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

JTON FILED

In THE

Supreme Court of the United Siates

Octosper TERM, 1994

Ep PLAUT, et al.,

Vv.

Petitioners,

SPENDTHRIFT FARM, INC., et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF AMICUS CURIAE

FOR PACIFIC MUTUAL LIFE INSURANCE CO.

IN SUPPORT OF PETITIONERS

RICHARD G. TARANTO

(Counsel of Record)

H. BARTOW Fark, ITI

FARR & TARANTO

2445 M Street, NW

Washington, DC 20037

(202) 775-0184

STEWART M. WELTMAN

STEWART M. WELTMAN

& ASSOCIATES, P.C.

135 S. LaSalle Street

Chicago, IL 60603

WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

In THE

Supreme Court of the Anited States

OCTOBER TERM, 1994

No. 93-1121

Ep PLAUT, et al.,

‘ Petitioners,

SPENDTHRIFT FARM, INC., ef al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

MOTION FOR LEAVE TO FILE A BRIEF

FOR PACIFIC MUTUAL LIFE INSURANCE CO.

AS AMICUS CURIAE IN SUPPORT OF PETITIONERS

Pacific Mutual Life Insurance Company hereby moves,

pursuant to Rule 37.4 of the Rules of this Court, for

leave to file the attached brief amicus curiae in support

of petitioners. Counsel for petitioners, for respondents

Spendthrift Farm, Gibson, Dunn & Crutcher, and Francis

M. Wheat, Deloitte & Touche, and for the United States

have consented to the filing. Counsel for respondent

Bateman, Eichler, Hill Richards, Inc. has declined to

consent. Counsel for Norman D. Owens and American

International Bloodstock Agency, Inc., has not responded

to the request for consent.*

The question presented in this case—the constitutional

validity of Section 27A(b) of the Securities Exchange

* Pacific Mutual has no parent corporation, and its subsidiaries,

other than wholly owned ones, are World-Wide Holdings Ltd (‘a

United Kingdom corporation) and United Planners Group, Inc. ‘an

Arizona corporation). See 8. Ct. R. 29.1.

Act (Pub. L. No. 102-242, § 476, 105 Stat. 2236, 2387,

codified at 15 U.S.C. § 78aa-1(b))—was presented last

Term in Morgan Stanley & Co. et al. v. Pacific Mutual

Life Ins. Co., No. 93-609. The Court there affirmed, by

an equally divided vote, the Fifth Circuit’s judgment hold-

ing Section 27A(b) constitutional. 114 S. Ct. 1827

(1994). The Court subsequently denied the petitioners’

request for rehearing or a stay of mandate in Morgan

Stanley, returning the case to the lower courts, where

(if the Fifth Circuit sends the case back to the district

court) Pacific Mutual will resume pre-trial and trial pro-

ceedings on its claim for damages from securities fraud

committed by the Morgan Stanley petitioners. 62 U.S.L.W.

3862 (1994). The Morgan Stanley petitioners have al-

ready indicated that, if the Court holds Section 27A(b)

invalid in the present case and the Morgan Stanley litiga-

tion is still pending at that time, they will raise the ruling

as a ground for dismissing Pacific Mutual’s complaint.

See Brief in Support of Rehearing, No. 93-609, at 5.

Pacific Mutual therefore has a substantial interest in the

resolution of this case, as well as an additional perspec-

tive on the questions presented, sharpened in the litiga-

tion of those issues last Term.

For those reasons, Pacific Mutual asks that its motion

be granted.

Respectfully submitted,

RICHARD G. TARANTO

(Counsel of Record)

H. BARTOW FARR, ITI

FARR & TARANTO

2445 M Street, NW

Washington, DC 20037

(202) 775-0184

STEWART M. WELTMAN

STEWART M. WELTMAN

& ASSOCIATES, P.C.

135 S. LaSalle Street

Dated: July 21, 1994 Chicago, IL 60603

QUESTION PRESENTED

Whether Section 27A(b) of the Securities Exchange

Act of 1934, 15 U.S.C. Section 78aa-1, to the extent that

it purports to require reinstatement of Section 10(b) ac-

became final prior to the enactment of Section 27A(b),

(i)

SUMMARY OF ARGUMENT

I. SEPARATION OF POWERS —

i ND acticcctecnecsieeseneenenecetncenmenstinsiones

ARGUMENT... ilieeaiapanedincganipennionssianimanniciniasiananscsiiivinniies

I. SECTION 27A(b) DOES NOT VIOLATE

THE CONSTITUTIONAL SEPARATION OF

A. Section 27A(b) Does Not Impose Non-

B. Section 2TA(b) i ile ila ote

gressional Usurpation of Judicial Authority.

C. Section 27A(b) Sper gmene amead

tion of Powers Principle =

panned 27A (b) DOES NOT VIOLATE THE

A. Gestion STAG) Resilty Pesses tho Aastion-

ee eee

C. A Recent Judgment for a Defendant on

Limitations Grounds Generates No Vested

Right to Avoid Answering Substantive

Charges Under a New Limitations Rule.

(iii)

vo fF NOS

18

CASES

iv

TABLE OF AUTHORITIES

Adams v. Merrill Lynch Pierce Fenner & Smith,

888 F.2d 696 (10th Cir. 1989)

Block v. North Dakota, 461 U.S. 273 (1983) enmgmante

Bournias v. Atlantic Maritime Co., Ltd., 220 F.2d

152 (2d Cir. 1955) .

Bowen 9. Georgetown Univ. Hosp., 488 U.S. 204

Dunters v. "Syner, 478 U.S. 714 (1986) niiisniatiion

Campbell v. Holt, 115 U.S. 620 (1885) 22, 28, 27

Capello v. D.C. Board of Education, 669 F. one.

8 aE 8

Carpenter v. Wabash R. Co., 309 US. 23 ( 1940)... 5

CFTC v. Schor, 478 U.S. 833 (1986) ee oe 18, 19

Chase Sec. Corp. v. Donaldson, 325 US. 304

ES eee ee ee 5, 26, 27

Cherokee Nation v. United States, 270 US. 476

— 11,17

Chevron Oil Co. v. Huson, 404 U.S. 97 (1971). «

Chicago & Southern Air Lines, Inc. v. Waterman

SS. Corp., 333 US. 108 (1948) _................... 10, 12

Commissioner v. Sunnen, 333 U.S. 591 (1948) a 26

Concrete Pipe & Prods., Inc. v. Construction Labor-

ers Pension Trust, 113 S. Ct. 2264 (1993)_.

ee Sa eset 475 US.

211 (1986) . +

gaR8 KR RW 4g

poner -amanghnrwng Site, es. v. . Cowan, 309 US. 382

—

District of Columbia v. Eslin, 183 U.S. 62 (1901).

Electrical Workers Local 790 v. Robbins & Myers,

Inc., 429 U.S. 229 (1976) _ a

Ettor v. City of Tacoma, 208 Us. 148 (1913)

Farrey v. Sanderfoot, 111 S. Ct. 1825 (1991)...

Fleming v. Rhodes, 331 U.S. 100 (1947) 23

Forbes Pioneer Boat Line v. Board of Comm'rs,

258 U.S. 338 (1922) —

Freeborn v. Smith, 69 US. (2 Wall.) ‘160 (1864). 5. 16,: 23

Freeland v. Williams, 131 U.S. 405 (1889) _

Freytag v. i , 111 S. Ct. 2631 (1991). “4

ah

=

ne

Rte

*8

iy

Sa Bai a

on

=

BY RRS

~—

Gates thtmee thomehe, 1984.62. 1008 (1992). 3,20

ero

TABLE OF AUTHORITIES—Continued

Page

Gondeck v. Pan American World Airways, Inc.,

382 U.S. 25 (1965) —_ 23

Gordon v. United States, 117 US. 697 (1885) 10

Gordon v. United States, 69 U.S. (2 Wall.) 561

(1864) i 9

Graham & Foster v. Goodcell, 282 U.S. 409 (1981) . 5, 26

Harper v. Virginia Dep't of Taxation, 113 S. Ct.

