Foremost-McKesson, Inc. v. Provident Securities Company

Provident (plaintiff) bought convertible debentures from Foremost-McKesson (defendant) that were immediately convertible into more than 10% of Foremost's stock, even though Provident owned less than 10% of Foremost's stock before the purchase; Provident quickly resold the debentures to an underwriter and distributed the proceeds to its own shareholders. Anticipating exposure under Section 16(b) of the Securities Exchange Act, which requires 10%-plus shareholders to disgorge short-swing profits, Provident sought a declaratory judgment that it wasn't liable because it hadn't held 10% before the purchase. The district court and Ninth Circuit both agreed with Provident, and the Supreme Court granted certiorari.