# Amicus Curiae Brief — Plaut v. Spendthrift Farm, Inc.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 1995
- **Citation:** 514 U.S. 211

## Text

P FILED |

9) JUL 21

No. 93-1121 1994

ENE HHE CLERK
Iu the Supreme Court of the United States

OCTOBER TERM, 1994

ED PLAUT, ET AL., PETITIONERS
Vv.
SPENDTHRIFT FARM, INC., ET AL.

ON WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT

BRIEF FOR THE UNITED STATES

Drew S. Days, III

Solicitor General
FRANK W. HUNGER
Assistant Attorney General
SIMON M. LORNE EDWIN S. KNEEDLER
General Counsel Deputy Solicitor General
PAUL GONSON MICHAEL R. DREEBEN
Solicitor Assistant to the Solicitor
JACOB H. STILLMAN General
Associate General Counsel Barpara C. BIDDLE
LESLIE E. SMITH Scott R. MCINTOSH
Senior Litigation Counsel Attorneys
Securities and Exchange Department of Justice
Commission Washington, D.C. 20530
Washington, D.C. 20549 (202) 514-2217

QUESTION PRESENTED

The Court’s grant of certiorari is limited to the
following question:

Whether Section 27A(b) of the Securities Ex-
change Act of 1934, 15 U.S.C. 78aa-1, to the extent
that it requires reinstatement of Section 10(b) ac-
tions dismissed with prejudice pursuant to judg-
ments that became final prior to the enactment of
Section 27A(b), contravenes the separation-of-
powers doctrine or the Fifth Amendment Due Proc-
ess Clause of the United States Constitution.

(1)

TABLE OF CONTENTS

II ia. osciensictanedeicabibniessivadlbcbibnermniniadnnpiantdamentinataitian
Fa RE Ne I Lt cE RA 2s AOA So OSE EO

ECE A SE AI eC

Argument:

Section 27A(b) of the Securities Exchange Act of
ES ee ee
I. Section 27A(b) does not violate the separation
of powers under the Constitution .....................

A. Section 27A(b) is consistent with the prin-
ciples of Hayburn’s Case ....................0:cc-000-++

B. Section 27A(b) is consistent with broader
separation of powers principles —..................

C. Section 27A(b) does not conflict with the
historical understanding or later implemen-

I reins

II. Section 27A(b) does not violate the Due Process
Clause ........... SRE EASES IE ae eee nee

A. The Due Process Clause protects property
interests, not “vested rights” —......................

B. The “vested rights” doctrine, even if it has
continuing significance, does not invalidate
| REESE Ae open eee

a TR ae ET CR Rh RL ST ns

TABLE OF AUTHORITIES
Cases:

Adams Vv. Merrill Lynch Pierce Fenner & Smith,
888 F.2d 696 (10th Cir. 1989) 2.0.00 ee
Anixter Vv. Home-Stake Prod. Co., 977 F.2d 1533
(10th Cir. 1992), cert. denied, 113 S. Ct. 1841
ST De SE eee ae oe eee coe ae

Anwne

IV
Cases—Continued: Page
Astoria Federal Savings & Loan Ass’n v. Soli-
mine, 601 US. 104 (1991) ..................................... 22
Axel Johnson Inc. Vv. Arthur Anderson & Co., 6
I 4
Bank of the United States v. Donnally, 33 U.S.
I allie 40
Berning V. A.G. Edwards & Sons, 990 F.2d 272
(7th Cir. 1998) ....... ee = — SE aaenenee 4-5
Block v. North Dakota, 461 U.S. 273 (1983) _........ 40
Board of Regents v. Roth, 408 U.S. 564 (1972)... 33
Braxton Vv. United States, 500 U.S. 344 (1991)...... 22
Calder Vv. Bull, 3 U.S. (3 Dall.) 386 (1798) —.......... 18, 44
Campbell v. Holt, 115 U.S. 620 (1885) 000000000. 32, 41
Carimi V. Royal Carribean Cruise Line, Inc., 959
kG LS ne 24
Carothers V. Rice, 633 F.2d 7 (6th Cir. 1980), cert.
denied, 450 U.S. 998 (1981) ................................. 2, 38
Chase Securities Corp. V. Donaldson, 325 U.S. 304
iT isceetcaretlinbdeaaeianariia die aan iactanienabeiaeemtenannes 41
Chicago & Southern Air Lines, Inc. v. Waterman
Steamship Corp., 333 U.S. 103 (1948) 00000000000... 30, 31
Commodity Futures Trading Commission V. Schor,
478 U.S. 888 (1966) ......................... 17-18, 21, 22, 23, 27

Concrete Pipe & Products of California, Inc. V.
Construction Laborers Pension Trust, 113 S. Ct.

EE Se 33
Connolly v. Pension Benefit Guaranty Corp., 475

a i lca 39
Cooke v. Manufactured Homes, Inc., 998 F.2d 1256

a ee 4

Cooperativa de Ahorro y Credito Aguada v. Kid-
der, Peabody & Co., 993 F.2d 269 (1st Cir.),
petition for cert. pending, No. 93-564 (filed

I a aie iain ttciaianracaiaernerces 4
District of Columbia v. Eslin, 183 U.S. 62 (1901).. 31
Dolan Vv. Tigard, No. 93-518 (June 24, 1994)........ 39
Duke Power Co. Vv. Carolina Environmental Study

Group, Inc., 488 U.S. 59 (1978) —......00..0 ee. 35
Durfee v. Duke, 375 U.S. 106 (19638) — 0. 21
Federal Housing Admin. Vv. Darlington, 358 U.S.

