Opposition Brief — Levy v. Sterling Holding Holding Co., LLC (No. 08-1165)

Supreme Coun, U.S.

x FILED

—. MAY 2 0 2009

No. 08-1 165 OFFICE OF THE CLERK

IN THE

Supreme Court of the Anited States

MARK LEVY, Petitioner,

V.

STERLING HOLDING COMPANY, LLC, ET AL., Respondents.

On Petition for a Writ of Certiorari to the United

States Court of Appeals for the Third Circuit

BRIEF IN OPPOSITION

PAUL VIZCARRONDO, JR.

MICHAEL S. WINOGRAD

WACHTELL, LIPTON,

ROSEN & KATZ

51 West 52nd Street

New York, NY 10019

(212) 403-1000

Counsel for Respondent

National Semiconductor

Corporation

May 20, 2009

STEVEN B. FEIRSON

Counsel of Record

CAROLYN H. FEENEY

JUSTIN C. DANILEWITZ

DECHERT LLP

Cira Centre

2929 Arch Street

Philadelphia, PA 19104

(215) 994-4000

G. ERIC BRUNSTAD, JR.

DECHERT LLP

90 State House Square

Hartford, CT 06103-3702

(860) 524-3960

Counsel for Respondent

Sterling Holding Company,

LLC

i

QUESTIONS PRESENTED

-1. Whether the Third Circuit correctly held,

consistent’ with every other court to consider the

issue, that Securities and Exchange Commission

(SEC) Rule 16b-3(d), 17 C.F.R. § 240.16b-3(d), is a

permissible construction of Section 16(b) of the

Securities and Exchange Act of 1934, 15 U.S.C.

§ 78p(b), and a valid exercise of the SEC’s

congressionally delegated authority.

2. Whether the Third Circuit correctly held,

consistent with every other court to consider the

issue, that applying Rule 16b-3(d), as amended in

2005, to a transaction predating the amendment did

not have an impermissibly retroactive effect where:

(a)the amendment clarified and resolved an

ambiguity the Third Circuit expressly found in the

prior version of the rule; (b)the resolution of

ambiguity was consistent with both (i) the text of the

prior version of the rule and (ii) SEC statements

interpreting the prior version of the rule; and

(c) application of the clarifying amendment raised no

ex post facto concerns.

ll

CORPORATE DISCLOSURE STATEMENT

PURSUANT TO RULE 29.6

Respondent Sterling Holding Company, LLC

(Sterling) is owned by Citicorp Venture Capital, Ltd.,

which is a wholly-owned subsidiary of Citibank N.A.,

which is a wholly-owned subsidiary of Citicorp

Holdings, Inc., which is a wholly-owned subsidiary of

Citigroup, Inc. Of Sterling’s parent corporations,

Citigroup, Inc. is the only publicly-held company.

Respondent National Semiconductor Corporation

(National) has no parent corporations, nor does any

publicly held corporation own 10 percent or more of

National’s stock.

1

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ccs seccsvsscsssesccsvestevesssossoeses i

CORPORATE DISCLOSURE STATEMENT .......... li

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FADE Or BATT ee 0 evesincasescrnssncvesensasenssoanee iv

ee EM aap ha estas csiedbsnsdvennbdassasersnapscodiosns 1

STATEMENT OF THE CASE............cccssccscscescessescers 3

REASONS FOR DENYING THE PETITION........ 12

I. THERE IS NO CONFLICT AMONG

THE COURTS OF APPEALG. ..................04. 13

IT. THE DECISION BELOW IS

CONSISTENT WITH THE RELEVANT

DECISIONS OF THIS COURT. .................. 19

A. The Third Circuit Held Correctly

That Rule 16b-3(d) Passes

Muster Under Cheuron..................005. 19

B. The Third Circuit Held Correctly

That The Clarification Embodied

In Amended Rule 16b-3(d)

Should Be Applied In This Case. ..... 25

hs An agency’s clarification of

its own regulation

deserves deference. ................. 25

2. The general presumption

against retroactivity does

not apply to clarifications. ...... 27

CA Aitivitcendatic nie anaienneiens 30

lv

TABLE OF AUTHORITIES

Page(s)

CASES

American Mining Congress v. Mine Safety &

Health Administration,

G95. F268 1106 (0.©. Cir. FOGG) 22.20. 0ccccceccccccscscees 19

Auer v. Robbins, 519 U.S. 452 (1997) ............... 25, 27

Blau v. Lehman,

le Me cds vedunnvedcuhunnssapuswnsseosaeaeonesia 4

Powen v. Georgetown University Hospital,

OF a. ee icin seresnnsscrisneviorsssines 27, 28, 29

Bowles v. Seminole Rock & Sand Co.,

BF ee erin cia scdcnkanoniedvesescvesescacunesats 26

Bruh v. Bessemer Venture Partners III L.P.,

Po Bp Bi Ee Ee || re 2,14

Chevron U.S.A., Inc. v. Natural Resources

Defense Council,

GE FFB, Rr LAOS. .orcccniesctencspressscccecevssanes passim

Dreiling v. American Express Co.,

458 F.3d 942 (9th Cir. 2006)..................... 1, 18, 25

First National Bank of Chicago v. Standard

Bank & Trust,

we Be ye Be Ee Ae | nner 18

Vv

Foremost-McKesson, Inc. v. Provident

Securities Co.,

ee FD viciick cus incedunsstcsnccsiedectaccsncesenasies 22

Hamdan v. Rumsfeld,

Fe i a vv csccsnrrexschccetsnasicsanedsiecnensanbes 28

Health Insurance Association of America, Inc.

v. Shalala,

ee ae Oe A. TAD. FIG ivi cece cvcevivesascccecerenie 19

Kern County Land Co. v. Occidental Petroleum

Corp.,

BE rs Be I enna cccrsndencpancesonvnsnosctxs 22, 23, 24

Landgraf v. USI Film Products,

BE, sven neencncnspsesvcssensnccnntess 18, 28, 29

Levy v. Sterling Holding Co., LLC,

EF ee Fire Ce Br D iccccct vin deviveieceeneieconcsns 9

Long Island Care at Home, Ltd. v. Coke,

BE We te EE on ce vecndecesoiinwioesecesecncecoeseisens 28

Manhattan General Equip. Co. v.

