Legal Document

501 U.S. 115 111 S.Ct. 2173 L.Ed.2d 109 Keith R. GOLLUST, et al., Petitionersv.Ira L. MENDELL, etc., al. No. 90-659. Argued April 15, 1991. Decided June 10, Syllabus Section 16(b) of the Securities Exchange Act 1934 imposes strict liability on "beneficial owner[s]" more than 10% a corporation's listed stock, and officers directors, for any profits realized from purchase sale, or sale purchase, such stock occurring within 6-month period. Such "insiders" are subject to suit "instituted . by issuer, owner security issuer" in issuer's name behalf. After respondent Mendell, an common Viacom International, Inc. (International), instituted § against petitioners, allegedly owners" International was acquired shell subsidiary what is now called Viacom, (Viacom). merged with subsidiary, became Viacom's wholly owned sole asset. Mendell received cash exchange his stock. The District Court granted petitioners' motion summary judgment ground that had lost standing maintain action because he no longer Appeals reversed, holding Mendell's continued prosecution not barred statute's language existing case law fully consistent statutory objectives. Held: has satisfied requirements. Pp. 121-128. (a) provides signal breadth, expressly limited only conditions plaintiff be "owner [a] security" "issuer" at time "instituted." Any "security"—including notes, warrants, bonds, debentures, puts, calls, 15 U.S.C. 78c(a)(10)—will suffice confer standing. There restriction terms number percentage shares, value other security, must held. Nor required have interest issuer short-swing trading. Although security's does include parent corporations, 78c(a)(8), this requirement determined Congress intended adopt understanding word "institute"—"inaugurate commence; as institute action," Black's Law Dictionary 985-986 (3d ed. 1933)—which confirmed its use same elsewhere mean commencement action, see, e.g.,8 1503(a). 121-124. (b) A must, however, throughout period participation litigation, some financial litigation's outcome, both sake furthering remedial purposes ensuring enforcing parties incentive litigate vigorously, avoid serious constitutional question would arise under Article III plaintiff's loss all outcome litigation begun. But neither statute nor legislative history supports argument continuously own issuer. 124-126. (c) An adequate stake can maintained when been replaced one new corporation. This less bondholder's stake, which, although attenuated, satisfies initial statute. Pp 126-127. (d) Here, continues virtue P. 127-128. 909 F.2d 724, (CA2 1990), affirmed. SOUTER, J., delivered opinion unanimous Court. Edwin B. Mishkin, New York City, petitioners. Irving Malchman, respondents. James Doty, Houston, Tex., S.E.C., amicus curiae, support respondents special leave Justice SOUTER 1 1934, 48 Stat. 896, 78p(b),1 general rule owners These statutorily defined "insiders," well liable their profits, behalf ." Ibid. 2 Our prior cases interpreting resolved questions about insider defendant statute.2 case, contrast, requires us address and, particular, requirements after institution action. We hold plaintiff, who properly [a as] issuer," may continue prosecute exchanged merger corporate parent. 3 * In January 1987, Ira filed complaint petitioners United States Southern York, stating (International) suing He alleged collection partnerships, individual partners "operated single unit" were, "single beneficial ten per centum stock" International. App. Pet. Cert. 40a-42a. Respondent claimed were approximately $11 million earned them trading International's between July October 1986. Id., 42a-43a. recited made demand upon Board Directors bring 60 days passed without 4 six months complaint, Arsenal Acquiring Corp., corporation formed Holdings, (now named Inc.) (Viacom) purpose acquiring By acquisition, which then stockholders combination stock.3 40a; 14-26. 5 As result respondent, stockholder stockholder, Viacom. amended reflect restructuring claiming 44a. 6 Following merger, moved judgment, arguing occurred, "issuer." held actions "may prosecuted itself holders securities," stock.4 32a. court concluded holder, could 33a. 7 divided reversed. 724 1990). majority saw nothing text require dismissal respondent's complaint. "[T]he speaks 'owner' securities; but modified 'current' like limiting expression. specifically bar maintenance suits former shareholders readily eliminated individuals." 730. Since provisions open "interpretation," relied determining "whether policy behind best served allowing claim." 728-729. favored recognizing merger. "Permitting [respondent] law, it objectives."5 731. 8 dissent took issue analysis, finding conflict decisions Second Circuit least other. See Portnoy v. Kawecki Berylco Industries, Inc., 607 765, 767 (CA7 1979); Rothenberg Brands Co., CCH Fed. Sec. Rep. ¶ 96,045, 1977 WL 1014 (SDNY), aff'd mem., 573 1295 1977). 9 certiorari, 498 ----, 669, 112 662 (1991), resolve determine whether recover insiders involving results exchanging stockholder's II A. 10 "preven[t] unfair information obtained owner, director, officer reason relationship issuer." 78p(b). we noted Foremost-McKesson, Provident 423 232, 243, 96 508, 516, 46 464 (1976): "Congress recognized access corporations available rest investing public. information, these persons reap expense informed investors." Prohibiting nonpublic important part Congress' plan "insure fair honest markets," 78b; eliminate trading, enacted "flat [in ] taking out class transactions possibility abuse believed intolerably great." Reliance Elec. Co. Emerson 404 418, 422, 92 596, 599, 30 575 (1972); see also Kern County Land Occidental Petroleum 411 582, 591-595, 93 1736, 1743-1745, 36 503 (1973). 