ETE oe ave en anne 36

ee ww ew —

Vv
Cases—Continued: Page
Federated Dep’t Stores, Inc. Vv. Moitie, 452 U.S. 394
ST asic iain ntihiailiaaainaaiaaatatatamabinintinneian 22
Fleming Vv. Rhodes, 331 U.S. 100 (1947) ............ 35, 36, 42
Freeborn Vv. Smith, 69 U.S. (2 Wall.) 160 (1864).. 15, 44
Freeland v. Williams, 131 U.S. 405 (1889) —......... 43, 44
General Motors Corp. Vv. Romein, 112 S. Ct. 1105
a ee ae Oe 34
Gondeck v. Pan American World Airways, Inc.,
Reever erere 36
Gordon Vv. United States, 69 U.S. (2 Wall.) 561
AR eee seer a ae ee 30, 31

Graham & Foster v. Goodcell, 282 U.S. 409 (1931) .. 40
Granfinanciera V. Nordberg, 492 U.S. 33 (1989)... 33
Gray V. First Winthrop Corp., 989 F.2d 1564 (9th
Gn: TEED -icicsiccadidatasiicacsitcteteennideinecibieimcnienaniinniniiiaabidiia 5
Hayburn’s Case, 2 U.S. (2 Dall.) 409 (1792) ......6, 9, 10,
11, 12, 13, 15, 16
Henderson Vv. Scientific-Atlanta, Inc., 971 F.2d
1567 (11th Cir. 1992), cert. denied, 114 S. Ct.

calcined ialiai a aiaietaliningimens 5
Hodges V. Snyder, 261 U.S. 600 (1923) —........0. 42
Hopkins v. Coen, 431 F.2d 1055 (6th Cir. 1970)... 24
INS v. Chadha, 462 U.S. 919 (1983) ...................... 29
International Union of Electrical Workers v. Rob-

bins & Myers, Inc., 429 U.S. 229 (1976) —.......... 41
James B. Beam Distilling Co. v. Georgia, 111 8. Ct.

I aati cache ticeattantbitainaeahl ” 3
Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gil-

berteon, 111 S. Ct. 2778 (1991) ........................... 2,3
Landgraf Vv. USI Film Products, 114 S. Ct. 1483

FES LS ae 18, 19, 33, 34, 42
Matarese V. LeFevre, 801 F.2d 98 (2d Cir. 1986),

cert. denied, 480 U.S. 908 (1987) ........................ 36
McCleskey v. Zant, 499 U.S. 467 (1991) ................ 22
McCullough Vv. Virginia, 172 U.S. 102 (1898) _...... 41, 42
Mistretta v. United States, 488 U.S. 361 (1989) .... 12, 18,

20, 23, 24

Morrison V. Olson, 487 U.S. 654 (1988) 0.000.000... 11
Musick, Peeler & Garrett v. Employers Ins. of

Wausau, 113 S. Ct. 2085 (1993) —..............-.......... 13

VI
Cases—Continued:
Muskrat v. United States, 219 U.S. 346 (1911)......
National R.R. Passenger Corp. Vv. Atchison, T. &
SF. Ry., 470 U.S. 451 (1985) ...............................
Nixon V. Administrator of General Services, 433
ss A ae
Northern Pipeline Construction Co. Vv. Marathon
Pipe Line Co., 458 U.S. 50 (1982) _... eens
Paramino Lumber Co. v. Marshall, 309 U.S. 370
UN ia kat ee oe ee ae ae 42,
Pennsylvania V. Wheeling & Relmont Bridge Co.,
59 U.S. (18 How.) 421 (1855) .....0
Pension Benefit Guaranty Corp. Vv. R.A. Gray &
Co., 467 U.S. 717 (1984) _... pb SMe eas

Perez Vv. Fernandez, 220 U.S. 224 (1911)...
Pittston Co. Vv. Reeves, 263 F.2d 328 (7th Cir.

ARE SETS AS Role Sh: CLR Cg ea eRe
Pope V. United States, 323 U.S. 1 (1944)...
Printed Media Services, Inc. Vv. Solna Web, Inc., 11

F.3d 838 (8th Cir. 1993) ..... LL St
Renegotiation Board v. Bannercraft Clothing Co..,
415 U.S. 1 (1974) Senseisenichnabieiseaeliiamsaniemiaiaia st
Rivers v. Roadway Express, Inc., 114 S. Ct. 1510
RECN a ee Pe) © 13,
Robertson Vv. Seattle Audubon Society, 112 S. Ct.
I rs aepimaiadaae
Sampeyreac V. United States, 32 US. (7 Pet.)
I a ee ee Ss

Sanborn, In re, 148 U.S. 222 (1893)... a
Sanders Vv. United States, 373 U.S. 1 (1963)
Satterlee Vv. Matthewson, 27 U.S. (2 Pet.) 380
I dite a ee ids
Sibbach v. Wilson & Co., 312 U.S. 1 (1941)
Stephens Vv. Cherokee Nation, 174 U.S. 445 (1899) .

