Gollust v. Mendell

LOCATION:Clark County Jail

DOCKET NO.: 90-659
DECIDED BY: Rehnquist Court (1990-1991)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 501 US 115 (1991)
ARGUED: Apr 15, 1991
DECIDED: Jun 10, 1991

Edwin B. Mishkin – on behalf of the Petitioners
Irving Malchman – on behalf of the Respondents
James R. Doty – on behalf of SEC, as amicus curiae, in support of Respondents

Facts of the case


Media for Gollust v. Mendell

Audio Transcription for Oral Argument – April 15, 1991 in Gollust v. Mendell

Audio Transcription for Opinion Announcement – June 10, 1991 in Gollust v. Mendell

David H. Souter:

The second case also comes to us on writ of certiorari to the United States Court of Appeals for the Second Circuit.

It is Gollust and Mendell No. 90-659.

Section 16d of the Securities Exchange Act of 1934 requires corporate insiders to account to the corporation for short swing profits upon suit either by the corporation or by a holder of one of its securities suing on the corporations behalf.

The respondent, Mendell, owned stock in Viacomm International, Inc. which I will refer to as International.

He sued petitioners under Section 16b alleging that they were insiders by virtue of collective ownership of more than 10% of Internationals listed stock and that they had earned a profit by short seeing trading in its common stock.

After respondent filed his complaint, International was acquired by Viacomm, Inc.

By the terms of the acquisition, the shares of International were exchanged for cash and stock in Viacomm.

Petitioners then moved for summary judgment in respondents 16b action on the ground that he no longer owned any security issue by International as distinct from stock in Internationals new parent, Viacomm.

The District Court granted the motion.

The respondent appealed and the Second Circuit reversed.

In a unanimous opinion filed with the clerk today, we affirm the judgment of the Second Circuit.

The text of Section 16b indicates that congress intended to confer standing a signal breath on security holders of corporations whose insider took profit it from short-swing trading.

Bringing suit under the statute, a plaintiff must own a security of the corporation or issuer at the time suit is instituted.

Any security will suffice.

The statute does not restrict standing by requiring any minimum number or percentage of shares or any minimum value of any other security to be held, nor is there any requirement that the plaintiff own a security at the time of the insider trading or continue to own it after instituting suit.

This is not to say that a plaintiff can maintain a 16b action after he has divested of any interest on the outcome of the litigation.

We conclude that congress understood and intended that throughout the period of participation in 16b litigation, the plaintiff authorize to sue insiders on behalf of an issue that would have some continuing financial stake at the litigations outcome both to insure vigorous enforcement of a statute and to avoid the serious constitutional question that would arise from a plaintiffs loss of all financial interest in the outcome of the litigation he had begun.

In this case, we conclude that the continuing financial stake required by the statute is satisfied by respondents ownership of stock in the original issue as new parent corporation.

Since respondent own stock in the issuer when he instituted suit and was left after the corporate restructuring with stock and the issue was new parent corporation, he has at all time satisfied the standing requirements of Section 16b.