2510 (1993) __.... 19

Hayburn’s Case, 2 U.S. (2 Dall.) 409 eamngen

Hill v. Hawes, 320 U.S. 520 (1944) _ oe 14

Hodges v. Snyder, 261 U.S. 600 (1923) _. a 23

INS wv. Chadha, 462 U.S. 919 (1983) .. es 17

In re Sanborn, 148 U.S. 222 (1893) 10

Kaiser Aluminum & Chem. Corp. v. Bonjorne, 494

U.S. 827 (1990) _ a 5, 22

La Abra Silver Mining Co. v. United States, 175

US. 423 (1899) 10

Lampf{, Pleva, Lipkind, Prupiz é Petigvew 9 v. Git

berston, 111 S. Ct. 2773 (1991)

Landgraf v. USI Film Products, 114 S. Ct. 1483

(1994) - 5, 24

Liljeberg v. Health Servs. Acquisition Corp., 436

U.S. 847 (1988) 22

22

Matarese v. LeFevre, 801 F.2d 98 (24 Cir. 1986),

cert. denied, 480 U.S. 908 (1987) _.. ia ”

McCullough v. Virginia, 172 U.S. 102 (1898) 24

McGrath v. Potash, 199 F.2d 166 (D.C. Cir. 1952). 23

Metropolitan Wash. Airports Auth. v. Citizens for

an Ince., 111 8. Ct.

2298 (1991) . 17

Mistretta v. United States, 488 US. 361 (1989). 8, 17, 18

Morrison v. Olson, 487 U.S. 654 (1988) a

Muskrat v. United States, 219 U.S. 346 (1911). 10

National R.R. Passenger Corp. v. Atchison, T. &

SF. R.R., 470 U.S. 451 (1985) _ 22

Paramino Lumber Co. v. Marshall, 309 US. 370

_ (1940) ceDAOCAaeRAOUROA ASTORIA ETS RELIRSIIEES on, $B, 35, 38

nia v. Wheeling é Belmont Bridge Co.,

59 U.S. (18 How.) | = 41, 23, 24

vi

TABLE OF AUTHORITIES—Continued

Page

Pension Benefit Guar. Corp. v. R.A. Gray & Co.,

467 U.S. T17 (1984) . 3, 5, 20, 22

Politea v. United States, 964 Us S. 426 (1960) 23

Pope v. United States, 323 U.S. 1 (1944) 11,17

Robertzon v. Seattle Audubon Soe'y, 112 S&S. Ct.

Redd EI a SF

Sampeyreac v. United ‘States, 92 US. (7 Pet.)

"922 , (1833) — —aS *

Stephens v. Cher ce Nation, 174 US. M5 (1899) 5, 16,

23

Stewart v. Keyes, 295 U.S. 403 (1925) ———s~

Sun Oil Co. ». Wortman, 486 U.S. T17 (1988) 26

The Clinton Pridge, T7 US. (10 Wall) 454

(1870) . 12

Tonya K. rv. _ Board of Eéucation, ‘BAT F.2d 1243

(7th Cir. 1988) . o

United States v. Carlton, 114 Ss. ct. 218 (1994). 2, 20, 21

United States v. Ferreira, 54 US. (13 How.) 40

(1851) . ad 9

U nited States » t. . Jeffereen Elec. Mio. Co., 291 us

2 Se alia 10

Tnited States v. Jones, 119 US. ATT (1886) 7 10

Vnited States v. Klein, 9) US. (13 Wall.) 128

0 SE ES Re | 14

United States vr. Locke, 471 U.S. 84 (1985) (4,22

United States v. O'Grady, 99 U.S. (22 Wall.) 641

By A — 10

‘nited States +. ‘Ron Pair Enters., 429 US. 235

United ‘States v. Seh nomner Peggy, 5 US. 1

United States r. Slouz Nation, 148 Us. “3n

a 3,11,17

United States v. Sperry Corp.. 493 US. 52 (1989). 5, 7,20

United States v. Utah Constr. & Mining Co., 3284

U.S. 394 (1966) -- 25

United States v. Waters, 133 US. 208 (1890) 11

University nd Tennessee v. Elliott, 478 US. 728

= ” _, = NN

vii

TABLE OF AUTHORITIES—Continued

Page

Usery v. Turner Elkhorn Mining Co., 428 US. 1

Suiee a ‘Mercer, 33 US. (& Pet.) 8% (1834) _ Liat 5

Weat Lynn Creamery, Inc. v. Jonathan Healy, 62

US.L.W. 4518 (1994) . 18

Yee wv. City of Eacondido, 112 S. Ct. 1522 (1992). 7

STATUTES

1US.C.§506 Lo RIT net ae a

33 U.S.C. § 921 | yasonmecssereens 25

Section 27A (bh) of the Securities Exechar re

Pub. L. No. 102-242, § 476, 105 Stat. 2236, 2387,

—_- 15 USC. sdesiemanbtiti ee

CONGRESSIONAL MATERIALS

Securities Inveatora Legal Rights: Hearing on

H.R. 4185 Before the Subcomm. on Telecommu-

nications and Finance of the House Comm. on

Energy and Commerce, 102d Cong., lat Sessa.

(1991)... 21

137 Cong. Ree. $18,623-24 (Nov. 27, 1991) | — 21

OTHER MATERIALS

CSS ae 22

D. Epstein, J. Landers, & S. Nickles, Debtors and

Creditors (3d ed. 1987) . a 22

Moore's Federal Practice (2d vy 1993) te ‘14,26

Judicial Action by the Provincial Legislature of

Massachusetts, 15 Harv. me Tie. 208 esas. 15

26

te

IN THE

Supreme Court of the United States

OCTOBER TERM, 1994

No. 93-1121

Ep PLAUT, et al.,

. Petitioners,

SPENDTHRIFT FARM, INC., et al.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Sixth Circuit

BRIEF FOR PACIFIC MUTUAL LIFE INSURANCE CO.

AS AMICUS CURIAE IN SUPPORT OF PETITIONERS

INTEREST OF AMICUS CURIAE

The interest of Pacific Mutual Life Insurance Com-

pany is stated in the accompanying motion.'

SUMMARY OF ARGUMENT

Congress enacted Section 27A of the Securities Ex-

change Act, 15 U.S.C. § 78aa-1, to create, retroactively,

a new statute of limitations for certain securities fraud

plaintiffs. The Sixth Circuit, while accepting the validity

of subsection (a)’s application of the new statute of limi-

tations to pending cases, invalidated subsection (b)’s ap-

plication of the new rule to cases under the old statute

1 Pacific Mutual has no parent corporation, and its subsidiaries,

other than wholly owned ones, are World-Wide Holdings Ltd. (a

United Kingdom corporation) and United Planners Group, Inc. (an

Arizona corporation). See S. Ct. R. 29.1.

2

that had come to an end (“final cases”), finding a rigid

constitutional rule protecting the sanctity of “final” judg-

ments. See Plaut v. Spendthrift Farm, Inc., 1 F.3d

1487 (1993). It rested this rule on the Constitution’s

separation of powers. But the rigid pending final rule

the court of appeals announced, and its consequent invali-

dation of Section 27A(b), are simply insupportable un-

der a straightforward analysis of separation-of-powers

principles, or of due process principles.

