# Petition for Writ of Certiorari — Levy v. Sterling Holding Holding Co., LLC (No. 08-1165) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_0303%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2008 ## Text & usrame Court, U.S ae AN hl a | 081165 MAR 1 8 2009 No. ___ GRFIGE OF THE CLERK IN THE Supreme Court of the Gnited States MARK LEvy, Petitioner, V. STERLING HOLDING COMPANY, LLC; NATIONAL SEMICONDUCTOR CORPORATION; AND FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC., Respondents. On Petition for a Writ of Certiorari to the United States Court of Appeals for the Third Circuit PETITION FOR A WRIT OF CERTIORARI MITCHELL M..Z. 'TWERSKY DAVID C. FREDERICK JEFFREY S. ABRAHAM Counsel of Record ABRAHAM FRUCHTER KELLY P. DUNBAR & TWERSKY LLP KELLOGG, HUBER, HANSEN, One Penn Plaza, Suite 2805 TODD, EVANS & FIGEL, New York, New York 10119 P.L.L.C. (212) 279-5050 1615 M Street, N.W. Suite 400 Washington, D.C. 20036 March 18, 2009 (202) 326-7900 QUESTIONS PRESENTED 1. Whether the rule against retroactive agency rulemaking of Bowen v. Georgetown University Hos- pital, 488 U.S. 204 (1988), and the principles of retro- activity analysis of Landgraf v. USI Film Products, 511 U.S. 244 (1994), are categorically inapplicable to amended agency rules that purport to clarify agency rules but that conflict with courts of appeals’ prior interpretations of those rules. 2. Whether the Securities and Exchange Com- mission’s new Rule 16b-3, 17 C.F.R. § 240.16b-3 (2005) — which exempts from disgorgement those short-swing profits realized from an insider’s acquisi- tion of securities from the insider’s own company — is a lawful interpretation of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), which provides for a broad, prophylactic right to recover profits acquired by an insider as a result of short-swing transactions in the insider’s own company’s securities. ll TABLE OF CONTENTS Page COU BS TEGIING Fe es cescccsscccccssccsccscccsscsscsssess i TAREE Gee Fe aoa eca scence ccc ccs cece ccc ccccssceee Vv EINE iach ese sccssccssceee er ee 1 ‘OPIN ee .................................. 3 FF ei cssncscccssccccscccscees 3 STATUTORY AND REGULATORY ee Ss 3 STAT a peceecerscscccccccessccsveees 3 A. Tie 0... 3 B. Facts and Proceedings Below ......................... 7 REASONS FOR GRANTING THE PETITION....... 12 I. THE THIRD CIRCUITS TEST FOR DETERMINING WHEN AGENCY CLARIFYING RULES HAVE RETRO- ACTIVE EFFECT DEEPENS AC- KNOWLEDGED CONFLICTS AMONG THE CIRCUITS AND DEPARTS FROM THIS COURT'S DECISIONG............ 12 A. The Courts Of Appeals Are Divided With Respect To The Proper Legal! Standard For Determining When Agency Rules Are Impermissibly en ceacacncsccees 13 1. The Third Circuit’s decision deepens a sharp split among courts of appeals on whether agency rules inconsistent with previous courts of appeals’ deci- sions are necessarily retroactive as applied to pending claims............ 13 Wi 2. The Third Circuit’s conclusion that “clarifying” rules are not subject to analysis under Land- graf deepens confusion in and adds to disagreement among Cat I ei cee 16 3. The Third Circuit’s holding that the status of the SEC’s rule as legislative is irrelevant to retroactivity analysis divides CR ee cc crnditceyncounch nutceceecan teen sevicens 18 B. The Decision Below Conflicts With This Court’s Retroactivity Juris- SI di cise chactcsareate eae 20 C. This Case Is An Appropriate Vehi- cle To Address These Important RE I vit cs sieks nhs hes a Aas 24 Il. THE THIRD CIRCUITS HOLDING THAT CONGRESS DELEGATED TO THE SEC NEAR PLENARY AUTHOR- ITY TO EXEMPT TRANSACTIONS FROM SECTION 16(b) WARRANTS REViEW BY THIS COURT.........0...s02s:cosess. 25 A. The SEC’s New Rule 16b-3 Conflicts With The Purposes Of Section 16(b)...... 26 B. The Court Should Grant Certiorari To Clarify The Scope Of An Impor- tant Provision Of Securities Law........... 32 CE I OW evans skicockvcrncuepatio amends aera: 32 APPENDIX: Opinion of the United States Court of Appeals for the Third Circuit, Levy v. Sterling Holding Ga. , BHO. TT BSS COG. 1 BBD vives desencsseccsecvesenssecess la Opinion of the United States District Court for the District of Delaware, Levy v. Sterling Holding Co., No. 00-994 (Feb. 13, 2007) ................ 32a Opinion of the United States Court of Appeals for the Third Circuit, Levy v. Sterling Holding Co. No. OS-1 GPS CIC. 1B BOE vccsiccscssccscesvcviccssces 63a Order of the United States Court of Appeals for the Third Circuit Denying Rehearing, Levy v. Sterling Holding Co., No. 07-1849 (Nov. 18, isa aaa dassracncta ted At adn tla suena warm ices 100a Statutory and Regulatory Provisions Involved ....102a Securities Exchange Act of 1934, § 16(b), pi BOE SE Ue. ARI es NPE ET ee i02a SEC Rule 16b-3, 17 C.F.R. § 240.16b-3 a a a eset aaetedebuuubaeSssichei ones 103a SEC Rule 16b-3, 17 C.F.R. § 240.16b-3 I ee tee ot 107a SEC Rule 16b-7, 17 C.F.R. § 240.16b-7 ee an sea chedebe 110a SEC Rule 16b-7, 17 C.F.R. § 240.16b-7 Re Cee Une ees MRE ll2a Letter from Supreme Court Clerk regarding grant of extension of time for filing a petition for a writ of certiorari (Feb. 10, 2009)................... ll4a 4 TABLE OF AUTHORITIES Page CASES ABKCO Music, Inc. v. LaVere, 217 F.3d 684 ESET eaer ene rs trem 18 Affiliated Ute Citizens of Utah v. United Be Oe ie ETD vnsccevevicvsccsnscncscneeniccssee 27 American Mining Cong. v. Mine Safety & Health Admin., 995 F.2d 1106 (D.C. Cir. Es 0) 2 i cashew Race aaa Sadeameaninan aden 19, 20 Bowen v. Georgetown Univ. Hosp., 488 U.S. NE 55a cae dctavndannrisessamaaiones 1,3, ¥%.. 33, 14, 19, 20, 22, 24, 25 Brown v. Thompson, 374 F.3d 253 (4th Cir. SELENE TOI 17 Burks v. Lasker, 441. U.S. 471 C1979) ........0cccccreecsse. 31 Chevron U.S.A. Inc. vu. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984)............ 11, 30, 31 Eastern Enters. v. Apfel, 524 U.S. 498 (1998).....12, 25 Ernst & Ernst v. Hochfelder, 425 U.S. 185 Sg REI ae oR Poe AT DIE ee PRT Senay RPS Cty eer ran mn 26 First Natl Bank of Chicago v. Standard Bank & Trust, 172 F.3d 472 (7th Cir. 1999) ............0... 19 Foremost-McKesson, Inc. v. Provident Sec. Co., ee a I I icc si dccw chassened wisesicenskedteeneavecens 30 Gollust v. Mendell, 501 U.S. 115 (1991)...........0.0..... 28 Health Ins. Ass’n of Am., Inc. v. Shalala, ee AS CER. Cit; RD. wo iicvicciiscccscedectcrsavecces 19 Heimmermann v. First Union Mortgage Corp., 305 F.Sea 1257 (1 1th Cir. 2002) ................0.... 17-18 v1 Hughes Aircraft Co. v. United States ex rel. Schumer, 620 U.S. 938 (1907)..............0.sccosssevcsess 22 ING v. St. Cyr, $33 U.S. 2S. C2001)..........esecseoree 23, 25 Landgraf v. USI Film Prods., 511 U.S. 244 a 1.3; 32; 13, 26, 16. 17, 20, 21, 23, 24, 25 Lewis v. Varnes, 505 F.2d 785 (2d Cir. 1974).......... 28 Liquilux Gas Corp. v. Martin Gas Sales, 6 Bee a ee | Se 17 Marrie v. SEC, 374 F.3d 1196 (D.C. Cir. 2004)....... 15 Martin v. Hadix, 527 U.S. 343 (1999) ...................... 22 National Assn of Home Builders v. United States Army Corps of Eng’rs, 417 F.3d 1272 as ca pubiababreadawendanhecaes 23 National Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967 (2005) ..............000.. 22 National Mining Ass'n v. Department of Labor, 292 F.3d 849 (D.C. Cir. 2002) ............ 14, 15, 16, 17 Orr v. Hawk, 156 F.3d 651 (6th Cir. 1998).............. 18 Piamba Cortes v. American Airlines, Inc., EE tee Ee CONE, EDDY conccccecsccsccscsccscicces 18 Princess Cruises, Inc. v. United States, 997 F.3d 1358 (hed. Cir. ZO0B)........cccccscocccoscccees: 16 Reliance Elec. Co. v. Emerson Elec. Co., ee canavin din SuNdbubndnedacveaseasa 30 SEC vu. Capital Gains Research Bureau, SO ous cncdappnvinancakadksbckecestenss 27 Sweet v. Sheahan, 235 F.3d 80 (2d Cir. 2000)......... 23 vil Touche Ross & Co. v. Redington, 442 U.S. 560 UE ain sicaas sds canteen atau peioaannedea aiaedadeteeaabaes 27 United States v. Capers, 61 F.3d 1100 (4th Cir. IRE ERE gee Fe A eae RR BI RRL COND OU OTT OTN ye CA 15 United States v. Fones, 51 F.3d 663 (7th Cir. IRE ee IRE Bagh Rie Sa Oe ORR TE RE et te 9 Ca ORE 14 United States v. Saucedo, 950 F.2d 1508 I i a a 15 Vo v. Gonzales, 482 F.3d 363 (5th Cir. 2007)........... 17 Wagman v. Astle, 380 F. Supp. 497 (S.D.N.Y. I dala tel cca pe tulad ache on since ee uatesasaaradusan 28 STATUTES AND REGULATIONS Black Lung Benefits Act, 30 U.S.C. § 901 et NE cincss ia desldehckh tied cencvatcapdtnacucnthsenianeinakeebeseakitakens 14 Securities Exchange Act of 1934, 15 U.S.C. a i Scdueaesanwaante 2. 3, 27, 28, 20 B16, 15 U.S.C. § 8p. ..eccscececccseccecscosesecss. ee 3 Fee he BEE Rr aeeeily Oe FI odisascanavsennsinsiespiversecersntes 4 § 16(b), 15 U.S.C. § 78p(b)............. Z; 3:4, 3, 6, 7. 3, 10, 11, 12, 21, 22, 23, 26, 27, 28, 29, 30, 31, 32 I is i vs cas cocnacauevce omiadeek cee el 3 17 C.F.R:: § 240.16b-3 (2005) (Rule 16b-3) ....2, 3, 6, 7, 10, 11, 13, 15, 18, 19, 20, 21, 22, 23, 25, 26, 28, 31, 32 § 240.16b-3 (1996) (Rule 16b-3) .......cecceceeeeees 3, G, 9, 10, 20, 30 vill § 240.16b-3(d) (1996) (Rule 16b-3(d))............ 5, 6, 9 § 240.16b-7 (2005) (Rule 16b-7) ................... 3, 7, 10 § 240.16b-7 (1996) (Rule 16b-7) .............00.... 3, 9,10 LEGISLATIVE MATERIALS Fe Be FED crcniscessicecnsssecnscecesesavoreniecee 29 Fe te BS i cchisinssivrasciackesnincsanatoenscenses 5 Stock Exchange Practices: Hearings on S. Res. 84 (72d Congress) and S. Res. 56 and S. Res. 97 (73d Congress) Before the S. Comm. on Banking and Currency, 73d Cong. (1934) ..... 29 OTHER MATERIALS Ownership Reports and Trading by Officers, Directors and Principal Security Holders, Release Nos. 33-8600, 34-52202, 35-28013, 70 Fed. Reg. 46,080 (Aug. 9, 2005) ................ 20, 31 Ownership Reports and Trading by Officers, Directors and Principal Security Holders, Release Nos. 34-37260, 35-26524, 61 Fed. Re, ee Fe PR Fy BE ons iaiisincéss vvcvessnccscrssesess 6 Karl Shumpei Okamoto, Rereading Section 16(b) of the Securities Exchange Act, 27 Ga. ig Be I EB oa cevasaccrsiacersanesnanccenstvenes 27, 28, 29 Steve Thel, The Cenius of Section 16: Regu- lating the Management of Publicly Held Companies, 42 Hastings L.J. 391 (1991)....... 5, 27, Mark Levy respectfully petitions for a writ of certiorari to review the judgment of the United States Court of Appeals for the Third Circuit in this case. INTRODUCTION This case presents an acknowledged conflict among the circuits regarding the proper application of this Court’s decisions in Bowen v. Georgetown University Hospital, 488 U.S. 204 (1988), and Landgraf v. USI Film Products, 511 U.S. 244 (1994), with respect to agency rules. This Court held in Bowen that agen- cies, such as the Securities and Exchange Commission (“SEC”), presumptively lack the authority to adopt retroactive rules. In Landgraf, this Court explained how to identify those statutes and rules that have retroactive effect. | Notwithstanding this Court’s guidance, at least three pervasive and deep splits exist among the courts of appeals regarding the circumstances in which agency rules fit within the ambit of Bowen and Landgraf. This case implicates all three conflicts, each of which could be outcome- determinative in petitioner's favor. First, the Third Circuit held that, in determining whether an agency’s purported clarification of a rule has a retroactive effect. it is of no moment whether the amending rule is substantially inconsistent with a prior interpretation of the existing rule by a court of appeals. That decision creates an acknowledged conflict among the Fourth, Tenth, and D.C. Circuits on one side, and the Third and Seventh Circuits on the other. That difference in legal standard, more- over, 1s outcome-determinative because the SEC’s “clarifying” rule conflicts with a prior Third Circuit decision. Second, the Third Circuit concluded that so-called clarifying agency rules are excluded auto- 2 matically and categorically from the prohibition of Bowen and the principles of Landgraf. That holding adds to a mature circuit split that now involves nine courts of appeals. Third, the Third Circuit held that a rule’s status as legislative or interpretive has no bearing on retroactivity analysis. That squarely con- flicts with decisions of the D.C. and Seventh Circuits; the conflict is likely outcome-determinative in this case because the SEC’s new Rule 16b-3, 17 C.F.R. § 240.16b-3 (2005), is legislative in nature. This Court should grant the petition and resolve those conflicts. Certiorari is also warranted on the second question presented. The Third Circuit below held that Congress has delegated to the SEC near plenary authority to create exemptions to Section 16(b) of the Securities Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78p(b). In fact, Congress provided the SEC with lhmited authority to create exemptions for transactions not contemplated by the “purpose” of Section 16(b), which implements the Exchange Act’s objective of containing manipulation and unreason- able fluctuations in share prices that had contributed to the Great Depression. Traditional tools of statu- tory construction compel the conclusion that Section 16(b)’s “purpose” is broadly to prevent insiders from profiting from short-swing transactions regardless of whether those transactions were founded on insider information or informational asymmetries. The Third Circuit therefore erred in granting deference to the SEC’s blinkered interpretation of Section 16(b)’s “purpose.” . Because Section 16(b) is critical to fulfilling the Exchange Act's objectives, the petition should be granted. 