MARK LEVY, Appellant v. STERLING HOLDING COMPANY, LLC; NATIONAL SEMICONDUCTOR CORPORATION; FAIRCHILD SEMICONDUCTOR INTERNATIONAL, INC.
No. 07-1849
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
October 1, 2008
2008 Decisions, Paper 288
Precedential. On Appeal from the United States District Court for the District of Delaware (D.C. Civil No. 00-cv-00994). District Judge: Honorable Gregory M. Sleet. Argued March 24, 2008.
Abraham, Fruchter & Twersky
One Penn Plaza, Suite 2805
New York, NY 10119-0000
Counsel for Plaintiff-Appellant
Mark Levy
Carolyn H. Feeney, Esq.
Steven B. Feirson, Esq. [ARGUED]
Dechert
Cira Centre, 18th Floor
2929 Arch Street
Philadelphia, PA 19104-0000
Counsel for Defendant-Appellee
Sterling Holding Company, LLC
Paul Vizcarrondo, Jr., Esq.
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019-0000
Counsel for Defendant-Appellee
National Semiconductor Corporation
Megan W. Casio, Esq.
Morris, Nichols, Arsht & Tunnell
1201 North Market Street
P. O. Box 1347
Wilmington, DE 19899-0000
Counsel for Defendant–Non-Participating
Fairchild Semiconductor International, Inc.
Allan A. Capute, Esq. [ARGUED]
Securities & Exchange Commission
100 F Street, N.E.
Washington, DC 20549-0000
Counsel for Securities and Exchange Commission Amicus Appellee
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
I.
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) preferred stock, which offered a cumulative 12% dividend. Class A common and Class B common were freely convertible into each another, but preferred stock was not convertible into either Class of common. National received a mix of all three classes of stock and, in exchange for its $58.5 million investment 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 directors 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 stock. 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 liquidation value — the original price plus accumulated unpaid 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.1 Prior to the execution of the IPO, according to the IPO prospectus, Sterling owned 48% of the outstanding Class A common, 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.
On August 9, 1999, the IPO was completed and the shares of preferred stock
B.
In November 2000, Levy, a Fairchild shareholder, filed a derivative suit against National and Sterling, pursuant to
According to the statute itself, the purpose of section 16(b) is “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.”
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 exemptions — Rule 16b-3 and Rule 16b-7 — shielded them from section 16(b) liability.3
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 transaction 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 to vote . . . ; or
(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 acquisition . . . .
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 companies 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 . . . .
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 applied 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 Sterling‘s motions to dismiss, finding that the reclassification 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.
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 section 16(b) liability. 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 I, 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. Id. 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. Id. 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 director and the issuer, subject to simplified conditions. 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, Directors and Principal Security Holders,
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.” Id. at 112. We reasoned that the SEC must have added “reclassifications” to the Rule‘s title for a reason, but found that, “[u]nfortunately, . . . the title and text of the rule, standing alone, do not provide us assistance in our effort to ascertain the SEC‘s purpose.” Id. 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) liability. Id. at 113-15. The first release was from 1981 (i.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:
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 purposes of Rule 16b-7, a statutory exchange may be the substantive equivalent of a merger, consolidation or sale of assets. Therefore, the acquisition 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 surrendered, and the rule can apply to transactions involving reclassifications.
Interpretive Release on Rules Applicable to Insider Reporting and Trading,
The second release, from 2002, pertained to proposed 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,
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 consolidations and (2) was a transaction “not comprehended within the purpose” of section 16(b). Id. at 114-15 (quoting
Applying our newly-created test, we found that the reclassification here failed part two — at least at the motion-to-dismiss stage. Id. at 115-18. We rejected National and Sterling‘s argument that the reclassification 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 concluded that it did present such an opportunity. We based our conclusion on two independent grounds. First, we found that, reading the pleadings in the light 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. Id. at 116-17. Second, after contrasting the pros and cons of common-stock and preferred-stock ownership, we decided that the reclassification “so chang[ed] the 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.” Id. 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 exemptions applied here.5
In 2005, in response to our opinion in Levy I, 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 exemptive scope of these rules has made it difficult for issuers and insiders to plan legitimate transactions, and may discourage participation by 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.
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 compensatory or other particular purpose, shall be exempt if [one of the same three conditions from the 1996 version of the Rule are met].
Rule 16b-7 was amended to read, in pertinent part:
(a) The following transactions shall be exempt from the provisions of
(1) The acquisition of a security of a company, pursuant to a merger, reclassification or consolidation, in exchange for a security of a company that before the merger, reclassification or consolidation, owned 85 percent or more of either:
(i) The equity securities of all other companies involved in the merger, reclassification, 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, 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 conditioned on the transaction satisfying any other conditions.
Further, the SEC explicitly indicated that “because [the Rule 16b-3 amendments] clarify regulatory conditions that applied to [that exemption] since [it] became 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 conditions that applied to that exemption since it was amended effective May 1, 1991, [they are] available
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 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
II.
The District Court had jurisdiction pursuant to
III.
Levy raises three issues on appeal. First, he maintains that, under the doctrine of stare decisis, the mandate that we issued in Levy I 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
A.