I. SEPARATION OF POWERS

As affirmative authority, the court relied entirely on the

principle of Hayburn’s Case, 2 U.S. (2 Dall.) 409

(1792), but that principle is irrelevant here. Hayburn’s

Case and its progeny state a limit on the courts’ jurisdic-

tion, applicable where a statute at the time of judicial

decision renders the court unable on its own to award

relief, treating it instead as a first step in a process re-

quiring further independent determination by another

Branch; such a statute effectively makes the court into a

magistrate for another Branch and deprives the dispute

of its character of a “case or controversy.” That bar on

assignment of non-judicial powers to the Article III courts

has never been used, and could not logically be used, to

invalidate a post-judgment statute because of its effect

on a prior judgment. The doctrine of Hayburn’s Case is

simply beside the point in respondents’ challenge to Sec-

tion 27A(b).

Complementing the constitutional bar on assignment of

non-judicial power to Article III courts (which is irrele-

vant here) is the constitutional bar on congressional usur-

pation of the judicial power, which seems to have been

the real concern of the Sixth Circuit. See Plaut, 1 F.3d at

1498-99. But that principle, in terms of both text and

underlying values, provides no support for the Sixth Cir-

cuit’s formal, absolute pending final line. What this core

principle prohibits is congressional adjudication of specific

cases—which is equally forbidden regardless of the pend-

ing or final status of the case Congress is adjudicating.

3

Section 27A(b) is obviously immune from this flaw, as

the recognized validity of Section 27A(a), applying the

limitations rule to pending cases, inescapably implies.

Congress has not engaged in case-specific adjudication,

but has altered the preexisting governing (limitations)

law, leaving for the courts the entire task of finding facts,

interpreting the law, and applying the law to the facts.

See, e.g., Robertson v. Seattle Audubon Soc’y, 112 §S. Ct.

1407 (1992); United States v. Sioux Nation, 448 US.

371 (1980). Congress therefore has not usurped the

judicial power.

Nor does Section 27A(b) violate any broader struc-

tural separation-of-powers principle barring impairment

of the courts’ independent functioning. The statutory

purpose plainly reflects no questioning of the independent

law-interpreting or fact-finding judgment of the courts:

it alters the substantive law, a properly legislative func-

tion, for the most legitimate of reasons. And the effect

of the statute, which is of course narrowly confined to

an unusual problem presented in a small number of cases,

is in no sense to hamper the courts’ functioning.

Il. DUE PROCESS

Section 27A(b) readily meets the rationality standard

for assessing substantive due process challenges to retro-

active statutes even where they clearly upset settled ex-

pectations. See, e.g., General Motors v. Romein, 112

S. Ct. 1105, 1112 (1992); Pension Benefit Guar. Corp.

v. R.A. Gray & Co., 467 U.S. 717, 730 (1984): Usery

v. Turner Elkhorn Mining Co., 428 U.S. 1 (1976). The

retroactivity of Section 27A(b) precisely serves two re-

lated interests. First, it protects the legitimate expecta-

tions of plaintiffs who sued based on the governing limi-

tations law prior to Lampf, Pleva, Lipkind, Prupis &

Petigrow v. Gilberston, 111 §. Ct. 2773 (1991). See

Plaut, | F.3d at 1498 (“True, the litigants had proceeded

under the assumption that the Kentucky Blue Sky law

would apply,” making the suit timely). Second, it en-

4

sures that a class of defendants accused of securities

fraud are not allowed to escape liability without even

having to answer the fraud charges. Indeed, these pur-

poses, together with the implausibility of the claim that

Section 27A(b) upsets defendants’ reasonably settled ex-

pectations at all, mean that Section 27A(b) survives due

process scrutiny under any standard short of an absolute

rule protecting “final judgments.”

There is no basis for such a rule. No holding of this

Court establishes such a rule; and in any event, what-

ever language may appear in opinions from a bygone era

of substantive due process, “vested rights” like contract

and property rights are now covered by the rationality

test. See, e.g., United States v. Locke, 471 U.S. 84, 104-

O05 (1985). The presence of a judgment “vesting” a

preexisting legal right supplies no ground for a different

standard. Indeed, it would be bizarre to afford higher

(much less) absolute protection to rights sufficiently in

dispute to have been litigated, simply because a final

judgment has resolved the dispute, when property or con-

tract rights so clear that they were never disputed in

litigation remain subject to the lesser protection of the

rationality standard.

Finally, if any judgments warrant any special protec-

tion against legislative disturbance, the judgments affected

by Section 27A(b) are not among them. These judg-

ments, entered only months before the legislation was en-

acted, had no effect but to relieve alleged malefactors of

having to answer fraud charges on their merits, based

entirely on a determination that the suits were not timely

filed—under an interpretation of the governing statute

of limitations that itself was unexpected. The statute then

simply removed the limitations objection from the case.

There is no justification for any special bar on legislation

that thus reaches briefly back in time to eliminate a pro-

cedural defect to the consideration of serious charges

on their merits, even if that defect resulted in an unap-

pealed judgment.

5

ARGUMENT

Congress indisputably has broad legislative power to

enact new legal standards and apply them to past events,

protecting interests unprotected by preexisting law.? In

particular, Congress may enact a new statute of limita-

tions for plaintiffs who are out of time under the old

statute, enabling them to pursue recovery for the wrongful

conduct of defendants.* Under those principles, as the

federal circuits have uniformly held, it is not seriously

questionable that Congress could validly create a new

(limitations) rule in Section 27A and make that rule

available to plaintiffs whose cases under the preexisting

rule were meritless (out of time) if those plaintiffs’ cases

were still “pending,” whether in the district courts, in the

courts of appeals, or in this Court. See, e.g., Plaut, 1

F.3d at 1493 n.11, 1495, 1496. The Sixth Circuit held,

however, that the Constitution draws a sharp line pro-

hibiting Congress from extending any new rule (here,

the new limitations rule) to plaintiffs whose cases under

the preexisting rule were meritless (here, out of time) if

those cases had become “final” in a particular sense, i.e.,

were no longer subject to trial-court or appellate-court

review under currently applicable statutes and Rules.

* See, e.g., United States v. Carlton, 114 8. Ct. 2018, 2021-22

(1994); Landgraf v. USI Film Products, 114 8S. Ct. 1488, 1501

(1994); United States v. Sperry Corp., 493 U.S. 52 (1989); R.A.

Gray & Co., 467 U.S. at 729-33; Turner Elkhorn, supra; United

States v. Schooner Peggy, 5 U.S. (1 Cranch) 103, 110 (1801). See

also Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827,

844, 849 (1990) (Scalia, J., concurring), citing, as cases involving

express retroactive legislation, Watson v. Mercer, 33 U.S. (8 Pet.)

88 (1834); Graham & Foster v. Goodcell, 282 U.S. 409 (1931):

Freeborn v. Smith, 69 U.S. (2 Wall.) 160 (1864): Stephens v.

Cherokee Nation, 174 U.S. 445 (1899) ; Carpenter v. Wabash R. Co..

309 U.S. 23 (1940); and Dickinson Indus. Site, Inc. v. Cowan, 309

U.S. 382 (1940).

* See Electrical Workers Local 790 v. Robbins & Myers, Inc., 429

U.S. 229, 243-44 (1976) ; Chase Sec. Corp. v. Donaldson, 325 U.S.

304, 316 (1945).

6

The immediate consequences of this rigid line between

pending and final cases should by themselves be enough

to raise doubts about the court of appeals’ constitutional

ruling. Under that ruling, defendants who have obtained

final judgments under preexisting law acquire a constitu-

tional immunity from the application of new law to them.