3 OPINIONS BELOW The opinion of the court of appeals (Pet. App. 1la- 3la) is reported at 544 F.3d 493. The opinion of the district court (Pet. App. 32a-62a) is reported at 475 F. Supp. 2d 463. A prior opinion of the court of appeals (Pet. App. 63a-99a) is reported at 314 F.3d 106. JURISDICTION ‘The court of appeals entered its judgment on Octo- ber 1, 2008, and denied a petition for rehearing on November 18, 2008 (Pet. App. 100a). On February 10, 2009, Justice Souter extended the time within which to file a petition for a writ of certiorari to and including March 18, 2009. Jd. at 114a. This Court’s jurisdiction is invoked under 28 U.S.C. § 1254(1). STATUTORY AND REGULATORY PROVISIONS INVOLVED Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b), and the 1996 and 2005 versions of SEC Rules 16b-3 and 16b-7, 17 C.F.R. §§ 240.16b-3 and 240.16b-7, are reproduced at Pet. App. 102a- 1138a. STATEMENT A. Legal Background This case involves the provision of the Securities Exchange Act of 1934 (“Exchange Act”) that provides for disgorgement of profits when insiders engage in short-swing trading. See 15 U.S.C. § 78p(b). Dis- gorgement is designed to remove any incentive that insiders may have to engage in speculative abuse through such trades. Specifically, Section 16 allows corporations and their shareholders the right to recover any profits from officers, directors, and bene- ficial owners (that is, owners of more than 10% of 4 any given class of stock) who bought and sold (or sold and bought) a security within six months. See td. § 78p(a), (b). At the heart of this litigation is an exchange of Fairchild Semiconductor International, Inc. (“Fair- child”) preferred stock, owned by National Semicon- ductor Corporation (“National”) and Sterling Holding Company, LLC (“Sterling”), for Fairchild Class A common stock. National and Sterling claim that SEC rules have exempted from recovery the profits realized from National's and Sterling’s acquisition of Class A common stock through the exchange, and National’s and Sterling’s subsequent short-swing sales of Class A common stock. Section 16(b) calls for the disgorgement of profits by insiders who have engaged in short-swing trading. Liability under the section has four elements: (1) the purchase (or sale) of a security; (2) the sale (or pur- chase) of a security; (3) within a period of six months; (4) by an officer, director, or beneficial owner of more than 10% of any class of the issuer’s securities. See id. § 78p(b). At issue here is whether National’s and Sterling’s exchange of Fairchild preferred stock for Class A common stock in August 1999 qualifies as a purchase under Section 16(b). If it does, National and Sterling are subject to disgorgement pursuant to Section 16(b) because the other three elements are indisputably satisfied here: National and Sterling sold the securi- ties in January 2000; the sale was within six months of the exchange; and National and Sterling were statutory insiders, as they both appointed senior ex- ecutive officers to Fairchild’s board of directors and were also beneficial owners of more than 10% of both classes of common stock. See Pet. App. 4a. 5 Section 16(b) exempts those short-swing transac- tions that “the [SEC] by rules and regulations may exempt as not comprehended within the purpose of this subsection.” 15 U.S.C. § 78p(b). The statute it- self partially elucidates the purpose, which the SEC is tasked with implementing: “preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer.” Jd. Although the statute makes reference to insider trading, scholars have noted that other statutes also address insider trading, often more directly and concretely than does Section 16(b). See Steve Thel, The Genius of Section 16: Regulating the Management of Publicly Held Companies, 42 Hastings L.J. 391, 394-95 (1991). Thus, beyond a general concern with insider trading, Section 16(b)’s purpose is a concern with short-swing trading as an evil in itself, regardless of whether such trading is the product of insider information. The statute’s drafters sought to prevent speculation, not just trading on inside information, by officers, di- rectors, and substantial bencficial owners of company stock. See S. Rep. No. 73-1455, at 186-87 (1934). The SEC has promulgated exemptive rules to Section 16(b), one of which is relevant here. Rule 16b-3(d) exempts certain grants and awards from Section 16(b)’s ambit. The version of Rule 16b-3(d) in effect from 1996 to 2005 — the time period pertinent to this case — provided, in relevant part: Any transaction involving a grant, award or other acquisition from the issuer (other than a Discretionary Transaction) shall be exempt if: (1) The transaction is approved by the board of directors of the issuer, or a committee of the 6 board of directors that is composed solely of two or more Non-Employee Directors; (2) The transaction is approved or ratified, in compliance with section 14 of the Act, by either: the affirmative votes of the holders of a majority of the securities of the issuer present, or repre- sented, and entitled to vote at a meeting duly held in accordance with the applicable laws of the state or other jurisdiction in which the issuer is incorporated ...;o0r (3) The issuer of equity securities so acquired are held by the officer or director for a period of six months following the date of such acquisition, provided that this condition shall be satisfied with respect to a derivative security if at least six months elapse from the date of acquisition of the derivative security to the date of disposition of the derivative security (other than upon exercise or conversion) or its underlying equity security. 17 C.F.R. § 240.16b-3(d) (1996). When it promulgated Rule 16b-3, the SEC stated the rule’s purpose as exempting transactions associ- ated with employee benefit plans from Section 16(b). See Ownership Reports and Trading by Officers, Directors and Principal Security Holders, Release Nos. 34-37260, 35-26524, 61 Fed. Reg. 30,376, 30,378- 79 (June 14, 1996). In Levy v. Sterling Holding Co.., 314 F.3d 106 (3d Cir. 2002) (“Levy J”), the precursor appeal in this case, the Third Circuit held that transactions must have a “compensatory nexus” to qualify for the exemption embodied in Rule 16b-3. Pet. App. 97a-98a. Responding to Levy 7, the SEC in 2005 promul- gated a new rule expanding the scope of the exemp- tion. New Rule 16b-3 provides: 7 Any transaction, other than a _ Discretionary Transaction, involving an acquisition from the issuer (including without limitation a grant or award), whether or not intended for a compensa- tory or other particular purpose, shall be exempt if [one of the same three conditions is met]. 17 C.F.R. § 240.16b-3(d) (2005) (relevant changes italicized).! B. Facts and Proceedings Below 1. In 1997, Fairchild was created as a spinoff of National, a Delaware corporation, pursuant to an Agreement and Plan of Recapitalization. Under the agreement, National and Sterling were permitted to appoint three of the seven members of Fairchild’s board of directors. The agreement also provided that National and Sterling would receive a mix of the three classes of Fairchild stock that were created: (1) Class A common stock, which included voting rights; (2) Class B common stock, which did not include voting rights; and (3) preferred stock, which provided for a cumulative dividend. Both National and Sterling are undisputedly insiders covered by Section 16(b): National owned 14.8% of the Class A common stock, Sterling held 48% of the Class A common stock, and they each appointed their senior executive officers as members of Fairchild’s board of directors (National appointed its CEO; Sterling appointed two of its senior executive officers). By virtue of that insider status, National and Sterling were at all relevant times subject to Section 16(b). 1 Although National and Sterling argued that both new Rules 16b-3 and 16b-7 exempted their exchange of preferred stock for Class A common stock from the ambit of Section 16(b), the Third Circuit in Levy I] resolved the case based on the applica- tion of new Rule 16b-3 alone. 8 In 1999, upon the unanimous consent of its board of directors, Fairchild prepared to undertake an initial public offering (“IPO”). As part of a recapitali- zation effort that preceded the IPO, Fairchild’s board of directors, on the advice of the underwriter, an affiliate of Sterling, voted unanimously to recom- mend that all preferred stock be converted into Class A common stock. On July 1, 1999, with National and Sterling together controlling 62.8% of the Class A common stock, a majority of the Class A common stockholders voted to approve the exchange of Fair- child preferred stock for Fairchild Class A common stock. The exchange required an amendment of Fairchild’s Certificate of Incorporation, which in turn required Sterling’s consent. Both National and Ster- ling consented to the amendment. The IPO was completed on August 9, 1999. In accordance with the proposed conversion formula, National's preferred stock was converted into 888,362 shares of Class A common stock and Sterling’s preferred stock was converted into 4,021,428 shares of Class A common stock. On January 19, 2000, barely five months after the IPO and the exchange of the preferred stock for Class A common stock had taken place, National sold 7,234,360 shares of its Class A common stock and Sterling sold 11,115,000 shares of its Class A common stock in Fairchild’s secondary offering. Asa consequence of these transactions, National and Ster- ling realized short-swing profits of $12.850,679.60 and $58,501,592.90, respectively. In November 2000, petitioner, a shareholder in Fairchild, brought a suit on behalf of Fairchild against National and Sterling for the disgorgement of National’s and Sterling’s short-swing profits. In 9 the district court, National and Sterling argued that the then-applicable exemptions embodied in Rules 16b-3 and 16b-7 precluded lability and that the action should be dismissed. Based upon those exemptions, the court dismissed the action. 2. In Levy J, the Third Circuit reversed. The Third Circuit reviewed the release that accompanied the 1996 version of the rule and concluded that “Rule 16b-3 primarily is concerned with employee benefit plans.” Pet. App. 94a. The court interpreted the “other acquisition” prong of the exemption to apply only to plans that provided for “participant-directed transactions,” such as deferrals of bonuses into phan- tom stock and other deferred compensation pro- grams, and held that the weight of the SEC’s pro- nouncements on Rule 16b-3(d) suggested that a transaction would qualify for the exemption only if it has “some connection to a compensation-related function.” Jd. at 96a-97a, 98a. Although the Third Circuit acknowledged language in the SEC’s release indicating that the transaction need not have a compensatory element, the court found that that language did not undercut its ultimate conclusion. Instead, such language simply indicated that “the form of a transaction is not what matters.” Jd. at 98a. The Third Circuit emphasized that its reading was the soundest interpretation of Section 16(b)’s language and the most logical in advancing its purposes: The result we reach is sensible. We think that adopting National's and Sterling’s view would re- sult in any transaction between the issuer com- pany and an officer or director that meets the remaining requirements of Rule 16b-3(d) — ap- proval of the transaction by the board of directors or a majority of shareholders, or holding of the 10 securities by the officer or director for more than six months — being immunized from section 16(b) liability. The potential for self-dealing could be great: in a closely held corporation, directors or a majority of shareholders could arrange for the acquisition of stock in advance of an IPO, and turn around and sell shares shortly after the IPO. Because of their insider status, there would be a concern about speculative abuse injurious to other market participants. Id. at 98a (footnote omitted).2 Levy J thus remanded the case to the district court for further proceedings. 3. After Levy I, the SEC in 2005 initiated a rulemaking for the express purpose of reversing the Third Circuit’s holdings in this case with respect to the scope of Rules 16b-3 and 16b-7. The SEC indicated that, in expressing its disagreement with the Third Circuit, it was merely “clarifying” the scope of the exemptions. Pet. App. 12a (internal quotation marks omitted). Following promulgation of the new exemptive rules, the district court ruled on the prior-filed cross- motions for summary judgment. The district court determined that the new cules promulgated in 2005 should apply to the conduct at issue — from 1999 and 2000 — and granted summary judgment to National and Sterling. See id. at 14a-15a. 4. This time on appeal, the Third Circuit affirmed the district court. In so doing, it rejected Levy's arguments that new Rule 16b-3 should not apply to “ Levy I also rejected claims that Rule 16b-7 exempted the exchange of preferred stock for Class A common stock from Section 16(b). See Pet. App. 77a-84a. As noted above, though, the court in Levy // did not reach the issue of the applicability of new Rule 16b-7 to the present case. 11 conduct that predated the rule’s promulgation. The court also disagreed with Levy’s submission that the new rules exceed the scope of the SEC’s rulemaking authority under Section 16(b). The court below held that applying new Rule 16b-3 to conduct that predated its adoption did not present a retroactivity problem. The court reasoned that a rule that merely clarifies an earlier regulation may apply to prior conduct without being impermissibly retroactive. The Third Circuit articulated four factors that determine whether a rule is simply a clarification that can apply to earlier conduct: “(1) whether the text of the old regulation was ambiguous; (2) whether the new regulation resolved, or at least attempted to resolve, that ambiguity; (3) whether the new regulation’s resolution of the ambiguity is consistent with the text of the old regu- lation; and (4) whether the new regulation’s resolu- tion of the ambiguity is consistent with the agency’s prior treatment of the issue.” Pet. App. 27a (citations omitted). In crafting that test, the court acknowl- edged the omission of one element that other circuits have found dispositive as to retroactivity analysis: whether the new rule conflicts with a judicial inter- pretation of the old rule. Thus, the Third Circuit expressly parted ways with the Fourth and D.C. Cir- cuits on this issue. See id. at 28a. The Third Circuit also rejected Levy’s claim that the SEC’s new rules are improper exercises of its authority under Section 16(b). The court held that the new rules pass muster under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). In effect, the court held that Congress had given the SEC virtually plenary power to decide 12 which transactions should be exempt from the ambit of Section 16(b) liability. See Pet. App. 20a-21a. REASONS FOR GRANTING THE PETITION I. THE THIRD CIRCUIT’S TEST FOR DETER- MINING WHEN AGENCY CLARIFYING RULES HAVE RETROACTIVE EFFECT DEEPENS ACKNOWLEDGED CONFLICTS AMONG THE CIRCUITS AND DEPARTS FROM THIS COURT'S DECISIONS This Court’s precedents establish two concordant principles relating to retroactive agency decision- making. First, “[rjetroactivity is generally disfavored in the law in accordance with fundamental notions of justice that have been recognized throughout history.” Eastern Enters. v. Apfel, 524 U.S. 498, 532 (1998) (plurality) (citation omitted; internal quota- tion marks omitted). A strong presumption against “retroactiv[ity}” exists that “is deeply rooted in our jurisprudence, and embodies a legal doctrine centu- ries older than our Republic.” Landgraf v. USI Film Prods., 511 U.S. 244, 265 (1994). Given the dis- favored nature of retroactivity, federal courts are obligated to analyze carefully whether application of a law or regulation would have a retroactive effect. See id. at 269-70. Second, because “retroactivity is not favored in the law,” and because “an administrative agency’s power to promulgate legislative regulations is limited to the authority delegated by Congress,” agencies lack the authority to promulgate rules with retroactive effect unless their organic statute “requires this result.” Bowen v. Georgetown Univ. Hosp., 488 U.S. 204, 208 (1988); see also id. at 223-24 (Scalia, J., concurring) (“[rjetroactive legislation has always been looked upon with disfavor,” and it is therefore “unsurprising” 13 that Congress “has been unwilling to confer” retro- active rulemaking authority on agencies). The SEC has no such authority. This case presents several acknowledged conflicts regarding application of these retroactivity principles. In determining whether the SEC’s new Rule 16b-3 could be applied to pending claims and, in fact, to conduct predating promulgation of the rule, the Third Circuit created a sharp split with other courts of appeals’ decisions on multiple issues concerning agency retroactivity. This Court’s review is needed to resolve these conflicts and to secure uniformity on the proper standards for assessing the retroactivity of agency rules. Certiorari is independently warranted because the decision below conflicts with the force of Bowen and Landgraf by allowing agencies to engage in retroactive rulemaking and to insinuate new rules into pending lawsuits. A. The Courts Of Appeals Are Divided With Respect To The Proper Legal Standard For Determining When Agency Rules Are Impermissibly Retroactive The Third Circuit’s test for identifying retroactive agency rules — which it applied in determining that the SEC’s new Rule 16b-3 does not implicate Bowen or Landgraf — conflicts with other courts of appeals’ judgments in three important respects. 