Commissioner,

I I ois cicnsnddaucnncicecexencsadevenseensiens 28

Marrie v. SEC,

Bt4 FOG SIDS C).C. Cib, BOD) ncccevcivceincscnccrsesecs 17

National Cable & Telecommunications

Association v. Brand X Internet Services,

Ee ee FO vinnie ste einncess seceraseseccscens passim

vl

National Mining Association v. Department of

Labor,

292 F.3d 849 (D.C. Cir. 2002)............ccccccccces 15, 17

Princess Cruises, Inc. v. United States,

SOT FB TAGS GEOG, Car, BOOB) cscccccccsccsccosssceses. 17

Reliance Electric Co. v. Emerson Electric Co.,

A vnc cence cscensccccnecosccciecesenesee 23, 24

Roth ex rel. Beacon Power Corp. v. Perseus,

L.L.C.,

§22 F.3d 242 (2d Cir. 2008)...............000000 1, 13, 25

Segen v. CDR-Cookie Acquisitions, LLC,

No. 05 Civ. 3509, 2006 WL 59550 (S.D.N.Y.

i i le aan esos a os punch cuudubu sucess sdeenoeoiinuees 14

Smiley v. Citibank, N.A.,

Ee Bes FP EE veves tascccncsascssvesssevessneenns 2, 26, 27

Stinson v. United States,

oe cscs veeresenaaapenies 26

Tinney v. Geneseo Communications, Inc.,

457 F. Supp. 2d 495 (D. Del. 2006) .............. 13, 14

Udall v. Tallman,

Te a cscpcssvesesesansrssessabueonsnonanas 26

United States v. Capers,

CE Fe LEOD (SE) Cir. TOGB) 06.00 ccciccccsccccsscscosecees 15

United States v. Marmolejos,

EOD Fe SBS OE Cir, EDGE) ois sciesccesscsscccccssossesaeee 16

vil

United States v. Roberson,

BF te Ge Oe GE, RIOD esvivscccncascesecsesccnesseses 16

United States v. Saucedo,

950 F.2d 1508 (10th Cir. 1991)..................... 15, 16

STATUTES, REGULATIONS, AND RULES

ee tn OE Rs. osc csusivoteciaisauagharcvneasevevesepsacnnsps 18

15 U.S.C.:

ae OS a da pee ee 4

§ 78p(b) (Section 16(b)) ..........ccccccsscccsccseseres passim

eI ori chads lyebeiydaisesistacceidenenenesian sae 4

17 £22:

§ 240.16b-3 (Rule 16b-3).................c0cccecerees passim

§ 240.16b-7 (Rule 16b-7) ......... eee eee passim

I ae cc as cast eecs tack 21

LEG'SLATIVE AND AGENCY MATERIALS

S. Rep. No. 73-792, 73d Cong., 2d Sess. (1934)....... 22

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) (2005

POE TO ICRIE) on ones vesdaveveccevevisessceresesseres 8, 9, 11

vill

Ownership Reports and Trading by Officers,

Directors, and Principal Security Holders,

Release Nos. 34-37260, 35-26524, 61 Fed.

Reg. 30,376 (June 14, 1996) (1996

PROT TIO) ones ccncacecsnescccscesecssvesevesee 7, 8,10

OTHER AUTHORITIES

Black’s Law Dictionary (8th ed. 2004) ...............c. 4

Peter J. Romeo & Alan L. Dye, Section 16

Securities Exchange Act of 1934: Insider

Reporting and Short-Swing Liability (3d

Se Mare ta casein aus aca vuncdcvetantatieuayaioteveeuciaivanass 4

1

INTRODUCTION

The Third Circuit’s unanimous decision to affirm

an award of summary judgment in favor of Sterling

and National is in accord not only with the rulings of

every other court that has considered the same

issues, but also with the relevant decisions of this

Court. Levy’s claims of “pervasive and deep splits”

among the courts of appeals (Pet. at 1) and

irreconcilable conflicts with this Court’s precedents

are invented out of whole cloth and do not withstand

even superficial scrutiny.

Levy’s petition seeks review of two aspects of the

decision below. One is the Third Circuit’s

determination that amended Rule 16b-3(d) is a

permissible construction of Section 16(b) and a valid

exercise of the SEC’s congressionally delegated

authority to promulgate exemptive rules. This

holding flowed from a straightforward application of

Chevron U.S.A., Inc. v. Natural Resources Defense

Council, 467 U.S. 837 (1984). Two other courts of

appeals have considered the same challenges to the

validity of Rule 16b-3(d) that Levy makes here. Both

of them, applying Chevron, reached the same result

as the Third Circuit. See Roth ex rel. Beacon Power

Corp. v. Perseus, L.L.C., 522 F.8d 242, 249 (2d Cir.

2008); Dreiling v. Am. Express Co., 458 F.3d 942,

949-52 (9th Cir. 2006).

Levy also seeks review of the Third Circuit’s

determination that amended Rule 16b-3(d) simply

clarified existing law, and therefore could be applied

to exempt a transaction that predated the clarifying

amendment. One other court of appeals has

considered this question in connection with the

2

clarifying amendments at issue in this case, albeit

with respect to Rule 16b-7, 17 C.F.R. 3 240.16b-7.!

That court reached the same result as the Third

Circuit in this case. See Bruh v. Bessemer Venture

Partners Ill L.P., 464 F.8d 202, 213 (2d Cir. 2006)

(“{E]ven applying the prior Rule 16b-7, according to

the Commission’s reasonable interpretation, the

transaction is exempt. Needless to say, where

applying the old rule produces the same result as

would the new rule, there is no impermissible

retroactive effect.”). Moreover, the Third Circuit’s

holding on this point is consistent with the relevant

decisions of this Court. See, e.g., Natl Cable &

Telecomms. Ass'n v. Brand X Internet Servs., 545

U.S. 967, 982-86 (2005) (reversing the Ninth Circuit

for applying a _ prior Ninth Circuit panel’s

interpretation of an ambiguous provision, rather

than a subsequent agency clarification undertaken

in response to the prior panel’s interpretation);

Smiley v. Citibank, N.A., 517 U.S. 735, 744 n.3

(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.”).

In sum, the decision below is fully consistent with

the decisions of other courts of appeals and with the

jurisprudence of this Court. It presents only a

mundane application of well-established principles.

As a result, there is no reason for this Court’s

review, and the petition should be denied.

' The SEC issued clarifying amendments to both Rule

16b-3 and Rule 16b-7 simultaneously.

3

STATEMENT OF THE CASE

1. Factual background. The transaction at

issue in this case was a routine reclassification of all

of the outstanding shares of preferred stock of

nominal respondent’ Fairchild Semiconductor

International, Inc. (Fairchild) into an equal value of

shares of Fairchild’s Class A common stock. The

reclassification was nothing more than a standard

corporate housekeeping chore undertaken by

Fairchild in preparation for its initial public offering

(IPO). Although Levy tries to characterize the

reclassification as a “purchase,” it was a corporate

act that simply changed the form — and not the

substance — of existing investments that had been

made years before.

