has already done so." James B. Beam Distilling Co. v. Georgia, 115 L. Ed. 2d 481, 111 S. Ct. 2439, 2446 (1991). Lampf was applied to the litigants before the Supreme Court. The statute of limitations announced in Lampf is subject to the rule announced in Beam. Lampf has therefore been applied to similarly situated cases that were pending at the time Lampf was decided. As discussed above, that application was the reason Congress passed section 27A.
The United States and the S.E.C. argue that the Beam decision does not suggest that Congress could not curtail the retroactive effect of that decision. However, Beam not only announced a rule of retroactivity, but insured that the Beam decision itself was applied retroactively to cases pending at the time it was announced. The Beam court said that when the Court does "not reserve the question" of the retroactivity of a decision to the litigants, the Court intends to apply the new rule retroactively to the litigants. Id. at 2445; compare American Trucking Ass'ns, Inc. v. Scheiner, 483 U.S. 266, 297, 97 L. Ed. 2d 226, 107 S. Ct. 2829 (1987) (remanding case to decide whether ruling "should be applied retroactively. . . ."). In Beam, the Court reversed the judgment of the lower court, remanded Beam for further proceedings, and did not reserve the question of the application of Beam to the Beam litigants. Accordingly, since the Beam decision prohibits selective prospectivity, Beam applies to all cases pending at the time Beam was announced in which retroactivity is an issue.
Plaintiffs argue that section 27A did not change the Beam decision since it did not affect the nexus between Beam and Lampf. That is, by reversing the effect of Lampf upon the Lampf litigants, section 27A removed the condition precedent that made Beam relevant to Lampf. The end result, say plaintiffs, is that the Lampf statute of limitations may now be applied purely prospectively. Section 27A's reversal of the Lampf decision as to the Lampf litigants supports plaintiffs' argument that section 27A transformed Lampf into a purely prospective rule. But that does not answer the violence that section 27A did to Beam.
Beam dealt with two issues of retroactivity. Beam not only announced a rule of retroactivity, but Beam also applied its decision on retroactivity retroactively. In the context of securities law, Beam directed not just the retroactivity of the statute of limitations announced in Lampf; it also affected the retroactivity of any federal statute of limitations announced by a court prior to the decision in Beam. Therefore, Beam mandates that a judicially declared statute of limitations which operates on the litigants in a case will also operate on similarly situated litigants in cases announced both subsequent and prior to the Beam decision.
Section 27A contradicts that result and directs that, at least in § 10(b) cases, Beam will apply only to future cases. That conflicts with the rule announced in Beam. Beam forbade the selective prospective application of new judicially announced federal rules and required their retroactive application. Section 27A replaces the Beam decision against selective prospectivity with a law of selective prospectivity in certain cases. Permitting selective prospective application of statutes of limitations after the Beam court constitutionally forbade selective prospective application of such rules is an attempt to change Beam.
The Attorney General argues that Beam was not a constitutional decision because a majority of the court did not base their decisions on constitutional grounds. A majority of the Supreme Court joined in the Beam judgment, but the reasons for that judgment are contained in four separate opinions. Notwithstanding, this court believes that those opinions demonstrate that the Supreme Court concurred that its decision was on constitutional grounds.
The Beam decision is founded on the Court's definition of what constitutes the "judicial responsibility." Beam, 111 S. Ct. at 2450; see also id. at 2443, 2451. While Justice Souter began by asserting that the question of how a new rule should be applied is a question of "pure * * * judicial mechanics," his analysis of retroactivity heavily relied upon Griffith v. Kentucky, 479 U.S. 314, 328, 93 L. Ed. 2d 649, 107 S. Ct. 708 c (1987). Beam 111 S. Ct. at 2443. This reliance on the Griffith decision is significant. What Justice Souter called a question of "judicial mechanics," was termed a question of constitutional proportion by Griffith. 479 U.S. at 322; see also, Beam, 111 S. Ct. at 2449 (Blackmun, J., concurring) (tracking the language in Griffith). Similarly, Justice Scalia found the prohibition against selective prospectivity in the "judicial power" of "Article III § 1 * * * [and] as understood by our common law tradition." Id. at 2451 (Scalia, J., concurring). Employing slightly different phrasing, Justice Blackmun wrote "we fulfill our judicial responsibility by requiring retroactive application of each new rule we announce * * * * To do otherwise is to warp" the "role that . . . judges play in a government of limited powers." Id. at 2450.
The United States concedes that Beam focused on the meaning of the judicial power. But it argues that Justice Souter based his decision on the non-constitutional dimensions of that power. The justices did use different sources to define the meaning of the judicial power. They referred to the "common law tradition," id. at 2451, to "basic norms of constitutional adjudication," id. at 2449, and to principles of "equity" and "equality." Id. at 2446. But, however phrased, the judicial power is rooted in Article III of the Constitution and its meaning therefore remains a constitutional question. The method of analysis in Beam was not exceptional. E.g., Marbury v. Madison, 5 U.S. (1 Cranch) 137, 2 L. Ed. 60 (1803) (clarifying the significance of the judicial power); Hayburn's Case 2 U.S. (2 Dall.) 408 (1792) (establishing prohibition against advisory opinions).