1. The Third Circuit’s decision deepens a sharp split among courts of appeals on whether agency rules inconsistent with previous courts of appeals’ decisions are necessarily retroactive as applied to pending claims The Third Circuit held that it is irrelevant whether “Congress has delegated retroactive rulemaking power to [an] agency” where a new rule that is applied to 14 conduct predating its promulgation “constitutes a clarification ... of the law as it existed beforehand.” Pet. App. 26a. In applying that standard, the Third Circuit deemed it immaterial whether an agency amendment “conflicts with a judicial interpretation of the pre-amendment law.” Jd. at 28a. The Seventh Circuit follows a legal approach sub- stantially similar to the Third Circuit’s. In United States v. Fones, 51 F.3d 663 (7th Cir. 1995), the Seventh Circuit held that, although a new comment to the Sentencing Guidelines “effectively nullifie[d] the law of the Seventh Circuit,” the comment must be treated “as a clarifying rather than substantive change.” Jd. at 669. The court of appeals thus held that the new interpretation could be applied to prior conduct. See id. The Third and Seventh Circuits’ approach conflicts with other courts of appeals’ decisions, as the court below acknowledged. See Pet. App. 28a-29a (citing Fourth and D.C. Circuit precedent as contrary authority). The D.C. Circuit, for example, has held that, if an agency rule conflicts with an earlier court of appeals’ decision, applying that rule to prior con- duct would have a retroactive effect. In National Mining Association v. Department of Labor, 292 F.3d 849 (D.C. Cir. 2002), the D.C. Circuit applied Bowen and Landgraf to rules promulgated under the Black Lung Benefits Act. The government had posited that all of the rules were procedural and thus could be applied to prior conduct. The D.C. Circuit noted that an agency rule that “changes the legal landscape” of norms affecting primary conduct, if applied to prior conduct, would be impermissibly retroactive. Jd. at 859 (internal quotation marks omitted). In determin- 15 ing whether a rule would change the legal landscape, the court applied the following legal standard: If a new regulation is substantively inconsistent with a prior regulation, prior agency practice, or any Court of Appeals decision rejecting a prior regulation or agency practice, it is retroactive as applied to pending claims. Id. at 860 (emphasis added); accord Marrie v. SEC, 374 F.3d 1196, 1208 (D.C. Cir. 2004). The Fourth and Tenth Circuits’ approach accords with the D.C. Circuit’s. In United States v. Capers, 61 F.3d 1100 (4th Cir. 1995), the Fourth Circuit held that “an amendment should be classified as substan- tive, not clarifying, when it cannot be reconciled with circuit precedent.” Jd. at 1110. Similarly, the Tenth Circuit, in United States v. Saucedo, 950 F.2d 1508 (10th Cir. 1991), held that, when an amendment requires a court to overrule precedent, such an amendment cannot be a mere clarification; rather, the change is a substantive one. See id. at 1514-15. In each case, the Fourth and Tenth Circuits aligned themselves with the National Mining Association principle that a rule contradicting a prior court of appeals’ decision is impermissibly retroactive if applhed to prior conduct. This conflict among the courts of appeals is both acknowledged, see Pet. App. 28a-29a, and outcome- determinative. New Rule 16b-3 unquestionably is substantively inconsistent with the Third Circuit's decision in Levy I -- it was promulgated for that purpose. If this case had been brought in the D.C., Fourth, or Tenth Circuit, that fact alone would have compelled the conclusion that new Rule 16b-3 is sub- stantive and may not be applied to pending claims or to conduct predating the rule’s promulgation. In 16 those three circuits, the SEC could not have dictated the outcome of pending litigation involving under- lying conduct predating the rule by several years, as it attempts to do here. 2. The Third Circuit’s conclusion that “clarifying” rules are not subject to analysis under Landgraf deepens confusion in and adds to disagreement among the circuits The Third Circuit’s holding that an agency rule that “constitutes a clarification ... of the law as it existed beforehand” (Pet. App. 26a) is not retroactive was unqualified: the court stated that, “where a new rule constitutes a clarification ..., the application of that new rule to pre-promulgation conduct necessar- ily does not have an impermissible retroactive effect.” Id. (first emphasis added). The court’s conclusion that clarifying rules are categorically exempt from the Landgraf retroactivity analysis conflicts with the decisions of two circuits. First, the decision below acknowledged that the standard it applied conflicts with the Federal Cir- cuit’s decision in Princess Cruises, Inc. v. United States, 397 F.3d 1358 (Fed. Cir. 2005). See Pet. App. 26a-27a (citing Princess Cruises as contrary author- ity). In that case, the Federal Circuit firmly rejected the principle applied by the Third Circuit here that clarifications can necessarily be given retroactive effect, explaining that “the binary analysis — change or clarification — [is] largely unhelpful.” 397 F.3d at 1363. The Federal Circuit held that such analysis did not absolve courts of their “obligation to weigh the various factors described in Landgraf.” Id. Second, in National Mining Association, the D.C. Circuit held that labeling a rule as “procedural” or “substantive” is not dispositive of the retroactivity 17 question. Relying on Landgraf, the D.C. Circuit held that a retroactivity analysis requires “commonsense, functional judgment.” 292 F.3d at 859-60 (internal quotation marks omitted). The D.C. Circuit also made clear that, regardless of the label that attaches to a rule, courts must undertake the Landgraf analy- sis and assess whether the rule, in actuality, sub- stantively changes the legal landscape and thus has retroactive effect. See id. at 859. The D.C. and Federal Circuits’ approach conflicts with that of at least six circuits, which hold that there is an automatic and categorical exemption of clarifying laws from the Landgraf retroactivity analysis. The Fifth Circuit has held that, upon a determination that a new rule is a mere clarification, it “need not determine whether, under the rule set forth in Landgraf..., the [agency] intended the rule to have retroactive effect.” Vo v. Gonzales, 482 F.3d 363, 370 (5th Cir. 2007). The Fourth Circuit simi- larly holds that a statutory amendment that “merely clarified the meaning” of a statute did not constitute a “retroactive[]” application and therefore is not sub- ject to analysis under Landgraf. Brown v. Thomp- son, 374 F.3d 253, 258-61 & n.6 (4th Cir. 2004). The First Circuit has concluded that an “amendment” that “was not a change at all, but a clarification that did not alter the law,” is not subject to retroactivity analysis. Liquilux Gas Corp. v. Martin Gas Sales, 979 F.2d 887, 890 (1st Cir. 1992). The Eleventh Circuit likewise has held that, once a court determines a rule is a clarification — even when that determination rests on little more than an agency's assurance that the rule is such — no retro- activity concerns are implicated. See Hetmmermann v. First Union Mortgage Corp., 305 F.3d 1257, 1260 18 (11th Cir. 2002); Piamba Cortes v. American Airlines, Inc., 177 F.3d 1272, 1283 (11th Cir. 1999). The Ninth Circuit had adopted a similar categorical rule with respect to legislation, see ABKCO Music, Inc. v. La- Vere, 217 F.3d 684, 689 (9th Cir. 2000) (“clarifying legislation is not subject to any presumption against retroactivity and is applied to all cases pending as of the date of its enactment”), and the Sixth Circuit has suggested it would do the same, see Orr v. Hawk, 156 F.3d 651, 654 (6th Cir. 1998) (“So long as a change in a regulation does not announce a new rule, but rather merely clarifies or codifies an existing policy, that regulation can apply retroactively.”). In sum, disagreement over whether a clarifying law is categorically exempt from retroactivity analy- sis involves nine circuits and is longstanding. No purpose is served by greater percolation, and this case presents an ideal vehicle for this Court's resolu- tion. 3. The Third Circuit’s holding that the status of the SEC’s rule as legislative is irrelevant to retroactivity analysis divides the circuits The Third Circuit below rejected petitioner's argu- ment that the SEC’s new Rule 16b-3 is a legislative rule and therefore that its retroactive application would impermissibly alter the substantive rights and liabilities of the parties. The court reasoned that the “legislative-interpretive dichotomy has no bearing on whether a rule has an impermissible retroactive effect.” Pet. App. 28a n.10 (emphasis added). The court explained that the only “significance” of a legislative classification of a rule is that an agency must promulgate it through “notice-and-comment rulemaking procedures.” dd. 19 The Third Circuit’s unqualified holding that the difference between legislative and interpretive rules “has no bearing” on retroactivity analysis conflicts with decisions of the Seventh and D.C. Circuits. In Health Insurance Association of America, Inc. v. Shalala, 23 F.3d 412 (D.C. Cir. 1994), for example, the D.C. Circuit cited Bowen for the proposition that “agencies lack the power to promulgate retroactive legislative rules ‘unless that power is conveyed by Congress in express terms.” Jd. at 422 (quoting Bowen, 488 U.S. at 208). Contrary to the Third Circuit’s approach, the D.C. Circuit explicitly applied the rubric of American Mining Congress v. Mine Safety & Health Administration, 995 F.2d 1106, 1109-10 (D.C. Cir. 1993), to determine whether the underlying rule was in fact legislative or interpre- tive. See 23 F.3d at 422-23. The Seventh Circuit has sided with the D.C. Cir- cuit on this issue. In First National Bank of Chicago v. Standard Bank & Trust, 172 F.3d 472 (7th Cir. 1999), the Seventh Circuit reasoned that the frame- work for assessing whether a rule is legislative or interpretive is coterminous with the issue of whether an agency rule may apply to prior conduct. The Sev- enth Circuit thus has explained that, “[i]f the Clarify- ing Amendment is a legislative rule, [the appellant] wins. Under Bowen, an administrative rule only has retroactive effect if Congress expressly authorizes the agency to issue retroactive rules.” Jd. at 478 n.6. This difference in legal standard, moreover, is not academic; it is likely outcome-determinative here. The test for determining the legislative or interpre- tive nature of a rule in Health Insurance Association and American Mining Congress compels the conclu- sion that new Rule 16b-3 is legislative. Furst, absent 20 the new rule, “the legislative basis” for application of the SEC’s exemptive rule “would be inadequate.” American Mining Congress, 995 F.2d at 1109. Levy J was a binding interpretation of Rule 16b-3; the SEC’s new rule is necessary to expand the scope of the exemption. Second, “an agency seems likely to have intended a rule to be legislative if it has the rule pub- lished in the Code of Federal Regulations,” id., and here new Rule 16b-3 was so published, see 17 C.F.R. § 240.16b-3 (2005). Third, “the [SEC] has explicitly invoked” its rulemaking authority under Section 16(b), 995 F.2d at 1112, in promulgating new Rule 16b-3, see Ownership Reports and Trading bv Officers, Directors and Principal Security Holders, Release Nos. 33-8600, 34-52202, 35-28013, 70 Fed. Reg. 46,080, 46,088 (Aug. 9, 2005). Finally, new Rule 16b-3 explicitly amended an earlier legislative rule. See 995 F.2d at 1112. B. The Decision Below Conflicts With This Court’s Retroactivity Jurisprudence The substantial and acknowledged conflicts among the courts of appeals discussed above are more than sufficient to warrant this Court’s review. Plenary review in this case is particularly appropriate, how- ever, because the Third Circuit’s decision affirming the SEC’s obvious efforts to dictate the outcome of pending litigation and to alter the legal consequences of past conduct is deeply flawed: it conflicts with this Court’s decisions and undermines the purposes ani- mating Bowen and Landgraf. In holding that new Rule 16b-3 could apply retro- actively — both in exempting respondents’ past short-swing trading from hability and in unsettling petitioner’s expectations based on the Third Circuit's 21 holding in Levy J — the court of appeals erred in at least three respects. First, the Third Circuit erred in holding that the contradiction between a rule and an earlier court of appeals’ decision does not implicate problems of retroactivity. See Pet. App. 18a-19a. Landgraf held that “settled expectations should not be lhghtly disrupted,” 511 U.S. at 265, and that the heart of the anti-retroactivity norm is that a new rule must not “attach[} new legal consequences to events completed before its enactment,” td. at 270. A conflict between a court of appeals’ decision and a clarifying agency rule implicates all of those concerns. This case is directly on point. In Levy J, there was “no dispute” with respect to three of the four elements of liability under Section 16(b) — namely, that respondents were insiders that engaged in “sales” within six months of alleged “purchases.” Pet. App. 70a. The issue, the Third Circuit said, was whether the purchases were exempt under the SEC’s rules. See id. The court held that Rule 16b-3 required “some compensatory nexus” for the exemp- tion to apply and that, because the short-swing transactions of respondents (which occurred in 2000) did not have a compensatory nexus, “the rule is inapplicable here.” Jd. at 97a-98a. Levy I accordingly not only created expectations, but also adjudicated rules of liability under Section 16(b). Although this Court cautioned in Landgraf that a retroactivity problem does not necessarily arise because a new rule “upsets expectations based in prior law,” 511 U.S. at 269, it emphasized that the dispositive issue is whether a new rule attaches or alters substantive legal consequences of earlier conduct, :d. at 270. Here, the Third Circuit in Levy J 22 held that respondents’ short-swing transactions in 2000 were subject to Section 16(b) and did not qualify for an exemption. That holding fixed the parties’ rights and liabilities under the law with respect to the relevant short-swing transactions. Applying new Rule 16b-3 accordingly did more than unsettle the parties’ expectations; it altered legal liabilities that a court of appeals had adjudicated. Accord Hughes Aircraft Co. v. United States ex rel. Schumer, 520 U.S. 939, 948 (1997) (amendment that “eliminate[d]” an affirmative “defense” to suit has retroactive effect when applied to prior conduct).