Fairchild was formed in March 1997 as a spin-off

from National, which retained an approximately

$12.8 million interest in the new corporation.

Fairchild’s only other initial equity investors were

Sterling, which invested approximately $58.5

million, and key members’ of _ Fairchild’s

management, who invested approximately $6.5

million. In exchange for their investments, Sterling,

National, and the management shareholders

received a mix of Fairchild’s three classes of equity:

Class A common stock, Class B common stock, and

preferred stock. Fairchild’s board consisted of seven

4

directors, including two designated by Sterling and

one designated by National.”

By 1999, Fairchild desired to raise additional

capital by selling 20 million new Class A shares to

the public. In planning its IPO, Fairchild was told

by every underwriter it interviewed to eliminate its

preferred stock because the preferred stock’s 12

percent dividend and liquidation preference would

make Fairchild’s common stock less marketable to

potential investors. Reclassifications of preferred

stock into common stock are routine in preparation

for IPOs. See Peter J. Romeo & Alan L. Dye, Section

16 Securities Exchange Act of 1934: Insider

Reporting and Short-Swing Liability § 10.03[2][a] at

963 & n.14 (3d ed. 2008).

Fairchild’s board of directors heeded the

underwriters’ advice. On July 14, 1999, it voted to

restate Fairchild’s certificate of incorporation to

provide for the automatic reclassification of all

”

2 Levy's complaint alleged that both Sterling and

National were directors by deputization because each had the

right to appoint members of Fairchild’s board. See Blau v.

Lehman, 368 U.S. 403, 409-10 (1962) (shareholder who has the

power to appoint one or more directors to the board of an issuer

may in certain circumstances be considered a director by

deputization).

’ In a public stock offering, an underwiiter typically

purchases securities from the issuer and resells them to

investors, See 15 U.S.C. §§ 78e(a)(20), 80b-2(a)(20); Black's

Law Dhictionary 1562 (8th ed. 2004) (“[U]nderwriter. |

INSURER. 2. One who buys stock from the issuer with an

intent to resell it to the public; a person or entity, esp. an

investment banker, who guarantees the sale of newly issued

securities by purchasing all or part of the shares for resale to

the public.”)

5

preferred stock into an equal value of Class A stock,

and for the issuance of the new Class A shares to be

sold in the IPO. These amendments to the

certificate of incorporation required approval by a

majority of each class of shareholders. Neither

Sterling nor National alone had the power to deliver

(or prevent) shareholder approval because neither

owned a majority of every class of shares.4 The

requisite shareholder approvals were obtained on

July 26, 1999.

On August 9, 1999, Fairchild filed its restated

certificate with the Delaware Secretary of State.

Under the terms of the restated certificate, all

outstanding shares of preferred stock were

automatically converted into the equivalent value of

common shares using a fixed formula. The formula

valued the preferred shares at their contractual

liquidation value (which had been established in

1997); this consisted of their original cost plus

accrued but unpaid dividends. The Class A common

shares were valued at the price the company would

receive for shares sold in the IPO; this price was

determined by a third-party, the underwriter.®

Thus, the value of Sterling and National’s respective

equity interests in Fairchild remained unchanged by

the reclassification. The preferred stock ceased to

4 Neither National nor its designated director voted on

the proposal.

The petition erroneously states that the underwriter

was “an affiliate of Sterling.” (Pet. at 8.)

6

exist and automatically became Class A common

stock of an equivalent value.®

On August 9, 1999, after filing its restated

certificate of incorporation, Fairchild sold 20 million

newly-issued Class A shares to its underwriter,

marking the IPQ’s closing. In addition, one of the

IPO underwriters exercised an option to buy

3 million of National’s Class A shares.

In January 2000, Fairchild undertook another

public offering of its Class A stock. Sterling sold

approximately 11 million Class A shares in the

secondary offering.’ National sold all of its

remaining Class A shares in the secondary offering,

thereby liquidating its investment in Fairchild.

Discovery revealed no evidence suggesting that

the reclassification and subsequent sale of shares in

the secondary offering constituted short-swing

profit-taking based on inside information. Sterling

and National made no new investments in Fairchild

at the time of the reclassification. Although the form

6 Under the conversion formula, Sterling’s preferred

shares became approximately 4 million shares of Class A

common stock (prior to the reclassification, Sterling owned

14,212,000 Class A shares and 28,396,000 Class B shares,

which were convertible into Class A on a 1:1 basis, for a total of

approximately 42.5 million shares of common = stock).

National’s preferred shares became slightly less than 900,000

shares of Class A common stock (prior to the reclassification,

National held 8,115,000 Class A shares and _ 1,245,000

convertible Class B shares, for a total of approximately 9.4

million shares of common stock).

7 $terling did not need the reclassification in order vo sell

these shares in the secondary offering — it owned more than

this number of Class A shares before the reclassification.

7

of their investments changed, the original

investment decisions — including the amount of their

investments — were made back in 1997. The

reclassification operated formulaically to convert all

outstanding preferred stock into Class A common

stock. Shareholders exercised no discretion; all

preferred shares were automatically reclassified into

Class A common stock. The reclassification was a

corporate act undertaken for a corporate purpose. It

was approved by Fairchild’s board and shareholders,

after the underwriters recommended a

reclassification to facilitate the IPO. Moreover, the

reclassification, and indeed all material information

about Fairchild, was disclosed in the IPO prospectus.

Thus, there was never any imbalance of information

between insiders and the investing public.

2. Background on rules at issue in the

decision below. Rule 16b-3(d) exempts

acquisitions of issuer equity securities by a director

or officer of the issuer directly from the issuer when

any one of three objective gate-keeping conditions is

met. See 17 C.F.R. § 240.16b-3(d).8 Those conditions

include at least two that apply here: approval by the

issuers board of directors, and approva! by a

majority of the issuer’s shareholders entitled to vote.

The rationale underlying Rule 16b-3 is that,

based on the SEC’s experience, transactions directly

8 “Rule 16b-3 is available to [a ten percent shareholder]

who is also subject to section 16(b) by virtue of being an officer

or director with respect to transactions with the issuer.”

Ownership Reports and Trading by Officers, Directors, and

Principal Security Holders, Release Nos. 34-37260, 35-26524,

61 Fed. Reg. 30,376, 30,379 n.42 (June 14, 1996) (1996

Adopting Release).