Stoll v. Gottlieb, 305 U.S. 165 (19388) 00000...
Thomas Vv. Union Carbide Agricultural Products
OG Ee
Thos. P. Gonzalez Corn. Vv. Conseio Nacional De
Production De Costa Rica, 614 F.2d 1247 (9th
SD vcticinteinces ETS AS SI OE a PINE

45, 46

17, 43

14, 34

19, 20

4A
2A
42-43,
45
21

25

VII

Cases—Continued: Page
United States v. Bodcaw Co., 440 U.S. 202 (1979)... 39
United States v. Brown, 381 U.S. 437 (1965) ....... 18-19
United States v. Carlton, No. 92-1941 (June 13,

TITIES was not
a proper legislative function. See Alexander Hamilton, The
Federalist Papers, No. 81, at 484 (C. Rossiter ed. 1961) (em-
phasis added) (“A legislature, without exceeding its province,
cannot reverse a determination once made in a particular case;
though it may prescribe a new rule for future cases.”’).

30

The historical examples that excited the Framers’
attention, however, were far more intrusive and
quite different from Section 27A(b), because they
were indistinguishable from the powers exercised by
the courts themselves. Section 27A(b), in contrast
to those exercises, does not withdraw a specific case
from the courts, require a trial to be conducted be-
fore the legislature, or reverse a judicial determina-
tion based on a disagreement about the underlying
facts or the application of existing law to those facts.
The purpose and effect of the provision is to change
the law and to permit, notwithstanding a prior judg-
ment, the enforcement of substantive legal! rights.
Nothing in the history of Article III suggests that
the Framers intended to prohibit legislation having
that sort of impact on a judgment.

2. Because Section 27A(b) does not threaten the
separation of powers principles articulated in Hay-
burn’s Case, it is not surprising that none of this
Court’s decisions applying those principles casts
doubt on the constitutionality of Section 27A(b). The
statutes at issue in most of those cases, unlike the
one in Hayburn’s Case itself, provided for executive
or legislative review of decisions of non-Article III
tribunals. See United States v. Ferreira, 54 U.S. (13
How.) 40 (1851); Gordon v. United States, 69 U.S.
(2 Wall.) 561 (1864) (opinion of Chief Justice
Taney); In re Sanborn, 148 U.S. 222 (1893); Chi-
cago & Southern Air Lines, Inc. v. Waterman Steam-
ship Corp., 333 U.S. 103 (1948). When presented
with disputes arising under such statutes, this Court
has regarded the exercise of executive or legislative
review (as well as the initial assignment of adjudica-
tory tasks to non-Article III decisionmakers) as
valid, and has held only that the availability of

31

executive or legislative review precludes judicial re-
view by Article III courts.” In other cases applying
the logic of Hayhurn’s Case, the Court held that
executive or legislative revision was not available at
all.”

21 See United States v. Ferreira, supra (federal court hear-
ing claims for which United States was liable under treaty
with Spain, whose decisions were subject to review by Sec-
retary of the Treasury, was not exercising judicial power,
and no appeal lay to Supreme Court); Gordon v. United
States, supra (Court of Claims judgments, which may be
paid only after Secretary of the Treasury estimates the claim,
are not the exercise of judicial power); Jn re Sanborn, supra
(Court of Claims’ resolution of facts, rendered on referral
from Executive Department and reported back to that De-
partment, is not within class of cases that are by statute
subject to Supreme Court review); Chicago & Southern Air
Lines, Inc. Vv. Waterman Steamship Corp., 333 U.S. at 112-114
(federal court may not review administrative order granting
or denying application for foreign air route, where the
President has final authority to approve or disapprove agen-
cy’s action). See also District of Columbia v. Eslin, 183
U.S. 62, 65 (1901) (declining to review Court of Claims deci-
sion in light of intervening legislation providing that Con-
gress would not pay the judgment).

22 See United States v. O’Grady, 89 U.S. (22 Wall.) 641
(1874) (government could not reduce judicially determined
debt by applying, as an offset, an asserted claim that the
government possessed, but had failed to assert as a counter-
claim); United States v. Waters, 133 U.S. 208, 213 (1890)
(award of counsel fees to district attorney by Court of Claims
was “a judicial act of a court of competent jurisdiction, [and]
was not subject to the reexamination or reversal of the At-
torney General”); United States v. Jefferson Elec. Mfg. Co.,
291 U.S. 386 (1934) (under statute defining its jurisdiction,
Court of Claims, when hearing a tax refund claim, is required
to resolve ail elements of the claim; it cannot render a judg-
ment subject to later proof of one element to the IRS).

32

None of those cases has application here. As de-
scribed above, Section 27A(b) does not authorize
review of merits adjudications in securities cases by
executive or legislative officials. Nor has any execu-
tive or legislative official claimed the right to make
such a determination. Unlike a statute that gives
final authority to determine the outcome of an in-
dividual case to another Branch, Section 27A(b) con-
templates final resolution of federal securities claims
by the courts. In sum, the limited right conferred by
Section 27A(b) to have a final judgment reopened
does not violate the separation of powers.

