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Section 27A(b) of the Securities Exchange Act of 1934 is an unconstitutional exercise of legislative power, and cannot be permitted to interfere with a defendant's final judgment and his vested right therein.
The stockholders filed an action against the corporation for a violation of § 10(b) of the Act and Rule 10b5. The action was filed more than three years after the stockholders purchased their shares. The action was dismissed because it was not filed within the uniform three-year statute of limitations that was established by the United States Supreme Court while the action was pending. Congress subsequently enacted § 27A(b) of the Securities Exchange Act of 1934 (Act), which provided that the limitation period for §10(b) actions that were commenced prior to the United States Supreme Court's decision would be determined by state law, and that such actions could be reinstated on motion by the plaintiff within 60 days. The stockholders filed a motion to reinstate their action against the corporation under § 27A(b). The corporation claimed that § 27A(b) was unconstitutional because it offended the separation of governmental powers by impermissibly encroaching upon the power of the judiciary.
Could the stockholders reinstate their motion on the basis of § 27A(b) of the Securities Exchange Act of 1934?
The court agreed with the corporation's claim, and denied the stockholders' motion to reinstate their claim against the corporation for a violation of the Securities Exchange Act of 1934. The court ruled that §27A(b) unconstitutionally interfered with the final judgment that had been entered in the case and the corporation's vested right in the judgment. According to the court, while legislation may act on subsequent proceedings and may abate pending actions, when those actions have passed into judgment, the power of the legislature to disturb rights created thereby would cease.