* Second, the holding that clarifying rules are categorically exempt from the Bowen rule is deeply flawed. Although “it may be possible to generalize about types of rules that ordinarily will not raise retroactivity concerns,” this Court has made clear that “these generalizations do not end the inquiry.” Martin v. Hadix, 527 U.S. 343, 359 (1999). A judgment whether a rule is legislative/interpretive, procedural/substantive, or clarifying/amending is ac- cordingly the beginning, not the end, of retroactivity analysis. See id. (“When determining whether a new statute vperates retroactively, it is not enough to attach a label (e.g., ‘procedural,’ ‘collateral’) to the 3 National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (2005), does not affect this analysis. The Court held there that “|a] court’s prior judicial construction of a statute” does not bind a subsequent agency interpretation. /d. at 982. ‘The case did not involve agency rulemaking (the question arose from an agency adjudication), and there was no issue of retroactive application presented. The Court accordingly said nothing about the issue here — namely, under what circumstances a subsequent agency rule that conflicts with a prior court of appeals’ decision can be applied to conduct predating promulgation of the rule. 23 statute; we must ask whether the statute operates retroactively.”); see also Landgraf, 511 U.S. at 269- 70. The Third Circuit’s conclusion that clarifying rules can never have a retroactive effect — and therefore that Landgraf aralvsis need not be under- taken — countermands tlus Court’s teaching that “categorical arguments are not particularly helpful in undertaking Landgraf’s commonsense, functional retroactivity analysis.” INS v. St. Cyr, 533 U.S. 289, 324 (2001). The Third Circuit’s application of an erroneous legal standard, predictably, led to an erroneous result. In this case, the purportedly clarifying Rule 16b-3 transformed the nature of respondents’ liability under Section 16(b), an issue effectively decided in Levy I. Therefore, regardless of whether new Rule 16b-3 can be deemed a clarification of prior law, the rule affected primary conduct and the legal conse- quences that attach to such conduct. In failing to acknowledge the continuing relevance of the Land- graf framework, the decision below conflicts with this Court’s retroactivity jurisprudence. Third, the court erred in holding that the distinc- tion between legislative and interpretive rules has “no bearing on whether a rule has an impermissible retroactive effect.” Pet. App. 28a n.10. Legislative rules, by their nature, have legal effect, “bind mem- bers of the agency and the public,” and receive “substantial deference from courts.” Sweet v. Sheahan, 235 F.3d 80, 91 (2d Cir. 2000). Legislative rules are “powerful” and “can impose obi’ zations on members of the public distinct from, and in addition to, those imposed by statute.” Jd.; see also National Ass'n of Home Builders v. United States Army Corps of Eng’rs, 417 F.3d 1272, 1285 (D.C. Cir. 2005) (“{ljegislative 24 rules are those that grant rights, impose obligations, or produce other significant effects on private inter- ests”) (internal quotation marks omitted). Because the difference between legislative and interpretive rules bears directly on the nature and extent of change in the legal landscape wrought by a rule, the distinction is plainly relevant to retroactivity analy- sis. See Landgraf, 511 U.S. at 270 (in determining whether a law has retroactive effect, a “court must ask whether the new provision attaches new legal consequences to events completed before its enact- ment,” which is a judgment that “comes at the end of a process of judgment concerning the nature and extent of the change in the law”) (emphases added). C. This Case Is An Appropriate Vehicle To Address These Important Legal Issues This case presents substantial jurisprudential issues of great practical importance. Taken together, Bowen and Landgraf impose important restraints on the authority of agencies to promulgate rules with retroactive effect. The decision below, as well as those of courts of appeals that have aligned them- selves with the Third Circuit, will encourage agen- cies to circumvent this Court’s decisions by classify- ing their actions as “clarifications” subject to neither the Bowen rule nor the Landgraf retroactivity prin- ciples. As a practical matter, allowing that erosion of Bowen and Landgraf to continue will afford agencies increasing latitude to manipulate the outcome of pending litigation and to alter the legal consequences of past conduct through mere regulatory fiat. Those outcomes directly conflict with the core principles animating the longstanding presumption against retroactivity. See, e.g., Landgraf, 511 U.S. at 265- 29 66; Eastern Enters., 524 U.S. at 532-33 (plurality) (collecting authority); St. Cyr, 533 U.S. at 315 (noting that “[rjetroactive statutes raise special concerns” because of risk that “political pressures” will “tempt] ]” decisionmakers “to use retroactive legislation as a means of retribution against unpopular groups or individuals”). Given the fundamental values advanced by retroactivity rules, this Court’s review here is needed to bring uniformity and to secure clarity with respect to when agency rules are in fact retroactive and therefore subject to Bowen’s proscription of retro- active rulemaking. This case is an ideal vehicle for this Court to address thesée\ issues. It squarely presents three related conflicts, each of which is lhkely outcome- determinative here. The issues presented are pure questions of law that involve, among other things, the proper application of this Court’s decisions in Bowen and Landgraf. ‘The legal issues, moreover, were fully briefed before the district court and the court of appeals, and passed upon by the lower courts. There is accordingly no reason for this Court to delay in resolving the important questions presented. Il. THE THIRD CIRCUIT’S HOLDING THAT CONGRESS DELEGATED TO THE SEC NEAR PLENARY AUTHORITY TO EXEMPT TRANSACTIONS FROM SECTION _ 16(b) WARRANTS REVIEW BY THIS COURT The Thivd Circuit held that new Rule 16b-3, which exempts all transactions between either officers or directors and issuers regardless of a compensatory purpose from the prohibition on short-swing trans- actions, “is a permissible construction of section 16(b) and a valid exercise of the SEC’s congressionally 26 delegated authority.” Pet. App. 24a. That judgment is incorrect: Congress did not provide the SEC ple- nary authority to exempt transactions from Section 16(b); rather, any exemption must be “comprehended within the purpose” of that section. 15 U.S.C. § 78p(b). Section 16(b)’s purpose is to prohibit any profiteering from short-swing transactions, not merely to ban transactions involving informational asymmetries. Because new Rule 16b-3 creates an exemption that is contrary to, and not “compre- hended within,” the purpose of Section 16(b), the Third Circuit erred in concluding that the rule is a valid exercise of delegated authority. ‘That error affects a crucial regulation of market practices that could negatively affect the stability of the markets and thus warrants this Court’s attention. A. The SEC’s New Rule 16b-3 Conflicts With The Purposes Of Section 16(b) Congress intended Section 16(b) broadly to prevent all profiteering from short-swing transactions. Sec- tion 16(b) provides the SEC only limited authority to exempt from the statute’s reach those transactions that are “not comprehended within the purpose” of the section. 15 U.S.C. § 78p(b). Because the text and history of Section 16(b), as well as judicial decisions interpreting that provision, make clear that Con- gress’s overriding objective was to curb nearly all short-swing insider transactions, including the type of short-swing trading that occurred here, new Rule 16b-3 is an invalid exercise of the SEC’s authority. 1. A proper understanding of Section 16(b)’s pur- pose must begin from the presumption that Congress intended the securities laws to advance “broad reme- dial goals.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 200 (1976). Although “[t]he ultimate question 15 27 one of congressional intent,” Touche Ross & Co. v. Redington, 442 U.S. 560, 578 (1979), this Court has time and again observed that “Congress intended securities legislation ... to be construed ‘not techni- cally and restrictively, but flexibly to effectuate its remedial purposes.” Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151 (1972) (quoting SEC v. Capital Gains Research Bureau, 375 U.S. 180, 195 (1963)). Viewed against that background understanding, the statutory text strongly indicates that Congress intended for Section 16(b) to reach broadly the type of speculative short-swing transactions that took place here. The prohibition in Section 16(b) is notable both in its breadth and in its mandatory nature: under that section, “any profit” that an insider acquires from a transaction “within any period of less than six months ... shall inure to and be recoverable by the issuer” without regard to the “intention” of the insider. 15 U.S.C. § 78p(b) (emphases added). Moreover, the Exchange Act’s structure supports the conclusion that the SEC has only limited author- ity to create exemptions from Section 16(b). Unlike many other provisions of the Exchange Act, Section 16(b) is noteworthy for its rigidity and the fact that it left virtually no room for interpretation or inter- ference by the SEC. See Thel, 42 Hastings L.J. at 400-01; see also Karl Shumpei Okamoto, Rereading Section 16(b) of the Securities Exchange Act. 27 Ga. L. Rev. 183, 227 (1992) (noting that, “[w]hile the other provisions” of the Exchange Act “are generally not self-implementing, section 16 contains substan- tive prohibitions which do not require administrative 28 rulemaking for implementation”).4 Indeed the SEC has no independent authority to enforce Section 16(b). See Gollust v. Mendell, 501 U.S. 115, 122 (1991). 2. The legislative history bolsters the conclusion that Section 16(b) is intended to curb speculation and to do so by banning all short-swing trades by insiders. The Exchange Act’s authors viewed specu- lation as one of the principal evils contributing to the 1929 stock market crash. See Okamoto, 27 Ga. L. Rev. at 222-24: Thel, 42 Hastings L.J. at 458-59. In enacting the statute, “Congress’ goal was to restore eroded investor confidence in the integrity of the market, and the technique it chose was a sweeping removal of any profit motive for .. . ‘sure-thing’ specu- lation.” Wagman uv. Astle, 380 F. Supp. 497, 501 (S.D.N.Y. 1974). Section 16(b) was a major provision of the securities law reform movement of the 1930s, and its forfeiture requirement was intended to apply broadly and unambiguously as a prophylactic. See Lewis v. Varnes, 505 F.2d 785, 787-88 (2d Cir. 1974). Section 16(b) was thus designed “to discourage insiders from buying stock, but not so much from 4 The first sentence of Section 16(b), moreover, sets forth part of the statutory purpose — namely, “preventing the unfair use of information which may have been obtained by [a] beneficial! owner, director, or officer by reason of his relationship to the issuer.” 15 U.S.C. § 78p(b) (emphasis added). The text makes clear that the prohibition in Section 16(b) is not confined simply to trading on non-public information; rather, it reaches all insiders regardless of whether they have made use of inside information. Indeed, new Rule 16b-3 conflicts with even a narrow understanding of Section 16(b) as limited to addressing the improper use of inside information because the new rule permits an insider to profit from that information through transactions in company stock and provides the insider with an incentive to manipulate company affaurs so as to take advan- tayve of price fluctuations. 29 buying on inside information as from buying on spec- ulation.” Thel, 42 Hastings L.J. at 414. Congress viewed short-swing trading by insiders as an evil in itself, rife with potential for manipulation. Such manipulation had led to price volatility, often send- ing false signals about the value of companies, which in turn rattled investor confidence and allowed insid- ers to exploit artificially depressed prices. See Oka- moto, 27 Ga. L. Rev. at 226. The legislative history therefore evinces a broad concern with curbing short-swing transactions by insiders. For instance, Senator Duncan Fletcher, who sponsored the Exchange Act, noted that Section 16(b) would forbid “directors, officers, and principal stock- holders ... to speculate in the securities of [their own] corporation.” 