8

between an issuer and its officers or directors “do not

appear to present the same opportunities for insider

profit on the basis of non-public information as do

market transactions by officers and _ directors.”

Ownership Reports and Trading by Officers,

Directors, and Principal Security Holders, ®elease

Nos. 34-37260, 35-26524, 61 Fed. Reg. 30,376, 30,377

(June 14, 1996) (1996 Adopting Release); see also

Ownership Reports and Trading by Officers,

Directors, and Principal Security Holders, Release

Nos. 33-8600, 34-52202, 35-28013, 70 Fed. Reg.

46,080, 46,083 (Aug. 9, 2005) (2005 Adopting

Release) (“Typically, where the issuer, rather than

the trading markets, is on the other side of an officer

or director’s transaction in the issuers equity

securities, any profit obtained is not at the expense

of uninformed shareholders and other market

participants of the type contemplated by the

statute.”). The oojective gate-kecping conditions

specified in Rule 16b-3 provide assurance that the

transaction will serve corporate purposes unrelated

to potential speculative abuse. Thus, in the expert

judgment of the SEC, “transactions between {an]

issuer and its officers and directors . . . that satisfy

other objective gete-keeping conditions, are not

vehicles for the speculative abuse that section 16(b)

was designed to prevent.” 1996 Adopting Release, 61

Fed. Reg. at 30,377 (footnote omitted).

Rule 16b-7 exempts reclassifications, mergers,

and consolidations where the companies involved

have at least 85 percent cross-ownership.? This

9

A reclassification involves just one company; in effect,

there is 100 percent cross-ownership.

9

exemption is targeted at transactions that change

the form, but do not materially change the

substance, of an insider’s investment. The SEC has

determined that such transactions “do not present

insiders the significant opportunities to profit by

advance information that Section 16(b) was designed

to address,” 2005 Adopting Release, 70 Fed. Reg. at

46,085, because they “do not involve a significant

change in the issuer’s business or assets,” id. at

46,084, and “do not involve the holders’ payment of

consideration in addition to the reclassified class or

series,” id. at 46,085.

3. Procedural background. In November

2000, Levy filed a shareholder derivative suit

alleging that the reclassification gave rise to a

“purchase” by Sterling and National within the

meaning of Section 16(b). The district court, upon

motion by Sterling and National, dismissed the

action on the ground that the transaction was

exempt under Rules 16b-3(d) and/or 16b-7.

In 2002, the Third Circuit reversed the district

court’s dismissal of the case at the pleading stage.

In doing so, the court of appeals identified several

ambiguities in the then-existing versions of the rules

and stressed the absence of sufficient guidance from

the SEC. See Levy v. Sterling Holding Co., LLC, 314

F.3d 106 (3d Cir. 2002) (Levy J) (reproduced in App.

at 63a-99a.)

With respect to Rule 16b-7, which was (and is)

entitled “Mergers, reclassifications, and

consolidations,” the Third Circuit acknowledged that

the rule was intended to exempt at least some

reclassifications, but determined that the SEC had

10

not made clear where or how to draw the line. (See

App. at 77a (“{[T]he rule must encompass some

reclassifications.”); td. at 71a (“[T]he SEC has not set

forth its interpretation clearly.”); id. at 74a (“[T]he

title and text of the rule, standing alone, do not

provide us assistance in our effort to ascertain the

SEC’s purpose.”}: 1¢. at /ija (noting “the absence of

specific SEC guicance about which reclassifications

are exempt’).)

With respect to Rule 16b-3(d), the court of

appeals recognized that the language of the rule did

not condition the availability of the exemption on the

transaction at issue having a compensatory purpose.

The court nevertheless viewed the 1996 adopting

release as suggesting that the rule required some

compensatory nexus. At the same time, however,

the court acknowledged that the adopting release

also contained a statement that “appear[ed] to cut

against [that] position.” (/d. at 98a.)!9 In the

absence of further guidance from the SEC, the court

of appeals declined to apply either exemption at the

pleading stage. (/d. at 99a.)

Sterling and National filed a_ petition for

rehearing, supported by the SEC as amicus curiac.

10 Prior to 1996, Rule 16b-3 applied only to certain

transactions involving employee benefit plans. In _ 1996,

however, the SEC drastically overhauled the rule, simplifying

it and expanding its coverage in several important respects.

The 1996 adopting release expressly stated that “unlike the

{[pre-1996 version of the 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.” 1996 Adopting Release, 61 Fed. Reg.

at 30,378-79.

11

With respect to Rule 16b-7, the SEC in its amicus

brief explained that it had intended the exemption to

apply to reclassifications on the same basis as

mergers and consolidations, and that for all three

types of transactions, the only condition for

exemption was the only one set forth in the text of

the rule: at least 85 percent cross-ownership among

the companies involved. With respect to Rule 16b-

3(d), the SEC confirmed that it had not intended to

require a compensatory or other particular purpose;

a transaction would be exempt so long as it met one

of the conditions specified in the text of the rule, e.g.,

board or shareholder approval. The SEC concluded

that the Fairchild reclassification was exempt under

both rules.

The court of appeals denied the petition for

rehearing in a split vote. On remand, the parties

conducted e.:tensive discovery, at the conclusion of

which Sterling, National, and Levy each moved for

summary judgment. In June 2004, while the parties’

cross-motions for summary judgment were pending,

the SEC published proposed clarifying amendments

to Rules 16b-3 and 16b-7, providing an opportunity

for comment. In August 2005, the SEC adopted the

clarifying amendments substantially in the form

proposed. The adopting release reiterated that the

amendments were intended not to make any

substantive change, but rather to clarify the

ambiguities identified in Levy I. See 2005 Adopting

Release, 70 Fed. Reg. at 46,080.

In February 2007, the district court awarded

summary judgment to Sterling and National. The

district court held that the amended rules were

permissible interpretations of Section 1€(b) (see App.

12

at 38a-5la) and that they had no impermissibly

retroactive effect (see id. at 52a-60a). As the district

court explained, “the legal effect of the amended

rules is the same as the legal effect of the pre-

amendment rules.” (/d. at 59a.)

In October 2008, the Third Circuit affirmed the

district court’s award of summary judgment in favor

of Sterling and National. The court of appeals held

that Levy I, which found both Rule 16b-3(d) and 16b-

7 ambiguous, did not require the court to turn a

blind eye to the SEC’s subsequent clarifications of

the rules’ meaning. (See id. at 16a-20a.) The court

of appeals also held that both rules fell within the

SEC’s express statutory authority to promulgate

exemptions to Section 16(b). (See id. at 20a-25a.)

