UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT.
Tamm and Edwards, Circuit Judges, and Clement F. Haynsworth, Jr.,* Senior Circuit Judge for the Fourth Circuit.
Opinion for the court filed by Circuit Judge TAMM.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE TAMM
This appeal arises from the district court's holding appellant, Ormont Drug and Chemical Company, Incorporated (Ormont), in contempt of an injunctive order. Because we find that the district court did not properly consider Ormont's assertion that compliance with the injunction was impossible, we vacate the contempt order and remand for proceedings consistent with this opinion. I. BACKGROUND
On June 17, 1982, the Securities and Exchange Commission (Commission) filed a complaint charging that Ormont had violated the reporting requirements of the Securities Exchange Act of 1934, 15 U.S.C. 78m(a), 78w(a) (1982). *fn1 Commission's Appendix (App.) at 4. Specifically, the Commission alleged that Ormont failed to file an annual report for 1981 and quarterly reports for the past three quarters. The Commission further alleged that Ormont had established a pattern of delinquency since 1979 in filing reports. App. at 7-10. The Commission therefore requested an order compelling Ormont to file the delinquent reports and enjoining Ormont and its officers from future delinquent filings. App. at 10-11.
Ormont failed to answer the complaint and, at the Commission's request, the district court on December 22, 1982 found Ormont in default and issued an injunctive order. SEC v. Ormont, Civ. No. 82-1685 (D.D.C. Dec. 22, 1982), App. at 12. The court ordered Ormont to file its delinquent reports by January 10, 1983, and it enjoined Ormont and its "officers" and "directors" from failing in the future to file timely reports. Id. at 2, App. at 13. *fn2
Ormont did not comply with the injunction. On May 18, 1983, the district court issued an order directing Ormont and Ormont's Chairman of the Board and Chief Executive Officer, Irving Brand, to show cause why they should not be held in civil contempt. Sec v. Ormont, Civ. No. 82-1685 (D.D.C. May 18, 1983), App. at 16-17. At the show cause hearing on July 22, 1983, Ormont stated that compliance with the injunction had been impossible. Ormont offered testimony and submitted affidavits documenting its efforts to comply with the injunctive order and explaining how lack of funds had delayed preparation of the reports. See Brief for Appellant, Appendix Exhibits 3, 5, 6; App. at 25, 29-30.
The district court disregarded Ormont's impossibility argument and found both Ormont and Mr. Brand in contempt. The court accordingly ordered Ormont and Mr. Brand to file all delinquent reports and further ordered Mr. Brand to pay a fine of $1,000 for each day after August 1, 1983 that the delinquent reports remained unfiled. *fn3 SEC v. Ormont, Civ. No. 82-1685 at 4 (D.D.C. July 22, 1983), App. at 36.
On appeal, Ormont contends that the contempt order should be vacated because the district court failed to consider Ormont's claim that compliance with the injunctive order was impossible. *fn4 We agree. II. ARGUMENT
A contempt order should not issue if the court finds no willful disobedience but only an incapacity to comply:
The sound discretion of an equity court does not embrace enforcement through contempt of a party's duty to comply with an order that calls him "to do an impossibility."
It would be unreasonable and unjust to hold in contempt a defendant who demonstrated that he was powerless to comply. An equity court can never exclude claims of inability to render absolute performance, ...