78 Cong. Rec. 2270, 2271 (19384). Similarly, Thomas Corcoran explained the bill’s pri- mary purpose as preventing “short-term speculative swings on the securities of [insiders’} own compa- nies.” Stock Exchange Practices: Hearings on S. Res. 84 (72d Congress) and S. Res. 56 and S. Res. 97 (73d Congress) Before the S. Comm. on Banking and Currency, 73d Cong. 6556-57 (1934). Accordingly, Corcoran explained that the element of intent or expectation had been dropped from the original draft of the bill, so as to prevent all short-swing trades and to mandate forfeiture of all short-swing profits. See id. 3. This Court's decisions strengthen the conclusion that Section 16(b)’s “purpose” is to prevent short- swing trading, writ large, by insiders. The Court has repeatedly acknowledged the statute’s dual purposes: (1) preventing insider trading (that is, trading on non-public information) by officers, directors, and principal beneficial owners; and (2) preventing short- 30 swing trading by officers, directors, and beneficial owners. In Reliance Electric Co. v. Emerson Electric Co., 404 U.S. 418 (1972), for example, this Court noted that Section 16(b) sweeps far more broadly than simply preventing insiders from trading on non- public information (as the SEC and the Third Circuit assumed): In order to achieve its goals, Congress chose a relatively arbitrary rule capable of easy admin- istration. The objective standard of Section 16(b) imposes strict liability upon substantially all transactions occurring within the statutory time period, regardless of the intent of the insider or the existence of actual speculation. This approach maximized the ability of the rule to eradicate speculative abuses by reducing diffi- culties in proof. Such arbitrary and sweeping coverage was deemed necessary to insure the optimum prophylactic effect. Id. at 422 (internal quotation marks omitted). This Court has repeatedly underscored that Congress sought broadly to “curb|] short-swing speculation,” id. at 424, and to “impose[] liability without fault,” Foremost-McKesson, Inc. v. Provident Sec. Co., 423 U.S. 232, 251 (1976). Against that backdrop, Levy J correctly interpreted Rule 16b-3’s exemption narrowly. See Pet. App. 97a-98a. For these reasons, the text and history of Section 16(b), as well as this Court’s decisions interpreting it, establish that Section 16(b)’s “purpose” is to prevent any profiteering on short-swing transactions. Because the “intent of Congress is clear” with regard to the “purpose” of the statute, “that is the end of the matter.” Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842 (1984). Congress 31 intended for Section 16(b) to cover the conduct at issue here: short-swing trading by an insider. New Rule 16b-3, which is premised on the view that Section 16(b) is aimed only at transactions involving information asymmetries, therefore repre- sents an unlawful construction of Section 16(b)’s “purpose.” Indeed, new Rule 16b-3 undermines both of the core purposes of Section 16(b) by enabling insiders to engage in trading on inside information in their own company’s stock and by creating incentives for insiders to manipulate their company’s affairs to benefit from price fluctuations. The Third Circuit erred in according Chevron deference to the SEC’s enactment of that rule pursuant to Section 16(b).5 5 Once the purpose of Section 16(b) is properly understood, the SEC’s justifications for new Rule 16b-3 are unresponsive. For example, in promulgating new Rule 16b-3, the SEC explained that transactions between insiders and issuers do not usually present opportunities for insiders to realize profits at the ex- pense of uninformed shareholders. See 70 Fed. Reg. at 46,083. But that is beside the point: Section 16(b)’s primary purpose is not to function as a remedial statute for shareholders or to guard against informational asymmetries but to promote market stability by banning profiteering from all short-swing transactions. The SEC also relied on the requirement of obtaining board approval to argue that the transactions in question do not present a risk of speculative abuse. See id. at 46,082. But the SEC has never explained how this gate-keeping function will prevent the kind of speculation that the statute and its drafters sought to prevent. Moreover, in enacting Section 16(b), Congress specifically denied boards of directors the ability to prevent shareholder lawsuits to recover short-swing profits. Accord Burks v. Lasker, 441 U.S. 471, 444 n.1% (1979). 32 B. The Court Should Grant Certiorari To Clarify The Scope Of An Important Provi- sion Of Securities Law New Rule 16b-3 threatens to undermine the effi- cacy of an important and longstanding securities regulation. Instead of construing Section 16(b) as Congress intended, the SEC has adopted a narrow understanding of Section 16(b)'’s purposes that will invite the very behavior that Congress sought to prevent. The prevalence of short-swing trading and the increasing importance of securities regulation militate in favor of this Court’s intervention now to clarify an important area of securities law. Given the important functions served by Section 16(b), this Court’s intervention is crucial to ensure that Rule 16b-3 does not undermine the statute’s principal purpose of preventing short-swing trading and speculative manipulation by insiders. Particu- larly in the current economic climate, clarity regard- ing the scope and import of sccuritics laws is of para- mount importance. CONCLUSION The petition for a writ of certiorari should be granted. Respectfully submitted, MITCHELL M.Z. TWERSKY JEFFREY S. ABRAHAM ABRAHAM FRUCHTER & TWERSKY LLP One Penn Plaza, Suite 2805 New York, New York 10119 (212) 279-5050 March 18, 2009 DAVID C, FREDERICK Counsel of Record KELLY P. DUNBAR KELLOGG, HUBER, HANSEN, TODD, EVANS & FIGEL, P.L.L.C. 1615 M Street, N.W. Suite 400 Washington, D.C. 20036 (202) 326-7900 APPENDIX TABLE OF CONTENTS Page Opinion of the United States Court of Appeals for the Third Circuit, Levy v. Sterling Holding Cy Sth, TEE BO CE, TD, Fin nsec cvvseresscevonsscecexesses la Opinion of the United States District Court for the District of Delaware, Levy v. Sterling Holding Co., No. 00-994 (Feb. 13, 2007)...........00.... 32a Opinion of the United States Court of Appeals for the Third Circuit, Levy v. Sterling Holding Co., No. 02-1608 Cec. 16, ZOOZ) ........0cccccnsseressvesare. 63a Order of the United States Court of Appeals for the Third Circuit Denying Rehearing, Levy v. Sterling Holding Co., No. 07-1849 (Nov. 18, Statutory and Regulatory Provisions Involved....102a Securities Exchange Act of 1934, § 16(b), ee ee eH einie isa cisusdvensuhianedsecrtesmnsinernees 102a SEC Rule 16b-3, 17 C.F.R. § 240.16b-3 << _ RRRE RPES Some Bp pe nen FRR oF Omri tae ee ene ORI Ia 1038a SEC Rule 16b-3, 17 C.F.R. § 240.16b-3 5” SREP BR Hote OPP ESE PE Ie Ae tO EEE OE er 107a SEC Rule 16b-7, 17 C.F.R. § 240.16b-7 STE Ra EME eRe rrr Der ys OF me Rr ie See enon a 110a SEC Rule 16b-7, 17 C.F.R. § 240.16b-7 6 __ SSBNMEA SRE AIE Sari eer PON eT ORICA Stay, Qe ees Cero gee 112a Letter from Supreme Court Clerk regarding grant of extension of time for filing a petition for a writ of certiorari (Feb. 10, 2009) .................. ll4a la UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT No. 07-1849 MARK LEvy, Appellant, . STERLING HOLDING COMPANY, LLC; NATIONAL SEMICONDUCTOR CORPORATION; FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC., Before: Appellees. Argued March 24, 2008 Filed: Oct. 1, 2008 McKEE, RENDELL, and TASHIMA,” Circuit Judges. OPINION OF THE COURT RENDELL, Circuit Judge. Mark Levy filed a shareholder derivative suit on behalf of Fairchild Semiconductor International, Inc. (“Fairchild”) against Sterling Holding Company, LLC (“Sterling”) and National Semiconductor Corporation (“National”) for disgorgement of short-swing profits, pursuant to section 16(b) of the Exchange Act of “ Honorable A. Wallace Tashima, Senior Judge of the United States Court of Appeals for the Ninth Circuit, sitting by desig- nation. 2a 1934. National and Sterling contend that two sepa- rate SEC Rules, 16b-3 and 16b-7, exempt them from section 16(b) hability. When this case was before us previously, at the motion-to-dismiss stage, we ruled that neither exemption applied here. Levy v. Sterling Holding Co. (Levy 1), 314 F.3d 106 (38d Cir.2002). Thereafter, however, the SEC amended Rules 16b-3 and 16b-7 to, as it put it, “clarify the exemptive scope” of these two Rules, making clear that both apply to the instant fact pattern. Ownership Reports and Trading by Officers, Directors and Principal Security Holders, Exchange Act Release No. 52,202 (“2005 Amendments Release”), 70 Fed.Reg. 46,080, 46,080 (Aug. 9, 2005). The District Court then ruled in favor of National and Sterling and against Levy on cross motions for summary judgment. We must decide whether our rulings in Levy J, or the SEC’s more-recent Rule amendments, govern the case at this stage. For the reasons that follow, we conclude that at least one of the amendmente is controlling and, therefore, we will affirm the District Court’s grant of summary judgment to National and Ster- ling, and its denial of summary judgment to Levy. z. A. In 1997, Fairchild was spun off from National as a new company. Three classes of Fairchild stock were created: (1) Class A common stock: (2) Class B common stock, which differed from Class A common because it did not entail voting rights; and (3) pre- ferred stock, which offered a cumulative 12% divi- dend. Class A common and Class B common were freely convertible into each another, but preferred stock was not convertible into either Class of com- mon. National received a mix of all three classes of 3a stock and, in exchange for its $58.5 million invest- ment in the new company, so did Sterling. The only other initial investors were a number of National employees slated to become key Fairchild employees. The governing shareholder agreement gave National the power to designate one of Fairchild’s seven direc- tors and gave Sterling the power to designate two. In 1999, Fairchild decided to undertake an initial public offering (“IPO”) to raise additional capital and was told by a number of underwriters that it should eliminate its preferred stock in order for the IPO to be successful. Consistent with this advice, a majority of Fairchild’s board voted that, as part of the IPO, all of the company’s outstanding shares of preferred stock would automatically be reclassified as shares of Class A common steck. A majority of each of the three classes of shareholders subsequently approved the reclassification by written consent. Preferred shares were to be valued at their contractual liquida- tion value — the original price plus accumulated un- paid dividends — and Class A common shares were to be valued at the price at which the Class A shares would be offered to the public in the IPO, less underwriting fees and commissions. Dividing the former by the latter yielded a 76-to-1 conversion ratio, meaning that each share of preferred stock would become 76 shares of Class A common.' Prior to the execution of the IPO, according to the JPO prospectus, Sterling owned 48% of the outstanding Class A con.mon, 85.1% of the outstanding Class B common, and 75.9% of the outstanding preferred, while National owned 14.8%, 14.9%, and 16.7%, respectively. 1 We have rounded off the figures throughout this opinion because the precise figures are unimportant. 4a On August 9, 1999, the IPO was completed and the shares of preferred stock owned by Sterling and National were reclassified as 4 million and 900,000 shares of Class A common, respectively. On January 19, 2000 — less than six months later — with Fairchila undertaking a secondary offering of Class A common stock, Sterling sold 11 million shares of Class A common and National sold 7 million shares of Class Acommon. The share price of Class A common had increased 84% since the reclassification. B. In November 2000, Levy, a Fairchild shareholder, filed a derivative suit against National and Sterling, pursuant to section 16(b) of the Securities and Exchange Act of 1934, which generally provides for the disgorgement of any profits earned by statutory insiders from short-swing trading. See 15 U.S.C. § 78p(b).2. The four elements required for section 2 Section 16(b) provides, in pertinent part: For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted security) or a security- based swap agreement ... involving any such equity secu- rity within any period of less than six months, unless such security or security based swap agreement was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, direc- tor, or officer in entering into such transaction of holding the security or security-based swap agreement purchased or of not repurchasing the security or security-based swap agreement sold for a period exceeding six months.... This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time ba 16(b) hability are (1) a purchase of a security and (2) a sale of that security (3) by a director or officer of the issuer or by a beneficial owner of 10% of any Class of the issuer’s securities (4) within a six-month period. See id.; Levy J, 314 F.3d at 111. As a general rule, any profits earned through transactions that meet these elements rightfully belong to the issuer. There is no mens rea requirement — section 16(b) cre- ates a strict liability regime. According to the statute itself, the purpose of section 16(b) is “preventing the unfair use of infor- mation which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer.” 15 U.S.C. § 78p(b). The statute authorizes the SEC to promulgate rules and regulations exempting from liability transactions that are “not comprehended within [this] purpose.” Id.; see Levy I, 314 F.3d at 112. Exercising this authority, the SEC has established a number of section 16(b) exemptions. See 17 C.F.R. §§ 240.16b-1, .16b-3, .16b-5 to .16b-8 (codifying SEC Rules 16b-1, 16b-3, and 16b-5 to 16b-8). Levy claimed that the reclassification of National’s and Sterling’s preferred stock holdings constituted a “purchase” of Class A common stock so that the profits that National and Sterling earned from their sale of Class A common less than six months later belong to Fairchild. National and Sterling filed motions to dismiss, contending that two separate of the purchase and sale, or the sale and purchase, of the security or security-based swap agreement... involved, or any transaction or transactions which the Commission by rules and regulations may exempt as not comprehended within the purpose of this subsection. Securities Exchange Act of 1934 § 16(b), 15 U.S.C. § 78p(b). 