The opinion of the court was delivered by: PIERRE N. LEVAL
PIERRE N. LEVAL, U.S.D.J.
This is a motion by the Clowes Group of shareholders to hold York Research Inc. in contempt of this court's order of June 12, 1990. The controversy focuses on the seventh decretal paragraph of the court's judgment which, tracking the language of a previously rendered arbitration award which the court's judgment confirmed, ordered that "York shall issue fully paid and nonassessable York Research Corporation shares to those respondents who have not otherwise finalized settlement agreements with York. . . ."
On July 17, 1990, a conference was held with the court to discuss Clowes' desire to move to hold York in contempt for various aspects of York's delay in issuing securities, causing them to be registered, and performing other acts required under the court's final judgment. At the July 17, 1990, conference the parties discussed the form of an investment letter that the Clowes Group would submit before receiving its shares. At the conference Mr. Hecht, the Clowes' attorney, asserted that his clients could not live with a "no-hypothecation" representation because they intended to use the stock promptly as collateral. The court inquired of York whether it needed a no-hypothecation representation. York's attorney answered that it did not. The conference then ended with apparent agreement between the parties that the Clowes Group would furnish an investment letter that did not include a no-hypothecation representation and the stock would be immediately delivered.
Following the conference, however, the parties failed to reach agreement on the terms of an investment letter, and York did not deliver the shares until August 17, when they were registered.
Clowes reasserted its contempt motion. The court denied the motion by order of October 11, 1991. Clowes then sought rehearing correctly pointing out that the court's denial was premised on an incorrect assumption of facts.
Clowes contends that York contumaciously delayed making delivery of the York shares to the Clowes Group and that this delay caused serious damage in terms of loss of value to the Clowes shareholders. A hearing was held on July 2, 1993. Following the hearing I conclude that Clowes has failed to establish that York committed contempt.
1. Clowes first contends that there was no justification for York's insistence that it receive an investment letter before delivering the shares. It contends that, given proper credit for a holding period dating back to the acquisition of the Techland stock, Clowes had already satisfied the investment requirement. Clowes contends furthermore that the court's judgment required delivery of the shares without reference to receipt of an investment letter. With respect to the latter argument I find that there is ambiguity in the court's order.
That order, tracking the arbitration award which it confirmed, ordered York to "issue . . . shares" to the Clowes shareholders. Clowes contends that because this order included no reference to the receipt of an investment letter, York was without authorization to read in an entitlement of receipt of an investment letter. The issue is not so clear. For York points out that it promptly "issued" the shares to the Clowes group following the entry of the court's judgment. What it had not done is to deliver the certificates. Issuance gave the Clowes Group voting rights and dividend rights. York contends that the obligation to deliver was implicit rather than explicitly stated in the court's judgment. It contends that the implicit obligation to deliver carried with it implicitly York's right to protect itself against liability for resale of unregistered securities, allowing York to insist on receipt of an investment letter before being obligated to deliver the unregistered securities. If this were not so, York points out, it would have been exposed to liability as a statutory underwriter if Clowes had sold the unregistered shares.
For York to be in contempt would require a willful violation of a clear order. Drywall Tapers & Painters, Local 1974 v. Local 530, Operative Plasterers & Cement Masons, 889 F.2d 389, 394 (2d Cir. 1989), cert. denied, 494 U.S. 1030, 108 L. Ed. 2d 615, 110 S. Ct. 1478 (1990) (quoting Powell v. Ward, 643 F.2d 924, 931 (2d Cir.), cert. denied, 454 U.S. 832, 70 L. Ed. 2d 111, 102 S. Ct. 131 (1981)). I cannot find that the court's order was clear as to this issue. The court's order does not include an express statement of the obligation to deliver. Delivery is a distinct concept under the securities laws from issuance. Issuance had been accomplished. What had not been done was to make delivery, which the order did not expressly require. York concedes that the order implicitly obligated it to make delivery but contends that that implicit obligation included the implicit right to protect itself from being placed in violation of the law by the subsequent actions of the acquiring shareholders. I conclude that York's position is reasonable and that York was reasonably justified under the terms of the June 12, 1990, court order in requiring an investment letter as a precondition to making delivery. The court's order did not clearly require making delivery without having received an investment letter.
York was all the more entitled to interpret the court's order in this fashion after the July 17, 1990, conference. At that conference, the principal discussion between the parties had to do with the form of the investment letter that the Clowes Group would provide. After this discussion in the presence of the court, York was all the more justified in understanding the court's order to allow it to protect itself by insisting on an investment letter before making delivery. In a previous opinion, I wrote that "If York believed the securities laws required it to obtain protection against unlawful distribution, it was incumbent on York to seek a modification of the court's order, rather than unilaterally erect conditions to its compliance with the court's order." Order, Oct. 11, 1991. Given, however, the conference before the court on July 17, 1990, as well as the established practice of delivering unregistered securities only upon receipt of an investment letter, I do not find that York's insistence on an investment letter before delivering the shares constituted contempt.
As to Clowes' contention that it was entitled to a tolling period giving it credit dating back to the acquisition of the Techland stock, even if Clowes is correct in this contention, this was certainly not clear to York at the time of the court's order, and Clowes did not argue this point when the form of investment letter was under discusstion at the July 17 conference.
2. The second aspect of Clowes' contention is that, in rejecting Clowes' proposed form of investment letter after the July 17 conference, York committed a further contumacious disobedience of the court's order. I find that Clowes has failed to establish this contention.
Immediately following the July 17 conference, Clowes delivered a proposed form of investment letter to York. York was justified in rejecting this proposal which was deficient in two respects. First, the letter did not contain the crucial words asserting an investment intention. Second, the letter was drafted as a bilateral agreement which sought to pin down York as to various potentially disputed propositions. Accordingly, it failed to satisfy the customary requirement of an investment letter and ...