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90-659 -- OPINION
NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Wash- ington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.
No.
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Justice Souter delivered the opinion of the Court.
Our prior cases interpreting 16(b) have resolved ques- tions about the liability of an insider defendant under the statute. [n.2] This case, in contrast, requires us to address a plaintiff's standing under 16(b) and, in particular, the re- quirements for continued standing after the institution of an action. We hold that a plaintiff, who properly "instituted [a 16(b) action as] the owner of [a] security of the issuer," may continue to prosecute the action after his interest in the is- suer is exchanged in a merger for stock in the issuer's new corporate parent.
I
In January 1987, respondent Ira L. Mendell filed a com- plaint under 16(b) against petitioners in the United States District Court for the Southern District of New York, stating that he owned common stock in Viacom International, Inc. (International) and was suing on behalf of the corporation. He alleged that petitioners, a collection of limited partner- ships, general partnerships, individual partners and corpora- tions, "operated as a single unit" and were, for purposes of this litigation, a "single . . . beneficial owner of more than ten per centum of the common stock" of International. App. to Pet. for Cert. 40a-42a. Respondent claimed that petitioners were liable to International under 16(b) for approximately $11 million in profits earned by them from trading in Interna- tional's common stock between July and October 1986. Id., at 42a-43a. The complaint recited that respondent had made a demand upon International and its Board of Directors to bring a 16(b) action against petitioners and that more than 60 days had passed without the institution of an action.
In June 1987, less than six months after respondent had filed his 16(b) complaint, International was acquired by Ar- senal Acquiring Corp., a shell corporation formed by Arsenal Holdings, Inc. (now named Viacom, Inc.) (Viacom) for the purpose of acquiring International. By the terms of the ac- quisition, Viacom's shell subsidiary was merged with Inter- national, which then became Viacom's wholly owned subsid- iary and only asset. The stockholders of International received a combination of cash and stock in Viacom in ex- change for their International stock. [n.3] Id., at 40a; App. 14-26.
As a result of the acquisition, respondent, who was a stock- holder in International when he instituted this action, ac- quired stock in International's new parent corporation and sole stockholder, Viacom. Respondent amended his com- plaint to reflect the restructuring by claiming to prosecute the 16(b) action on behalf of Viacom as well as Interna- tional. App. to Pet. for Cert. 44a.
Following the merger, petitioners moved for summary judgment, arguing that respondent had lost standing to main- tain the action when the exchange of stock and cash occurred, after which respondent no longer owned any security of In- ternational, the "issuer." The District Court held that 16(b) actions "may be prosecuted only by the issuer itself or the holders of its securities," and granted the motion because respondent no longer owned any International stock. [n.4] App. to Pet. for Cert. 32a. The court concluded that only Viacom, as International's sole security holder, could continue to pros- ecute this action against petitioners. Id., at 33a.
A divided Court of Appeals reversed. 909 F. 2d 724 (CA2 1990). The majority saw nothing in the text of 16(b) to re- quire dismissal of respondent's complaint. "[T]he language of the statute speaks of the `owner' of securities; but such lan- guage is not modified by the word `current' or any like limit- ing expression. The statute does not specifically bar the maintenance of 16(b) suits by former shareholders and Con- gress . . . could readily have eliminated such individuals." Id., at 730. Since the provisions of the statute were open to "interpretation," the court relied on the statute's remedial purposes in determining "whether the policy behind the stat- ute is best served by allowing the claim." Id., at 728-729. The majority concluded that the remedial policy favored rec- ognizing respondent's continued standing after the merger. "Permitting [respondent] to maintain this 16(b) suit is not barred by the language of the statute or by existing case law, and it is fully consistent with the statutory objectives." [n.5] Id., at 731. The summary judgment for petitioners was reversed.
The dissent took issue with this analysis, finding it to be in conflict with prior decisions of the Second Circuit and at least one other. See Portnoy v. Kawecki Berylco Industries, Inc., 607 F. 2d 765, 767 (CA7 1979); Rothenberg v. United Brands Co., CCH Fed. Sec. L. Rep. 96,045 (SDNY), aff'd mem., 573 F. 2d 1295 (CA2 1977).
We granted certiorari, 498 U. S. --- (1991), to resolve this conflict and to determine whether a stockholder who has properly instituted a 16(b) action to recover profits from a corporation's insiders may continue to prosecute that action after a merger involving the issuer results in exchanging the stockholder's interest in the issuer for stock in the issuer's new corporate parent.
II
A
Congress passed 16(b) of the 1934 Act to "preven[t] the unfair use of information which may have been obtained by [a] beneficial owner, director, or officer by reason of his rela- tionship to the issuer." 15 U.S.C. 78p(b). As we noted in Foremost-McKesson, Inc. v. Provident Securities Co., 423 U.S. 232, 243 (1976): "Congress recognized that insiders may have access to information about their corporations not avail- able to the rest of the investing public. By trading on this information, these persons could reap profits at the expense of less well informed investors." Prohibiting short-swing trading by insiders with nonpublic information was an impor- tant part of Congress' plan in the 1934 Act to "insure the maintenance of fair and honest markets," 15 U.S.C. 78b; and to eliminate such trading, Congress enacted a "flat rule [in 16(b)] taking the profits out of a class of transactions in which the possibility of abuse was believed to be intolerably great." Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418, 422 (1972); see also Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 591-595 (1973).