6a exemptions — Rule 16b-3 and Rule 16b-7 — shielded them from section 16(b) liability. Adopted in 1996, the version of Rule 16b-3 that was in effect until 2005 provided, in pertinent part: Transactions between an issuer and its officers or directors. (a) General. A transaction between the issuer (including an employee benefit plan sponsored by the issuer) and an officer or director of the issuer that involves issuer equity securities shall be exempt from section 16(b) of the Act if the trans- action satisfies the applicable conditions set forth in this section. (d) Grants, awards and other acquisitions from the issuer. Any transaction involving a grant, award or other acquisition from the issuer (other than a Discretionary Transaction) shall be exempt if: (1) The transaction is approved by the board of directors of the issuer... ; (2) The transaction is approved or ratified by the written consent of the holders of a majority of the securities of the issuer entitled wo vote ...; or 3 National and Sterling also maintained — and continue to maintain — that, under the so-called “unorthodox transaction” doctrine, the reclassification did not constitute a “purchase” for section 16(b) purposes. See Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 593-94, 93 S.Ct. 1736, 36 L.Ed. 2d 503 (1973). We will refrain from addressing this argument because our analysis of Rules 16b-3 and 16b-7 below makes it unnecessary for us to do so. 7a (3) The issuer equity securities so acquired are held by the officer or director for a period of six months following the date of such acquisi- tion.... 17 C.F.R. § 240.16b-3 (amended 2005). The 1991 version of Rule 16b-7, which remained in effect until 2005, provided, in pertinent part: Mergers, reclassifications, and consolidations. (a) The following transactions shall be exempt from the provisions of section 16(b) of the Act: (1) The acquisition of a security of a company, pursuant to a merger or consolidation, in exchange for a security of a company which, prior to the merger or consolidation, owned 85 percent or more of either: (i) The equity securities of all other compa- nies involved in the merger or consolidation, or in the case of a consolidation, the resulting company; or (ii) The combined assets of all the companies involved in the merger or consolidation... . 17 C.F.R. § 240.16b-7 (amended 2005). Even though the SEC added the word “reclassifications” to the Rule’s title in 1991, the Rule’s text did not specifi- cally refer to them. National and Sterling argued that Rule 16b-3(d) exempted them from any liability related to the reclassification because the reclassification fit within the category of a “grant, award, or other acquisition from the issuer” — as an “other acquisition” — and was approved by a majority of Fairchild’s board and a majority of the voting shareholders (even though approval by either of the two would have sufficed). They maintained that Rule 16b-7’s exemption apphed 8a as well because they acquired the disputed Class A common stock as part of a “reclassification” that met the Rule’s 85% cross-ownership requirement. The District Court granted National’s and Ster- ling’s motions to dismiss, finding that the reclassifi- cation fell within the scope of Rule 16b-7 and that Levy’s section 16(b) suit thus necessarily failed. The Court did not rule on the applicability of Rule 16b-3(d). Levy then appealed to our Court. C. In an opinion filed December 19, 2002, we reversed, concluding that neither Rule 16b-3(d) nor Rule 16b-7 exempted National or Sterling from sec- tion 16(b) hability. As to Rule 16b-3(d), we reasoned that, despite the apparent open-endedness of the language “other acquisition from the issuer,” and despite the fact that the Rule made no mention of “compensation,” the SEC intended it to apply only to transactions with a compensatory nexus. Levy J, 314 F.3d at 120-24. We reviewed in depth the release issued by the SEC in 1996 in connection with the adoption of the Rule, and relied on a number of excerpts that, we thought, indicated that the SEC adopted the 1996 version of the Rule in order to spur participation in employee benefit plans and to make it clear that the exemption applied to participant- directed transactions, such as the exercise of a stock option. Jd. at 122-24. We did acknowledge, however, that one portion of the release “appear[ed] to cut against our position” that Rule 16b-3(d) required a compensatory nexus. /d. at 124. In that portion, the SEC explained: New Rule 16b-3 exempts from short-swing profit recovery any acquisitions and dispositions of issuer equity securities ... between an officer or 9a director and the issuer, subject to simplified con- ditions. A transaction with an employee benefit plan sponsored by the issuer will be treated the same as a transaction with the issuer. However, unlike the current rule, a transaction need not be pursuant to an employee benefit plan or any compensatory program to be exempt, nor need it specifically have a compensatory element. Ownership Reports and Trading by Officers, Direc- tors and Principal Security Holders, Exchange Act Release No. 37,260 (“1996 Rule 16b-3 Release”), 61 Fed.Reg. 30,376, 30,378-79 (June 14, 1996) (emphasis added) (footnotes omitted). Nonetheless, we concluded that “the weight of the SEC’s pronouncements on Rule 16b-3, and particularly Rule 16b-3(d), suggest that the transaction should have some connection to a compensation-related function.” Levy J, 314 F.3d at 124. Examining the applicability of the exemption set forth in Rule 16b-7, we began our analysis by noting that “the SEC has not set forth its interpretation clearly so our threshold challenge is to ascertain what in fact was its interpretation.” Jd. at 112. We reasoned that the SEC must have added “reclassifi- cations” to the Rule’s title for a reason, but found that, “[uJnfortunately, ... the title and text of the rule, standing alone, do not provide us assistance in our effort to ascertain the SEC’s purpose.” Jd. at 113. Based on a pair of SEC releases, we concluded that the SEC intended for Rule 16b-7 to exempt some, but not all, reclassifications from section 16(b) hability. Id. at 113-15. The first release was from 1981 (e., ten years before “reclassifications” was added to the Rule’s title) and included a question and answer regarding the Rule's applicability to reclassifications: 10a Question: Although not specifically mentioned, does Rule 16b-7 apply to transactions structured as (1) statutory exchanges; (2) liquidations; or (3) reclassifications? Answer: The staff is of the view that, for pur- poses of Rule 16b-7, a statutory exchange may be the substantive equivalent of a merger, con- solidation or sale of assets. Therefore, the acqui- sition and disposition of stock in a statutory exchange would be exempt under Rule 16b-7, assuming all of the conditions of the rule are satisfied. A liquidation, on the other hand, is not covered by Rule 16b-7, since the liquidation in substance and purpose bears little resemblance to the types of transactions specified in the rule. Rule 16b-7 does not require that the security received in exchange be similar to that surren- dered, and the rule can apply to transactions involving reclassifications. Interpretive Release on Rules Applicable to Insider Reporting and Trading, Exchange Act Release No. 18,114, 46 Fed.Reg. 48,147, 48,176-77 (Oct. 1, 1981) (emphasis added) (footnotes omitted). Essentially, we read the language “can apply” to mean “some- times applies.” Levy /, 314 F.3d at 113-14. The second release, from 2002, pertained to pro- posed amendments to Form 8-K and exempted from reporting requirements “[a]cquisitions or dispositions pursuant to holding company formations and similar corporate reclassifications and consolidations.” Form 8-K Disclosure of Certain Management Transactions, Exchange Act Release No. 45,742, 67 Fed.Reg. 19,914, 19,919 (Apr. 23, 2002) (emphasis added). It noted that “|t]hese are the transactions exempted from Section 16(b) short-swing profit recovery by Lila Exchange Act Rule 16b-7.” Jd. at 19,919 n. 56. We reasoned that this release “does not suggest that all reclassifications are per se exempt” and that, because it “clearly hedges on the point,” it “thus supports a conclusion that some but not all reclassifications are exempt from section 16(b)’s restrictions.” Levy J, 314 F.3d at 114. Next, lacking “specific SEC guidance about which reclassifications are exempt from section 16(b) under Rule 16b-7,” we devised a two-part test, under which a particular reclassification would be exempt if it (1) met the 85% cross-ownership requirements that the Rule clearly made applicable to mergers and consoli- dations and (2) was a transaction “not comprehended within the purpose” of section 16(b). Jd. at 114-15 (quoting 15 U.S.C. § 78p(b)). Applying our newly-created test, we found that the reclassification here failed part two-at least at the motion-to-dismiss stage. /d. at 115-18. We rejected National and Sterling’s argument that the reclassi- fication changed only the form, not the substance, of their investments in Fairchild such that it did not present an opportunity for insiders to benefit over the public and thus did not implicate Congress’s purpose in enacting section 16(b). Indeed, we con- cluded that it did present such an opportunity. We based our conclusion on two independent grounds. First, we found that, reading the pleadings in the hght most favorable to Levy, the reclassification proportionately increased National’s and Sterling’s interests in Fairchild by leaving them with a greater percentage of Fairchild’s common stock. /d. at 116- 17. Second, after contrasting the pros and cons of common-stock and preferred-stock ownership, we decided that the reclassification “so changied] the "Wu risks and opportunities of the preferred shareholders in [Fairchild4] that the SEC would not have intended to exempt the reclassification from section 16(b) by Rule 16b-7.” Jd. at 117-18. National and Sterling petitioned for rehearing, and the SEC submitted an amicus brief in support. We denied the rehearing request, despite the fact that the SEC maintained in its brief that our ruling in Levy I was inconsistent with its view that both ex- emptions applied here.® D. In 2005, in response to our opinion in Levy J, the SEC adopted amendments to Rules 16b-3 and 16b-7 in order “to clarify the exemptive scope of these rules, consistent with statements in previous Commission releases.” 2005 Amendments Release, 70 Fed.Reg. at 46,080. The SEC explained its disagreement with Levy I and its impetus for the amendments in the adopting release: In particular, the Levy v. Sterling opinion read Rules 16b-3 and 16b-7 to require satisfaction of conditions that were neither contained in the text of the rules nor intended by the Commission. The resulting uncertainty regarding the exemp- tive scope of these rules has made it difficult for issuers and insiders to plan legitimate trans- actions, and may discourage participation by 4 While we wrote “National and Sterling” here, the context makes clear that this was a mistake and that we meant to write “Fairchild.” 5 Despite Levy's contention to the contrary, “(t]he failure of a petition to achieve the necessary votes for rehearing does not imply any judgment on the merits and has no jurisprudential significance.” In re Grand Jury Investigation, 542 F.2d 166, 173 (3d Cir. 1976). 13a officers and directors in issuer stock ownership programs or employee incentive plans. With the clarifying amendments to Rules 16b-3 and 16b-7 that we adopt today, we resolve any doubt as to the meaning and interpretation of these rules by reaffirming the views we have consistently expressed previously regarding their appropriate construction. Id. at 46,081. Rule 16b-3 (d) was amended to read, in pertinent part: (d) Acquisitions from the issuer. Any transaction, other than a Discretionary Transaction, involving an acquisition [by an officer or director] from the issuer (including without limitation a grant or award), whether or not intended for a compensa- tory or other particular purpose, shall be exempt if [one of the same three conditions from the 1996 version of the Rule are met}. 17 C.F.R. § 240.160-3(d) (new material underlined). Thus, there is now no doubt that Rule 16b-3(d) does not require a compensatory nexus. Rule 16b-7 was amended to read, in pertinent part: (a) The following transactions shall be exempt from the provisions of section 16(b) of the Act: (1) The acquisition of a security of a company, pursuant to a merger, reclassification or consol- idation, in exchange for a security of a company that before the merger, reclassification or con- solidation, owned 85 percent or more of either: (i) The equity securities of all other compa- nies involved in the merger, reclassification, or consolidation, or in the case of a consolida- tion, the resulting company; or l4a (ii) The combined asscts of all the companies involved in the merger, reclassification, or consolidation.... (c) The exemption provided by this section applies to any securities transaction that satisfies the conditions specified in this section and is not con- ditioned on the transaction satisfying any other conditions. 17 C.F.R. § 240.16b-7 (new material underlined). Thus, there is no now no doubt that Rule 16b-7 applies to any reclassification that meets the Rule’s 85% cross-ownership requirement. Further, the SEC explicitly indicated that “because [the Rule 16b-3 amendments] clarify regulatory con- ditions that apphed to [that exemption] since [it] be- came effective on August 15, 1996, they are available to any transaction on or after August 15, 1996 that satisfies the regulatory conditions so clarified.” 2005 Amendments Release, 70 Fed.Reg. at 46,080. The SEC similarly made clear its view that “because [the Rule 16b-7 amendments] clarif|y} regulatory condi- tions that applied to that exemption since it was amended effective May 1, 1991, [they are] available to any transaction on or after May 1, 1991 that satis- fies the regulatory conditions so clarified.” Jd. The transaction at issue here occurred in August 1999 — well after both of these dates, but six years before the adoption of the “clarifying” regulations. E. Before the adoption of the 2005 amendments, Levy, National, and Sterling had filed cross motions for summary judgment. After the amendments were adopted, the District Court denied Levy’s motion and 15a granted those of National and Sterling, finding that the new versions of both Rules applied to the 1999 reclassification and shielded National and Sterling from section 16(b) hability. Levy v. Sterling Holding Co., 475 F.Supp.2d 463 (D.Del.2007). Specifically, the Court concluded that the new Rules were permis- sible constructions of section 16(b), id. at 470-74, and that applying them here would have no impermissi- ble retroactive effect because the changes made to the old Rules were “clarifying” rather than “substan- tive,” id. at 475-78. Levy then filed this timely appeal. [I. The District Court had jurisdiction pursuant to 15 U.S.C. § 78aa and 28 U.S.C. § 1331, and we now have appellate jurisdiction pursuant to 28 U.S.C. § 1291.6 We review de novo the grant or denial of summary judgment by a district court. Abramson v. William Paterson Coll. of N.J., 260 F.3d 265, 276 (3d Cir. 2001). Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). 6 Although denials of summary judgment usually are not appealable, we have repeatedly made clear that “‘when an ap- peal from a denial of summary judgment is raised in tandem with an appeal of an order granting a cross-motion for summary judgment, we have jurisdiction to review the propriety of the denial of summary judgment by the district court.” T'rans- portes Ferreos de Venezuela II CA v. NKK Corp., 239 F.3d 555, 560 (3d Cir.2001) (quoting Nazay v. Miller, 949 F.2d 1323, 1328 (3d Cir.1991)). 16a Iil. Levy raises three issues on appeal. First, he main- tains that, under the doctrine of stare decisis, the mandate that we issued in Levy J requires the grant of summary judgment in his favor. Second, Levy contends that new Rule 16b-3 and new Rule 16b-7 both exceed the authority that Congress delegated to the SEC in section 16(b). Third, he asserts that ap- plying either of the new Rules to exempt National’s or Sterling’s acquisition of Class A common stock through Fairchild’s 1999 reclassification would have an impermissible retroactive effect. Levy does not argue, however, that the transactions at issue failed in any way to meet the requirements of the new Rules. Thus, he has effectively conceded that if we were to conclude that either of the new Rules is a permissible exercise of the SEC’s authority that may properly be applied to a 1999 reclassification, we would affirm the District Court’s grant of summary judgment to National and Sterling and its denial of his motion for summary judgment. A. Levy argues that the following three premises, together, require the grant of summary judgment in his favor: (1) all four elements of a section 16(b) violation were met by both National and Sterling; (2) we already ruled in Levy / that neither Rule 16b-3 nor Rule 16b-7 exempted National or Sterling from hability; and (3) prior panel decisions may only be overruled by our Court sitting en banc, which has not happened here. Even assuming that these premises are correct, however, Levy’s proposed conclusion does not follow from them. In National Cable & Telecommunications Associa- tion v. Brand X Internet Services, 545 U.S. 967, 125 17a S.Ct. 2688, 162 L.Ed.2d 820 (2005), the Supreme Court left no doubt that if a court of appeals inter- prets an ambiguous statute one way, and the agency charged with administering that statute subse- quently interprets it another way, even that same court of appeals may not then ignore the agency’s more-recent interpretation. In 2000, the United States Court of Appeals for the Ninth Circuit held that broadband cabie Internet service constituted a “telecommunications service” under ‘Title Il of the Communications Act, a classification with significant regulatory implications. Jd. at 979-80, 125 S.Ct. 2688. In 2002, however, the Federal Communica- tions Commission (“FCC”) issued a declaratory ruling that the term “telecommunications service” did not encompass broadband cable Internet service. Jd. at 977-78, 125 S.Ct. 2688. When numerous parties challenged the FCC ruling, the Ninth Circuit held, under principles of stare decisis, that it was bound by its interpretation of “telecommunications service,” notwithstanding the FCC’s conflicting interpretation from two years later. Jd. at 979-80, 125 S.Ct. 2688. The Supreme Court reversed, explaining that “[a] court’s prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference’ only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion.” Jd. at 982, 125 S.Ct. 2688. The Court reasoned that “allowing a judicial precedent to fore- 7 As discussed below, under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., courts generally must accord great deference to an agency's interpretation of a statute that Congress has authorized it to administer. 467 U.S. 837, 842-43, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). 18a close an agency from interpreting an ambiguous statute ... would allow a court’s interpretation to override an agency’s,” which would fly in the face of “Chevron’s premise ... that it is for agencies, not courts, to fill statutory gaps.” Jd. Further, the Court emphasized, the Ninth Circuit’s approach “would produce anomalous results,” as the relative weight of conflicting judicial and agency interpretations of an ambiguous statute “would turn on the order in which the interpretations issue.” Jd. at 983, 125 S.Ct. 2688; see also Smiley v. Citibank (S.D.), N.A., 517 U.S. 7385, 744 n. 3, 116 S.Ct. 1730, 1385 L.Ed.2d 25 (1996) (“Where ... a court is addressing transactions that occurred at a time when there was no clear agency guidance, it would be absurd to ignore the agency’s current authoritative pronouncement of what the statute means.”); Reich v. D.M. Sabia Co., 90 F.3d 854, 858 (3d Cir.1996) (“Although a panel of this court is bound by, and lacks authority to overrule, a published decision of a prior panel, a panel may re- evaluate a precedent in light of intervening authority and amendments to statutes or regulations.” (empha- sis added) (citation omitted)). We see no reason why these principles should not apply equally to the interpretation of a regulation. After all, “[w]hen the construction of an administra- tive regulation rather than a statute is in issue, deference is even more clearly in order.” Udall v. Tallman, 380 U.S. 1, 16-17, 85 S.Ct. 792, 13 L.Ed.2d 616 (1965); see also Facchiano Constr. Co. v. U.S. Dept of Labor, 987 F.2d 206, 213 (3d Cir.1993) (“[A]n administrative agency’s interpretation of its own regulation receives even greater deference than that accorded to its interpretation of a statute.”). Accordingly, we conclude that a judicial opinion con- 19a struing an agency’s regulation does not necessarily bar a court from giving effect to a subsequent, differ- ent interpretation by the agency, unless, according to the earlier opinion, the judicial construction flowed unambiguously from the terms of the regulation. To find otherwise would produce the same “anomalous results” that the Brand X Court sought to avoid, cre- ating a first-in-time rule for determining whether a judicial or administrative interpretation of a regula- tion 1s authoritative. We reached a similar conclusion in a similar con- text in United States v. Marmolejos, 140 F.3d 488 (3d Cir.1998), a case that involved an amendment by the Sentencing Commission of an application note that accompanied an ambiguous section of the Sentencing Guidelines. There, we made clear that an earlier, conflicting judicial construction of the ambiguous Guidelines section did not preclude us from consider- ing the more-recent interpretation of that section provided by the Commission in the application note amendment. /d. at 492-93 & n. 7. In such a situation, we explained, “‘this court is not bound to close its eyes to the new source of enlightenment.” Jd. at 493 (quoting United States v. Joshua, 976 F.2d 844, 855 (3d Cir.1992)). Importantly, as we noted in Marmol- ejos, the Supreme Court has analogized Sentencing Commission commentary on the Guidelines to an agency's interpretation of its own rules. Id. at 493 n. 7 (citing Stinson v. United States, 508 U.S. 36, 44- 45, 113S8S.Ct. 1913, 123 L.Ed.2d 598 (1993)). Here, the new Rules constitute both (1) interpreta- tions of a statute, as they construe the provision of section 16(b) granting the SEC authority to exempt transactions “not comprehended within [the statute’s|] purpose,” and (2) interpretations of regulations, as 20a they set forth the SEC’s understanding of what the old Rules meant all along. Looking at the new Rules from either perspective, it is clear that, notwith- standing the doctrine of stare decisis, Levy I does not necessarily foreclose us from considering them. In Levy I, we did not conclude that section 16(b) un- ambiguously precluded the SEC from exempting transactions like the 1999 reclassification. Similarly, we did not indicate that our reading of old Rule 16b-3 or of old Rule 16b-7 flowed unambiguously from their terms. Indced, we struggled to divine their applica- bility to the instant fact pattern. With respect to Rule 16b-3, we concluded only that “the weight of the SEC’s pronouncements ... suggest/ed/’ that we should read in a compensatory nexus requirement. Levy I, 314 F.3d at 124 (emphasis added). Further, we recognized that a portion of the SEC’s adopting release “appear[ed] to cut against” this interpreta- tion. Jd. As to Rule 16b-7, we repeatedly noted the lack of clear guidance in the text or elsewhere re- garding whether and to what extent reclassifications fell within the Rule’s scope. /d. at 112-14. Our con- clusion as to both represented our view of what the SEC probably intended. Accordingly, Levy I does not control the result here simply by virtue of the fact that 1t came first and has not been overturned. B. Levy also contends that new Rule 16b-3 and new Rule 16b-7 are improper exercises of the authority that Congress granted the SEC in section 16(b). This argument equates to a claim that both new Rules are impermissible interpretations of the portion of the statute that provides that section 16(b) does not apply to “any transaction or transactions which the 21a Commission by rules and regulations may exempt as not comprehended within the purpose of this sub- section.” 15 U.S.C. § 78p(b). Because Chevron defer- ence applies here, and the statutory interpretations embodied in the new Rules easily pass muster under this lenient standard, we disagree with Levy on this issue as well. Chevron deference applies to an agency’s statutory interpretation “when it appears that Congress dele- gated authority to the agency generally to make rules carrying the force of law, and that the agency inter- pretation claiming deference was promulgated in the exercise of that authority.” United States v. Mead Corp., 533 U.S. 218, 226-27, 121 S.Ct. 2164, 150 L.Ed.2d 292 (2001). If we determine that the situa- tion does indeed call for Chevron deference, we pro- ceed to a two-step inquiry. First, we ask “whether Congress has directly spoken to the precise question at issue.” Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). If the answer is yes, we “must give effect to the unambiguously expressed intent of Congress” and our inquiry ends there. Jd. at 842-43, 104 S.Ct. 2778. If, however, the answer is no, we move on to step two, under which we must give the agency’s interpretation “controlling weight” unless it is “arbitrary, capricious, or manifestly contrary to the statute.” Jd. at 843, 104 S.Ct. 2778. In other words, where Congress has left a “statutory gap” for the agency to fill, we must accept any interpretation by the agency that fills the gap “in reasonable fashion.” Brand X, 545 U.S. at 980, 125 S.Ct. 2688. Here, Congress has generally authorized the SEC to make rules that have the force of law in imple- menting the Exchange Act, Securities Exchange 22a Act of 1934 § 23(a), 15 U.S.C. § 78w(a), and has specifically authorized it to create binding exemp- tions from short-swing profit recovery, 15 U.S.C. § 78p(b). Because the SEC was acting pursuant to this authority when it promulgated new Rule 16b-3 and new Rule 16b-7, Chevron deference clearly applies. See 2005 Amendments Release, 70 Fed. Reg. at 46,084-85 & nn. 54, 71. Further, by broadly pronouncing that section 16(b) does not apply to “any transaction or transactions which the Commission by rules and regulations may exempt as not compre- hended within the purpose of this subsection,” 15 U.S.C. § 78p(b), Congress certainly left a gap for the agency to fill. Thus, the key question for us to answer is whether it was reasonable for the SEC to think that the transactions exempted by the new Rules are “not comprehended within the purpose” of section 16(b). As noted above, section 16(b)’s self-proclaimed pur- pose is “preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relation- ship to the issuer.” 15 U.S.C. § 78p(b). The Supreme Court has expanded upon this purpose: The general purpose of Congress in enacting s{ection] 16(b) is well known. Congress recog- nized that insiders may have access to informa- tion about their corporations not available 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. In s[ection] 16(b) Congress sought to “curb the evils of insider trading [by]... taking the profits out of a Class of transactions in which the possibility of abuse was believed to be intolerably great.” It 23a accomplished this by defining directors, officers, and beneficial owners as those presumed to have access to inside information and enacting a flat rule that a corporation could recover the profits these insiders made on a pair of security transac- tions within six months. Foremost-McKesson, Inc. v. Provident Sec. Co., 423 U.S. 232, 243-44, 96 S.Ct. 508, 46 L.Ed.2d 464 (1976) (alterations in original) (citations and footnotes omit- ted) (quoting Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418, 422, 92 S.Ct. 596, 30 L.Ed.2d 575 (1972)). In the 2005 adopting release, the SEC explained why it believed the transactions exempted by new Rule 16b-3 — transactions between directors or offi- ‘cers and the issuer — were not comprehended withir this purpose: Typically, where the issuer, rather than the trad- ing markets, is on the other side of an officer or director’s transaction in the issuer’s equity secu- rities, any profit obtained is not at the expense of uninformed shareholders and other market par- ticipants of the type contemplated by the statute. 2005 Amendments Release, 70 Fed.Reg. at 46,083 (quoting 1996 Rule 16b-3 Release, 61 Fed.Reg. at 30,377). In other words, the purchase of securities from, or sale of securities to, the issuer by a director or officer does not present the same informational asymmetry, and associated opportunity for speculative abuse, that, according to the Supreme Court, Congress was targeting in enacting section 16(b). Because this rationale is perfectly reasonable — and apphes equally whether or not the transaction has a com- 24a pensatory nexus — we conclude that new Rule 16b-3 is a permissible construction of section 16(b) and a valid exercise of the SEC’s congressionally delegated authority. The two courts of appeals that have con- sidered this question reached the same conclusion. Roth v. Perseus, L.L.C., 522 F.3d 242, 249 (2d Cir. 2008); Dreiling v. Am. Express Co., 458 F.3d 942, 949-52 (9th Cir.2006). As for new Rule 16b-7, the SEC explained in the 2005 adopting release that it is “based on the prem- ise that the exempted transactions” — including re- classifications — “are of relatively minor importance to the shareholders of a particular company and do not present significant opportunities to insiders to profit by advance information concerning the trans- action.” 