corporations and their directors to investors and attorneys alike we do have the benefit of the as he sees views in this case and not surprisingly each party argues that the court should defer to the as he se rule sixteen b three does not apply to unknown directors this is not a question of blind deference to the f c c there are real substantive reasons for this decision to go to the heart of the rule and the court knows the s e c considers it imperative that the board of directors will be able to perform a gate keeping function when approving trades involving corporate insiders this gatekeeping function cannot happen unless the board knows who it is dealing with when the f c c created this exemption it assumes that issuer insider transactions would be motivated by legitimate corporate objectives the only check on this assumption is the monitoring gate keeping role of the for the entire exemption is premised on the concept of the vigilant or claims that the issue can be resolved at the end it's favre right now the short answer to that question is that the standard of review governs here this is a rule twelve the six motion to dismiss all inferences are to be construed in the nonmoving parts favor that's honest and our allegations must be accepted as true the longer answer really focuses on the distinction between a board's awareness does it encompass all directors by deputies asian or is that an open question that has now been resolved by the f c c in our view the term director does not at all clearly board has an important gate keeping in monitoring role that also assumes a conventional director at least a known conventional director where the the director is unknown as it is here the be almost always with the entity i cannot i'm not aware of any instance in the cases where it is not that an entity not these cases crop up that much but so for those reasons after just when you say known to be very clear about what it is that's now because and i wander into the factual side i'm trying to keep from doing it but i can't help but do it because it makes a difference as to what it is that has to be known at the time the is it the the relationship or is it specifically the deputy station part of that you're talking about it is the death eaters ation har here's the the real difference when a board knows that there is a deputized director it can rightly assume that the names director that's actually sitting on the board will be passing inside information back needed to approve that individual transaction it needed to acknowledge the name of the director here in this case to hear it needed to adama five the number of securities involved in the transaction and all of this should have been evidence in a formal corporate document or resolution board minutes or the like the significance of that issue here is that it was to arrest us burden to show that if you came within exemption and part of that burden is showing that the info space board met the specificity requirements of the rule and that's simply has not been shown here t r s is not carry that of the director in the situation there are an independent requirement that is imposed by no three to the rule and then the grill the second circuit case and grill also discussed the specificity requirement so it's related transactions in general this is as i judge reinhard said the second part of the argument where we disagree with the f c c and i'd like to focus on one issue in particular that i think transaction between between and issuer and an insider because those two parties have access to the two the same inside information there's no informational disadvantage as the f c c puts it they stand on equal  as far as inside information goes or at least that's the theory the corollary to that is that there is a potential perspective of years when an insider engages in a market transaction with someone who does not  information now setting up that that argument there's a very basic flaw we believe in the sixty's reasoning under the statute a court is not to examine one leg of a short swing transaction in isolation from the other leg of the transaction the statute speaks in terms of profit realized from a quote sale on purchase or quote purchase that inheres in the structure of the shorts one transaction not just one leg of and i think it would be very difficult to craft a regulation that completely eliminated the possibility of all types of speculative views to agree that they're there that they don't have to do that i think what we're saying is that it has to be truly the hypothetical that we've laid out based on the facts of this ca delegated to the f c c the authority to promulgated regulations and to exempt transactions and classes of a transactions where it thinks would be it would be inimical to the interest of the of the rules to sweep them in on their sixteen bit and under chevron the test is whether the legislative regulation is arbitrary or capricious doesn't have to attain  standard of perfection and that notion has been repeated by the supreme court in need and in other cases since chevron sold the authority it seems to me and even recently in the brand x case that it's pretty clear it should be clear that the f c c had the authority to promulgated sixteen b three and exempt as if they had a class of transactions and it exempted and narrow class of transactions didn't exempt is counsel may have suggested all merger transactions it's simply exempted transactions where the issuer is on one side of the transaction and as relevant here the board of directors approved the transaction it's the merger transaction which was the transaction under which american express acquired its info space shares now this supreme court in the foremost case many years was faced with the argument that gee if we can find in either leg of a pared transaction the potential for speculative abuse we ought to apply sixteen v and the court there said that the owner of that weren't they weren't going through quire that because in the foremost case the question was whether the transaction in which somebody becomes an insider crosses the ten percent threshold for example  a should be paired with this second transaction and if there's a profit within six months of this quarter profit the supreme court said no under the language of the statute you even though there is a potential for abuse  perfection in terms of squeezing out the potential for actually with the screen court said is we sir serving the congressional purpose does not require resolving every ambiguity in favor of liability under six under section sixteen v so we were faced with a regulation that on its face exempts the transaction under which american express got its  acquired insider status so now we're faced with the other end of the deference spectrum deferential spectrum should this court in