But when Congress decides to confer a new legal right

on individuals, it is hard to see why Congress should be

constitutionally entitled to extend the right to individuals

who never brought claims under preexisting law and to

individuals who brought claims that are still pending, but

not to individuals who brought claims that were finally

adjudicated—such claims being equally meritless in all

three situations (which is precisely why Congress finds

it necessary to create the new right). In barring the equal

treatment manifested in Section 27A, moreover, the Sixth

Circuit’s ruling would penalize those plaintiffs who are

diligent enough to press their rights but responsible

enough to refrain from pursuing merely dilatory appeals,

_ and thus encourage the filing of meritless appeals to keep

cases alive while awaiting expected legislation.’ These

results produce windfalls to certain defendants and dis-

parities in treatment unrelated to any apparent interest in

justice and, indeed, an incentive toward litigation conduct

that is hardly consistent with the idea of respect for the

courts.

Although the court of appeals rested its decision en-

tirely on a rigid, formal line between pending and final

* All of the cases affected by Section 27A(b) could have been

kept alive by filing purely protective appeals or certiorari petitions.

This case, for example, was dismissed in mid-August 1991. Wich

30 days for an appeal and 90 days for a certiorari petition ‘t

gether with minimal periods for responses and judicial setiem).

the case, like all others affected by the June 1991 decision Lewepy,

could easily have been maintained in “pending” states enti) the

mid-December enactment of Section 27A. Of course while appeals

at the time “would have been . . . meritless and indeed sancetionable”

(Plaut, 1 F.3d at 1489), the enactment of Section 277A would hawe

transformed such appeals from sanctionable mes inte indispetably

meritorious ones.

tory). In fact, no sound constitutional derivation of the

pending final line is possible. The constitutional chai

lenge to Section 27A(b). in the end, rests only on formal

invocation of labels and cannot be rooted in the sul>

stance of the relevant constitutional principles.*

I. SECTION Z7A(b) DOES NOT VIOLATE THE CON-

STITUTIONAL SEPARATION OF POWERS.

ee ee 0 ey

paced. "Any such reaction “howl he dispelled hy strait

od th TT light of those principles } relevant precedents.

which shows that Section 27A(b) presents no constitu-

tional problem. Congress hes not (i) assigned non-

judicial power to the Article Il courts, (ii) itself usurped

— ee

* This case presents no claim onder the takings clause. See 62

US.L.W. 3806 (1994) (stating question presented); Yer ©. City

of Eacondide, 112 S. Ct. 1622, 1591-44 (1992). Ner could it: if the

due process attack om Section Z7A(b) faile. an it does, the argw-

Trost, 112 S. Ct. 2264, 2280-92 (1998); Connolly ©. Peasicn

Benefit Guar. Corp.. 41% US. 211, 222-23 (1986): see also Sperry

Corp.. supra. It could not reasonably be said that the defendant«

whom Section Z7A‘(b) compels to answer securities-fraud suits

Comerete Pipe, 113 S. Ct. at 2292 « voting Armatrong ©. United

States, %4 US. 4. 49 (1960)). Not surprisin ;

Gnd precedent treating 2 mere judgment of acn-liability, which is

net readily viewed as a transferable asset with market walue. *«

“property” within the meaning of the takings clause. Of course, a

judgment awarding a sum of money «rf confirming title to propertr

would present a quite different situation under the takings clause.

f judicia power, or (iii) otherwise i

A. Section Z7A(b) Does Not Impose Non-Jadicial

Functions on the Article III Courts in Violation of

Hayburn’s Case.

The court of appeals’ separation-of-powers conclusion

relied entirely on Hayburn's Case, which, the court de-

clared, firmly established a “rule that Congress may not

disturb final judgments of the Federal courts”

i F.3d st 1493). SS Oe ee See ee see

ae parties (id. at 1497-98). But

Gis canting of Mastants Cane and ts guageny dimly

misunderstands their holdings and their rationales. That

* We note that we have been unable to determine how often in

. the past Congress has enacted statutes, like Section 27A(b). setting

new legal standards and applying them retroactively to parties

with final judgments under old legal standards. On the one hand.

it seems unlikely that, for example, coal miners who had finally

lest claims for black lung benefite under preexisting law were

excluded from the coverage of the legislation at inave in Turner

Elkhorn, supra. On the other hand, one would expect laws like

Section 27A(b) to be relatively rare, given Congress's avoidance

of retreactive lsws generally and this Court's long approval, entil

making it less necessary for Congress to act te protect sellance

interests of litigants as it did in Section 27A. See Cherron Off Co.

v. Huson, 404 US. 97 (1971). One prominent recent statute affect-

ing “final” judgments—retroactively providing for atiorney’s fees

for handicapped children suing to enforce their education rights —

was upheld by the lower courts. See Tonya K. ©. Board of Educa

tion, S47 F 2d 1243 (7th Cir. 1988); Capello +. D.C. Board of Edu-

cation, 669 F. Sepp. 14 (D.D.C. 1987).

Of course, the novelty of a measure is not itself a reason for

finding it unconstitutional See. «9. Mistretta «. United Stat-+.

488 US. 361 (1989): Morrison ©. Olson, 487 US. 654 (1988):

CFTC «. Schor, 478 U.S. 833 (1986).

9

ct here statutes im place atthe time of the Jo

court could not itself afford relief (but would require, to

be effective, some subsequent independent action by an-

other Branch). This bar on assigning “non-judicial” tasks

to the Article If1 courts is utterly irrelevant here: it sim-

ply has nothing to do with, and has never been used to

challenge, a statute that is enacted after a judgment has

ee ee

us should be paid. 1 Stat. 243 11792). The opinions

of several Justices, sitting as Circuit Judges, explained

could have any effect, to the action of non-Article III

authorities. 2 US. (2 Dall.) at 411-14. The result was

10

an appeal from a decision by the Court of Claims because

Unteod Seates 9. Jones, 119 US. 477, 478 (1886) (quot-

ing Chief Justice Taney’s explanation in announcing judg-

ment in Gordon); see Gordon, 117 US. 697, 703

(1885).’ In In re Sanborn, 148 US. 222 (1893), the

Court likewise held that it could not take jurisdiction over

an appeal from certain Court of Claims decisions that

were still subject to non-Article Ill revision." And in

Chicago & Southern Air Lines, Inc. v. Waterman SS.

oe 333 Us. 103, 113-14 (1948), the Court held

in place at the time, = te tition ding st

mendation to the President.” /d. at 113."

* Immediately after Gordon was decided, Congress repealed the

provision subjecting the relevant Court of Claims decisions to ex-

ecutive revision, and those decisions thereby became fit for Article

IT! review. United States v. Jones, supra; see aleo La Abra Silver

Mining Co. +. United States, 175 US. 423 (1899).

*In District of Colum via ©. Eslin, 183 US. 62 (1901), the Court

estion, Guiites odied Gumentite Sp Mento Gites Gtaten, ooo

US. 346, 352-55 (1911), the Court again relied on the principle

established in Hayburn's Case, Ferreira, and Gordon to hold that

an Article III court may not render a purely advisory opinion (on

a statute's constitutionality), where the decision would furnish no

conerete relief. See also United States v. Jefferson Elec. Mig. Co

291 US. 286 ‘1934) (Article Il] courts cannot “give or review

judgments” that, at the time, are “conditioned” on agency revisory

authority; therefore, plaintiff's entitlement to money must be de-

cided in refund action).

° United States +. ey 9 US. (22 Wal.) on (1874), heid

aul is a She Ee there

times a live case or controversy for the district court

resolve—with no lack of concrete stakes, no deficiency

in adversarial incentive, and no threat to judicial inde-

pendence (or dignity) from acting as a magistrate for

another co-equal Branch. Sie Gsutst const Bad any ont

is after Lampf. and still anot

restored the My so limitations period. But at every

iy ltd annten enantio

Case is betrayed by the need it found to make two excep

tions to its initially absolute rule forbidding congressional

sea, act pincipte Sve shen to the excopens, the

ing pocspestine edied-—ao tan cxraplos Sa ane

this Court's decisions in United States v. Sioux Nation,

448 US. 371 (1980) (and Cherokee Nation v. United

States, 270 US. 476 (1926). and Pope v. United States,

323 US. 1 (1944)): the second accommodating the de-

andhy Cand caataats gone: to dite the tow ont

Taims judgment before paying it. United States rv.

