United States Court of Appeals,

Fifth Circuit.

Nos. 91-2798, 91-6046.

Jerry A. PEASE, Plaintiff-Appellant,

v.

PAKHOED CORP., et al., Defendants-Appellees.

Jerry A. PEASE, Plaintiff-Appellee,

v.

PAKHOED CORP., et al., Defendants-Appellants.

Jan. 11, 1993.

Appeals from the United States District Court for the Southern District of Texas.

Before KING, WILLIAMS and SMITH, Circuit Judges.

JERRE S. WILLIAMS, CIRCUIT JUDGE:

Pease claims that his employers (collectively "Pakhoed"), fired him because he refused to

engage in fraudulent activities. The dist rict court dismissed with prejudice Pease's action because

Pease failed to comply with the court's order for a more definite statement. In No. 91-2798, Pease

appeals from the district court's order denying Pease's Rule 60(b) Moti on for Relief From Judgment.

In No. 91-6046, Pakhoed appeals from t he dist rict court's order denying Pakhoed's Motion for

Sanctions. Because these two cases arise out of the same lawsuit and involve related facts and

circumstances, the parties agreed to consolidate for purposes of appeal. We agree with the district

court that Pease's claim of wrongful discharge is defective because his pleadings continually fail to

reference the specific criminal laws that he alleges Pakhoed directed him to violate. His Rule 60(b)

motion f ails t o cure this defect. We also conclude that the district court's denial of sanctions was

within its considerable discretion. We affirm.

I. FACTS AND PRIOR PROCEEDINGS

The parties quarrel over the specifics of "who did and knew what when," but the underlying

fa ct s that inform our decision are relatively straightforward. Pease was hired by Pakhoed in 19751 The age discrimination claim is the subject of a cursory allegation in Pease's original

complaint. It is not raised on appeal and apparently was dropped in the district court. Under

Texas law, an employee who alleges wrongful discharge for refusing to perform a criminal act

cannot advance additional claims. See, e.g., Sabine Pilot Serv., Inc. v. Hauck, 687 S.W.2d 733,

735 (Tex.1985); Hancock v. Express One Intern., Inc., 800 S.W.2d 634, 636 (Tex.App.—Dallas

1990, w rit denied (Nov. 11, 1992)). Our recent decision in Guthrie v. Tifco Industries, 941 F.2d

374, 379 (5th Cir.1991) is determinative: "Because the refusal to perform an illegal act must be

the sole reason for the plaintiff's discharge, Guthrie's claims of age discrimination and w rongful

discharge are mutually exclusive."

The district court retained federal jurisdiction. The vague allegations concerning

activities in connection with the use of the U.S. mails and other means of communication

such as the telephone and telegraph could have resulted in asserting in more specific

allegations that federal criminal statutes regulating these activities possibly would have

been involved. and, through a series of promotions, ultimately secured a managerial position. According to Pease,

he was demoted in September 1988 because he refused to participate in a fraudulent scheme proposed

by his superiors.

In early 1989, Pease consulted with Mr. David Garner, an attorney in Galveston, Texas.

Garner addressed correspondence to Pakhoed and later transferred the case to Mr. Stephen Williams,

a solo p ract it ioner who had an office sharing and sublease association with Garner's law firm.

Negotiations between Williams and Pakhoed's in-house counsel failed to resolve Pease's complaints,

and Pease was termin at ed o n May 12, 1989. Pease eventually filed suit in Texas state court in

October 1989, alleging wro ngful discharge and age discrimination. Pakhoed removed the case to

federal district court. 1

In November 1989, shortly after removal, Pakhoed filed a Mo t io n for a More Definite

Statement. Specifically, Pakhoed requested the court to require Pease to plead his allegations with

greater precision:

Plaint iff does not specifically identify the alleged conduct which he refuse d to take part i n

which allegedly resu lt ed in his termination. While the complaint alleges that Plaintiff was

terminated because of his failure to cover up, conceal or falsify material facts[,] the pleading

is too vague to allow Defendants [to] file a responsive pleading.... In order for Defendants

to file a responsive pleading it is necessary that Plaint iff more definitely state his grounds for

estopping application of [the "employment at wil l "] doctrine.... Defendants are clearly

entitled to know the alleged criminal act whic h Plaint iff was asked to perform. (footnote

omitted)

Williams f

ailed t o respond to the motion, and in April 1990 the district court, reciting2 Pease presents a persuasive litany of Williams's dilatory representation. In essence, Pease

grew weary of Williams's alleged failures to respond to Pease's communications and produce

requested work on Pease's lawsuit.

