688 F.3d 886 (7th Cir. 2012), 11-3369, Wehrs v. Wells
|Citation:||688 F.3d 886, 83 Fed.R.Serv.3d 344|
|Opinion Judge:||KANNE, Circuit Judge.|
|Party Name:||William R. WEHRS, Jr., Plaintiff-Appellee, v. Kevin WELLS, Defendant-Appellant.|
|Attorney:||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.|
|Judge Panel:||Before BAUER, KANNE, and TINDER, Circuit Judges.|
|Case Date:||August 08, 2012|
|Court:||United States Courts of Appeals, Court of Appeals for the Seventh Circuit|
Argued April 13, 2012.
[Copyrighted Material Omitted]
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...
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