The Court agreed in Beam that its decision was predicated on three overlapping components of the judicial responsibility: judicial review, the adjudicative process, and the obligation to refrain from legislative action. First, the prohibition against selective prospectivity "derives from the integrity of judicial review, which does not justify applying principles determined to be wrong to litigants who are in or may still come to the court." Beam, 111 S. Ct. at 2450. Beam relied on Griffith. "If we do not resolve all cases before us on direct review in light of our best understanding of governing constitutional principles, it is difficult to see why we should so adjudicate any case at all * * * *" Griffith, 497 U.S. at 323 (quoting Mackey v. United States, 401 U.S. 667, 679, 28 L. Ed. 2d 404, 91 S. Ct. 1160 (1971)). The Griffith Court also observed that "as a practical matter * * * [the Supreme Court] cannot hear each case pending on direct review and apply the new rule. But we fulfill our judicial responsibility by instructing the lower courts to apply the new rule retroactively to cases not yet final." Id. Following Griffith, the Beam court determined that by requiring the lower courts to retroactively apply newly announced civil law, the Court "fulfilled it judicial responsibility" to safeguard judicial review. Id. at 2450.
Second, the Beam prohibition against selective prospectivity was required by the "equality principle, that similarly situated litigants should be treated the same." Id. at 2446; see id. at 2450. The reliance on Griffith identified a constitutional principle that "derives from the role of adjudication in [the] constitutional scheme." Id. at 2450. The Griffith Court wrote, "it hardly comports with the ideal of * * * justice with an even hand" that "one chance beneficiary - the lucky individual whose case was chosen as the occasion for announcing the new principle - enjoys retroactive application, while others similarly situated have their claims adjudicated under the old doctrine." 479 U.S. at 327. The Beam court underscored that the equality principle is a "fundamental component of stare decisis." Id. at 2444. The Court pointed out that the concept of precedent constrains a court "from picking and choosing among similarly situated" litigants "those who alone will receive the benefit of a 'new' rule." Id. Therefore, retroactive application of a new rule insures litigants against arbitrary application of the law, a fundamental aspect of precedent. Id. at 2450.
Third, Beam indicates that the rule prohibiting selective prospectivity is required by the separation of the judicial and legislative functions. Id. at 2450-51. Selective prospectivity encourages judicial law-making. A court's "assertion of power to disregard current law in adjudicating cases" pending at the time a new rule is announced is "quite simply an assertion" that the courts' "constitutional function is not one of adjudication but in effect of legislation." Griffith, 497 U.S. at 323 (quoting Mackey v. United States, 401 U.S. at 679). In contrast, retroactive application of all newly declared laws acts as a "check upon judicial law making; to eliminate them is to render courts substantially more free to 'make new law,' and thus to alter in a fundamental way the assigned balance of responsibility among the three Branches." Beam, 111 S. Ct. at 2451 (Scalia, J., concurring); see id. at 2450 (Blackmun, J., concurring).
Plaintiffs also argue that Beam should not be considered to be a constitutional decision. First, plaintiffs point out that in Linkletter v. Walker, 381 U.S. 618, 629 (1965) the Court held that "the Constitution neither prohibits nor requires retrospective effect." However, the Supreme Court reconsidered Linkletter in Griffith v. Kentucky. The Griffith Court held that "failure to apply a newly declared constitutional rule to criminal cases pending on direct review violates basic norms of constitutional adjudication." 479 U.S. at 322.
Second, plaintiffs make much of Justice Souter's characterization of the issue in Beam as a choice of law question. Beam, 111 S. Ct. at 2444. Plaintiffs suggest that the use of this phrase shows that the question before the Court was not one of constitutional dimension. However, the use of the phrase "choice of law" is itself grounded in constitutional principles. In Marbury v. Madison, 5 U.S. (1 Cranch) 137, 2 L. Ed. 60 (1803), Justice Marshall wrote that "if two laws conflict with each other," the obligation of the courts "to decide the operation of each" is of "the very essence of the judicial duty." Id. at 176.
When "a law be in opposition to the constitution; if both the law and the constitution apply to a particular case, so that the court must either decide that case, conformable to the law, disregarding the constitution; or conformable to the constitution disregarding the law; the court must determine which of these conflicting rules governs the case."
Id. Justice Souter's depiction of the issue in Beam as a choice of law problem cannot be interpreted as a judgment that the Beam decision rests on less than constitutional ground.
Plaintiffs then argue that even if Beam is a constitutional decision, it only requires retroactive application of constitutional rules since, as plaintiffs point out, the underlying litigation in Beam concerned the commerce clause. Plaintiffs argue that the application of the § 10(b) statute of limitations is merely a statutory issue. However, as applicable to this case, Beam is a decision about the retroactivity of judicially announced civil rules, and not just judicially announced constitutional rules. Beam, 111 S. Ct. at 2446. And the basis for the Beam decision is what the Constitution requires in regard to retroactivity of such rules.
The constitutional grounds for Beam may be mixed; however, the end result is that Beam is based on the Constitution. It is incontrovertible that the Supreme Court has the final word on constitutional questions, and Congress may not enact a law that contravenes the Supreme Court's judgment on questions of constitutional interpretation. Marbury v. Madison, 5 U.S. (1 Cranch) 137, 2 L. Ed. 60 (1803).
This court is aware of the concerns that prompted Congress to enact section 27A. But such concerns cannot override the Constitution. Congress did not enact a statute of limitations for § 10(b) actions. Instead, without making any change in the underlying law, Congress attempted to direct the outcome of a certain group of cases. Section 27A intrudes into the powers reserved to the judiciary by Article III, and violates the constitutional separation of powers between the judicial and legislative branches.
IT IS ORDERED that plaintiffs' motion to reinstate their § 10(b) claims is denied.
Dated: March 27, 1992.
CHARLES A. LEGGE
UNITED STATES DISTRICT JUDGE