- [Instructor] In 1983 Ed Plaut bought shares
in a Kentucky horse farm
called Spendthrift Farm Incorporated.
In 1987, Plaut and other investors sued
Spendthrift Farm in federal court,
accusing it of securities fraud under section 10(b)
of the Securities Exchange Act.
At the time there was no statute of limitations
for federal securities fraud cases.
As a result, courts borrowed state statutes of limitations
and applied them in federal securities fraud cases.
Plaut's case was probably timely under
Kentucky's three year statute of limitations.
But while Plaut's case was pending,
the United States Supreme Court decided
Lampf, Pleva, Lipkind, Prupis, and Petigrow
versus Gilbertson in 1991.
In Lampf, the United States Supreme Court
ruled that all section 10(b) securities
fraud lawsuits had to be filed according
to a uniform standard,
which was within three years of the fraud,
and one year of its discovery.
Plauts case wasn't timely under the limitations
period established in Lampf.
Because Lampf applied to all cases then pending,
including Plaut's case,
the district court dismissed Plaut's case
with prejudice.
Plaut didn't appeal the dismissal
and the judgement became final.
A few months later,
the President signed the Federal
Deposit Insurance Corporation Improvement Act.
Part of the act was meant to soften the harsh
effects of the Lampf decision on plaintiffs like Plaut.
To that end, the act amended the securities laws
in what became section 27A of the Securities Exchange Act.
Subsection 27A(b) required courts to reinstate
those securities fraud cases that had been filed
before the Lampf decision,
but where then dismissed because of the new rule.
Plaut filed a motion to reopen his case,
which had been dismissed under Lampf
and was eligible for reinstatement.
The district court determined that Plaut's
lawsuit qualified for reinstatement under the act,
but then ruled that subsection 27A(b)
was unconstitutional.
The court therefore denied PLaut's motion.
The court of appeals for the sixth circuit
affirmed the district court's decision.
Plaut then petitioned the
United States Supreme Court for review.
The Supreme Court granted cert to address
whether Congress could enact legislation
requiring the judicial branch to reopen closed cases
and reconsider final judgments.
Writing for the majority,
Justice Scalia held that Congress could not pass
retroactive legislation directing the judiciary
to reopen final judgements because doing so
violates the Constitution's separation of powers.
Article Three of the United States Constitution
vests all judicial power in the courts,
and only the courts may decide the outcome
of individual cases.
Therefore, when a court says that a judgment
is final, it's final.
If Congress tries to dictate the outcome
of an individual case,
or to reopen a case after final judgment,
Congress improperly intrudes on the judicial power.
Before the Constitution was adopted, Scalia noted,
colonial legislatures frequently overturned
specific court decisions.
In the federalist papers,
Alexander Hamilton and James Madison both criticized
that kind of legislative interference with the judiciary.
Abraham Lincoln also spoke against legislative
interference with final judgements
in his first Inaugural Address.
The Constitution provides that Congress'
proper function is to make general laws
of prospective effect,
while the judiciary's function is to apply
those laws to individual cases.
And then decide them.
Congress isn't permitted to interfere
in the outcome of individual cases.
Nor can it force courts to reopen final judgements.
Therefore, subsection 27A(b) was an unconstitutional
violation of the separation of powers principle.
The Supreme Court affirmed the sixth circuit's judgment.
Holding section 27A(b) unconstitutional
and declining to reopen Plaut's case.
Justice Breyer concurred in judgment.
Breye agreed that subsection 27A(b) violated
the separation of powers because it was purely
retroactive and singled out a small number
of securities fraud plaintiffs for preferential treatment.
Unlike the majority, however,
Breyer left open the possibility that Congress
could require the courts to reopen closed cases
under some circumstances.
Justice Stevens dissented, joined by Justice Ginsberg.
Stevens argued that historical tradition
and Constitutional precedent allowed Congress
to reopen final judgements,
citing decisions from the 1830's to the 1980's.
In this case, Congress didn't tell the courts
how to rule in securities fraud cases,
but merely restored cases that had been wrongly
dismissed under the harsh Lampf rule.
For Stevens, the Constitution separation of powers
meant that the branches of government
must cooperate with each other,
rather than operate with strict independence.
Plaut versus Spendthrift Farm, Inc.
is a significant statement on the Constitution's
separation of powers,
showing that Congress's Article One powers
do not permit it to tamper with final judgments.