There is a reason they are called "devil's!" Not particularly nice fish but then many of those small guys have big attitudes. Many clowns and dottybacks have attitudes far bigger than their bodies. I am assuming your lights are on during the day, and I am guessing that the blue devil might indeed be a bit of a beast. That dark color and scales missing is often a sign of it. Unfortunately, though, I am not a pro with diseases. So that might be something to just check into. However, I am guessing that you have a dominant damsel. If you want to keep it, you may have to try rearranging the rock when a new fish goes in, and keeping the lights off a bit.
What sort of fish do you ultimately hope to keep? This may help determine what you do with the damsel. If you are going with large predators, they will take care of it. But otherwise, you may decide it is best to trade him back in to the LFS, which many will do for you.