3 Fed.R.Civ.P. 60(b), styled "Relief From Judgment or Order," states in pertinent part:

(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered

Evidence; Fraud, etc. On motion and upon such terms as are just, the court may

relieve a party or a party's legal representative from a final judgment, order, or

proceeding for the following reasons: (1) mistake, inadvertence, surprise, or

excusable neglect....

4 Rule 11 allows a court to impose sanctions upon an attorney or litigant who files a baseless

pleading or motion, one that is not "well grounded in fact and ... warranted by existing law or a

good faith argument for the extension, modification, or reversal of existing law[.]" Section 1927

permits a court to assess excess costs, expenses, and attorney's fees against an attorney who

"multiplies the proceedings in any case unreasonably and vexatiously[.]" Williams's failure to respond, entered an order requiring Pease to submi t an amended complaint

containing a more definite statement within thirty days. Again, Williams did not respond. Pakhoed

immediately filed a Moti on to Dismiss. In December 1990, following a hearing that Williams failed

to attend, the district court dismissed Pease's complaint with prejudice for failure to (1) comply with

the court's earlier order requiring a more definite statement, (2) respond to the Motion to Dismiss,

and (3) appear at the hearing. Three months later, Pease, who was unaware of the dismissal, grew

dissatisfied with Williams's representation (or lack thereof) 2 and engag e d different counsel, who

informed Pease in April 1991 that his suit had been dismissed the previous December.

In May 1991, Pease's new attorneys, Messrs. Jack Ewing and Thomas McQuage, filed a Rule

60(b) Moti on for Relief from Judgment 3 along with supporting affidavits, a propo sed amended

complaint that was asserted to be in compliance with th e More Definite Statement Order, and a

supporting memorandum of law. The district court denied the motion. Two months later, Pakhoed

moved for sanctions, claiming Pease's unsuccessful Rule 60(b) motion violated Fed.R.Civ.P. 11 and

28 U.S.C. § 1927. 4 The district court denied this motion also . Bo t h Pease and Pakhoed timely

appeal the denial of their respective motions.

II. DISCUSSION

A. The District Court's Denial of Pease's Rule 60(b) Motion

As we recently stated in B ertrand v. Sullivan, the decision to grant or deny a Rule 60(b)motion is committed to the sound discretion of the district court and is accorded deferential review.

976 F.2d 977, 979 (5th Cir.1992). Courts are disinclined t o dist urb judgments under the aegis of

Rule 60(b). "To overturn the district court's denial of this 60(b) motion, it is not enough that a grant

of the motion might have been permissible or warranted; rather, the decision to deny the motion must

have been sufficiently unw arranted as to amount to an abuse of discretion." F ackelman v. Bell, 564

F.2d 734, 736 (5th Cir.1977) (emphasis added). We discern no abuse on the record before us.

The crux of Pease's Rule 60(b) motion is that his former attorney

, Williams, e ssentially

abandoned him once the case was transferred to federal court. Despite close monitoring by Pease

and abundant assurances from Williams that the case was proceeding in the typical fashion, Pease

contends that Williams actually ignored the case. This neglect, he avers, resulted in its ultimate

dismissal and justifies relief under the Rule. We need not reach, however, the sharply contested issue

of Williams's deleterious conduct, although it occupies the vast portion of the parties' briefs before

this Court. A crucial t hreshold matter renders Pease's plea for Rule 60(b) relief fatally defective:

neither Pease's original complaint nor his Rule 60(b) documents assert a meritorious cause of action

because they fail to reference specific criminal laws that Pease was told to violate. The district court's

Order remains unheeded.