Finally, the court of appeals held that amended Rule

16b-3(d) clarified existing law, and that the

clarification was properly applied to the 1999

reclassification at issue here.!! (See id. at 25a-31a.)

With the reclassification exempted from the scope of

Section 16(b), it could not constitute a “purchase”

under the statute, and Levy’s claim therefore

necessarily failed.

REASONS FOR DENYING THE PETITION

There is no reason for review of the decision

below. The Third Circuit held that Rule 16b-3(d) is a

valid exercise of the SEC’s express authority under

11 In affirming based on Rule 16b-3, the court of appeals

“expresse[d}] no opinion as to whether new Rule 16b-7 merely

clarifies the old Rule or, relatedly, whether applying it here

would have an impermissible retroactive effect.” (App. at 31a.)

Rule 16b-7 would, however, provide an alternative basis for the

decision below.

13

Section 16(b) and that the SEC’s clarifications of the

rule’s meaning were properly applied in this case.

That decision is in accord with the decisions of every

other court to consider the same issues, as well as

with this Court’s precedents. The decision below

represents only a routine application of well-

established principles. The petition should be

denied.

I. THERE IS NO CONFLICT AMONG THE

COURTS OF APPEALS.

There is complete uniformity among the courts of

appeals with respect to the validity of Rule 16b-3

and the application of the SEC’s clarifications to

prior transactions. ‘I'wo other courts of appeals have

addressed the validity of Rule 16b-3 since the SEC

clarified its meaning. Both of those courts, like the

Third Circuit, found the rule to be a permissible

construction of Section 16(b) and a valid exercise of

the rulemaking authority Congress. expressly

delegated to the SEC. See Roth, 522 F.3d at 249;

Dreiling, 458 F.3d at 949-52.12

There is likewise no split among the circuits on

the question of whether the clarification reflected in

amended Rule 16b-3(d) (as well as in the amicus

briefs the SEC filed with the Third Circuit in this

case) may be applied to transactions predating the

clarification. While the Third Circuit is the only

court of appeals that has addressed this issue with

12 At least one district court has also rejected a challenge

to the validity of amended Rule 16b-3. See Tinney v. Geneseo

Comme'ns, Inc., 457 F. Supp. 2d 495, 503 (D. Del. 2006).

14

respect to Rule 16b-3,!5 one other court of appeals

has addressed it with respect to Rule 16b-7, which

the SEC clarified and amended simultaneously with

Rule 16b-8. In Bruh, the Second Circuit concluded

that it was proper to apply the SEC’s construction of

Rule 16b-7 — as expressed both in an amicus brief

filed in Bruh and in the SEC’s 2005 clarifying

amendments to Rule 16b-7 — to a transaction that

occurred in 2002. 464 F.3d at 213-14. The court

reasoned that:

[E]ven applying the prior Rule _ 16b-7,

according to the Commission’s reasonable

interpretation, the transaction is exempt.

Needless to say, where applying the old rule

produces the same result as would the new

rule, there is no impermissible retroactive

effect.

Id. at 213.14 Bruh involved a stock reclassification

similar to the one at issue here. The Second

Circuit’s logic in Bruh fully comports with the Third

Circuit’s decision in this case.

13. The district court decisions that have addressed the

question are consistent with the Third Circuit’s holding. See,

e.g., Tinney, 457 F. Supp. 2d at 505; Segen v. CDR-Cookie

Acquisitions, LLC, No. 05 Civ. 3509, 2006 WL 59550, at *7

(S.D.N.Y. dan. 4, 2006) (“Because [Rule 16b-3] is a clarification

of pre-existing regulations, it has retroactive effect and applies

to the transaction at issue in this case.”).

14 The Second Circuit explained that “we now have

precisely what the Third Circuit lacked when conducting its

inquiry in [Levy Jj: the answer to whether ‘the conversion of

the preferred stock . . . [wJas the type of reclassification that

the SEC would. . . have intended to exempt by Rule 16b-7.”

Bruh, 464 F.3d at 212-13.

15

Levy tries to manufacture three circuit splits,

none of which withstand scrutiny:

1. Levy argues that there is now “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.” (Pet. at 13.) According to Levy, the

D.C., Fourth, and Tenth Circuits are on one side of

this divide, while the Third and Seventh Circuits are

on the other. Examination of the cases he cites,

however, demonstrates that the “sharp split” Levy

posits does not exist.

Levy relies on National Mining Association v.

Department of Labor, 292 F.3d 849 (D.C. Cir. 2002)

(per curiam); United States v. Capers, 61 F.3d 1100

(4th Cir. 1995); and United States v. Saucedo, 950

F.2d 1508 (10th Cir. 1991). None of these cases,

however, considered the issue the Third Circuit

confronted in this case: whether amendments that

merely clarify and resolve ambiguities in existing

regulations, without raising ex post facto concerns,

can be applied to pending claims. In National

Mining, the D.C. Circuit stated that it would

consider a new rule “impermissibly retroactive as

applied to pending claims” only if it effects a

substantive change “and is likely to increase

liability.” 292 F.3d at 860 (emphasis added).

The amendments at issue in both Capers and

Saucedo conflicted with the plain meaning of the

federal sentencing guidelines; there was _ no

ambiguity for the amendments to resolve. See

Capers, 61 F.3d at 1111 n.7 (“[W]e have before us an

amendment that contravenes the plain meaning of

16

the guideline.”); id. at 1112 (“[T]he problem is that

our [previous opinion] was based on the plain

meaning of the term . . .; [it] did not say that the

guideline was ambiguous.”); Saucedo, 950 F.2d at

1512, 1516 (amendment at issue was inconsistent

with prior judicial determination as to what “the

plain language” of the guidelines required). The

Third Circuit’s own jurisprudence in this area

likewise distinguishes between cases involving

clarifying amendments to ambiguous regulations

(e.g., United States v. Marmolejos, 140 F.3d 488, 491

(3d Cir. 1998)) and those involving unambiguous

provisions (e.g., United States v. Roberson, 194 F.3d

408, 417-18 (3d Cir. 1999)). (See also App. at 29a

n.11.)

This Court’s decision in National Cable &

Telecommunications Association v. Brand X Internet

Services makes clear that this distinction is an

important one. See 545 U.S. at 982. After Brand X,

there can be no doubt that an appellate court’s

construction cannot foreclose a subsequent agency

interpretation unless “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. Notably, all of the cases on

which Levy relies in support of his purported circuit

split predate Brand X.

