The opinion of the court was delivered by: Judge Joan H. Lefkow
On June 14, 2007, plaintiff Williams R. Wehrs, Jr. filed a complaint seeking damages from his former securities broker, Benson York Group, Inc., Benson York employees Kevin Brennan and Kevin Wells, and New Castle Financial Services, LLC, the corporation formed subsequent to Benson York's dissolution.*fn1 The complaint alleged that Benson York, New Castle, Brennan and Wells are liable for violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), codified at 15 U.S.C. § 78j(b), and Securities Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5, as well as common law negligence, fraud, and breach of fiduciary duty. After Wells and the other named defendants failed to appear, answer, or otherwise plead to the complaint, the court on September 14, 2009 entered a default judgment against them. The court later vacated the judgment against defendants New Castle and Brennan, and those parties eventually settled with Wehrs. Wells's motion to vacate was denied as to liability but granted on the issue of damages, which is now before the court on Wehrs's motion for summary judgment. For the reasons stated below, Wehrs's motion [#153] is granted.
Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c). To determine whether any genuine issue of fact exists, the court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed. R. Civ. P. 56(c) & advisory committee's notes. The party seeking summary judgment bears the initial burden of proving that there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 91 L. Ed. 2d 265 (1986). In response, the nonmoving party cannot rest on mere pleadings alone but must use the evidentiary tools listed above to designate specific material facts showing that there is a genuine issue for trial. Id. at 324; Insolia v. Philip Morris Inc., 216 F.3d 596, 598 (7th Cir. 2000). A material fact is one that might affect the outcome of the suit. Insolia, 216 F.3d at 598--99. Although a bare contention that an issue of fact exists is insufficient to create a factual dispute, Bellaver v. Quanex Corp., 200 F.3d 485, 492 (7th Cir. 2000), the court must construe all facts in a light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505, 91 L. Ed. 2d 202 (1986).
To the extent the facts stated in the submissions on the motion are undisputed, yet inconsistent with allegations of the complaint, the court accepts the submissions on the motion. Otherwise, the consequential admissions of fact are the facts alleged in Wehrs's original complaint, as default was entered for failure to plead to that version of the complaint. The court has also considered the facts sworn to in Wehrs's first affidavit submitted in support of the default judgment. See Dkt. No. 64.
I. The Purchase and Sale of CYBX Shares
Wells is a stockbroker who was employed by Benson York (now New Castle) from 2004 to 2006. Wehrs was Wells's client. On June 23, 2005, Wehrs, pursuant to Wells's recommendation, placed an order for 4,000 shares of Cyberonics, Inc. ("CYBX"), on margin,*fn2 at a price of $43.75 per share.*fn3 Wehrs placed a $7,500 stop loss on the order. The stop loss would limit the amount of any loss to Wehrs's account to no more than $7,500.*fn4
On June 24, 2005, Wells purchased for Wehrs's account 4,100 shares of CYBX on margin at a market price of $46.99 per share, for a total purchase price of $192,659. Wells charged Wehrs a commission of $2.33 per share. The total amount charged to Wehrs's account, including commissions, was $202,215.*fn5
On June 27, 2005, Wells sold the stock for $44.33 per share. Wehrs was charged a $100 commission. Wehrs's account was credited $181,650.*fn6 According to the complaint, this sale was made without authorization from Wehrs. Wells, however, testifies that the shares were sold automatically pursuant to the stop loss.
Later that day, Wells repurchased 4,100 shares of CYBX on margin for the same price of $44.33 per share. Wehrs was charged a commission of $2.19 per share. The total amount charged to Wehrs's account was $190,735.*fn7 The complaint alleges that Wehrs did not authorize this transaction.*fn8
The complaint alleges that, once Wehrs learned of the purchase and repurchase of the CYBX stock, Wehrs immediately attempted to contact Wells and Brennan. Compl. ¶ 14. Wehrs left telephone messages for Wells that were not returned. Id. On July 15, 2005, Wehrs and Wells spoke on the phone. Id. Wells told Wehrs that any losses to the account would be reversed on July 18, 2005, because CYBX had received FDA approval for its product and the stock would rise to $65 per share as a result. Id.
CYBX did not increase in value on July 18 or thereafter. Rather, it began to decline in price and was sold pursuant to margin calls.*fn9 The complaint alleges that Wehrs then "engaged in a series of communications with [Benson York], Wells, and Brennan, regarding the losses suffered." Id. ¶ 16. Wells and Brennan told Wehrs that the commissions charged to his account in connection with the purchase and re-purchase of CYBX would be reversed, that any stock sold on margin would be repurchased for Wehrs's account, and that CYBX would eventually increase in value. Id. ¶ 18. Wehrs alleges that whenever he "contacted Wells or Brennan . . . to sell the stock, [Wells and Brennan] provided promises and representations to make [Wehrs] whole for his losses." Id. ¶ 21.
Wells attests that Wehrs never directed or authorized him to sell any stock after June 27, 2005. He asserts that "control of Wehrs' account was taken from me by Benson York's supervisor Kevin Brennan on August 17, 2005 based on Wehrs' complaints to him." Wells Aff. ¶ 11. Wells claims that he had "no ability" to sell Wehrs's stock after Brennan took control of ...