Waters, 133 US. 208 (1990), likewise turned on a statutory

conclusion.

12

59 US. (18 How.) 421 (1855); The Clinton Bridge, 77

U.S. (10 Wall.) 454 (1870)). But the doctrine of

Mayberts Cam Giiitly in SONS en eameen Se

prospective judgments (¢.g., Chicago & Southern Air

Lines, Inc. v. Vann S.S. Corp., supra) nor an ex-

ception for cases against the United States (see Hayburn’s

Case, Ferreira, Gordon, etc.). The Sixth Circuit’s need

to trim the doctrine to fit the desired focus on post-

judgment statutes confirms that the doctrine has nothing

to do with such statutes.

Contrary to the Sixth Circuit's evident misunderstand-

ing. Hayburn’s Case does not state a constitutional bar on

Se ee ee oe ee court judgments.

enacted while the case was pending on aaa But

Hayburn's Case has no such effect (see. ¢.¢., Schooner

Peggy, supra), because such a statute does not somchow

retroactively undo the case-or-controversy character of

the district court judgment at the time it was entered. A

statute enacted after appellate review is exhausted no

more impairs the Article III nature of earlier eee

ern Air Lines, 333 US. at 114. There was no such

statute in this case. Accordingly, any separation-of-powers

claim that Section 27A(b) is invalid because of its effect

on pre-enactment judgments must look to some principle

other than that found in Hayburn’'s Case.

he i glace

gs from ehrcing adh por au thn pric

13

whether Section 27A(b) represents a of

cial power. | F.3d at 1499. oe ry “4

To accuse Congress of having usurped judicial author-

ity in this case, then. the Sixth Circuit had to disregard

the nature of the congressional action and focus exclu-

sively on the reopening of a final judgment as a per se

assumption of judicial power—even by a non-adjudica-

we hoy og ~Lnye KD _ But such a refusal to

14

é isti judici . See, é.g.,

defining characteristic of the judicial power See

Robertson, 112 S. Ct. at 1413 (“we find nothing in [the

statute] that purported to direct any particular oe

of fact or application of law, old or new, to fact );

Freytag v. Commissioner, 111 S. Ct. 2631, 2655 (1991)

(Scalia, J., concurring) (to “ ‘adjudicate,’ Le., .. . deter-

mine facts, apply a rule of law to those facts, and thus

arrive at a decision . . . [is a] necessary... condition| |

for the exercise of federal judicial power”). Because

Congress engaged in no case-specific adjudication, it did

not exercise judicial power in enacting Section 27A(b).

The Sixth Circuit’s focus on “finality” for its own sake,

rather than on the nature of the congressional decision,

finds no support in the text of Article Ill. Nothing there

speaks of “finality,” much less assumes or constitutional-

izes any particular set of rules for appealing, reopening,

or otherwise further reviewing judgments—rules that, of

course. have changed considerably over the years. _Nor

do the historical materials cited by the Sixth Circuit (1

10 One aspect of the bar on congressional exercise of the cmon

power is presented in United States v. Klein, 80 US. (18 Wall.

128 (1871), where Congress ordered a disposition of a specific case

(directing this Court, in a case on appeal from the Court of Claims,

to order dismissal of the complaint) based on an improper con-

gressional determination of the legal effect of a presidential pardon.

As the Sixth Circuit itself recognized (1 F.3d at 1497 n.14), Klein

could not support the asserted rigid bar on congresssional reopen-

ing of “final” judgments. Moreover, Section 27A(b), as a ome

of law with adjudication left to the courts, does not otherwise

present any problem under Klein. This Court’s recent decision in

Robertson, supra, is nonetheless instructive here, in its unanimous

understanding that a law-changing statute was not judicial "7

though it addressed particular cases by docket number. 112 S. Ct.

at 1411.

11 For example, under the old “term” system, a district court had

plenary authority to alter its judgments during the same “term,

which in many instances would have continued during the —

to-December period required for all cases affected by Section -

to have been “pending.” See, e.g., Hill v. Hawes, 320 US. —_ oes

(1944); 6A J. Moore & J. Lucas, Moore’s Federal Practice § 60.04,

at 60-31 (2d ed. 1993); 7 id. | 60.09, at 60-65.

~ oe Se ee, ¥

15

F.3d at 1490-91} reveal any objection to impairment

of finality per se. Rather, the common feature of the

identified legislative actions was their case-specific adjudi-

catory character—dquite irrespective of whether there had

previously been any final judgment or, indeed, any ju-

dicial proceedings at all.’

Not surprisingly, then, the central policy underlying

the separation of the Article III courts into a politically

independent Branch has nothing to do with finality for

its own sake. That guarantee of independence, instead,

has everything to do with the case-specific nature of gov-

ernmental determinations: political independence is im-

portant for deciding the rights of identified parties

through adjudicatory determinations—findings of fact, in-

terpretations of existing law, fashioning of case-specific

remedies, etc. Political independence is irrelevant, and

indeed antithetical, to the enactment of new legal stand-

ards, including a new statute of limitations.

Precedent, too, supports rejection of the notion that

congressional reopening of an Article III judgment is

per se an exercise of judicial power. This Court has up-

held statutes even when Congress has not changed the

governing law, but instead only provided fo- reopening

(or, what seems the same thing, further appellate review

not otherwise available), even in individually identified

cases. That was, in fact, precisely the holding of United

States v. Sioux Nation, supra.” And contrary to the Sixth

‘2 The quotes set forth in the Sixth Circuit opinion (1 F.3d at

1490-91 & nn.7, 8) speak for themselves in this regard. So, too,

the listing of legislative actions in Judicial Action by the Provincial

Legislature of Massachusetts, 15 Harv. L. Rev. 208 (1901-02)

(cited at 1 F.3d at 1490 n.7), discloses that the common thread

making them “judicial” was their case-specific adjudicatory charac-

ter; nothing distinctive about final judgments can be inferred from

the mix of listed actions—some of which affected final judgments,

some pending cases, and some disputes not in litigation at all.

'S This Court has likewise upheld such s.atutes as applied to the

judgments (treated as such for full faith and credit purposes) of

territorial courts and administrative tribunals. See, e.g., Paramino

Lumber Co. v. Marshall, 309 U.S. 370 (1940) ; Stephens v. Cherokee

16

Circuit’s view, the fact that the United States was a party

in Sioux Nation is irrelevant to the Article III issue of

whether congressional reopening of an Article III judg-

ment is per se an exercise of judicial power.

The question of congressional authority to require re-

litigation of the claim presented in Sioux Nation, without

res judicata, necessarily involved two components: is

reopening automatically an exercise of judicial authority?

and if not, what specific legislative authority does Con-

gress have in Article I to eliminate res judicata? The

party status of the United States was key to the second

step in the Court’s upholding of the statute—namely, to

locate the particular legislative power underlying the en-

acted statute, which merely directed the Court of Claims

to ignore res judicata. The Court held that the debt-

paying power set forth in Article I, § 8, authorized the

waiver of res judicata. But the waiver notion and debt-

paying power have no bearing on the Sioux Nation

Court’s first necessary step, concluding that reopening a

final judgment of an Article III court is not a uniquely

judicial power. It is that proposition, unaffected by the

identity of the defendant, which suffices to undermine the

Sixth Circuit’s holding here.”

In any event, Section 27A(b) presents even less of a

separation-of-powers issue than the statute upheld in Sioux

Nation, since Section 27A(b) undeniably creates new law

Nation, supra; Freeborn v. Smith, supra; Sampeyreac v. United

States, 32 U.S. (7 Pet.) 222 (1833).