Levy argues that the following three premises, together, require the grant of summary judgment in his favor: (1) all four elements of a
In National Cable & Telecommunications Associates v. Brand X Internet Services, 545 U.S. 967 (2005), the Supreme Court left no doubt that if a court of appeals interprets an ambiguous statute one way, and the agency charged with administering that statute subsequently 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 cable Internet service constituted a “telecommunications service” under Title II of the Communications Act, a classification with significant regulatory implications. Id. at 979-80. In 2002, however, the Federal Communications Commission (“FCC“) issued a declaratory ruling that the term “telecommunications service” did not encompass broadband cable Internet service. Id. at 977-78. 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. Id. at 979-80.
The Supreme Court reversed, explaining that “[a] court‘s prior judicial construction of a statute trumps an agency construction otherwise entitled to Chevron deference7 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. at 982. The Court reasoned that “allowing a judicial precedent to foreclose 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.” Id. 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.” Id. at 983; see also Smiley v. Citibank (S.D.), 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 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 reevaluate a precedent in light of intervening authority and amendments to statutes or regulations.” (emphasis 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 administrative regulation rather than a statute is in issue, deference is even more clearly in order.” Udall v. Tallman, 380 U.S. 1, 16-17 (1965); see also Facchiano Constr. Co. v. U.S. Dep‘t 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 construing an agency‘s regulation does not necessarily bar a court from giving effect to a subsequent, different 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, creating a first-in-time rule for determining whether a judicial or administrative interpretation of a regulation is authoritative.
We reached a similar conclusion in a similar context 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 considering the more-recent interpretation of that section provided by the Commission in the application note amendment. Id. 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.‘” Id. at 493 (quoting United States v. Joshua, 976 F.2d 844, 855 (3d Cir. 1992)). Importantly, as we noted in Marmolejos, 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 (1993)).
Here, the new Rules constitute both (1) interpretations of a statute, as they construe the provision of
Accordingly, Levy I does not control the result here simply by virtue of the fact that it 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
Chevron deference applies to an agency‘s statutory interpretation “when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law, and that the agency interpretation claiming deference was promulgated in the exercise of that authority.” United States v. Mead Corp., 533 U.S. 218, 226-27 (2001). If we determine that the situation does indeed call for Chevron deference, we proceed 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 (1984). If the answer is yes, we “must give effect to the unambiguously expressed intent of Congress” and our inquiry ends there. Id. at 842-43. 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.” Id. at 843. 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.
Here, Congress has generally authorized the SEC to make rules that have the force of law in implementing the
As noted above,
The general purpose of Congress in enacting s[ection] 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. 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 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 transactions within six months.
Foremost-McKesson, Inc. v. Provident Sec. Co., 423 U.S. 232, 243-44 (1976) (alterations in original) (citations and footnotes omitted) (quoting Reliance Elec. Co. v. Emerson Elec. Co., 404 U.S. 418, 422 (1972)).
In the 2005 adopting release, the SEC explained why it believed the transactions exempted by new Rule 16b-3 — transactions between directors or officers and the issuer — were not comprehended within this purpose:
Typically, where the issuer, rather than the trading markets, is on the other side of an officer or director‘s transaction in the issuer‘s equity securities, any profit obtained is not at the expense of uninformed shareholders and other market participants 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
As for new Rule 16b-7, the SEC explained in the 2005 adopting release that it is “based on the premise that the exempted transactions” — including reclassifications — “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 transaction.” 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 transaction.” Id. In essence, the SEC‘s position is that reclassifications, in addition to mergers and consolidations, that meet the 85% cross-ownership requirement do not pose much risk of abuse of inside information 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 comprehended within the purpose of
C.
Finally, Levy contends that, even if Levy I does not bind us for any of the reasons discussed above, and even if the new Rules are permissible constructions of
Drawing on the well-established principle that “[r]etroactivity is not favored in the law,” the Supreme Court held in Bowen v. Georgetown University Hospital, 488 U.S. 204, 208 (1988), that an agency may not promulgate 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 obligations [but] merely clarifie[s] what those existing rights and obligations ha[ve] always been.” Appalachian 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 rulemaking 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 initiation 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 always been: ‘It is no more retroactive in its operation than is a judicial determination construing and applying a statute to a case in hand.‘” (quoting Manhattan Gen. Equip. Co. v. Comm‘r, 297 U.S. 129, 135 (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 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
(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 Nat‘l Bank of Chi. v. Standard Bank & Trust, 172 F.3d 472, 479 (7th Cir. 1999); Orr, 156 F.3d at 654.10
Before turning to the application of these four factors 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 law 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 Heimmerman v. First Union Mortgage Corp., 305 F.3d, 1257, 1260 (11th Cir. 2002); First Nat‘l 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 amendment is a substantive change and not just a clarification. Marmolejos, 140 F.3d at 492-93. As we explained 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 the caselaw.” Id. at 492.11 But see Nat‘l 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 reclassification would have no impermissible retroactive effect. First, we already determined in Levy I 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 I, 314 F.3d at 121-22.12 Second, new Rule 16b-3 resolved this ambiguity, explicitly providing that the Rule‘s exemption is available “whether or not [the transaction at issue was] intended for a compensatory or other particular purpose.”
While the District Court chose to address the retroactivity implications of new Rule 16b-7 as well, we decline to do so. We have already determined that new
IV.
In light of the foregoing, we will AFFIRM the District 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.
Notes
Securities Exchange Act of 1934 § 16(b),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 security 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, director, 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 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.