Plaut v. Spendthrift Farm, Inc.

• Citation: 1 F.3d 1487
• Decision Date: 14 October 1993
• Docket Number: No. 92-5591,92-5591
• Parties: , Fed. Sec. L. Rep. P 97,684 Ed PLAUT; his wife, Nancy McHardy Plaut; John Grady, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. SPENDTHRIFT FARM, INC.; Bateman Eichler, Hill Richards, Inc.; Francis M. Wheat; Gibson, Dunn & Crutcher; Deloitte, Haskins & Sells; Norman D. Owens; American International Bloodstock Agency, Inc., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 1487

1 F.3d 1487

62 USLW 2091, Fed. Sec. L. Rep. P 97,684

Ed PLAUT; his wife, Nancy McHardy Plaut; John Grady, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants, v. SPENDTHRIFT FARM, INC.; Bateman Eichler, Hill Richards Inc.; Francis M. Wheat; Gibson, Dunn & Crutcher Deloitte, Haskins & Sells; Norman D. Owens; American International Bloodstock Agency, Inc., Defendants-Appellees.

No. 92-5591.

United States Court of Appeals Sixth Circuit.

Argued March 1, 1993.

Decided Aug. 3, 1993.

Rehearing and Suggestion for Rehearing En Banc Denied Oct. 14, 1993.

J. Montjoy Trimble (argued and briefed), Trimble & Bowling, Lexington, KY, for plaintiffs-appellants.

Richard C. Ward, David C. Long, Barbara Edleman (briefed), Glenn C. Van Bever (argued), Wyatt, Tarrant & Combs, Lexington, KY, for Spendthrift Farm, Inc.

Guy R. Colson, Sr. Partner, Fowler, Measle & Bell, Elizabeth S. Feamster, Lexington, KY, James E. Burns, Jr., John Missing, Kevin P. Muck (briefed), Brobeck, Phleger &amp Harrison, San Francisco, CA, for Bateman Eichler, Hill Richards Inc.

Robert M. Watt, III (briefed), J. David Smith, Jr., Stoll, Keenon & Park, Lexington, KY, William E. Johnson, Stoll, Keenon & Park, Frankfort, KY, for Francis M. Wheat, and Gibson, Dunn & Crutcher.

L. Clifford Craig (argued and briefed), Taft, Stettinius & Hollister, Cincinnati, OH, Peter L. Ecabert, Deloitte, Haskins & Sells, New York City, Robert B. Craig (briefed), Taft, Stettinius & Hollister, Crestview Hills, KY, for Deloitte, Haskins & Sells.

Michael D. Meuser, Frank T. Becker, Harry B. Miller, Jr., Robert S. Miller (argued and briefed), Miller, Griffin & Marks, Lexington, KY, for Norman D. Owens and American Intern. Bloodstock Agency, Inc.

Scott R. McIntosh (briefed), U.S. Dept. of Justice, Appellate Div., Washington, DC, Barbara C. Biddle, U.S. Dept. of Justice, Appellate Staff, Civ. Div., Mark B. Stern (argued), U.S. Dept. of Justice, Civ. Div., Washington, DC, for amicus curiae U.S. and Securities and Exchange Com'n.

Kathryn Oberly (briefed), Washington, DC, for amicus curiae Arthur Andersen & Co., Ernst & Young, KPMG Peat Marwick and Price Waterhouse.

Before: KEITH and BATCHELDER, Circuit Judges; and CHURCHILL, Senior District Judge. ^*

BATCHELDER, Circuit Judge.

I.

Appellants, the plaintiffs before the District Court, representing a large number of sometime investors, originally sued defendants on November 25, 1987, alleging violations of the securities laws, namely fraud and deceit in the sale of stock under Section 10(b) of the Securities Exchange Act of 1934 ("1934 Act") ¹ and Securities and Exchange Commission Rule 10b-5. ² Defendants owned "one of the Commonwealth's premier thoroughbred horse farms" (the District Court's characterization, to which we owe every deference) and issued stock in the enterprise in order to raise some thirty million dollars in cash; others of the named defendants were various legal and financial advisers to the venture. The appellants (or "shareholders") originally purchased their stock when defendants offered it for public sale in 1983.

For over three years, the pretrial litigation in the District Court proceeded apace. On June 20, 1991, however, the Supreme Court handed down Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, --- U.S. ----, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), which applied a uniform Federal time limit from another section of the 1934 Act to that action and all private Sec. 10(b) actions. Lampf provided a three year period of repose, running from the date of a fraudulent securities contract of sale, or a one year limitation period, running from the date of discovery of the fraud. ³

The District Court, applying Lampf retroactively on the authority of Beam Distilling Corp. v. Georgia, --- U.S. ----, 111 S.Ct. 2439, 115 L.Ed.2d 481 (1991), which was announced the same day as Lampf, dismissed the shareholders' claims with prejudice on August 13, 1991. The shareholders did not file what they believed (correctly) would have been a meritless and indeed sanctionable appeal.