14 After all, the “waiver of res judicata” that the Court found

authorized by the debt-paying power could easily have been exer-

cised by Congress itself, a Committee, or some Article I tribunal.

The validity of requiring involvement of the Article III courts

requires reasoning apart from the notion of waiver. By the same

token, the interest of the Article III courts in independent func-

tioning does not change based on the identity of the parties before

them.

15 Of course, the source of legislative power in this case presents

no difficulty, since Section 27A(b) plainly rests on the Commerce

Clause power to enact a statute of limitations for securities cases.

- ee

17

applicable in a generally defined class of cases, as op-

posed to merely requiring an Article III court to en-

gage in relitigation of one individually identified dispute.

See, e.g., Pope v. United States, supra; Cherokee Nation

v. United States, supra. Thus, Section 27A(b) does not

present either of the two features that appear key to the

dissent in Sioux Nation: the statute in Sioux Nation

applied to precisely one identified case and changed no

law except the rule of finality (res judicata, preclusion).”*

Thus, this Court need not decide here in what circum-

stances, if any, Congress may have power to enact stat-

utes changing only finality rules for purely private cases.

Section 27A(b) plainly does more: it applies to a gen-

erally described class of cases and it does change the law

to be applied. That is a proper legislative, not a judicial,

act.

Section 27A(b), then, is in substance nothing but the

creation of a new cause of action for certain securities

fraud plaintiffs. In the absence of a formal bright line

in the Constitution itself, there is no sound basis for re-

fusing to look to the substance of this legislation in judg-

ing its validity.’ Indeed, where as here the text does not

16 The majority in Sioux Nation viewed the statute as creating

“a new legal right” (448 U.S. at 407), whereas the dissent viewed

it otherwise. 448 U.S. at 431 (“Congress has not changed the rule

of law, it simply directed the judiciary to try again.”).

17In this respect, this case is quite different from INS v.

Chadha, 462 U.S. 919 (1983), Bowsher v. Synar, 478 U.S. 714

(1986), and Metropolitan Wash. Airports Auth. v. Citizens for the

Abatement of Aircraft Noise, Inc., 111 S. Ct. 2298 (1991), each

of which ultimately rested on vextually plain reasoning (supported

by underlying structural principles): “If the power is executive,

the Constitution does not permit an agent of Congress to exercise

it. If the power is legislative, Congress must exercise it in con-

formity with the bicameralism and presentment requirements of

Art. I, § 7.” 111 S. Ct. at 2312. Moreover, even the dissents in

Morrison v. Olson, supra, and Mistretta, supra, rested on the view,

rooted in the text, that each challenged statute involved an exercise

of governmental power outside the constitutional structure in the

simple sense that the power was not exercised by, or subject to the

18

speak clearly, this Court has ruled repeatedly that “ ‘prac-

tical attention to substance rather than doctrinaire reli-

ance on formal categories should inform application of

Article Il.” CFTC v. Schor, 478 US. 833, 848 (1986)

(quoting Thomas v. Union Carbide Agricultural Prod.

Co., 473 U.S. 568, 587 (1985)); see Robertson, 112

S. Ct. at 1414 (rejecting argument based on form of law

where equivalent in substance was constitutional). See

also, e.g., West Lynn Creamery, Inc. v. Jonathan Healy,

62 US.L.W. 4518, 4523 (1994) (rejecting form over

substance in Commerce Clause application ).

That focus on substance means, in the present context,

that what matters is whether Congress has engaged in

case-specific adjudication. If it has, the congressional

action should be invalid whether the affected case is

pending or final. But if it has not, the congressional ac-

tion should be valid whether the affected cases are pend-

ing or final. As the accepted validity of Section 27A(a)

establishes, Section 27A(b) falls into the latter category

—valid as a legislative, not judicial, exercise of power.

C. Section 27A(b) Violates No Broader Separation of

Powers Principle.

Section 27A(b) readily passes muster under a broader,

less textually focused separation-of-powers standard for-

bidding congressional actions that unduly encroach on or

impair the effective functioning of another Branch, in-

cluding the Article III courts. See, e.g., Mistretta v.

United States, 488 U.S. at 381-82: CFTC v. Schor, 478

U.S. at 850. A serious problem would be presented if

Congress took action with the purpose or with the effect

of chilling or impairing the courts’ independent perform-

ance of their adjudicatory duties—by, for example, im-

posing a general rule requiring or approving relitigation

control of. the Congress, the President, or the courts—the sole

repositories of the powers vested by Article I, Article II, and

Article III. The Sixth Circuit's pending/final rule, by contrast,

cannot in any comparable way be read off the face of the Consti-

tution’s assignment of powers.

19

of massive numbers of already-decided cases or by forcin

relitigation for no reason other than a change in judicial

personnel. But such improper purposes or effects, which

may equally infect a statute applicable to pending cases

cannot support the Sixth Circuit’s special rule for laws

affecting final cases. And Section 27A(b) cannot re-

motely be faulted as effecting any systemic impairment

or serving purposes inconsistent with th ituti

poses ini e constitution

commitment of judicial independence. ‘

. Section 27A(b) has no disabling impact on the func-

tioning of the Article III judiciary. Although not case-

specific (there is no evidence Congress knew what cases

would be pending or final when Section 27A was en-

acted), the provision applies only to the very small num-

ber of cases that were caught by surprise by Lampf. Cf

CFTC vy. Schor, 448 U.S. at 851-57 (narrow scope of

measure supports its validity). And the purpose of Sec-

tion 27A( b) has nothing to do with any questioning of

the independent judgment of courts. Congress made a

substantive change of legal standards (applying it retro-

actively, as it is entitled to do) because of a perceived

injustice in the preexisting state of the law. This purpose

is no more offensive to any constitutional value as ap-

plied to cases where no further review is available (Sec-

tion 27A(b)) than it is as applied to pending cases (Sec-

tion 27A(a)), where it is unquestionably valid. Indeed

it is at the heart of Congress’s responsibility to recon-

sider (and, if necessary ) amend statutes after the courts

make clear their present meaning.”

18 In addition, the properly legislative char i

of considerations relevant to prospectivity rach pb eetriceige

law-changing decisions follows, as a matter of both doctrinal

logic and practical need, from this Court’s recent decisions su on

ing that such balancing is not properly a judicial task. See Has >

v. Virginia Dep’t of Taxation, 113 S. Ct. 2510 (1993), saad

20

Il. SECTION 27A(b) DOES NOT VIOLATE THE DUE

PROCESS CLAUSE,

Section 27A(b) readily satisfies the settled substantive

due process standards applicable to retroactive legislation.

And there is no sound basis in “vested rights” notions for

creating a special due process standard for laws that up-

set otherwise-final judgments. (Of course, the takings

clause and contract clause, neither at issue here, provide

specific protections for certain vested rights.) Indeed, the

judgment at issue here is particularly undeserving of any

expansive due process protection.

A. Section 27A(b) Readily Passes the Applicable

Rationality Test for Retroactive Legislation.

The standard governing the assessment whether retro-

active legislation violates due process is by now firmly

established. “Retroactive legislation presents problems of

unfairness that are more serious than those posed by

prospective legislation, because it can deprive citizens of

legitimate expectations and upset settled transactions.

For this reason, ‘[t]he retroactive aspects of [economic]

legislation, as well as the prospective aspects, must meet

the test of due process’: a legitimate legislative purpose

furthered by rational means.” General Motors v. Romein,

112 S. Ct. at 1112 (quoting R.A. Gray & Co., 467 US.

at 730). See Carlton, supra; Sperry Corp., supra; Turner

Elkhorn, supra. This test thus recognizes that settled

expectations can constitutionally be upset, as long as the

legislature is rationally pursuing a legitimate objective in

doing so. See Turner Elkhorn, 428 US. at 16 (“legisla-

tion readjusting rights and burdens is not unlawful solely

because it upsets otherwise settled expectations”) (citing

numerous cases) (quoted in R.A. Gray & Co., 467 US.

at 729-30).