2005 Amendments Release, 70 Fed.Reg. at 46,085. “Indeed,” the SEC continued, “by satisfying either of the rule’s 85% ownership tests, an exempted transaction does not significantly alter the economic investment held by the insider before the transac- tion.” Jd. In essence, the SEC’s position is that re- classifications, in addition to mergers and consolida- tions, that meet the 85% cross-ownership require- 8 Levy maintains that the SEC’s reasoning is flawed because it “ignores [the fact] that such unfair short-term speculative activity can take place even absent a transaction with an un. informed member of the investing public.” (Appellant’s Br. 60 (emphasis added)). But Levy’s argument is based on a faulty premise, as a transaction “need not ... pose absolutely no risk of speculative abuse” for the SEC to be free to exempt it from section 16(b) liability. Dreiling v. Am. Express Co., 458 F.3d 942, 950 (9th Cir.2006). Rather, as indicated by the Supreme Court in its above explanation of section 16(b)’s purpose, the relevant inquiry is whether the risk of speculative abuse is not ““intolerably great.” Foremost-McKesson, Inc., 423 U.S. at 243, 96 S.Ct. 508 (quoting Reliance Elec. Co., 404 U.S. at 422, 92 S.Ct. 596); accord Dreiling, 458 F.3d at 950. 25a ment do not pose much risk of abuse of inside infor- mation because they usually change merely the form of the insider’s pre-existing investment in the issuer. Id. We think this is a reasonable explanation as to why the exempted transactions are not compre- hended within the purpose of section i6(b) and, therefore, conclude that new Rule 16b-7, like new Rule 16b-3, is a permissible construction of section 16(b) and a valid exercise of the authority delegated to the SEC by Congress. We note that the only other court of appeals to have faced this issue as to Rule 16b-7 agreed, finding that new Rule “falls safely within the Commission’s delegated authority.” Bruh v. Bessemer Venture Partners III L.P., 464 F.3d 202, 214 (2d Cir.2006). C. Finally, Levy contends that, even if Levy J does not bind us for any of the reasons discussed above, and even if the new Rules are permissible constructions of section 16(b), actually applying the new Rules here to the 1999 reclassification would have an impermis- sible retroactive effect. Drawing on the well-established principle that “Irjetroactivity is not favored in the law,” the Su- preme Court held in Bowen v. Georgetown University Hospital, 488 U.S. 204, 208, 109 S.Ct. 468, 102 L.Ed.2d 493 (1988), that an agency may not promul- gate rules that operate retroactively unless Congress has expressly delegated to it the authority to do so. However, we have held that a new rule should not be deemed to be “retroactive” in its operation — and thus does not implicate the Supreme Court’s concerns in Bowen — if it “d[oes] not alter existing rights or obli- gations [but] merely clarifie{s] what those existing rights and obligations halve] always been.” Appala- 26a chian States Low-Level Radioactive Waste Comm’n v. O'Leary, 93 F.3d 103, 113 (3d Cir.1996). Thus, where a new rule constitutes a clarification — rather than a substantive change — of the law as it existed beforehand, the application of that new rule to pre- promulgation conduct necessarily does not have an impermissible retroactive effect, regardless of whether Congress has delegated retroactive rule- making power to the agency. Many of our sister courts of appeals have endorsed similar approaches, finding retroactivity to be a non- issue with respect to new laws that clarify existing law. See, e.g., Piamba Cortes v. Am. Airlines, Inc., 177 F.3d 1272, 1283 (11th Cir.1999) (“[C]oncerns about retroactive application are not implicated when an amendment that takes effect after the ini- tiation of a lawsuit is deemed to clarify relevant law rather than effect a substantive change in the law.”); Pope v. Shalala, 998 F.2d 473, 483 (7th Cir.1993) (“A rule simply clarifying an unsettled or confusing area of the law ... does not change the law, but restates what the law according to the agency is and has al- ways been: ‘It is no more retroactive in its operation than is a judicial determination construing and ap- plying a statute to a case in hand.’” (quoting Mana:at- tan Gen. Equip. Co. v. Comm, 297 U.S. 129, 135, 56 S.Ct. 397, 80 L.Ed. 528 (1936))), overruled on other grounds by Johnson v. Apfel, 189 F.3d 561, 563 (7th Cir.1999); Cookeville Reg'l Med. Ctr. v. Leavitt, 531 F.3d 844, 849 (D.C.Cir.2008); Brown v. Thompson, 374 F.3d 253, 258-61 & n. 6 (4th Cir.2004); ABKCO Music, Inc. v. LaVere, 217 F.3d 684, 689-91 (9th Cir. 2000); Orr v. Hawk, 156 F.3d 651, 654 (6th Cir.1998); Liquilux Gas Corp. v. Martin Gas Sales, 979 F.2d 27a 887, 890 (1st Cir.1992). But see Princess Cruises, Inc. v. United States, 397 F.3d 1358, 1363 (Fed.Cir.2005). In determining whether a new regulation merely “clarifies” the existing law, “[t]here is no bright-line test” to guide us. Marmolejos, 140 F.3d at 491.9 After reviewing the relevant case law from our Court and other courts of appeals, however, we think that four factors are particularly important for making this determination: (1) whether the text of the old regulation was ambiguous, see, e.g., ABKCO Music, Inc., 217 F.3d at 691; Piamba Cortes, 177 F.3d at 1283-84; (2) whether the new regulation resolved, or at least attempted to resolve, that ambiguity, see, e.g., Marmolejos, 140 F.3d at 491; Liquilux Gas Corp., 979 F.2d at 890; (3) whether the new regula- tion’s resolution of the ambiguity is consistent with the text of the old regulation, see, e.g., Marmolejos, 140 F.3d at 491; Boddie v. Am. Broad. Cos., 881 F.2d 267, 269 (6th Cir.1989); and (4) whether the new regulation’s resolution of the ambiguity is consistent with the agency’s prior treatment of the issue, see, e.g., First Natl Bank of Chi. v. Standard Bank & Y Marmolejos and a number of other Third Circuit cases that we discuss in this section involve amendments to the Sentenc- ing Guidelines or its commentary made after the defendant had already been sentenced. Generally, a defendant’s sentence ts to be based on the version of the advisory Guidelines and commen- tary in effect at the time of sentencing. U.S.S.G. § 1B1.11(a). However, unless an Ex Post Facto Clause violation would re- sult, “a post-sentencing amendment ... should be given effect” — and the defendant's sentence adjusted accordingly — “if it ‘clari- fies the guideline or comment in place at the time of sentenc- ing. Marmolejos, 140 F.3d at 490 (emphasis added). Because the ultimate inquiry is the same, we think our statements as to when an amendment to the Guidelines or its commentary is “clarifying” are equally applicable to the determination of whether an amendment to a statute or regulation is “clarifying.” 28a Trust, 172 F.3d 472, 479 (7th Cir.1999); Orr, 156 F.3d at 654.10 Before turning to the application of these four fac- tors to the case before us, we note that there are two other factors on which some courts of appeals rely that we do not find to be all that significant. ‘First, we do not consider an enacting body’s description of an amendment as a “clarification” of the pre-amendment Jaw to necessarily be relevant to the judicial analysis. United States v. Diaz, 245 F.3d 294, 304 (3d Cir. 2001); Marmolejos, 140 F.3d at 493. But see Heim- mermann v. First Union Mortgage Corp., 305 F.3d 1257, 1260 (1ith Cir.2002); First Nat? Bank, 172 F.3d at 478. Second, we do not take the fact that an amendment conflicts with a judicial interpretation of the pre-amendment law to mean that the amend- ment is a substantive change and not just a clarifica- tion. Marmolejos, 140 F.3d at 492-93. As we ex- plained in Marmolejos, “one could posit that quite the opposite was the case — that the new language was fashioned to clarify the ambiguity made apparent by 10 Levy devotes a number of pages in his briefs to the argu- ment that the new Rules may not be applied to the 1999 reclas- sification because they are “legislative,” as opposed to “interpre- tive.” This distinction, however, does not advance his cause. The significance of a rule’s classification as “legislative” is that an agency must promulgate it through the use of the formal notice-and-comment rulemaking procedures contained in the Administrative Procedure Act (“APA”). Chao vu. Rothermel, 327 F.3d 223, 227 (3d Cir.2003). Although the inquiries may hinge on some of the same factors, the legislative-interpretive dichot- omy has no bearing on whether a rule has an impermissible retroactive effect. Similarly, in response to another of Levy's contentions, we note that an agency's decision to use the APA’s formal rulemaking procedures to promulgate a rule does not affect whether that rule may be applied to pre-promulgation conduct. 29a the caselaw.” Id. at 492.1! But see Natl Mining Ass’n v. Dep’t of Labor, 292 F.3d 849, 860 (D.C.Cir.2002); United States v. Capers, 61 F.3d 1100, 1110 (4th Cir. 1995). Focusing first on Rule 16b-3, we think that all four factors identified above point to the conclusion that the new Rule is a clarification of the previous version and that, thus, applying it to the 1999 reclassifica- tion would have no impermissible retroactive effect. First, we already determined in Levy J that old Rule 16b-3 (d)’s reference to “[a]ny transaction involving a grant, award or other acquisition from the issuer’ was ambiguous. As discussed above, we thought it unclear from the text of the Rule whether “other acquisition” referred truly to any other acquisition or, instead, only to those acquisitions that, like grants and awards, involve compensation. Levy J, 314 F.3d at 121-22.!2 Second, new Rule 16b-3 resolved this 11 There are Guideline amendment cases in which we have made statements to the contrary, suggesting that a conflict with a prior judicial interpretation does make an amendment sub- stantive, as opposed to clarifying. But these cases are distin- guishable. In United States v. Brennan, 326 F.3d 176, 197-98 (3d Cir.2003), Diaz, 245 F.3d at 303, and United States v. Ber- toli, 40 F.3d 1384, 1405-07 (3d Cir.1994), applying the new amendment would have resulted in a greater sentence for the defendant and thus would have implicated the Ex Post Facto Clause. As we explicitly indicated in Marmolejos, when ex post facto issues are involved, the rules of the game are different. 140 F.3d at 492 n.6. In United States v. Roberson, 194 F.3d 408, 417-18 (3d Cir.1999), there was no pre-existing ambiguity in the Guidelines section at issue. The Sentencing Commis- sion’s amendment to the commentary conflicted not only with a prior judicial construction, but also with the plain meaning, of the relevant provision. Id. 12 L evy con tend s that “other acquisition” in the phrase “grant, award or other acquisition from the issuer” unambigu- 30a ambiguity, explicitly providing that the Rule’s ex- emption is available “whether or not [the transaction at issue was] intended for a compensatory or other particular purpose.” 17 C.F.R. § 240.16b-3(d). Third, the new Rule’s resolution of the ambiguity is con- sistent with the text of the old Rule, which made no mention of a compensatory nexus requirement. Finally, the new Rule’s resolution of the ambiguity is not at odds with the SEC’s earlier-expressed under- standing of the old Rule. To the contrary, as noted above, the SEC stated in the release it issued upon adopting the old Rule that “a transaction need not be pursuant to an employee benefit plan or any compen- satory program to be exempt, nor need it specifically have a compensatory element.” 1996 Rule 16b-3 Release, 61 Fed.Reg. at 30,379. Levy points to a number of SEC statements that suggest that, in promulgating old Rule 16b-3(d), the agency was primarily concerned with transactions pursuant to employee benefit plans; however, these statements do not conflict with the position that the old Rule ously referred only to transactions with a compensatory nexus because “grants” and “awards” both involve compensation. As support, he invokes the interpretive canon ejusdem generis, under which “where general words follow specific words in a statutory enumeration, the general words are construed to em- brace only objects similar in nature to those objects enumerated by the preceding specific words.” Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 114-15, 121 S.Ct. 1302, 149 L.Ed.2d 234 (2001) (internal quotation marks omitted). But while this may be one way to approach the language, it is not the only way. See Chickasaw Nation v. United States, 534 U.S. 84, 94, 122 S.Ct. 928, 151 L.Ed.2d 474 (2001) (“{[C]anons [of interpretation] are not mandatory rules. Thev are guides that ‘need not be conclu- sive.” (quoting Circuit City Stores, Inc., 532 U.S. at 115, 121 S.Ct. 1302)). 3la also applied to transactions with no compensatory nexus whatsoever. !3 While the District Court chose to address the retro- activity implications of new Rule 16b-7 as well, we decline to do so. We have already determined that new Rule 16b-3(d) is a valid exercise of the SEC’s authority, whose application to the 1999 reclassifica- tion would not give rise to any retroactivity concerns. Because this is a sufficient independent ground for affirming the District Court’s disposition of the case, we express no opinion as to whether new Rule 16b-7 merely clarifies the old Rule or, relatedly, whether applying it here would have an impermissible retro- active effect. . IV. In light of the foregoing, we will AFFIRM the Dis- trict Court’s grant of summary judgment to National and Sterling and its denial of summary judgment to Levy. Further, to the extent it is inconsistent with our opinion today, we OVERRULE Levy I. 13 Levy also maintains that by including subsection (f), which provided that certain “discretionary transactions” involving employee benefit plans required a six-month waiting period in order to be exempt, the SEC somehow implicitly conveyed the view that old Rule 16b-3(d) required a compensatory nexus. Specifically, he contends that it would have been irrational for the SEC not to exempt these discretionary transactions but to exempt purely volitional, non-compensation-related [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386017_0303%3A1. Public record. Not legal advice.