In November 1991, Congress passed the FDIC Improvement Act of 1991, ("1991 Act") which, on a plaintiff's motion made within sixty days of the effective date of the statute, December 19, 1991, required the District Courts to reinstate claims which had been dismissed as a result of the application of the Federal statute of limitations announced in Lampf. The shareholders filed such a motion on February 11, 1992. While finding that under the statute the shareholders were entitled to have their claims reinstated, the District Court held the statute unconstitutional as applied and denied the motion 789 F.Supp. 231. Since the portion of the 1991 Act which commands the District Court to reinstate the shareholders' dismissed cause of action violates the doctrine of separation of powers and deprives the defendants of their vested rights in the court's final judgment, we affirm.

II.

The disputed statutory provision of the 1991 Act provides:

(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, ⁴ 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 law existed on June 19, 1991,

shall be reinstated on motion by the plaintiff not later than 60 days after Dec. 19, 1991.

15 U.S.C. Sec. 78aa-1. ⁵ The statute's language is plain and unambiguous. It applies only to the claims of the parties in Lampf and to those lawsuits which were dismissed as a result of Lampf's retroactive application. The statute commands the Federal courts to reinstate cases which those courts have dismissed. Where the word "shall" appears in a statutory directive, "Congress could not have chosen stronger words to express its intent that [the specified action] be mandatory...." United States v. Monsanto, 491 U.S. 600, 607, 109 S.Ct. 2657, 2662, 105 L.Ed.2d 512 (1989).

Refreshingly, none of the litigants at our bar has suggested that Sec. 27A means anything other than what it plainly says. This is certainly not a case in which the issue of separation of powers

comes before the [c]ourt clad, so to speak, in sheep's clothing: [where] the potential of the asserted principle to effect important change in the equilibrium of power is not immediately evident, and must be discerned by a careful and perceptive analysis.

Morrison v. Olson, 487 U.S. 654, 699, 108 S.Ct. 2597, 2623, 101 L.Ed.2d 569 (1988) (Scalia, J., dissenting). If Justice Scalia, the lone dissenter in Morrison, thought that the challenged independent counsel law was a wolf which came "as a wolf," id., we think that Sec. 27A comes as a camel, one that has forcibly and quite unapologetically thrust its nose into the tent of the judicial branch.

A. A brief historical background.

To answer the question upon which the constitutionality of Sec. 27A hinges, we must reach far back into American legal history. During the first century or so of colonial government, legislative edicts requiring courts to reopen, vacate, rehear, or even reverse settled decisions upon the petition of the aggrieved losing party were not uncommon. ⁶ Noting the apparent prevalence of legislative adjudication of private disputes and grievances in the early colonial period, historians have concluded that such action did not offend the legal or political sensibilities of the time. ⁷ However, these sensibilities changed considerably during the years following the outbreak of the Revolutionary War, particularly with the escalation of legislative interference in private disputes which occurred during the time of the Articles of Confederation, notably and most frequently to grant debtors "relief" from creditors. ⁸ "Once legislative interference in judicial matters had intensified as never before in the eighteenth century, a new appreciation of the role of the judiciary in American politics [began] to emerge." Id. at 454.

The transformation of the legislature from its occasional role as an informal court of last resort, dishing out equitable relief to particularly aggrieved citizens, to a "department [which] is everywhere extending the sphere of its activity and drawing all power into its impetuous vortex," as James Madison described the legislative element of government in The Federalist 48, deeply concerned the fledgling Nation's leaders, most notably those who met in Philadelphia in 1787 to revise the Articles of Confederation. Their concern translated into many of the Constitution's specific enumerations of and limitations on power, as well as the "political truth" embodied in the document that "[t]he accumulation of all powers, legislative, executive, and judiciary, in the same hands ... may justly be pronounced the very definition of tyranny" and that "the preservation of liberty requires that the three great departments of power should be separate and distinct." The Federalist 47 (James Madison).

Defending the Constitution against charges that its provisions did not ensure adequate separation among the branches, Madison explained that good government did not require its departments to be "totally separate and distinct from one another." The nature of the power exerted, not the person or body exerting it, mattered: "[W]here the whole power of one department is exercised by the same hands which possess the whole power of another department, the fundamental principles of a free constitution are subverted." Federalist 47. In the specific context of the separation between legislature and judiciary, he noted, "[t]he entire legislature can perform no judiciary act"; pursuing the point, he quoted Montesquieu: "Were the power of judging joined with the legislative, the life and liberty of the subject would be exposed to arbitrary...