11 presented enforce rule." begin text. officer" "any profit him equity [an] months." "[s]uit [an insider's] form owner[s]," rendering requiring disgorge even if they did trade inside intend basis information. supra, U.S., 595, S.Ct., 1745. Because "liability fault narrowly drawn limits," 251, 519, reluctant exceed literal, "mechanical" application liability, though broader view work "evil sought correct through 16(b)." 425, 600. 12 To chose rely solely issuers holders. Unlike most federal securities laws, enforcement authority Commission. It is, rather, ultimate sue 16(b). If declines fails "diligently," 78p(b), holder "institut[e]" 13 contrast "narrowly limits" defendants 16(b), definitions identifying plaintiffs (other issuer) indicate grant considerable breadth. textual restrictions party 14 seeking "security," places significant type "[A]ny will suffice, definition being broad enough variety instruments; excludes "currency note, draft, bill exchange, banker's acceptance maturity issuance exceeding nine months. 78c(a)(10); Reves Ernst & Young, 494 56, 110 945, 108 47 (1990). there either Revlon, 650 895, 897 1981) (plaintiff bought share); Magida Continental Can 231 843, 847-848 (CA2) shares), cert. denied, 351 972, 76 1031, 100 L.Ed. 1490 (1956). fact, do defendant's courts addressed subsequent purchaser See, e.g., Dottenheim Murchison, 227 737, 738-740 (CA5 1955), 919, 712, 1451 (1956); Blau Mission 212 77, 79 (CA2), 347 1016, 74 872, 98 1138 (1954). second whose traded defendant. 3(a)(8) actually issued corporations.6 While face, ostensibly mitigation final standing, merely Today, "institute" commonly understood "inaugurate action." 1933) (citing cases); 800 (6th 1990) (same definition); Random House Unabridged English Language 988 (2d 1987) ("to set operation; lawsuit"). Congressional intent 1503(a) ("action five years administrative denial"); 42 405(g) ("Any accordance subsection shall survive notwithstanding change person occupying office Secretary vacancy office"). 16 read context, thus provide Petitioners contend, should owning "security" "instituted" ownership litigation. Brief 11. "continuous requirement," ibid., found statute, 16(b)'s reveal congressional impose one. 17 say, course, someone subsequently divested clearly put "a private-profit motive uncovering kind leakage [by making] [its] policemen." Hearings H.R. 7852 8720 before Committee Interstate Foreign Commerce, 73d Cong., 2d Sess., 136 (1934) (testimony Thomas G. Corcoran). sparse question, consists primarily hearing testimony Act's drafters, confirms conclusion.7 18 indeed, assumed continuing further well. For allowed doubt demonstrate III's controversy limitation jurisdiction. Phillips Shutts, 472 797, 804, 105 2965, 2970, 86 628 (1985) (Article "the requesting [to allege] 'such personal assure concrete adverseness sharpens presentation issues' ") (quoting Baker Carr, 369 186, 204, 82 691, 703, 663 (1962)); Valley Forge Christian College Americans Separation Church State, 454 464, 472, 102 752, 758, 70 700 (1982). express right otherwise prudential rules," Warth Seldin, 422 490, 501, 95 2197, 2206, 45 343 (1975), "Art. remains: still allege distinct palpable injury himself." Moreover, "personal stake" course. Parole Commission Geraghty, 445 388, 395-397, 1202, 1208-1209, 63 479 (1980). 19 Hence, difficulty concluding that, enactment participation, authorized Crowell Benson, 285 22, 62, 52 285, 296, 598 (1932) ("When validity act constitutionality raised, first ascertain construction fairly possible avoided"); Public Citizen Department Justice, 491 440, 465-466, 2558, 2572, 377 (1989); id., 481, 2580 (KENNEDY, concurring judgment). B 20 conclusion not, tell think be. 21 modest sufficient necessarily greater original represented eligible direct since recovery inure benefit. Yet indirect derived share however slight potential marginal increase share. bond become slightly better credit risk. 22 Thus, difficult how bondholder example, likely company asset attenuated nonetheless satisfy requirements, meet so long consistent, light lenient condition into beyond motivate difficulties. 23 aftermath restructuring, retains Through relationships, stands profit, albeit indirectly, successful, just done shares calculation values respective interests holds us, real apparently might 24 accordingly, 25 ordered. reads full: "For preventing exempted security) months, unless good faith connection debt previously contracted, recoverable irrespective intention entering transaction purchased repurchasing sold Suit competent jurisdiction fail refuse sixty request diligently thereafter; brought two date realized. construed cover where involved, rules regulations exempt comprehended subsection." phrase 16(a) "[e]very directly indirectly registered pursuant [§ Act], director security. 78p(a). (1976) (defendant sale); (1973) (binding option sell "sale" 16(b)); (1972) (no sales fell below 10%); Lehman, 368 403, 451, 403 (1962) (partnership trades partner). afforded appraisal rights Ohio law. 25-26. exercise appraisal. derivatively "double derivative" claim dismissed disposition claim, reach issue. 731 "urges th[is] double derivative 26, review it. observed: "Here timely, while pending involuntarily challenged grounds. decline—in keeping objective analysis regarding defendants' intent—to inquire orchestrated divesting cannot help note incorporation proposal occurred instituted. danger intentional defeat mechanism incorporated present." F.2d, Cf. 2(11) 1933, 77b(11) (definition certain controlled control issuer"). directed our attention statement Corcoran, principal drafter hearings Act. Corcoran testified confident enforced "[say] company, 'You your account, you find going on.' " (1934). complete description entitled [holder]" sue, stockholders. meant precise sue; witness clear (or holder) receive recovery, behalf: "The fact stockholders, interest, permitted benefit puts anyone doing particular thing, position risk somebody try out." 137 (emphasis added). Corcoran's does, reliance holders, dependence hardly cease moment filed.

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