The statute imposes a form of strict liability on "beneficial owner[s]," as well as on the issuer's officers and directors, rendering them liable to suits requiring them to disgorge their profits even if they did not trade on inside information or intend to profit on the basis of such information. See Kern County Land Co. v. Occidental Petroleum Corp., supra, at 595. Because the statute imposes "liability with- out fault within its narrowly drawn limits," Foremost- McKesson, Inc. v. Provident Securities Co., supra, at 251, we have been reluctant to exceed a literal, "mechanical" application of the statutory text in determining who may be subject to liability, even though in some cases a broader view of statutory liability could work to eliminate an "evil that Congress sought to correct through 16(b)." Reliance Elec. Co. v. Emerson Elec. Co., supra, at 425.
In contrast to the "narrowly drawn limits" on the class of corporate insiders who may be defendants under 16(b), Foremost-McKesson, Inc. v. Provident Securities Co., supra, at 251, the statutory definitions identifying the class of plaintiffs (other than the issuer) who may bring suit indi- cate that Congress intended to grant enforcement standing of considerable breadth. The only textual restrictions on the standing of a party to bring suit under 16(b) are that the plaintiff must be the "owner of [a] security" of the "issuer" at the time the suit is "instituted."
Although plaintiffs seeking to sue under the statute must own a "security," 16(b) places no significant restriction on the type of security adequate to confer standing. "[A]ny se- curity" will suffice, 15 U.S.C. 78p(b), the statutory defini- tion being broad enough to include stock, notes, warrants, bonds, debentures, puts, calls, and a variety of other finan- cial instruments; it expressly excludes only "currency or any note, draft, bill of exchange, or banker's acceptance which has a maturity at the time of issuance of not exceeding nine months . . . ." 15 U.S.C. 78c(a)(10); see also Reves v. Ernst & Young, 494 U.S. 56 (1990). Nor is there any re- striction in terms of either the number or percentage of shares, or the value of any other security, that must be held. See Portnoy v. Revlon, Inc., 650 F. 2d 895, 897 (CA7 1981) (plaintiff bought single share); Magida v. Continental Can Co., 231 F. 2d 843, 847-848 (CA2) (plaintiff owned 10 shares), cert. denied, 351 U.S. 972 (1956). In fact, the terms of the statute do not even require that the security owner have had an interest in the issuer at the time of the defendant's short- swing trading, and the courts to have addressed this issue have held that a subsequent purchaser of the issuer's securi- ties has standing to sue for prior short-swing trading. See, e. g., Dottenheim v. Murchison, 227 F. 2d 737, 738-740 (CA5 1955), cert. denied, 351 U.S. 919 (1956); Blau v. Mission Corp., 212 F. 2d 77, 79 (CA2), cert. denied, 347 U.S. 1016 (1954).
The second requirement for 16(b) standing is that the plaintiff own a security of the "issuer" whose stock was traded by the insider defendant. An "issuer" of a security is defined under 3(a)(8) of the 1934 Act as the corporation that actually issued the security, 15 U.S.C. 78c(a)(8), and does not include parent or subsidiary corporations. [n.6] While this requirement is strict on its face, it is ostensibly subject to mitigation in the final requirement for 16(b) standing, which is merely that the plaintiff own a security of the issuer at the time the 16(b) action is "instituted." Today, as in 1934, the word "institute" is commonly understood to mean "inaugu- rate or commence; as to institute an action." Black's Law Dictionary 985-986 (3d ed. 1933) (citing cases); see Black's Law Dictionary 800 (6th ed. 1990) (same definition); Random House Unabridged Dictionary of the English Language 988 (2d ed. 1987) ("to set in operation; to institute a lawsuit"). Congressional intent to adopt this common understanding is confirmed by Congress' use of the same word elsewhere to mean the commencement of an action. See, e. g., 8 U.S.C. 1503(a) ("action . . . may be instituted only within five years after . . . final administrative denial"); 42 U.S.C. 405(g) ("Any action instituted in accordance with this subsection shall survive notwithstanding any change in the person occu- pying the office of Secretary or any vacancy in such office").
The terms of 16(b), read in context, thus provide standing of signal breadth, expressly limited only by conditions exist- ing at the time an action is begun. Petitioners contend, how- ever, that the statute should at least be read narrowly enough to require the plaintiff owning a "security" of the "is- suer" at the time the action is "instituted" to maintain owner- ship of the issuer's security throughout the period of his par- ticipation in the litigation. See Brief for Petitioners 11. But no such "continuous ownership requirement," ibid., is found in the text of the statute, nor does 16(b)'s legislative history reveal any congressional intent to impose one.