II. SECTION 27A(b) DOES NOT VIOLATE THE DUE
PROCESS CLAUSE

The Due Process Clause of the Fifth Amendment
provides that “[n]o person shall be * * * deprived of
life, liberty, or property, without due process of
law.” There is no foundation to the view that the
Due Process Clause prohibits alteration of all inter-
ests determined by a judgment, and Congress did not
violate the due process rights of securities fraud de-
fendants by providing for the revival of Section
10(b) actions previously held to be time-barred.

A. The Due Process Clause Protects Property Inter-
ests, Not “Vested Rights”

1. By its terms, the Due Process Clause speaks
of “life,” “liberty,” and “property,” not “vested
rights.” See Campbell v. Holt, 115 U.S. 620, 628
(1885) (“[T]he word[s] ‘vested right’ [are] no-
where used in the constitution, neither in the orig-
inal instrument nor in any of the amendments to it.
We understand very well what is meant by a vested
right to real estate, to personal property, or to in-

33

corporeal hereditaments. But when we get beyond
this, although vested rights may exist, they are bet-
ter described by some more exact term, as the phrase
itself is not one found in the language of the con-
stitution.”). While courts occasionally characterize
certain interests as “vested rights,” see, e.g., Land-
graf v. USI Film Products, 114 S. Ct. at 1499;
Weaver v. Graham, 450 U.S. 24, 29 (1981), at most,
those rights are a form of “property” for due process
purposes. The characterization of property rights
as “vested” does not immunize those rights from the
normal due process test that applies to legislation
that regulates economic rights. See United States v.
Locke, 471 U.S. 84, 104 (1985) (“Even with respect
to vested property rights, a legislature generally has
the power to impose new regulatory constraints on
the way in which those rights are used, or to con-
dition their continued retention on performance of
certain affirmative duties.”). Rather, a finding that
a right has “vested” in some sense appears only to be
a precondition for application of the Due Process
Clause. Weaver v. Graham, 450 U.S. at 29-30; see
Board of Regents v. Roth, 408 U.S. 564, 576-577
(1972).

; The Due Process Clause does not prohibit depriva-
tions of property; it requires only that deprivations
be accompanied by “due process of law.” In the
realm of social and economic legislation, due process
demands only that the legislature pursue a legitimate
public purpose and that the impact on private prop-
erty interests be rationally related to the public ends
of the law. See, e.g., United States v. Carlton, No.
92-1941 (June 13, 1994); Concrete Pipe & Products
of California, Inc. v. Construction Laborers Pension
Trust, 113 S. Ct. 2264, 2286-2287 (1993); Usery v.

Lis ;

34

Turner Elkhorn Mining Co., 428 U.S. 1 (1976). By
the same token, the Due Process Clause does not
foreclose legislatures from affecting property inter-
ests through retroactive laws. United States v. Carl-
ton, supra, slip op. 4-5; Landgraf v. USI Film Prod-
ucts, 114 S. Ct. at 1501 (“the constitutional impedi-
ments to retroactive civil legislation are now mod-
est”). The burden of sustaining retroactive legisla-
tion under the Due Process Clause is “met simply by
showing that the retroactive application of the leg-
islation is itself justified by a rational legislative
purpose.” Pension Benefit Guaranty Corp. v. R.A.
Gray & Co., 467 U.S. 717, 730 (1984) ; United States
v. Sperry Corp., 493 U.S. 52, 64-65 (1989).

Because retroactive laws can pose “problems of
unfairness that are more serious than those posed by
prospective legislation,” General Motors Corp. v.
Romein, 112 S. Ct. 1105, 1112 (1992), the Court has
employed a “presumption against retroactivity” that
“allocates to Congress responsibility for fundamental
policy judgments concerning the proper temporal
reach of statutes.” Landgraf v. USI Film Products,
114 S. Ct. at 1501; Rivers v. Roadway Express, Inc.,
114 S. Ct. at 1514. But “the test of due process”
for the retroactive aspects of [economic] legislation,
as well as the prospective aspects,” is whether they
advance “a legitimate legislative purpose * * * by ra-
tional means.” Romein, 112 S. Ct. at 1112. Retroac-
tive legislation that meets those standards satisfies
the Due Process Clause “even though the effect of the
legislation is to impose a new duty or liability based
on past acts.” Usery, 428 U.S. at 16; Romein, 112
S. Ct. at 1112; Sperry, 493 U.S. at 64-65.

There is no exception to that due process principle
for so-called “vested rights” in a judgment. Quite

35

apart from the absence of any constitutional text
supporting the claim that rights or interests ad-
dressed by a judgment enjoy absolute immunity from
retroactive legislation, the claim to special treatment
for judgments is analytically unsound. If the expec-
tation interests in enforcing private contracts, see
National R.R. Passenger Corp. y. Atchison, T. & S.F.
Ry., 470 U.S. 451, 472 (1985), other property rights,
see United States v. Locke, 471 U.S. at 104-105, or
settled rules of the common law, Duke Power Co. v.
Carolina Environmental Study Group, Inc., 438 U.S.
59, 88 n.32 (1978), do not impose an absolute bar-
rier to change by legislation, a judgment, which sim-
ply confirms rights already reflected in the law, has
no greater claim to inviolability. Most retroactive
legislation can be said to upset expectation interests.
When a legislature imposes monetary liability retro-
actively, and thereby compels an individual to as-
sume liability that did not exist when the relevant
acts occurred, see, e.g., Usery, 428 U.S. at 17, the
effect on the individual’s expectations can be quite
dramatic. If that effect is permissible, so too is legis-
lation that retroactively regulates expectation inter-
ests arising from a judgment.

