William Wehrs, Jr. v. Kevin Wells
688 F.3d 886
| 7th Cir. | 2012Background
- Wehrs sued Wells for federal securities violations and state-law claims based on unauthorized CYBX trades; Wells did not answer, and a default judgment was entered against him.
- The district court later vacated the default judgment as to damages but denied it as to liability; damages were to be addressed separately.
- Wells and other defendants allegedly executed unauthorized purchases on June 23–27, 2005, including purchasing 4,100 CYBX shares, selling them, and then repurchasing 4,100 shares on margin at different prices.
- Wehrs incurred substantial losses and commissions; Wells assured colleagues and client that the stock would rise and commissions would be reversed, which did not occur.
- At summary judgment on damages, the court held Wells liable for damages, calculating the amount based on the unauthorized purchases and repurchases and deductions for refunds, sales, stop-loss, and settled claims; Wells appeals challenging liability, the timing to answer, and the damages calculation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court abused its discretion denying vacatur as to liability | Wells argues meritorious defense exists that should defeat liability. | Wehrs contends Wells offered only general denials, not a meritorious defense. | No abuse; Wells failed to present a meritorious defense beyond a bare denial. |
| Whether the court should have allowed Wells to file an answer before ruling on the Rule 60(b) motion | Wells needed leave to file an answer to present facts supporting a meritorious defense. | Granting leave is unnecessary where default has been entered and the merits are addressed elsewhere. | No reversible error; procedural sequencing not required and Wells could raise facts in the movant context. |
| Whether damages were properly awarded despite post-default causation arguments | Damages should reflect losses caused by the unauthorized trades pleaded, not collateral issues. | Wehrs could mitigate losses after June 27, 2005, so Wells should not be liable for later damages. | Damages were properly awarded; default damages are related to pleaded injuries, and mitigation arguments are unavailable after default. |
Key Cases Cited
- e360 Insight v. Spamhaus Project, 500 F.3d 594 (7th Cir. 2007) (default damages and liability framework; standard for striking a balance in default judgments)
- Sun v. Bd. of Trs. of Univ. of Ill., 473 F.3d 799 (7th Cir. 2007) (requirements to vacate a default: good cause, quick action, meritorious defense)
- Swaim v. Moltan Co., 73 F.3d 711 (7th Cir. 1996) (deference to district court in Rule 60(b) discretion; ‘discretion piled on discretion’)
- Pretzel & Stouffer v. Imperial Adjusters, Inc., 28 F.3d 42 (7th Cir. 1994) (meritorious defense requires more than a bare denial)
- Jones v. Phipps, 39 F.3d 158 (7th Cir. 1994) (meritorious defense must be developed with factual basis)
- Greyhound Exhibit Group, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155 (2d Cir. 1992) (distinction between proximate cause for liability and for damages post-default)
- Trans World Airlines, Inc. v. Hughes, 449 F.2d 51 (2d Cir. 1971) (proximate cause limits on recovery; damages must relate to pleaded injuries)
- Merrill Lynch Mortgage Corp. v. Narayan, 908 F.2d 246 (7th Cir. 1990) (damages must be proved unless liquidated or capable of calculation)