The opinion of the court was delivered by: Matthew F. Kennelly, District Judge
MEMORANDUM OPINION AND ORDER
Kim Wehrenberg has sued Federal Signal Corporation for breach of a contract that governed the winding up of his employment as Federal Signal's general counsel. Wehrenberg claims that, while arranging to disburse funds held for him in a retirement plan in the form of Federal Signal common stock, Federal Signal gave him material, nonpublic information about a forthcoming earnings report that would negatively affect the company's stock price. Wehrenberg alleges that this put him at risk of liability for insider trading under the federal securities laws-had he sold the stock any time before the release of Federal Signal's earnings report and the attendant drop in its stock price. As a result, he says, Federal Signal denied him "full access" to the funds as the contract required. Federal Signal has moved for summary judgment on Wehrenberg's breach of contract claim. For the reasons set forth below, the Court denies Federal Signal's motion.
Wehrenberg worked for Federal Signal as its general counsel, vice president, and corporate secretary. In February 2004, Federal Signal informed him that his employment would be terminated. Shortly thereafter, Wehrenberg and Federal Signal entered into a contract (the "Separation Agreement") that governed the last phase of Wehrenberg's employment with the company. The agreement also set out certain rights and obligations of the parties after Wehrenberg's employment there ended. The Separation Agreement is at the heart of what remains of the parties' dispute.*fn1
Under the agreement, Wehrenberg resigned effective March 1, 2004 but continued to be employed by Federal Signal in a non-executive, "of counsel" role for six months. During this period, Wehrenberg received his regular salary and was obligated, among other things, to help provide a smooth transition for his successor. Federal Signal and Wehrenberg agreed that at the end of these six months-a date that the parties' agreement made the "Separation Date"-he would make himself available to assist with litigation and other matters "whenever needed," for which he would be compensated at an hourly rate of $360. Pl. Add'l Facts, Ex. A at 2.
The agreement also provided that "as of the Separation Date, [Wehrenberg] shall have full access to funds which are held on his behalf under a Federal Signal Corporation Rabbi Trust." Id. at 3. The "Rabbi Trust" was a retirement savings plan for top-level Federal Signal executives; its holdings consisted of Federal Signal common stock. The parties agree that 168,406 shares of Federal Signal stock were held in Wehrenberg's name by the plan.
Twice during the month of September 2004, Wehrenberg requested that the funds in the Rabbi Trust be distributed to him. Upon making a third request on October 5, 2004, he was given a withdrawal form. Wehrenberg submitted the completed form the next day, asking Federal Signal to give him the value of the shares in cash at the previous day's closing price on the New York Stock Exchange, which was $19.10. On October 8, 2004, Paul Wittig, a Federal Signal employee, told Wehrenberg in an e-mail that the company had received his request and that it was referring the matter to outside counsel for review "[g]iven the nature and timing of the request." Def. Statement of Facts ¶ 12. Later that day, David F. Morris, an attorney for Federal Signal employed by Thompson Coburn LLP, sent Wehrenberg a letter via e-mail in which he told Wehrenberg that
[d]ue to the number of shares involved and your request to receive your proceeds in one distribution, Federal Signal is not able to honor your request to liquidate the shares on your behalf. Your request is further complicated by timing considerations related to your request, including considerations related to the Federal securities laws.
Id., Ex. K at 1. Morris's letter went on to explain that Federal Signal would instead transfer to Wehrenberg the shares held on his behalf, minus a portion of the shares needed to satisfy tax withholding requirements.
Morris's letter closed with an invitation for Wehrenberg to call him with any questions. Wehrenberg called Morris the same day. According to Wehrenberg's notes from their conversation, Wehrenberg asked Morris to identify the securities law issue his request raised, in response to which Morris told him that Federal Signal was about to report earnings for the most recent quarter and that they would be material. According to Wehrenberg's notes, Morris then told him that Wehrenberg would bear the risk of any fluctuation in the stock's price once he took the shares.
In his complaint, Wehrenberg alleges that by the date of his exchanges with Morris and Wittig, "Federal knew that its third quarter operating results would be far worse than the expectation." 2d Am. Compl. ¶ 19. Thus, "timing," as Wittig and Morris used the term, referred to a likely drop in the price of Federal Signal's common stock that would follow release of earnings report. Wehrenberg alleges he understood this from his exchanges with Wittig and Morris and realized immediately that he could not sell his stock until the earnings report was released without risking liability for insider trading.
On October 26, 2004, Federal Signal reported a loss of $.05 per share for the third quarter, a result that fell below analysts' expectations. Federal Signal's stock price dropped accordingly. Shortly after the earnings report was made public, Federal Signal distributed 121,253 shares to Wehrenberg; it withheld the remaining 47,153 shares for tax purposes. Wehrenberg directed his broker to sell the shares he had received, which the broker did at a price of $16.71 per share. After fees and commissions, Wehrenberg received $2,021,152.30 for the shares. Measured against the value of his shares at the October 5, 2004 stock price of $19.10, and after adjusting for the shares withheld by Federal Signal for tax purposes, Wehrenberg claims that this losses are $401,330.89. 2d Am. Compl. ¶ 27.
Wehrenberg now alleges that Federal Signal breached its contractual obligation to provide him "full access" to the funds held by the retirement plan because the company, through its agents Wittig and Morris, "burden[ed] access to those funds with a substantial risk [of] prosecution" for insider trading under the federal securities laws- that is, until after Federal Signal had reported its poor earnings and its stock price had fallen. Pl. Mem. at 7; see also 2d Am. Compl. ¶ 25.
Federal Signal has moved the Court to grant summary ...