## Facts

- A shareholder of Viacom International, Inc. filed a derivative action under § 16(b) of the Securities Exchange Act of 1934, alleging that a group of related entities functioned as a single “beneficial owner” of more than 10% of the issuer’s stock.
- The complaint alleged defendants realized roughly $11 million in short-swing profits from purchases and sales of the issuer’s stock within a six-month period.
- The plaintiff alleged he demanded that the issuer sue and waited more than 60 days without action before filing suit in the issuer’s name.
- After filing, the issuer was acquired in a merger and became a wholly owned subsidiary and sole asset of a new parent; former issuer shareholders received cash and parent-company shares in exchange for issuer shares.
- The plaintiff ceased to own stock in the issuer and instead held stock in the new parent, and he amended the complaint to proceed on behalf of both entities.
- The district court granted summary judgment for defendants, holding the plaintiff lost standing when he no longer owned issuer stock; the court of appeals reversed.

## Issues

1. Whether § 16(b)’s phrase “owner of any security of the issuer” requires ownership of the issuer’s securities at the time the action is “instituted,” and whether the plaintiff satisfied that requirement when he filed.
2. Whether a plaintiff who had § 16(b) standing at filing loses standing when, during litigation, his issuer shares are exchanged in a merger for shares of the issuer’s parent.
3. Whether Article III requires the plaintiff to maintain a continuing financial interest in the litigation’s outcome.

## Decision

- The Supreme Court affirmed the court of appeals.
- The Court held the plaintiff had statutory standing because he owned the issuer’s stock when the action was commenced (“instituted”).
- The Court held § 16(b) does not require the plaintiff to remain a shareholder of the issuer throughout the litigation.
- The Court required, as a continuing condition, that the plaintiff maintain some financial interest in the outcome during the period of participation.
- The Court found that ownership of stock in the issuer’s parent, where the issuer was the parent’s wholly owned subsidiary and only asset, supplied a sufficient financial interest to continue the suit.

## Legal Principles

- Section 16(b) confers broad standing on “the owner of any security of the issuer” to sue in the issuer’s name to recover short-swing profits; the statute does not require any minimum quantity or percentage of holdings.
- For § 16(b), “instituted” refers to the commencement of the action; statutory standing is assessed at the time suit is filed.
- A § 16(b) plaintiff need not have held the issuer’s securities at the time of the challenged short-swing transactions to have standing to sue.
- Although § 16(b) does not demand continued ownership of the issuer’s securities, a plaintiff must retain some financial interest in the litigation’s outcome to ensure adequate incentive to litigate and to avoid Article III concerns.
- A plaintiff’s financial interest may be indirect, including an equity interest in a parent corporation whose value is tied to recovery by a wholly owned issuer subsidiary.

## Conclusion

The Court held that § 16(b) standing is satisfied when the plaintiff commences suit as an owner of any security of the issuer, and that post-filing loss of issuer shares through a merger does not defeat standing so long as the plaintiff retains some continuing financial interest in the litigation’s result, including through ownership of the issuer’s parent.


Gollust v. Mendell, 501 U.S. 115 (1991)