That standard is easily satisfied here. Retroactivity is

justified by obvious dual purposes: to protect the expec-

tation interests of plaintiffs who had relied on pre-Lampf

limitations periods and pursued securities fraud claims;

at the same time, to prevent a host of alleged malefactors

21

from escaping even having to answer fr

leging damages in the billions of y= Heagy Hoyo oA

Investors Legal Rights: Hearing on H.R. 3185 Before

the Subcomm. on Telecommunications and Finance of

the House Comm. on Energy and Commerce, 102d

Cong., Ist Sess. 3-6 (1991); 137 Cong. Rec. $18.623-24

(Nov. 27, 1991) (statement of Sen. Bryan). Both of

these purposes extend equally to cases where dismissals

under Lampf were on appeal and cases where no appeals

were pending. And the means adopted—a law reaching

back only a few months, and no further than the am

of legislative consideration (see Carlton, 114 §. Ct. at

2023 )—were precisely tailored to achieve those objec-

tives: indeed, these means were proposed by proelln on

tives of the securities industry." Section 27A(b) is :

measure that, far from upsetting the expectations of the

rats yy party, affirmatively serves the very fairness

st in preservin i "

me A Some t g expectations for which due process

B. Invocation of “Vested Rights”

Governing ' £ Does Not Alter the

Because Section 27A(b) so plainly meets i

due process standard, and indeed eae Ag PA rare

settled expectations at all, any due process challenge m!

the statute must depend on establishing a special rule

treating final judgments as sacrosanct. But this Court's

decisions setting forth the modern standard for retroactive

legislation, as quoted above, give no hint that judgment-

based rights are outside the standard, let alone accorded

the absolute protection without which any due process

challenge to Section 27A(b) must fail. In particular

invocation of “v ‘ohte” 2

pring ra ested rights” cases cannot justify such a

19

= Py a — of Morgan Stanley, testifying on behalf

pede) ye ustry Association, proposed that “the timeli-

~ “ cases pending at the time of the Lampf decision—

— ae not those cases since have been dismissed—should be

~ rmi by application of the law as it stood at that time.”

curities Investors Legal Rights, supra, at 91-92; see id. at 71-18

22

To begin with, as this Court pointed out more than

one hundred years ago, there is no “vested rights” clause

in the Constitution; claims under the due process clause

must instead be analyzed in due process terms. Campbell

v. Holt, 115 U.S. 620, 628 (1885). Not surprisingly,

therefore, it is clear that the established rationality stand-

ard applies to “vested” contract or property rights, both

constituting “property” under the due process clause. See,

e.g., United States v. Locke, 471 U.S. at 104-05; National

R.R. Passenger Corp. v. Atchison, T. & S.F. R.R., 470

U.S. 451, 471-72 (1985); R.A. Gray & Co., supra;

Kaiser Aluminum, 494 U.S. at 856 (Scalia, J., concur-

ring). Nothing about the advancement of a final judg-

ment as the basis for the “vested” right provides a reason

to fashion any different standard of due process protec-

tion.”

Even aside from the far-from-sacrosanct character of

“final” judgments (see Fed. R. Civ. P. 60(b)),” rejection

“It is important to distinguish two roles a judgment may

play: it may create a property right, or it may vest a property

right. The former—-as when a judgment gives rise to a judgment

lien—is irrelevant here, having nothing to do with the pending/

final line at issue or with “vested rights” doctrine. In any event,

nothing about judgment-created property rights warrants distinc-

tive protection over other forms of property (or contract) rights.

For example, judicial liens do not have any general priority over

liens arising from contracts. See, e.g., D. Epstein, J. Landers, &

S. Nickles, Debtors and Creditors 9, 48, 346 (3d ed. 1987); United

States v. Ron Pair Enters., 489 U.S. 235 (1989). Under 11 U.S.C.

§ 506, there is generally “no distinction between consensual and

nonconsensual! liens.” Ron Pair, 489 U.S. at 242 n.5. Pre-Code

bankruptcy law often gave less protection to judgment-based liens

than to ~onsensual liens (id. at 246-48; id. at 253-54 (O’Connor, J.,

dissenti. g)), as does at least one provision of the current Code

(11 U.S.C. §522(f); see Farrey v. Sanderfoot, 111 S. Ct. 1825

(1991)).

*! Rule 60(b) permits reopening where “ ‘appropriate to accom-

plish justice,’” with a strong practical eye on systemic needs for

finality. See Liljeberg v. Health Servs. Acquisition Corp., 486 U.S.

847, 864 (1988). This authority has been used to reopen judgments

based on a change of law. See, e.g., Adams v. Merrill Lynch Pierce

Fenner & Smith, 888 F.2d 696, 702 (10th Cir. 1989); Matarese

23

of a unique standard of protection follows from a straight-

forward recognition of precisely what the vesting of a

right by a final judgment is. The right that is vested is

the underlying right at issue in the litigation, which itself

must be a “property” interest protected by due process;

and what the final judgment does is to settle, i.e., con-

firm or eliminate grounds for dispute about, that right

under then-applicable law.” But there is no due process

reason why a property right sufficiently in doubt to have

produced litigation should gain absolute (or even ele-

vated) protection simply because the courts have resolved

the dispute, while the generally applicable rationality

standard applies to property rights (e.¢., in a bond, title

to property, limits on contractual obligations) that were

so clear and indisputable as never to have been litigated.

Indeed, such a ranking of rights would turn the due proc-

ess interest in settled expectations on its head.

Precedent in no way compels such a senseless result.

Absolute protection could hardly be squared with this

Court's decisions on many occasions and for many rea-

sons sustaining laws that upset final judgments.“ And

the Court specifically said in Fleming v. Rhodes that

“rights acquired by judgments have no different standing”

for due process purposes from that afforded other “vested”

v. LeFevre, 801 F.2d 98, 106 (2d Cir. 1986), cert. denied, 480 U.S.

908 (1987); McGrath v. Potash, 199 F.2d 166, 167 (D.C. Cir.

1952); cf. Polites v. United States, 364 U.S. 426, 433 (1960).

See also Gondeck v. Pan American World Airways, Inc., 382 US.

25 (1965) (granting rehearing four years after denial! of certiorari).

2 See, e.g., Stewart v. Keyes, 295 U.S. 403, 417 (1935): Campbell

v. Holt, 115 U.S. at 623. Without such a final judgment, a court

presented with a due process (or takings) challenge to a deprivation

of some property would have to establish at the outset that the

plaintiff did in fact enjoy the asserted property right under pre-

existing law. A pre-enactment final judgment would typically re-

move that issue from litigation.

* See Fleming v. Rhodes, 331 U.S. 100 (1947) ; Hodges v. Snyder,

261 U.S. 600 (1923); Pennsylvania v. Wheeling & Belmont Bridge,

supra; Paramino Lumber Co. v. Marshall, supra; Stephens v. Chero-

kee Nation, supra; Freeborn v. Smith, supra; Freeland v. Williams,

131 U.S. 405 (1889); Sampreyeac v. United States, supra.

24

rights, such as those gained by contract. 331 U.S. at 107;

see Turner Elkhorn, 428 U.S. at 16 (citing Fleming,

which involved a statute upsetting otherwise-final judg-

ments, in setting forth current rationality test for retroac-

tive legislation ).

