In 1983, a man by the name of Ed Plaut purchased
shares in a horse farm located in the state of
Kentucky. The farm was known as
Spendthrift Farm, Incorporated. Four years later, in 1987, Plaut—alongside other investors—filed suit against Spendthrift Farm, thereby launching a
class action lawsuit over securities fraud in federal court. Section 10(b) of the
Securities Exchange Act of 1934 () was the provision of law which served as the basis for this part of their lawsuit. At the time, there were no
statutes of limitations for securities fraud under federal law, so the federal government of the United States would merely apply those of the states to federal cases based on their state of origin. Kentucky was a state with a five-year statute of limitations for securities fraud cases at the time, so the federal government applied a five-year statute of limitation to the case that was filed by Plaut and the other shareholders. While Plaut's case was pending, however, another ruling which would impact the lawsuit was made by the Supreme Court of the United States. In the case of
Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991), the Supreme Court of the United States held that the aforementioned practice of utilizing statutes of limitations under state law for securities fraud litigations under federal law is unconstitutional because doing so violates both the
Supremacy Clause because it elevates state law above federal law as well as the
Equal Protection Clause of the
Fourteenth Amendment because different states have different laws that had been causing different standards to be applicable at the federal level of government in separate cases based on similar circumstances. As established by the decision in that case, a new rule stipulated that all securities fraud cases under section 10(b) of the Securities Exchange Act of 1934 must be filed within three years of the fraud as well as within one year of discovering such fraud. Though Plaut's lawsuit with the other shareholders against Spendthrift Farm was punctual under the statute of limitations in the state of Kentucky, it was not punctual under the new precedent which had been suddenly established by the
Lampf decision. That decision was also applicable to all similar cases within the federal courts which were pending upon its adjudication, so—citing the Supremacy Clause of the
Constitution of the United States—the judge of the district court reviewing the lawsuit by Plaut and the other shareholders against Spendthrift Farm dismissed it with prejudice. The federal government enacted a federal law which contained a provision that would have another impact on the since adjudicated lawsuit later that same year. Under section 476 of the
Federal Deposit Insurance Corporation Improvement Act of 1991, which created section 27A of the Securities Exchange Act of 1934 (), subsection (b) therein allowed any unfinished cases about securities fraud which were dismissed as a result of the new rule from
Lampf at the time of that decision to be eligible for revival in federal courts. This provision was intended to mitigate the negative effects of the
Lampf decision on relevant litigants. These new developments meant that the lawsuit against Spendthrift Farm was eligible for reinstatement under the law. After asking the
United States District Court for the Eastern District of Kentucky to reinstate his case, the judge acknowledged that Plaut and the other shareholders were eligible for the reinstatement of their case, but declined to allow it by holding section 27A(b) of the new law to be unconstitutional. Plaut and the other shareholders appealed their case to the
United States Court of Appeals for the Sixth Circuit, but that court affirmed the decision of the district court. They subsequently filed a petition for a
writ of
certiorari with the Supreme Court of the United States, which was granted. ==Opinion of the Court==