It is well established that Rule 60(b) requires the movant to demonstrate that he possesses

a merito rious cause of action. S ee, e.g., Lepkowski v. United States Dep't of Treasury, 804 F.2d

1310, 1314 (D.C.Cir.1986) ("motions fo r relief under Rule 60(b) are not to be granted unless the

movant can demonstrate a meritorious claim or defense"); U nited S tates v. Parcel of Land, Etc.

(Woburn City Athletic Club, Inc.), 928 F.2d 1, 5 (1st Cir.1991) ("In exercising its discretion under

Rule 60(b), the district court must look, inter alia, to whether the party s eeking relief has a

potentially meritorious claim or defense."). The record before us demonstrates that Pease has failed

to satisfy this seminal requirement.

Pease's original complaint makes several bare and conclusory allegations regarding:

Plaint iff's failure t o and refusal to enter into or continue a conspiracy or to otherwise

participate in a scheme to cover up or conceal material facts, or his refusal to falsify, conceal

or cover up material facts, or his fai lure o r refusal to make false, fictitious or fraudulent

statements or representations, or his failure and refusal to make or use a false writing or5 The court enumerated seven items that required more precise pleading. Of particular

emphasis here, though, is the court's plain request that Pease identify the specific criminal laws

that Pakhoed ordered him to violate. Because this issue is singularly dispositive, we need not

address the effect of counsel's failure to satisfy other components of the court's Order.

6 In the interest of clarity, all ellipses have been omitted. document containing a false, fictitious or fraudulent statement or entry to another by the use

of the United States Postal Service or by telephone, telegraph o r other governmentally

regulated means of communication.

Understandably, Pakhoed argued that Pease's complaint was too vague to allow Pakhoed to

file an adequate, responsive pleading. The trial court agreed and ordered Pease to serve an amended

and more precise complaint. Particularly, the court ordered Pease to "identify specifically the alleged

conduct which Plaint iff refused to take part in

... [and] any criminal law, if any, which Plaint iff refused

to violate." 5 As previously stated, Williams never respo nded to the court's Order. But of greater

import here, Pease's new counsel likewise failed to satisfy the court's demands via their Rule 60(b)

motion, as the following colloquy from oral argument illustrates: 6

COURT: In order to get 60(b) relief in this kind of a situation, one of the things you're going to need

to show is that you potentially have a meritorious cause of action. What kind of a showing

have you made on that? There's no point in worrying about this case unless yo ur client is

[asserting a meritorious claim].

COUNSEL: I understand. And the Defendants made a point about that in their Appellees' brief on

our appeal. The answer is this: the showing in the co nt ext o f t he dismissal was failure to

replead by an amended complaint that showed his wrongful discharge claim. Mr. Ewing,

along with his affidavit in our 60(b) motion, presented his amended complaint that he told the

district court, "Here's what I'll file if you give me the chance, with particularized allegations

of what Mr. Pease is talki ng abo ut." (Counsel proceeded to cite various provisions of the

Texas Penal Code that were never mentioned in the proffered complaint)

COURT: Now did you tell the district judge this in your 60(b) motion?

COUNSEL: We sure didn't explain the criminal statutes to him. What we did in the 60(b) motion

was file or present under Mr. Ewing's affidavit the amended complaint that set out these

allegations, that Mr. Pease was being asked to participate in a scam to defraud customers.

COURT: Was there a sworn affidavit by Mr. Pease in this paper anywhere?

COUNSEL: There's an affidavit attached to the Rule 60(b) motion. I can't really tell you that it goes

into the merits of the discharge and why it was wrongful and what he was asked to do. The

affidavit relates to his explanation of why he didn't know what was going on in this case, the

Rule 60(b) issues of whether or not he had excusable neglect or mistake or inadvertence in

the dismissal of the case. He didn't make an affidavit outlining [the precise facts surrounding

his discharge].7 Counsel's loose paraphrase is largely correct. What Ewing actually stated in his affidavit is

this: "I am of the belief and opinion after a thorough investigation of these documents and a

lengthy conference with Mr. Pease that this cause of action is with merit and that as such, I would

be willing to assume the handling of this case if it should be reinstated by the Court." COURT: So we have no affidavit by the Plaintiff on the facts that gave rise to his discharge and

thereby the Defendants' liability?