2. Next, Levy claims that there is a difference of

opinion among the circuits regarding whether a

clarifying amendment is “categorically exempt from

retroactivity analysis.” (Pet. at 16.) This

argument mischaracterizes the decision below. The

Third Circuit did not hold that any and all clarifying

amendments should be applied retroactively,

17

regardless of their effect. On the contrary, it held

only that amended Rule 16b-3 could properly be

applied to the 1999 reclassification at issue in this

case. In doing so, the Third Circuit expressly

acknowledged that “when ex post facto issues are

involved, the rules of the game are different.” (App.

at 29a n.11.)

Ex post facto issues were present in each of the

Federal and D.C. Circuit cases on which Levy relies

in support of his purported circuit split. In Princess

Cruises, Inc. v. United States, 397 F.3d 1358 (Fed.

Cir. 2005), the court held that a new evidentiary

presumption could not be applied retroactively

because it imposed hability on cruise lines without

affording them notice to collect evidence necessary to

rebut the presumption. See 397 F.3d at 1361, 1365-

67. In National Mining, the court stated that it

would consider a new rule “impermissibly retroactive

as applied to pending claims” only if it effects a

substantive change “and is likely to increase

hability.” 292 F.3d at 860 (emphasis added); see also

Marrie v. SEC, 374 F.3d 1196, 1207-08 (D.C. Cir.

2004) (revised rule could not be applied to prior

conduct because it imposed new _ sanctions by

eliminating defenses, including good faith, that were

available under the prior rule and may have been

relied on). Because amended Rule 16b-3 does not

increase Sterling and National’s lability, this case

does not implicate ex post facto concerns.

3. Finally, Levy argues that there is a split

among the courts of appeals as to whether a rule’s

status as “legislative” or “interpretive” has any

bearing on whether it may be applied retroactively.

In doing so, he plays semantic games. He ignores

18

the fact that the term “legislative” is sometimes used

to denote rules that must comply with the

procedural requirements of the Administrative

Procedure Act (APA), 5 U.S.C. § 551 et seq., and

sometimes used to denote substantive changes.

While these two uses may overlap, they are not co-

extensive.

The Seventh Circuit's decision in First National

Bank of Chicago v. Standard Bank & Trust, 172

F.3d 472 (7th Cir. 1999), which Levy cites, illustrates

this point. In that case, the Seventh Circuit

considered a clarifying amendment to a Federal

Reserve Board regulation. ‘The Seventh Circuit

described its task as “review[ing] the regulatory

record to confirm that [the amendment] was a

clarification of the law, and not a_ substantive

change.” 172 F.3d at 479. The plaintiff argued that

the amendment “must be legislative,” Le.

substantive, because it changed the language of the

rule, and because the amendment was adopted

through the APA’s formal rulemaking procedures.

Id. The Seventh Circuit rejected both arguments,

noting that “[njew language need not imply new

substance” and that “once a regulation is adopted by

notice-and-comment rulemaking ... its text may

only be changed in the same manner.” Jd. The court

concluded that the clarifying amendment could be

applied retroactively. Jd. at 479-80; see also id. at

478 n.7 (stating that “Landgraf in no way undercuts”

the principle “that we defer to an _ agency’s

clarifying/legislative classification, and that

clarifying amendments may have retroactive effect”).

Thus, far from creating a circuit split, “rst National

is entirely consistent with the decision below.

19

The other case Levy cites is no more helpful to his

cause. In Health Insurance Association of America,

Inc. v. Shalala, 23 F.3d 412 (D.C. Cir. 1994), the

D.C. Circuit rejected a suggestion that it should

distinguish between interpretive and _ legislative

rules for purposes of retroactivity analysis. 23 F.3d

at 422-23. That conclusion is consistent with the

Third Circuit’s statement that “the legislative-

interpretive dichotomy has no bearing on whether a

rule has an impermissible retroactive effect.” (App.

at 28a n.10.)15

II. THE DECISION BELOW IS CONSISTENT

WITH THE RELEVANT DECISIONS OF

THIS COURT.

In addition to being in accord with the decisions

of every other court that has examined the validity

of amended Rule 16b-3 and its applicability to

transactions predating the clarification of the rule,

the decision below is also entirely consistent with

this Court’s jurisprudence.

A. The Third Circuit Held Correctly

That Rule 16b-3(d) Passes Muster

Under Chevron.

The Third Circuit’s determination that amended

Rule 16b-3(d) is a valid exercise of the SEC’s

authority under Section 16(b) was a straightforward

15 Levy’s observation that in Health Insurance Association

of America “the D.C. Circuit .. . applied the rubric of American

Mining Congress v. Mine Safety & Health Administration, 995

F.2d 1106, 1109-10 (D.C. Cir. 1993),” (Pet. at. 19) is neither here

nor there. American Mining Congress had nothing at all to do

with retroactivity and consequently did not even mention the

issue.

20

application of the principles set forth in Chevron. In

that case, this Court held that an agency regulation

promulgated pursuant to an express statutory grant

of authority is subject to challenge only if it is

“arbitrary, capricious, or manifestly contrary to the

statute.” 467 U.S. at 844.

Section 16(b) expressly states that it “shall not be

construed to cover . . . any transaction or

transactions which the [SEC] by rules and

regulations may exempt as not comprehended within

the purpose of this subsection.”!© 15 U.S.C. § 78p(b).

Because of this express statutory delegation of

authority to the SEC, “Chevron deference clearly

applies” to the agency’s exemptive rules. (App. at

22a.) The decision below correctly held that the

statutory interpretation embodied in amended Rule

16b-3(d) “easily) pass[es] muster under [Chevron’s]

lenient standard.” (qd. at 21a.) As the court of

appeals explained:

[T]he 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

16 The Third Circuit did not hold, as Levy suggests, that

the SEC has “plenary authority” to promulgate whatever

exemptions it wishes. (Pet. at 26.) On the contrary, the Third

Circuit, applying Chevron, asked “whether it was reasonable

for the SEC to think that the transactions cxempted by

{amended Rule 16b-3] are ‘not comprehended within the

purpose’ of section 16(b).” (App. at 22a.) As noted below, it

appropriately concluded that it was “perfectly reasonable” for

the SEC to reach that conclusion. (Jd. at 23a-24a.)

21

enacting section 16(b). Because this rationale

is perfectly reasonable — and applies equally

whether or not the transaction has a

compensatory 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.

Ud. at 23-24a.)

Levy’s erroneous argument to the contrary is

based on the untenable premise that Section 16(b) is

intended to “ban[] all short-swing trades by

insiders.” (Pet. at 28 (emphasis in original).)

