods; the case proceeded under Kentucky’s longer limitations rule.
- In 1991, the Supreme Court adopted a uniform federal limitations period for § 10(b)/Rule 10b-5 actions (one year from discovery and three years from violation) and required its application to cases pending on direct review.
- Applying that limitations rule, the district court dismissed the shareholders’ action with prejudice as time-barred (Aug. 13, 1991).
- The shareholders did not appeal; the dismissal became final after the time to appeal expired.
- Later in 1991, Congress enacted § 27A of the Securities Exchange Act, providing that pre–June 20, 1991 actions would use preexisting limitation rules, and directing that actions filed by June 19, 1991 and dismissed as time-barred after the 1991 Supreme Court decision “shall be reinstated” on the plaintiff’s motion if timely under prior law.
- The shareholders moved to reinstate under § 27A(b); the district court concluded the statute required reinstatement but denied relief as unconstitutional.
- The Sixth Circuit affirmed, holding that § 27A(b) violated separation of powers by compelling reopening of final judgments.
Issues
- Whether § 27A(b) requires federal courts to reopen final judgments dismissing § 10(b)/Rule 10b-5 suits as time-barred.
- If so, whether Congress violates Article III separation of powers by requiring federal courts to reopen final judgments entered before the statute’s enactment.
Decision
- The Supreme Court affirmed the Sixth Circuit.
- The Court held that § 27A(b) necessarily directs federal courts to reopen final judgments in time-barred § 10(b) cases dismissed with prejudice after the 1991 limitations decision.
- The Court held § 27A(b) unconstitutional to the extent it requires reopening of final judgments entered before its enactment.
- The majority reasoned that Article III’s “judicial Power” includes authority to render conclusive judgments, subject only to review within the Article III appellate hierarchy.
- The Court distinguished permissible retroactive lawmaking applicable to cases still on direct review from impermissible legislative commands to reopen cases already final.
Legal Principles
- Congress may change substantive or procedural law and may make those changes retroactive for cases still pending in the judicial process.
- Congress may not mandate that Article III courts reopen a case after a final judgment, no longer subject to direct review, has been entered.
- The finality of Article III judgments is a constitutional attribute of the “judicial Power” and a structural component of separation of powers.
- A statute that retroactively commands reinstatement of actions dismissed with prejudice and already final unconstitutionally intrudes on the judiciary’s function of conclusively resolving cases.
Conclusion
The Court held that Article III forbids Congress from requiring federal courts to reopen final judgments; because § 27A(b) compelled reinstatement of already-final dismissals in § 10(b) litigation, it violated separation of powers and was unconstitutional as applied to such final judgments.