Any suggestion that rights “vested” by a final
judgment lie beyond the regulatory authority of Con-
gress cannot be squared with this Court’s decision in
Fleming v. Rhodes, 331 U.S. 100 (1947). In that
case, landlords obtained valid state court judgments
of eviction during a gap in the application of federal
price control statutes. Jd. at 101-102. When the
price controls were reinstated, federal law made
them retroactive and precluded evictions under the
prior judgments. Jd. at i02 n.3. Relying on the
theory that “the vested rights, created by the prior

36

judgments * * *, could not be destroyed by subse-
quent legislation,” the landlords claimed that the new
law violated the Due Process Clause. 331 U.S. at 102.
This Court rejected the claim that “vested rights” in
“valid judgments” were immune from regulation:

So long as the Constitution authorizes the subse-
quently enacted legislation, the fact that its pro-
visions limit or interfere with previously ac-
quired rights does not condemn it. Immunity
from federal regulation is not gained through
forehanded contracts. * * * The rights acquired
by judgments have no different standing.

Id. at 107. See also Federal Housing Admin. v.
Darlington, 358 U.S. 84, 91 n.6 (1958) (Fleming
holds that “any ‘vested’ rights by reason of the
state judgment were acquired subject to the possi-
bility of their dilution through Congress’ exercise of
its paramount regulatory power’).

If rights “vested” in a judgment were made in-
violate by the Due Process Clause, Fed. R. Civ. P.
60(b) would be constitutionally suspect. Rule 60(b)
sets forth a variety of grounds that justify reopening
of otherwise final judgments, and some courts have
exercised the reopening power in light of changes in
the law. See Adams v. Merrill Lynch Pierce Fenner
& Smith, 888 F.2d 696, 702 (10th Cir. 1989);
Matarese v. LeFevre, 801 F.2d 98, 106 (2d Cir.
1 '86), cert. denied, 480 U.S. 908 (1987). This
Court as well has reopened a final judgment, when
a change in legal terrain rendered the prior judg-
ment inequitable. See Gondeck v. Pan American
World Airways, Inc., 382 U.S. 25 (1965) (per
curiam) (granting second petition for rehearing,
filed four Terms after certiorari had been denied,
because of a change in decisional law governing eli-

37

gibility for compensation, and because other victims
of the same accident had won compensation awards
in other courts). If the Due Process Clause permits
those interferences with “vested rights” in a judg-
ment, it also permits reopenings under standards
enacted by Congress.

2. Under the due process standards that govern
review of economic legislation, Section 27A(b) is
constitutional. Section 27A is designed to protect
the reliance interests of plaintiffs who filed suit be-
fore this Court’s decision in Lampf and whose ac-
tions were timely under the limitations periods in
effect in their jurisdictions. Congress acted to pre-
vent the perceived unfairness that would result if the
change in the limitations period brought about by
Lampf were applied “to those cases that were pend-
ing at the time that the decision came down.” 137
Cong. Rec. $§18,623-S18,624 (daily ed. Nov. 27, 1991)
(Sen. Bryan). Congress was also concerned about
the adverse impact of Lampf and Beam upon private
enforcement of the securities laws.“ Congress had
particular reason to protect those plaintiffs whose
suits were rendered untimely by Lampf and whose
judgments became final only because they refrained
from taking appeals that the court of appeals indi-
cated would be “meritless” and “sanctionable.” Pet.
App. 5a. Those legislative goals are plainly legiti-

23 See Securities Investor Protection Act of 1991: Hearings
on S. 1533 Before the Subcomm. on Securities of the Senate
Comm. on Banking, Housing, and Urban Affairs, 102d Cong.,
Ist Sess. 2 (1991) (Sen. Bryan); id. at 15-16 (Richard C.
Breeden, Chairman, SEC); Securities Investors’ Legal Rights:
Hearings on H.R. 3185 Before the Subcomm. on Telecommu-
nications and Finance of the House Comm. on Energy and
Commerce, 102d Cong., Ist Sess. 38-39 (1991) (Rep. Markey
and Chairman Breeden); id. at 21-24 (Chairman Breeden).

38

mate ones, and Section 27A(b) is directly tailored
to advance them.

At the same time, given the circumstances sur-
rounding the enactment of Section 27A(b), the de-
fendants in those cases cannot plausibly claim that
the statute prejudices any legitimate reliance inter-
ests on their part. Before this Court’s decision in
Lampf, the law of the Sixth Circuit, where this suit
arose, made clear that claims under Section 10(b)
of the Exchange Act were governed by state limita-
tions periods. See, e.g., Carothers v. Rice, 633 F.2d
7, 8-9 (6th Cir. 1980), cert. denied, 450 U.S. 998
(1981). Far from disrupting settled expectations
concerning the applicable limitations period, Section
27A gives effect to those expectations. When the
Court retroactively mandated the application of a
“1-and-3” rule in Lampf and Beam, Congress moved
quickly to restore the pre-Lampf rule, enacting Sec-
tion 27A in less than six months and requiring mo-
tions for reinstatement to be filed within 60 days.
See United States v. Carlton, supra, slip op. 6 (“Con-
gress acted promptly and established only a modest
period of retroactivity.”). In this case, for example,
only a few months passed between the district court’s
dismissal of the Section 10(b) claims and the enact-
ment of Section 27A. In those circumstances, any
potential “reliance” interests created by the dismissal
order are insufficient “to establish a constitutional
violation.” Carlton, supra, slip op. 7; Usery, 428
U.S. at 16."