the face of a clear statu notion advanced in an amicus brief that we ought to apply in construing this regulation and exemption for some fanciful notion that there may be exist directors by designation whose identity is not known to the board of directors and i say the answer to that is no and i don't even think the f c c believes that and let me explain why here but the as you see so we're going to clarify the scope of this sick of this exempt of rule and they published for comment a proposed the proposed rule you ought to consider whether it ought to apply the directors by deputy zation and the argument was made and it was made by in letters to the f c c and the and this is reported in an f c c release number three for dash four nine eight nine five on july fifteenth two thousand and five it was reported that this question of directors by deputy ization was brought to their attention was brought to their attention fact by exchange which is of record occurred after the f c c use amicus brief now the f c c adopted the rule in august published the fact that this directed by deputy zation concept of been brought to their attention but when they adopted the rule in august of zero five what they said in the adopting regulation which appears in the federal register seventy federal register at forty six  they say the only limitations on the exemption which they are going to apply for transactions between the issuer here info space and its officers or directors are the objective convictions set forth in the later subsections of the rule and those objectives conditions are was the transaction approved by the board so we have agency action before the amicus brief which doesn't draw this distinction we have the republic rule where we know the agency in the context of formal rulemaking notice and comment addressed the issue of the directors by deputies asian chose not to make the type of distinction which was urged in the last page of an amicus brief that was filed before and published a rule that would say things that you say are inconsistent with that then what do we do you know one of the as you made the argument i wondered why they left this week is brief here without filing anything supplemental wouldn't they i think they must be aware they filed this brief if it really doesn't represent the position and the longer wouldn't you think i would have thought you might have asked them to find a couple mental briefs i don't know how how busy they are what attention or what court would have to ask the court to resolve that without going to the to the commission and asking for a clarification of its views in light of the subsequent release which did not address or draw the distinctions with respect to directors by the after the zation if you were to do that we would know that the commission made made except the invitation we have the opportunity to counsel in the course of that process we have the opportunity to meet with the staff of the commission as well but  the other point which is what is the respect that is due that that argument is is it logical to assume that there are such things as stealth directors by deputies asian counsel there's no allegation in the plaintiff and he he responded with a hypothetical in terms of what the corporation can fairly or the other directors could fairly assume that that the person is in this position having other corporate affiliations are or are not recognized as being deputy ization they would change their behavior or relate to that person differently based on whether or not they would anticipate that director person differently and views the other corporations differently sure fact that they know that mr house is also an of an officer of american express is that enough for them to to to infer the relationship that american express now knows what we know well the fact you know that i'm not quite sure how to answer that question look i don't know how to ask it so i can try again if it's not clear i mean there  this case the transaction that was authorized by info space was not for it was not personal to mr house or american express it was a merger transaction in which every share holder or was going to acquire info space shares there was nothing unique or personal or personal to him if the question is concern here is more on the the should act with the believe that mr house is sharing with american express what he knows about him for space during his service as a director including at the time an american express the size of the cell i think every board of directors should assume that that the that the s that your half or that are given to you and i think other directors would you know would know that the difficulty i have is like i have difficulty conceiving of of the concept of a secret the rector by dep because the notion is that you are a director on company b as a result of a company a's shareholdings or influence that's going to be known to every to every director on that on that board of directors  here we have it's in the record the board approved a merger transaction they knew all the shareholders of what they what they were getting the rule sometimes when it deals with specificity in greater detail thoughts about if in the circumstance of issuing options the particular directors but if the grill case from the second circuit in talking about that footnote said that when you're dealing with merger transactions you can't you could hardly more specificity than knowing that every shareholder is going to be going to be dealt with so i think i don't think there is an issue fair issue that remains with respect to the  i don't think there is a fair issue that remains with respect to the application of the rule of the specificity of the rule nor do i think in light of the subsequent of those provisions of the federal register and the f c c release that cited i don't think there's any question that the f c c knew had raised and considered all whether or not they want to adopt a different standard with respect to adopt directors by deputies ation and chose not to do so when it reiterated the rule  chose not to address it there there's nothing in the rule itself or in the adopting release that accompanied the amendment of the rule that where the  anywhere in the amendment to the rule in any subsequent briefing before this court their position is very clear before this court with respect to counsel touched a little  where you've got a closely held corporation that's going public there's the possibilities perspective what are the views of bounds where you've got a dominant insider who exerts control and influence over his or her fellow board members that's another situation that is right with possibilities for speculative use the rule basically example of those transactions whenever there is word approval it's not good enough under that statutory