Although his petition repeats this assertion over and

over again,!? it remains wrong. Indeed, Levy’s

position is flatly inconsistent with the language and

17 (See, e.g., Pet. at 26 (“Congress intended Section 16(b)

broadly to prevent all profiteering from _ short-swing

transactions.” (emphasis added)); id at 27 (“Section 16(b) is

noteworthy for its rigidity and the fact that it left virtually no

room for interpretation or interference by the SEC.” (emphasis

added)); id. at 29 (“Section 16(b)’s ‘purpose’ is to prevent short-

swing trading, writ large, by insiders.”); id. at 30 (“Section

16(b)’s ‘purpose’ is to prevent any profiteering on short-swing

transactions.” (emphasis added)); id. at 30-31 (“Congress

intended for Section 16(b) to cover the conduct at issue here:

short-swing trading by an insider.”); id. at 31 n.d (“Section

16(b)’s primary purpose is. . . to promote market stability by

banning profiteering from all short-swing’ transactions.”

(emphasis added)).) The amicus brief of the National

Conference on Public Employee Retirement Systems (NCPERS)

merely echoes these erroneous assertions. See Brief of the

National Conference on Public Employee Retirement Systems

as Amicus Curiae in Support of Petitioner (Amicus Br.). It is

thus doubtful whether that brief “brings to the attention of the

Court relevant matter not already brought to its attention by

the parties.” Sup. Ct. R. 37.1.

22

legislative history of Section 16(b), as well as with

the relevant decisions of this Court.

The Senate Committee’s report accompanying the

bill that became Section 16(b) explained that it was

intended to protect the public by preventing insiders

“from speculating in the stock on the basis of

information not available to others.” S. Rep. No. 73-

792, 73d Cong., 2d Sess., at 9 (1934) (emphasis

added). This Court recognized this purpose more

than thirty years ago:

The general purpose of Congress in enacting

§ 16(b) is well-known. Congress recognized

that insiders may have access to information

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.

Foremost-McKesson, Inc. v. Provident Secs. Co., 423

U.S. 232, 243 (1976) (emphasis added; citation

omitted); accord Kern County Land Co. v. Occidental

Petroleum Corp., 411 U.S. 582, 592-93 & n.23 (1973).

Thus, the purpose of Section 16(b) was not to prevent

all short-swing trading by insiders, as Levy

mistakenly contends, but rather to prevent insiders

with non-public information from using that

information to obtain a speculative profit at the

expense of less-informed market participants. (See

App. at 22a (“[S]Jection 16(b)’s_ self-proclaimed

purpose is ‘preventing the unfair use of information

which may have been obtained by [a ten percent

shareholder], director, or officer by reason of his

relationship to the issuer.”) (quoting 15 U.S.C.

§ 78p(b); emphasis added).)

23

The method Congress chose to accomplish this

purpose was to create a broad statutory prohibition

against short-swing insider trades and to couple that

prohibition with a broad grant of authority to the

SEC to use its expertise to develop appropriate

exemptive rules. Thus:

In order to achieve its goals, Congress chose a

relatively arbitrary rule capable of easy

administration. 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 difficulties in proof. Such

arbitrary and sweeping coverage was deemed

necessary to insure the optimum prophylactic

effect.

Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S.

418, 422 (1972) (citation and quotation marks

omitted). At the same time, however, Congress

recognized that Section 16(b)’s “crude rule of thumb,”

Kern County, 411 U.S. at 592 n.23, would sweep too

broadly if applied without exception. Thus, the

statute itself contains two exemptions, and Congress

also authorized the SEC to employ its expertise to

promulgate rules exempting additional classes of

transactions “not comprehended within the purpose

of’ the statute.'® 15 U.S.C. § 78p(b).

18 Levy’s position — “that Section 16(b)’s ‘purpose’ is to

prevent any profiteering on short-swing transactions” (Pet. at

30), so that an exemption must be invalid if it allows any

24

In sum, although Congress designed the statute

to apply crudely to a very broad “class of

transactions in which the possibility of abuse was

believed to be intolerably great,” Kern County, 411

U.S. at 592, it also expressly authorized the SEC to

exempt classes of transactions that — in the expert

judgment of the SEC — did not present significant

opportunities for speculative abuse. That is

precisely what the SEC did in adopting Rule 16b-

3(d). Levy is essentially asking this Court to second-

guess the SEC’s congressionally mandated expert

judgment that Rule 16b-3(d) exempts classes of

transactions that do not present an “intolerably

great” risk of the sort of speculative abuse that

Section 16(b) was designed to prevent. Reliance

Elec., 404 U.S. at 422. The decision below, however,

(Cont'd)

“short-swing trading by an insider” (id. at 31) — would read out

of Section 16(b) the exemptions contained in the statute itself,

as well as the congressional! delegation of authority to the SEC

to promulgate additional exemptive rules. Furthermore, his

position is irreconcilable with this Court’s precedents. For

example, this Court has fashioned an entire doctrine — the so-

called “unorthodox transaction” doctrine — to exempt from

Section 16(b) short-swing insider transactions that fall within

the literal reach of the statute but nevertheless do not give rise

to the potential for the type of speculative abuse that Congress

enacted Section 16(b) to prevent. See Kern County, 411 U.S. at

593. As this Court explained in Kern County, it is the “unfair

use of information” to engage in “shortswing speculation” to the

disadvantage of the public that Section 16(b) was designed to

prevent. Jd. at 591. The unorthodox transaction doctrine is

another alternative ground that the district court could have

used to award summary judgment to Sterling and National in

this case. The court of appeals did not address this issue

because its “analysis of Rules 16b-3 and 16b-7 . . . [made] it

unnecessary for [it] to do so.” (App. at 6a n.3.)

25

faithfully followed this Court’s precedents. The

Third Circuit properly applied Chevron in rejecting

Levy’s challenge to the validity of the rule. (See App.

at 20a-25a; accord Dreiling, 458 F.3d at 952; Roth,

522 F.3d at 248-49.)19

B. The Third Circuit Held Correctly

That The Clarification Embodied

In Amended Rule 16b-3(d) Should

Be Applied In This Case.

1. An agency’s clarification of

its own regulation deserves

deference.

This Court’s precedents also demonstrate that

courts cannot turn a blind eye to agency

clarifications of ambiguous regulations. For

example, in Auer v. Robbins, this Court deferred to

the Department of Labor’s interpretation of its own

ambiguous regulation. 519 U.S. 452, 461-63 (1997).

The interpretation was expressed in an amicus brief,

which necessarily postdated the events giving rise to

that lawsuit. Id.