This is not to say, of course, that a 16(b) action could be maintained by someone who is subsequently divested of any interest in the outcome of the litigation. Congress clearly intended to put "a private-profit motive behind the uncover- ing of this kind of leakage of information, [by making] the stockholders [its] policemen." Hearings on H. R. 7852 and H. R. 8720 before the House Committee on Interstate and Foreign Commerce, 73d Cong., 2d. Sess., 136 (1934) (testi- mony of Thomas G. Corcoran). The sparse legislative his- tory on this question, which consists primarily of hearing tes- timony by one of the 1934 Act's drafters, merely confirms this conclusion. [n.7]
Congress must, indeed, have assumed any plaintiff would maintain some continuing financial stake in the litigation for a further reason as well. For if a security holder were allowed to maintain a 16(b) action after he had lost any financial in- terest in its outcome, there would be serious constitutional doubt whether that plaintiff could demonstrate the standing required by Article III's case or controversy limitation on federal court jurisdiction. See Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 804 (1985) (Article III requires "the party requesting standing [to allege] `such a personal stake in the outcome of the controversy as to assure that concrete ad- verseness which sharpens the presentation of issues' ") (quot- ing Baker v. Carr, 369 U.S. 186, 204 (1962)); see also Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464, 472 (1982). Al- though "Congress may grant an express right of action to persons who otherwise would be barred by prudential stand- ing rules," Warth v. Seldin, 422 U.S. 490, 501 (1975), "Art. III's requirement remains: the plaintiff still must allege a dis- tinct and palpable injury to himself." Ibid. Moreover, the plaintiff must maintain a "personal stake" in the outcome of the litigation throughout its course. See United State Pa- role Commission v. Geraghty, 445 U.S. 388, 395-397 (1980).
Hence, we have no difficulty concluding that, in the enact- ment of 16(b), Congress understood and intended that, throughout the period of his participation, a plaintiff author- ized to sue insiders on behalf of an issuer would have some continuing financial interest in the outcome of the litigation, both for the sake of furthering the statute's remedial pur- poses by ensuring that enforcing parties maintain the incen- tive to litigate vigorously, and to avoid the serious constitu- tional question that would arise from a plaintiff's loss of all financial interest in the outcome of the litigation he had begun. See Crowell v. Benson, 285 U.S. 22, 62 (1932) ("When the validity of an act of Congress is drawn in ques- tion, and even if a serious doubt of constitutionality is raised, . . . this Court will first ascertain whether a construction of the statute is fairly possible by which the question may be avoided"); see also Public Citizen v. United States Depart- ment of Justice, 491 U.S. 440, 465-466 (1989); id., at 481 (Kennedy, J., concurring in judgment).
B The conclusion that 16(b) requires a plaintiff security holder to maintain some financial interest in the outcome of the litigation does not, however, tell us whether an adequate financial stake can be maintained when the plaintiff's interest in the issuer has been replaced by one in the issuer's new par- ent. We think it can be.
The modest financial stake in an issuer sufficient to bring suit is not necessarily greater than an interest in the original issuer represented by equity ownership in the issuer's parent corporation. A security holder eligible to institute suit will have no direct financial interest in the outcome of the litiga- tion, since any recovery will inure only to the issuer's benefit. Yet the indirect interest derived through one share of stock is enough to confer standing, however slight the potential marginal increase in the value of the share. A bondholder's sufficient financial interest may be even more attenuated, since any recovery by the issuer will increase the value of the bond only because the issuer may become a slightly better credit risk.
Thus, it is difficult to see how such a bondholder plaintiff, for example, is likely to have a more significant stake in the outcome of a 16(b) action than a stockholder in a company whose only asset is the issuer. Because such a bondholder's attenuated financial stake is nonetheless sufficient to satisfy the statute's initial standing requirements, the stake of a par- ent company stockholder like respondent should be enough to meet the requirements for continued standing, so long as that is consistent with the text of the statute. It is consistent, of course, and in light of the congressional policy of lenient standing, we will not read any further condition into the stat- ute, beyond the requirement that a 16(b) plaintiff maintain a financial interest in the outcome of the litigation sufficient to motivate its prosecution and avoid constitutional standing difficulties.
III In this case, respondent has satisfied the statute's require- ments. He owned a "security" of the "issuer" at the time he "instituted" this 16(b) action. In the aftermath of Interna- tional's restructuring, he retains a continuing financial inter- est in the outcome of the litigation derived from his stock in International's sole stockholder, Viacom, whose only asset is International. Through these relationships, respondent still stands to profit, albeit indirectly, if this action is successful, just as he would have done if his original shares had not been exchanged for stock in Viacom. Although a calculation of the values of the respective interests in International that re- spondent held as its stockholder and holds now as a Viacom stockholder is not before us, his financial interest is actually no less real than before the merger and apparently no more attenuated than the interest of a bondholder might be in a 16(b) suit on an issuer's behalf.
The judgment of the Court of Appeals is, accordingly, affirmed.