Wehrs v. Wells
| Decision Date | 08 August 2012 |
| Docket Number | No. 11–3369.,11–3369. |
| Citation | 83 Fed.R.Serv.3d 344,688 F.3d 886 |
| Parties | William R. WEHRS, Jr., Plaintiff–Appellee, v. Kevin WELLS, Defendant–Appellant. |
| Court | U.S. Court of Appeals — Seventh Circuit |
OPINION TEXT STARTS HERE
Kevin W. Bruning (argued), Attorney, Bruning & Associates, Crystal Lake, IL, for Plaintiff–Appellee.
Robert C. Keck, Jr. (argued), Attorney, Keck & Associates, Chicago, IL, for Defendant–Appellant.
Before BAUER, KANNE, and TINDER, Circuit Judges.
In 2007, William Wehrs filed a complaint against his stock broker, Kevin Wells, alleging he violated various federal securities and state laws by executing unauthorized trades on Wehrs's account, resulting in significant losses. Wells never answered the complaint or appeared in court, and a default judgment was entered against him. Subsequently, Wells filed a motion to vacate the default judgment, which was granted with respect to damages but denied with respect to liability. The parties then agreed to submit the issue of damages to the district court by motion for summary judgment, which the court granted in favor of Wehrs. On appeal, Wells argues that the district court abused its discretion by denying his motion with respect to liability and not permitting him to file an answer to the complaint, as well as by considering damages that he did not proximately cause. We find no merit to Wells's challenges, and accordingly affirm the district court's judgment.
Because the district court entered a default judgment against Wells, we take as true the facts of the complaint. e360 Insight v. Spamhaus Project, 500 F.3d 594, 605 (7th Cir.2007). Wehrs was a client of the stock brokerage firm Benson York Group, Inc., where Wells worked as a stock broker. In 2005, Wells recommended shares of Cyberonics, Inc. (CYBX), a medical technology company. Wehrs was persuaded by the recommendation, and on June 23 he authorized Wells to purchase 4,000 shares on margin at a price of $43.75 per share, with a $7,500 stop-loss order.
Wells deviated from this order, however, and on June 24 instead purchased 4,100 shares on margin at a market price of $46.00 per share, for a total purchase price of $192,659 after commission. On June 27, Wells sold the stock for $43.33 per share (crediting Wehrs's account $181,650)—it is not clear whether or not this sale was made pursuant to a stop-loss order—before inexplicably repurchasing another 4,100 shares that same day (charging Wehrs's account $190,735 after commission). Wehrs maintains that neither the initial purchase of CYBX, which had a higher price per share and quantity than he specified, nor the subsequent repurchase of the shares were authorized.
Wehrs discovered the unauthorized transactions, along with the hefty commission fees charged to his account, and tried in vain to contact Wells and his supervisor, Kevin Brennan. After leaving several messages, Wehrs finally managed to reach Wells by phone on July 15. Wells told him not to worry about any temporary losses to his account because the Food and Drug Administration had just approved one of Cyberonics's products. The price of the stock would jump to $65 in just a few days, Wells maintained, and Wehrs would profit handsomely. Although these assurances may have temporarily abated Wehrs's concerns, the stock price did not increase, and instead began a slow and steady decline. As the price dropped, shares were sold at a loss in order to satisfy the maintenance margin. Wehrs continued to call Wells and Brennan about the losses, but he was repeatedly assured that all of the commissions charged to his account would be reversed, any stock sold on margin would be repurchased, and CYBX would eventually increase in value. Although the commissions were eventually refunded, the stock's price never recovered. All but eighty-five shares were eventually sold pursuant to margin calls, crediting Wehrs's account $133,855. The remaining eighty-five shares were sold for $1,398 on July 2, 2009.
On June 14, 2007, Wehrs filed suit against Wells, Brennan, and Benson York alleging federal securities law violations, and state law claims for fraud, negligence, and breach of fiduciary duty. The case was stayed from May 30, 2008, to June 3, 2009, while the defendants appealed the district court's denial of their motion to compel arbitration. That appeal was eventually voluntarily dismissed by the defendants. Following the dismissed appeal, the defendants' attorney filed a motion to withdraw as counsel, which was granted by the district court on August 13, 2009. Subsequently, the defendants did not hire another attorney and did not answer the complaint or appear in court. The district court accordingly declared the defendants in default on September 10, 2009. After a prove-up hearing to establish the amount of damages, the court entered default judgment on September 17, 2009, in favor of Wehrs for $236,837.75.
Represented by new legal counsel, Benson York and Brennan filed a motion to vacate the default judgment, which the district court granted on November 17, 2009. Wells, representing himself, filed a separate motion to vacate the default judgment under Rule 60(b) of the Federal Rules of Civil Procedure on December 9, 2009. In that motion, Wells also requested that the court grant him seven days to file an answer to the complaint.1 Without specifically addressing his request to file an answer, the district court denied Wells's motion to vacate the default judgment as to liability, finding that he did not state a meritorious defense to the complaint, but permitted him to rebut the amount of damages. Brennan and Benson York eventually settled with Wehrs, leaving Wells as the lone defendant remaining in the case.