Of course, it is possible to find statements in opinions

from an earlier era asserting the special protection of

“vested rights” based on final judgments. It is noteworthy,

however, that the Court appears never to have rested a

holding on such a proposition, not even in McCullough

v. Virginia, 172 U.S. 102, 123-24 (1898), cited by the

Sixth Circuit (1 F.3d at 1493 n.12).%* Perhaps more

important, those statements come from an era when other

“vested rights” were likewise given special protection,”

and that era has long since passed. See Landgraf, 114

S.Ct. at 1500-01. Thus, nothing about the older prece-

dents could fairly require repudiation of the modern ra-

tionality test where rights settled by final judgments are

present.

*4 Statements that respondents may rely on can be found, for

example, in Pennsylvania v. Wheeling & Belmont Bridge Co., supra,

The Clinton Bridge, supra, and Hodges v. Snyder, supra, but each

of those decisions upheld laws that disturbed (prospective) final

judgments.

As for McCullough, the relevant passage (172 U.S. at 122-23)

neither mentions due process nor actually rules on the constitu-

tional validity of the statute allegedly disturbing a final judgment,

but leads only to the conclusion that the challenged statute did not

in fact have that effect. Moreover, before that passage, the Court

had already disposed of this threshold question of state law, noting

that the state supreme court had not read the statute to apply to

the judgment before it. Finally, and in any event, the statute at

issue was indisputably passed while the case was pending (on appeal

in the state courts). McCullough’s opaque passage, dictum in sev-

eral ways and perhaps not even meant as a constitutional conclu-

sion, can hardly settle the question here.

25 See, e.g., Forbes Pioneer Boat Line v. Board of Comm'rs, 258

U.S. 338, 340 (1922); Stewart v. Keyes, supra; Coombes v. Getz,

285 U.S. 434, 442 (1932); Etter v. City of Tacoma, 228 U.S. 148,

156 (1913).

|

25

C. A Recent Judgment for a Defendant on Limitations

Grounds Generates No Vested Right to Avoid

Answering Substantive Charges Under a New Limi-

tations Rule.

Even if this Court were to conclude that some types

of judgments warrant special due process protection, the

particular type of judgment at issue here is the very last

sort that deserves special protection as a “vested right”

against legislation like Section 27A(b). First, the affected

judgments, aside from being quite recent, neither con-

firmed title to some specific property nor awarded money.

Instead, their only concrete effect was to give the defendants

a future protection against having to answer securities-

fraud charges under 10b-5. Thus, Section 27A(b) takes

away no concrete “property” awarded by a judgment.

See Paramino Lumber Co., supra (upholding statute re-

opening a specific damages dispute between private par-

ties after a final adjudication for defendant by an ad-

ministrative tribunal).” See also note 5, supra (takings

clause).

Second, and more narrowly, Section 27A(b) upsets no

interest of defendants in the resolution of a specific issue

previously decided by the court—any more than does Sec-

tion 27A(a). The statute changes the law on the sole

issue previously decided, making the prior determination

immaterial. In substance, Section 27A(b) does nothing

other than provide the affected plaintiffs with a new claim

—for securities fraud with a new limitations period. No

due process fairness notion creates a “vested” right to

immunity from having to answer the altered claim, which

in its current form was not, and could not have been,

26The reopened judgment in Paramino was by law deemed

“final” when no judicial review was sought (33 U.S.C. § 921), was

subsequently cited by this Court as a final judgment (Fleming v.

Rhodes, 331 U.S. at 107 n.12), and would, at least today, have had

the preclusive effect of a final judgment (see University of Tennes-

see v. Elliott, 478 U.S. 788 (1986); United States v. Utah Constr.

& Mining Co., 384 U.S. 394 (1966)). For due process purposes,

then, the upset judgment in Paramino is indistinguishable from the

judgments at issue here.

26

litigated in the original action. Cf. Commissioner v.

Sunnen, 333 U.S. 591, 599 (1948) (collateral estoppel

“is not meant to create vested rights in decisions that have

become obsolete or erroneous with time”). And no due

process protection for settled expectations could reason-

ably elevate form over substance to distinguish Section

27A from a law using the label of “new cause of action.”

Third, and of course most narrowly, the issue on

which the affected judgments rest is a statute of limita-

tions—where, indeed, it was the old rather than new limi-

tations rule that upset litigants’ expectations. Plaut, |

F.3d at 1498. This Court has often noted the distinc-

tively weak character of claims assertedly “vested” as a

result of a procedural or administrative defect, including

timeliness bars. See, e.g., Paramino Lumber Co., 309

U.S. at 378: Graham & Foster, 282 U.S. at 427, 429-30.

The reasons are simple. Disturbing a “repose” that rests

on limitations grounds does not make unlawful any con-

duct that was lawful at the time. Cf. Bowen v. George-

town Univ. Hosp., 488 U.S. 204, 219 (1988) (Scalia, J.,

concurring) (classically retroactive law “alter[s] the past

legal consequences of past actions”). And, as the Court

observed in Chase Sec. Corp., 325 U.S. at 316, the law

need not indulge any assumption that the affected defend-

ants’ “conduct would have been different if the present

27 Historically, statutes of limitations have been treated as “pro-

cedural” for choice-of-law and other purposes. See Sun Oil Co. v.

Wortman, 486 U.S. 717 (1988); Bournias v. Atlantic Maritime Co.,

Ltd., 220 F.2d 152 (2d Cir. 1955); Restatement (Second) of Con-

flict of Laws $$ 142, 143 (1971). One consequence has been that

there is no guarantee of freedom from having to answer the sub-

stance of a claim, or freedom from liability, based on a dismissal

for untimeliness of the suit, because the same claim might be

permitted in another jurisdiction. 1B J. Moore, J. Lucas & T.

Currier, Moore’s Federal Practice { 0.409(6), at III-162 (2d ed.

1993); Restatement (Second) of Conflict of Laws §§ 142, 143;

Restatement (Second) of Judgments § 19 Comment f.

See also Block v. North Dakota, 461 U.S. 273, 291-92 (1983)

(limitations bar does not determine underlying title to real prop-

erty, even after final judgment).

27

rule had been known and the change [made by Secti

27A(b) | foreseen.” 7 pg

Because statutes of limitations “represent expedients,

rather than principles” (Chase, 325 U.S. at 314), “it can-

not be said that lifting the bar of a statute of limitation

So as to restore a remedy lost through mere lapse of time

is per se an offense against the Fourteenth Amendment.”

Id. at 316; see Electrical Workers Local 790, supra.”

There is simply no good reason for a different conclusion

for those plaintiffs who had the lapse of time adjudicated

against them before the legislature lengthened the period.

There is still less reason for a different result where, as

here, the superceded claim-barring limitations rule was

itself the result of an unexpected judicial decision and the

curative statute merely restored all parties to their original

expectations. Section 27A(b), as such a statute, should

be upheld.

28 The Court in Campbell v. Holt, 115 U.S. at 628, specifically

rejected the notion that “a right to defeat a just debt by the statute

of limitations is a vested right, so as to be beyond legislative power

in a proper case. The statutes of limitation, as often asserted, and

especially by this court, are founded in public needs and public

policy—are arbitrary enactments by the law-making power... .

No man promises to pay money with any view to being released

from that obligation by lapse of time. It violates no right of his,

therefore, when the legislature says time shall be no bar, though

such was the law when the contract was made. The authorities we

have cited, especially in this court, show that no right is destroyed

when the law restores a remedy which had been lost.”

28

CONCLUSION

The judgment of the court of appeals should be

reversed.

Respectfully submitted,

RICHARD G. TARANTO

(Counsel of Record)

H. BARTOW FArkR, III

FARR & TARANTO

2445 M Street, NW

Washington, DC 20037

(202) 775-0184

STEWART M. WELTMAN

STEWART M. WELTMAN

& ASSOCIATES, P.C.

135 S. LaSalle Street

Dated: July 21, 1994 Chicago, IL 60603