* Respondents did not invoke the Takings Clause of the
Fifth Amendment below, nor was that issue addressed by the
court of appeals. As a result, the issue is not properly before
this Court. See Granfinanciera Vv. Nordberg, 492 U.S. 33, 38-
39 (1989). In any event, Section 27A(b) does not “take” any

39

B. The “Vested Rights” Doctrine, Even If It Has Con-
tinuing Significance, Does Not Invalidate Section
27A(b)

As demonstrated above, the Due Process Clause
does not create a special category of “vested rights”
in judgments that are exempt from congressional
regulation. This case provides no justification for
recognizing such a doctrine, and even under older
precedents of this Court, the “vested rights” claim
fails.

compensable property interest. All that has been “taken” by
Section 27A(b) is the “right” fortuitously bestowed on some
defendants by Lampf and Beam not to litigate federal securi-
ties claims. The financial burden of litigation is hardly the
kind of deprivation that entitles litigants to compensation
under the Fifth Amendment. Cf. United States v. Bodcaw
Co., 440 U.S. 202, 208 (1979) (per curiam) (litigation ex-
penses are not just compensation); Renegotiation Board v.
Bannercraft Clothing Co., 415 U.S. 1, 24 (1974) (“Mere liti-
gation expense, even substantial and unrecoupable cost, does
not constitute irreparable injury.”’).

The Takings Clause would not entitle defendants to com-
pensation by the federal government even if they are found
to have violated the federal securities laws and are ultimately
required to pay damages. In that event, the damages would
be due to fraudulent acts that were illegal when committed
and that gave rise to liability under already-existing federal
laws. Reimposing liability to injured persons for actions that
were tortious and unlawful when taken can hardly constitute
a “taking” of “property” within the meaning of the Takings
Clause. The object of that provision is “to bar Government
from forcing some people alone to bear public burdens which,
in all fairness and justice, should be borne by the public as a
whole.” Dolan v. Tigard, No. 93-518 (June 24, 1994), slip op.
9. There is “no constitutionally compelled reason to require
the Treasury to assume the financial burden,” Connolly Vv. .
Pension Benefit Guaranty Corp., 475 U.S. 211, 228 (1986),
for the fraud, if any, committed by private defendants.

40

1. The claim that “vested rights” in a judgment
deserve absolute constitutional protection is at its
weakest with respect to the judgment at issue here:
a judgment resting on the statute of limitations,
rather than an adjudication of the merits of the
underlying dispute. Such a judgment does not create
or declare any property right in the defendant; it
merely protects the defendant from a particular suit.

When a case is dismissed solely because it is time-
barred under then-governing law, the dismissal does
not necessarily extinguish the underlying claim,
which may continue to be asserted. Cf. Block v.
North Dakota, 461 U.S. 273, 291 (19838) (final dis-
missal of claimant’s quiet title action against the
United States on the ground that the limitations
period had expired would not divest the claimant of
whatever property rights it possesses, which may be
asserted in another proceeding); Bank of the United
States v. Donnally, 33 U.S. (8 Pet.) 361, 370 (1834)
(“As the contract, upon which the original suit was
brought was made in Kentucky, and is sought to be
enforced in the state of Virginia, the decision of the
case in favor of the defendant, upon the plea of the
statute of limitations, will operate as a bar to a sub-
sequent suit in the same state; but not necessarily as
an extinguishment of the contract elsewhere, and
especially in Kentucky.”). And revival of the cause
of action underlying the judgment of dismissal does
not impose liability retroactively on a transaction
that was lawful at the time. See Graham & Foster
v. Goodcell, 282 U.S. 409, 429 (1931) (rejecting
“vested rights” challenge to curative statute restoring
tax liability after statute of limitations had run).
Section 27A(b) does not change the rules that pro-
hibited respondents from committing fraud in securi-

41

ties transactions; it merely permits application of
those rules notwithstanding the prior judgment,
which was entered without reaching the merits. Sec-
tion 27A(b) therefore does not deprive the defendant
of any property interest.

As a general matter, the Due Process Clause does
not prohibit legislatures from retroactively reviving
claims that have become barred by the running of a
statute of limitations. Chase Securities Corp. v.
Donaldson, 325 U.S. 304 (1945); International
Union of Electrical Workers v. Robbins & Myers,
Inc., 429 U.S. 229, 243-244 (1976); Campbell v.
Holt, 115 U.S. at 628. A judgment that confirmed
the running of the former limitation period does not
add much to a defendant’s due process objection to
subsequent legislation that removes the time-bar to
suit.