Wells retained counsel, and the parties agreed to submit the issue of damages to the court by motion for summary judgment. At summary judgment, the district court held that the allegations contained in the original complaint failed to state a claim under federal securities law. Nevertheless, the court determined that it was proper to retain jurisdiction over the supplemental state law claims, and found that the allegations in the complaint supported claims for breach of fiduciary duty and negligence. The district court then calculated the damages caused by the unauthorized purchase and repurchase of CYBX stock and granted summary judgment in Wehrs's favor, finding Wells liable for $49,861. Wells filed this timely appeal.
Wells presents three arguments on appeal, although we have grouped together the first two for ease of analysis. First, he contends that the district court abused its discretion in denying his motion to vacate the default judgment with respect to liability. Raising a related point, he argues that the court should have first granted him leave to file an answer to the complaint before ruling on his motion. Finally, Wells claims the district court abused its discretion at summary judgment by considering damages that he did not proximately cause. We address each of these arguments in turn.
Wells first challenges the district court's denial of his motion to vacate the default judgment as to liability. We review the district court's decision only for an abuse of discretion. Bakery Mach. & Fabrication, Inc. v. Traditional Baking, Inc., 570 F.3d 845, 848 (7th Cir.2009). Relief from a final judgment may be granted pursuant to Rule 60(b) under exceptional circumstances, and we have characterized the district court's considerable latitude in making its decision as “discretion piled on discretion.” Swaim v. Moltan Co., 73 F.3d 711, 722 (7th Cir.1996). We apply a deferential standard of review because the district court is “the forum best equipped for determining the appropriate use of default to ensure that litigants who are vigorously pursuing their cases are not hindered by those who are not in an environment of limited judicial resources.” Id. at 716 (quotation marks and citation omitted). In order to have a default judgment vacated, the moving party must demonstrate: “(1) good cause for the default; (2) quick action to correct it; and (3) a meritorious defense to the complaint.” Sun v. Bd. of Trs. of Univ. of Ill., 473 F.3d 799, 810 (7th Cir.2007).
The district court found that Wells was able to meet the first two requirements because he took quick action to correct the default, and had good cause due to excusable neglect—Wells asserted that his withdrawn counsel did not provide him notice of the date by which he had to file a responsive pleading. Nevertheless, the district court denied Wells's motion because he did not set forth a meritorious defense. In his motion to vacate the default judgment, Wells stated that he “emphatically den[ies]” the claims made in Wehrs's complaint because “all transactions were authorized.” Wells also maintained that after Wehrs accused him of making unauthorized trades, he notified Brennan, who then took over the account. Finally, Wells's motion disputed the amount of damages set forth in the complaint, attaching as an exhibit a transaction history of Wehrs's account showing that commissions charged for the allegedly unauthorized transactions were reversed. The district court found Wells's broad denial insufficient to state a meritorious defense because he did not specifically deny the complaint's allegations that he purchased, sold, and repurchased the shares of CYBX without permission. Indeed, the court found that Wells implicitly admitted the complaint's allegations when contesting the amount of damages.
Wells primarily argues that the district court abused its discretion because the motion set forth a meritorious defense: the transactions were authorized. We disagree. A meritorious defense need not, beyond a doubt, succeed in defeating a default judgment, but it must at least “raise[ ] a serious question regarding the propriety of a default judgment and...
To continue reading
Request your trial
-
Eichwedel v. Chandler
...in the appellant's statement of the case but not discussed in the body of the opening brief is deemed waived.”); cf. Wehrs v. Wells, 688 F.3d 886, 891 n. 2 (7th Cir.2012) (deeming an argument waived where it was raised in one sentence in the summary of argument and once again in the conclus......
-
Eichenberger v. Falcon Air Express Inc.
...to raise affirmative defenses by failing to comply with its discovery obligations and the Court's orders. See, e.g., Wehrs v. Wells, 688 F.3d 886, 893 (7th Cir. 2012) ("[T]he duty to mitigate damages is an affirmative defense, and [defendant] waived his right to this defense by not filing a......
-
Handler v. Moore (In re Moore), Case No. 19bk31162
...allegations regarding liability are taken as true, a plaintiff must still prove the amount of damages to be awarded. Wehrs v. Wells , 688 F.3d 886, 892 (7th Cir. 2012).The court notes that while it has been pled that the Plaintiff is owed over $47,000 for the unpaid services, Compl., at ¶ 8......
-
Alexan v. Burke
...court's considerable latitude in making its decision [on a Rule 60(b) motion] as ‘discretion piled on discretion.’ ” Wehrs v. Wells, 688 F.3d 886, 890 (7th Cir.2012) (quoting Swaim v. Moltan Co., 73 F.3d 711, 722 (7th Cir.1996) ).ANALYSISPlaintiff argues that Neslund lacked the authority to......