SEC v. Gary McDuff

Filing

UNPUBLISHED OPINION ORDER FILED. [16-10691 Dismissed as Frivolous] Judge: EGJ , Judge: JES , Judge: CH Mandate pull date is 11/09/2017; denying motion to proceed IFP in accordance with PLRA filed by Appellant Mr. Gary L. McDuff [8355377-2] [16-10691]

Case: 16-10691

Document: 00514160620

Page: 1

Date Filed: 09/18/2017

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 16-10691

United States Court of Appeals
Fif h Circuit

FILED
September 18, 2017

SECURITIES AND EXCHANGE COMMISSION,

Lyle W. Cayce
Clerk

Plaintiff-Appellee
v.
GARY L. MCDUFF,
Defendant-Appellant
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:08-CV-526
Before JOLLY, SMITH, and HAYNES, Circuit Judges.
PER CURIAM: *
Gary L. McDuff moves to proceed in forma pauperis (IFP) in an appeal
from the district court’s order denying his motion under Federal Rule of Civil
Procedure 59(e) in which he sought to alter or amend a default judgment. His
IFP motion is a challenge to the district court’s certification that his appeal is
not taken in good faith. See Baugh v. Taylor, 117 F.3d 197, 202 (5th Cir. 1997).
To proceed IFP, McDuff must be economically eligible and his appeal must not

Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
*

Case: 16-10691

Document: 00514160620

Page: 2

Date Filed: 09/18/2017

No. 16-10691
be frivolous. See Fed. R. App. P. 24(a)(5); Carson v. Polley, 689 F.2d 562, 586
(5th Cir. 1982). McDuff has established his financial eligibility.
According to McDuff, the default judgment should be set aside because
it was a product of fraud. He claims that the declaration filed by the Securities
and Exchange Commission (SEC) falsely stated that McDuff failed to respond
to the complaint and falsely represented that McDuff was competent at the
time of service.
McDuff insists that a series of nonsensical documents filed prior to being
formally served in 2012 satisfied his requirement to respond to the complaint.
None of those filings addressed the substance of the SEC’s complaint, and once
McDuff was properly served in 2012, he had an obligation to answer or
otherwise defend timely, but he failed to do so. See Fed. R. Civ. P. 12(a)(1)(A)(i).
As such, McDuff’s claim that the SEC’s supporting affidavit falsely claimed
that he failed to respond to the complaint is frivolous.
Next, McDuff asserts that the SEC’s affidavit falsely stated that he was
competent at the time of service. He points out that in his related criminal
case for conspiracy to commit wire fraud and money laundering, the district
court ordered a psychological evaluation. Though he admits that he was found
competent to stand trial, he claims that at the time of the SEC’s affidavit, his
competency was still in question. The record refutes McDuff’s assertions. He
was served on August 23, 2012. At that time, he had neither been judicially
declared incompetent nor was he confined to a mental institution. On October
9, 2012, the district court ordered a competency evaluation after McDuff filed
nonsensical documents in his criminal case.

The SEC’s affidavit did not

misrepresent McDuff’s competency at the time of service.
In conclusory fashion, McDuff challenges factual allegations in the SEC’s
complaint and argues that the default judgment is insufficiently supported. A

2

Case: 16-10691

Document: 00514160620

Page: 3

Date Filed: 09/18/2017

No. 16-10691
default judgment must be “supported by well-pleaded allegations” and must
have “a sufficient basis in the pleadings.” Nishimatsu Const. Co. v. Houston
Nat. Bank, 515 F.2d 1200, 1206 (5th Cir. 1975).

Federal Rule of Civil

Procedure 8 indicates what is “well-pleaded” or “sufficient.”

Wooten v.

McDonald Transit Assoc., Inc., 788 F.3d 490, 498 (5th Cir. 2015).
The SEC’s complaint alleged that McDuff violated federal securities laws
by offering and selling securities in unregistered offerings and by using funds
raised through these offerings not, as investors were told, to invest only in
highly rated debt securities, but to invest millions in a Ponzi scheme that was
the subject of a SEC enforcement action.

These allegations sufficiently

satisfied “the low threshold of Rule 8.” Wooten, 788 F.3d at 498.
Finally, McDuff asserts that the district court did not adequately explain
its reasons for denying IFP status and “used circular reasoning” to deny his
IFP motion. The district court’s incorporation by reference of its decisions on
the default judgment and McDuff’s post judgment motions was sufficient to
comply

with

the

requirement

under

Federal

Rule

of

Appellate

Procedure 24(a)(3) and fully provide the reasons for its certification decision.
Baugh, 117 F.3d at 202 & n.2.
Because the appeal is frivolous, the request for leave to proceed IFP is
denied and the appeal is dismissed. See id. at 202 n.24; 5TH CIR. R. 42.2. The
dismissal of this appeal counts as a strike under 28 U.S.C. § 1915(g).
See Adepegba v. Hammons, 103 F.3d 383, 387 (5th Cir. 1996). McDuff is
WARNED that if he accumulates three strikes, he will not be allowed to
proceed IFP in any civil action or appeal filed while he is incarcerated or
detained in any facility unless he is under imminent danger of serious physical
injury. See § 1915(g).

3

Case: 16-10691

Document: 00514160620

Page: 4

Date Filed: 09/18/2017

No. 16-10691
IFP

DENIED;

APPEAL

DISMISSED;

SANCTION

WARNING

ISSUED. 1

Judge Haynes dissents and would grant the IFP, retain the case on the docket, and
hold the question of sanctions in abeyance pending further proceedings.
1

4