Gollust v. Mendell

Supreme Court of the United States · 1991 · Corporations

501 U.S. 115 (1991)

Updated August 22, 2026

CorporationsSecuritiesSection 16(b)Standing§ 16(b)short-swing profitscontinuous ownershipissuer

Facts

Mendell filed a § 16(b) complaint alleging that petitioners, treated as a single beneficial owner of more than 10% of Viacom International's common stock, realized about $11 million in short-swing profits from trades in International stock. At the time he sued, Mendell owned common stock in International and had made demand on the corporation, which did not bring suit within 60 days. Less than six months later, International was acquired through a merger in which it became the wholly owned subsidiary and only asset of Viacom, and International shareholders received cash and Viacom stock in exchange for their International stock. Mendell then amended his complaint to reflect that he was proceeding on behalf of Viacom as well as International.

Issue

Whether a shareholder who properly instituted a § 16(b) action as the owner of a security of the issuer may continue to prosecute the action after a merger exchanges his interest in the issuer for stock in the issuer's new parent corporation. More specifically, the question is whether § 16(b) requires continuous ownership of the issuer's own securities throughout the litigation.

Rule

Under § 16(b), the only textual requirements for a nonissuer plaintiff to bring suit are that he be the owner of any security of the issuer at the time the action is instituted. The statute does not impose a continuous ownership requirement, but a plaintiff must maintain some continuing financial interest in the outcome of the litigation during his participation in order to preserve the statute's enforcement incentive and avoid constitutional standing problems. That continuing financial interest may be satisfied by ownership of stock in the issuer's new parent when the parent wholly owns the issuer and the issuer is the parent's only asset.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Seattle, Nora Kim owned one common share of Cascadia Signal Systems, a listed corporation. After making demand and waiting 60 days, she filed a § 16(b) action on the corporation’s behalf against an alleged 10% beneficial owner for short-swing profits; she had purchased her share after the insider’s trades occurred.

Does Nora have standing to institute the action?

Explanation. The majority read § 16(b) textually and broadly as to plaintiffs. The only textual restrictions for a nonissuer plaintiff are ownership of any security of the issuer at the time the action is instituted. The Court noted there is no requirement that the plaintiff have owned the security when the defendant engaged in the short-swing transactions, and no minimum quantity of shares is required.