2. Even if this case were analyzed wnder older
precedents that suggest that there is special protec-
tion accorded to some interests in a judgment, Sec-
tion 27A(b) passes constitutional muster. As the
court of appeals noted, Pet. App. 14a n.12, this Court
stated in McCullough v. Virginia, 172 U.S. 102, 123
(1898), that “[i]t is not within the power of a legis-
lature to take away rights which have been once
vested by a judgment.” McCullough’s application of
its “rule” protecting vested rights in a judgment,
however, is inconsistent with this Court’s decisions,
both before and since. The judgment at issue in
McCullough was that of a trial court; the case was
pending on appeal when the state legislature changed
the relevant law. Despite the quoted statement in
McCullough, it is well established that a change in
law may be applied to a pending case when the legis-

42

lature has so indicated with the requisite degree of
clarity.”

Moreover, this Court has never foreclosed legisla-
tive action affecting even a final judgment in the
unqualified fashion suggested by McCullough. To the
contrary, the Court has upheld a wide range of fed-
eral and state statutes that have divested litigants of
the benefits of final judgments. See, e.g., Fleming v.
Rhodes, supra; Paramino Lumber Co. v. Marshall,
309 U.S. 370 (1940); Hodges v. Snyder, 261 U.S.
600, 603-604 (1923); Stephens v. Cherokee Nation,

25 In McCullough, the Court reviewed 2 Virginia law that
rescinded the right of a bondholder to use coupons to pay state
taxes, and instead required taxes to be paid in cash. 172 U.S.
at 103-105, 122. The bulk of the Court’s opinion sustained the
bondholder’s claim that the right to use the coupons was pro-
tected from state impairment by the Contract Clause of the
Constitution, Art. I, § 10, Cl. 1. 172 U.S. at 109-123. The lan-
guage regarding “rights which have once been vested by a
judgment” appears in a section of the opinion that rejected
the claim that the bondholder’s action had to be dismissed
because after the judgment was rendered in the trial court,
and the case was on appeal, Virginia repealed the “statute
authorizing this particular form of suit.” Jd. at 128. McCul-
lough’s statement that the legislature cannot repeal the right
to sue while a case is pending on appeal from a judgment
conflicts with cases dating from The Schooner Peggy, 5 U.S.
(1 Cranch) at 110 (“the court must decide [a case] according
to existing laws, and if it be necessary to set aside a judgment,
rightful when rendered, but which cannot be affirmed, but
in violation of law, the judgment must be set aside’), to
Landgraf Vv. USI Film Products, 114 S. Ct. at 1501 (“in many
situations, a court should apply the law in effect at the time
it renders its decision, * * * even though that law was enacted
after the events that gave rise to the suit”). The result in
McCullough can be explained, however, as protecting the bond-
holder’s right to enforce a contract with the State against
state impairment in the form of the withdrawal of a remedy.

43

174 U.S. 445, 477-478 (1899); Freeland v. Williams,
131 U.S. 405, 417-421 (1889); Pennsylvania v.
Wheeling & Belmont Bridge Co., 59 U.S. (18 How.)
421, 431 (1855). In particular, this Court has held
that the concept of vested rights does not invalidate
legislation, like Section 27A(b), that directs the re-
opening and reexamination of final judgments, even
when the legislation is enacted after the judgments
have become final and the reexamination requires the
application of new rules of law.

In Freeland, for example, a land owner obtained a
money judgment against a soldier who stole cattle
during the Civil War. 131 U.S. at 406. In 1867,
the Supreme Court of West Virginia affirmed the
judgment, which rejected a defense based on the
soldier’s status as a belligerent. Jd. at 407-408. In
1872, before the land owner had executed the judg-
ment, West Virginia amended its constitution to pro-
vide that no person “shall be liable in any proceed-
ing, * * * nor shall his property be seized or sold
under final process issued upon judgments or decrees
heretofore rendered,” for military actions that were
consistent with “the usages of civilized warfare” dur-
ing the Civil War. Jd. at 411.

Invoking the new law, the defendant in Freeland
brought a bill to enjoin execution of the plaintiff’s
final judgment. 131 U.S. at 407-409. The plaintiff
challenged the constitutionality of the law, raising a
“vested right” argument: .

The proposition of the plaintiff * * * is, that by
the judgment of the [trial court] he had ac-
quired a vested right in that judgment; that the
judgment was his property; and that any act of
the State which prevents his enforcing that judg-
ment * * * is depriving him of property without
due process of law * * *. This right of the plain-

44

tiff to enforce that judgment is insisted upon as
a vested right with which no authority can law-
fully interfere.

Id. at 417. This Court rejected the vested right claim
and sustained West Virginia’s power to bar enforce-
ment of the final judgment. Jd. at 417-421. The
Court explained that “[j]udgments, however solemn,
however high the court which rendered them, and
however conclusive in a general way between the
parties,” may constitutionally be “subject[ed] to re-
view, to reconsideration, to reversal and to modifica-
tion by various modes,” such as writs of error and
bills of review. Jd. at 418. The Court further held
that the legislature could retroactively “remov[e] ob-
jections and obstructions” to such review procedures,
even when the “objections and obstructions” con-
sisted of the substantive legal rules that supported
the original judgment. Jd. at 419-420.