More recently, in Brand X, this Court reversed

the Ninth Circuit for applying a prior Ninth Circuit

19 The transactions that Rule 16b-3(d) exempts do not

“threaten{ | the financial security of the underlying assets of

public employee retirement systems,” or “threaten[] the

financial security of 25 million Americans,” as amicus curiae

NCPERS suggests. (Amicus Br. at 6.) Contrary to NCPERS’s

assumptions, in the expert judgment of the SEC, any profits

obtained from transactions directly between issuers and their

directors or officers typically are not “to the detriment of other

shareholders.” (/d.) The SEC’s views in this regard are

entitled to deference.

26

panel’s interpretation of an ambiguous provision,

rather than a subsequent agency clarification issued

in response to that prior Ninth Circuit decision. See

545 U.S. at 982. The Court explained 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.

Id. (emphasis added); accord Smiley, 517 U.S. at 744

n.3 (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.”); Stinson v. United States, 508 U.S.

36, 46 (1993) (“[P]rior judicial constructions of a

particular guideline cannot prevent the Commission

from adopting a conflicting interpretation that

satisfies the standard we set forth today.”).

Brand X involved an agency interpretation of an

ambiguous statute; however, the same rationale

applies with even greater force to an agency

clarification of its own ambiguous regulation. “When

the construction of an administrative regulation

rather than a statute is in issue, deference is even

more clearly in order.” Udall v. Tallman, 380 U.S. 1,

16 (1965). An agency’s interpretation of its own

regulation is accorded “controlling weight unless it is

plainly erroneous or_ inconsistent with the

regulation.” Bowles v. Seminole Rock & Sand Co.,

27

325 U.S. 410, 414 (1945); accord Auer, 519 U.S. at

457.

Here, in Levy J, a Third Circuit panel attempted

to interpret what it found to be an ambiguous rule.

As the decision below explained:

In Levy J, we did not conclude that section

16(b) unambiguously precluded the SEC from

exempting transactions like the 1999

reclassification. Similarly, we did not indicate

that our reading of old Rule 16b-3.. . flowed

unambiguously from [its] terms. Indeed, we

struggled to divine [its] applicability to the

instant fact pattern. With respect to Rule

16b-3, we concluded only that “the weight of

the SEC’s pronouncements . . . suggestfed]”’

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 interpretation.

Id.

(App. at 20a.) In response to Levy I, the SEC issued

the clarifying amendments at issue here. The Third

Circuit then did precisely as this Court has

instructed: it followed the SEC’s guidance.

2. The general presumption

against retroactivity does not

apply to clarifications.

The general presumption against retroactive

rulemaking discussed in Bowen v. Georgetown

University Hospital, 488 U.S. 204 (1988), does not

apply to clarifications. See Smiley, 517 U.S. at 744

n.3 (distinguishing between clarification and

28

substantive change in agency position, and noting

that only the latter would implicate Bowen’s

concerns about retroactive application).29 Where an

amendment just “point[s] the way, for the first time,

for correctly applying the antecedent [provision] to a

situation which arose under [it],” the amendment “is

no more retroactive in its operation than is a judicial

determination construing and applying a statute toa

case in hand.” Manhattan Genl Equip. Co. v.

Comm’, 297 U.S. 129, 135 (1936); see also Long

Island Care at Home, Ltd. v. Coke, 127 S. Ct. 2339,

2345-50 (2007) (ruling that 2005 clarification of

earlier regulation applied to pre-2002 conduct).

Moreover, absent ex post facto concerns, even a

substantive change may properly be given

retroactive effect. As this Court has made clear,

applying substantively new law to prior conduct does

not pose a problem unless the change “would impair

rights a party possessed when he acted, increase a

party’s liability for past conduct, or impose new

duties with respect to transactions § already

completed.” Landgraf v. USI Film Prods., 511 U.S.

244, 280 (1994) (new statute at issue could not be

applied retroactively because it would have imposed

damages liability for past conduct); accord Hamdan

v. Rumsfeld, 548 U.S. 557, 577 (2006).

20 Bowen itself involved a substantive change in the law,

not a clarifying amendment to an ambiguous regulation. The

same is true of Landgraf v. USI Film Products, 511 U.S. 244

(1994), which Levy cites repeatedly in his petition. Indeed,

Landgraf involved provisions of the Civil Rights Act of 1991

that caused “‘a seachange in employer liability for Title VII

violations.” 511 U.S. at 249 (quoting Landgraf v. USI Film

Prods., 968 F.2d 427, 433 (5th Cir. 1992)).

29

In the context of this case, even if amended Rule

16b-3(d) were a substantive change (which it is not),

applying the change here still would not run afoul of

Bowen and Landgraf. The amended rule does not

impose any additional burdens on directors, officers,

or principal shareholders for already-completed

transactions; on the contrary, it only reduces the

burden on past transactions.?!

* * *

The Third Circuit in this case corrected its own

prior decision, which was based on what it had

expressly found to be an ambiguous rule, in order to

conform to the SEC’s subsequent guidance. Its

decisions to uphold the validity of amended Rule

16b-3(d) and to apply the clarifications reflected in

the amended rule to this pending case are consistent

with the decisions of all other courts of appeals that

have addressed the same issues, as well as with the

relevant prior decisions of this Court. There is no

circuit split or conflict with this Court's

jurisprudence, and therefore no reason for this

Court’s review.

21 It is farfetched for Levy to suggest that he developed

“settled expectations,” Landgraf, 511 U.S. at 265, on the basis

of an intermediate appellate court's ruling (at the pleading

stage of the case) that it could not discern the SEC's intention

as to the scope of Rule 16b-3(d). Moreover, the relevant inquiry

under the first prong of the Landgraf test is whether

retroactive application of a provision “would impair rights a

party possessed when he acted.” Id. at 280.

30

CONCLUSION

For the foregoing reasons, the petition for a writ

of certiorari should be denied.

PAUL VIZCARRONDO, JR.

MICHAEL S. WINOGRAD

WACHTELL, LIPTON,

ROSEN & KATZ

51 West 52nd Street

New York, NY 10019

(212) 403-1000

Counsel for Respondent

National Semiconductor

Corporation

May 20, 2009

Respectfully submitted,

STEVEN B. FEIRSON

Counsel of Record

CAROLYN H. FEENEY

JUSTIN C. DANILEWITZ

DECHERT LLP

Cira Centre

2929 Arch Street

Philadelphia, PA 19104

(215) 994-4000

G. ERIC BRUNSTAD, JR.

DECHERT LLP

90 State House Square

Hartford, CT 06103-3702

(860) 524-3960

Counsel for Respondent

Sterling Holding

Company, LLC