In concluding that due process of law allowed the
expansion of opportunities to review a judgment,
even after the judgment became final, the Court
stated in Freeland that “[p]rior to the adoption of
the 14th Amendment the power to provide such rem-
edies, although they may have interfered with what
were called vested rights, seems to have been fully
conceded.” 131 U.S. at 420 (citing Calder v. Bull,
3 U.S. (3 Dall.) 386 (1798); Satterlee v. Matthew-
son, 27 U.S. (2 Pet.) 380 (1829); Sampeyreac v.
United States, 32 U.S. (7 Pet.) 222 (1833); Watson
v. Mercer, 33 U.S. (8 Pet.) 88 (1834); and Freeborn
v. Smith, 69 U.S. (2 Wall.) 160 (1864)). Freeland
concluded that the adoption of the Fourteenth Amend-
ment did not cast doubt on the validity of statutes of
that character. 131 U.S. at 420.

In Stephens, individuals obtained decrees of Indian
citizenship from the United States Court for the In-

45

dian Territory in what is now Oklahoma. 174 U.S.
at 476. The statute under which the suits were
brought provided that “the judgment of the court
shall be final.” Jbid. After the judgments were en-
tered, Congress enacted legislation permitting the
losing parties to reopen the judgments by appealing
them to this Court. Jd. at 476-477. The individuals
who had prevailed in the trial court attacked the
retroactive legislation on the ground, inter alia, that
it was “destructive of vested rights.” Jd. at 477.
Citing Freeland, this Court summarily rejected that
contention, stating that “the grant of a new remedy
by way of review has been often sustained under
particular circumstances.” Jd. at 478. The court dis-
missed the vested rights claim as inapposite where
“the right asserted to be vested is only the exemption
of the[] judgments from review.” Ibid.

The Court applied the same principles again in
Paramino. There, a federal agency issued an admin-
istrative judgment affording only limited compensa-
tion to a longshoreman under the Longshoremen’s
and Harbor Workers’ Compensation Act. 309 U.S. at
374-375. The longshoreman did not seek review of
the judgment, which by statute became final after
30 days. Id. at 375. Five years later, Congress en-
acted a private bill “ordering the Compensation Com-
mission to review [the] case and to issue a new
order, the provisions in the Compensation Act limit-
ing time for reviewing awards ‘to the contrary not-
withstanding.’” Jbid. The defendant employer ar-
gued that the legislation violated the Due Process
Clause. 309 U.S. at 377. Relying on McCullough, the
defendant contended that “[t]he compensation award
was a final adjudication vesting property rights” that
were “not alterable by subsequent legislation.” /d.
at 372. This Court rejected the invocation of McCul-

46

lough, reasoning that “the immunity obtained by the
lapse of the time for review is [not] the type of im-
munity which protects its beneficiary from retroac-
tive legislation authorizing review of the claim.” Id.
at 378.

Section 27A(b) plays precisely the same role as
the legislation upheld in Freeland, Stephens, and
Paramino. In this case and others governed by Sec-
tion 27A(b), the losing party failed to seek review
of an adverse judgment within a statutory time limit
imposed by the legislature, and the judgment became
final as a result. Congress thereafter enacted legisla-
tion providing for further review by the courts, not-
withstanding the finality of the original judgment,
and it provided for the courts to apply a new rule of
law on the limitations issue when doing so. This
Court’s decisions confirm the constitutionality of Sec-
tion 27A(b) in each of those respects. They show
that no doctrine of vested rights forecloses the legis-
lature from directing review after the statutory time
for review has already run and the judgment has
become final (Paramino), or from retroactively cre-
ating a review procedure that did not previously ex-
ist (Stephens). And they show that the legislature
may direct tribunals to reexamine their judgments
not only to determine their correctness under the law
that existed at the time the judgment was entered,
but also to take account of subsequent, retroactive
changes in the substantive rules of law (Freeland).
It is true that Freeland, Stephens, and Paramino did
not involve Article III tribunals, but neither did
McCullough itself, the case said to establish the vested
rights doctrine. If vested rights in judgments exist,
there is no reason to find that only federal courts can
create them.

47

In sum, Section 27A(b) does nothing that this Court
has not already sustained in Freeland, Stephens, and
Paramino. Because Section 27A(b) is indistinguish-
able for due process purposes from the statutes up-
held in those cases, the provision meets the require-
ments of the Due Process Clause regardless of
whether this Court treats the vested rights doctrine
as a constitutional anachronism or, instead, as an
aspect of current due process analysis.

CONCLUSION

The judgment of the court of
MF appeals should be

Respectfully submitted.

Drew S. Days, III

Solicitor General

SIMON M. LORNE FRANK W. HUNGER

General Counsel Assistant Attorney General
PAUL GONSON EDWIN S. KNEEDLER

Solicitor Deputy Solicitor General
JACOB H. STILLMAN MICHAEL R. DREEBEN

Associate General Counsel Assistant to the Solicitor
LESLIE E. SMITH General

Senior Litigation Counsel BARBARA C. BIDDLE
Securities and Exchange Scott R. McINTosH
Commission Attorneys

JULY 1994

APPENDIX

Section 27A of the Securities Exchange Act of
1934, 15 U.S.C. 78aa-1 (Supp. IV 1992), provides:

(a) Effect on Pending Causes of Action.—
The limitation period for any private civil action
implied under Section 10(b) of this Act that was
commenced on or before June 19, 1991, shall be
the limitation period provided by the laws appli-
cable 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
10(b) of this Act 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 ex-
isted on June 19, 1991,

shall be reinstated on motion by the plaintiff not
later than 60 days after the date of enactment
of this section.

(la)

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385013_0482%3A10. Public record. Not legal advice.