COUNSEL: Well, I'd like to say "Yes, we do." But I don't think his affidavit goes to those issues.

No, your honor. I don't think it does.

COURT: Does [Ewing] say anywhere in his affidavit that he's made an investigation into the facts

here, and he's persuaded that they're well founded.

COUNSEL: Yes, your honor, he does that. My recollection of his language is "I've looked into this

case. I've talked to the Plaintiff. I think it's meritorious. I represent to the court I'll pursue

it, and here's the complaint I'll file if the court lets me." 7 So there is that much factual basis,

I think, for the allegations in the complaint, that he's examined the factual basis, at least by

talking to Mr. Pease.

COURT: Why don't you look for the material in t here, because I think right now the key issue is

what kind of showing is there in this record [that demonstrates Mr. Pease presents a

meritorious claim].

COUNSEL (on rebuttal): I'm afraid I'd have to admit [Pease] just does not personally allege the

elements of his cause of action of wrongful discharge. He doesn't set out the factual elements

that are in the amended complaint.

As Pease's counsel concedes, the dist rict court's order remains unsatisfied, and the record

before us fails to demonstrate that Pease has asserted a meritorious claim of wrongful discharge. In

Texas, the employment-at-will doctrine is well settled and mandates that a worker may be terminated

without cause and at the will of either party. Hancock, 800 S.W.2d at 636; G uthrie, 941 F.2d at

379. An exception to this doctrine exists for employees discharged "for the sole reason that the

employee refused to perform an illegal act." S abine Pilot, 687 S.W.2d at 735. Further, as we

recently noted in Guthrie, "this narrow exception applies only to employees discharged for refusing

to perform acts that carry criminal penalties." 941 F.2d at 379 (citing generally H ancock, 800 S.W.2d

733). In G uthrie, Plaint iff claimed he was ordered to violate unspecified customs regulations, but he

failed to allege that the regulations carried criminal penalties. "Consequently, he could not establish

that he was discharged for refusing to perform an illegal act." Id. at 379-80.

Our holding in Guthrie is dispositive of the instant case. As the above exchange from oral

argument establi shes, Pease has likewise failed to contend before the district court, either in hisoriginal complaint (that Williams filed) or in his Rule 60(b) documents (that his new counsel filed),

that the activities bore criminal penalties. And contrary to Pease's argument to this Court, the

proffered Amended Complaint fails to comport with the district court 's earlier demand for a more

definite statement, particularly the plain requirement that Pease plead the specific criminal statute or

statutes that Pakhoed ordered him to violate. The Amended Complaint asserts that Pease was asked

to participate in a conspiracy to defraud Pakhoed's customers and clients, but it fails to satisfy the

court's request for precise reference to criminal laws.

Moreover, Ewing's bare assertion in his affidavit that "this cause of action is with merit" is

insufficient, absent a recitation of specific facts underlying the claim that satisfies the district court's

demands. The Tenth Circuit's decision in G omes v. Williams, 420 F.2d 1364, 1366 (10th Cir.1970),

is analogous. In G omes, Appellant attempted to set aside a default judgment entered against him on

fraud charges by contending that he possessed a meritorious defense to the allegations: "We do have

a good defense to the claim itself, but especially we have a good defense to any allegation of fraud."

The Tenth Circuit presents an instructive analysis which we apply with equal force to claims. It held:

Such a bald allegation, without the support of facts underlying the defense, will not sustain

the burden of the defaulting party under Rule 60(b). [footnote omitted] In an attempt to

determine the meritorious nature of a defense, the trial court must have before it more than

mere allegations that a defense exists. This alone was sufficient basis t o deny Rule 60(b)

relief.

Id. at 1366

Similarly, Ewing's unsubstantiated declaration that a meritorious claim exists is insufficient as a matter

of law to sustain his burden under Rule 60(b).

On the record before us, we cannot hold that the district court abused its discretion in denying

Pease's Rule 60(b) Moti on for Relief. Far from abusive, unwarranted, or even quest io nable, the

district court's order of dismissal seems wholly appropriate.

B. The District Court's Denial of Pakhoed's Motion for Sanctions

In No. 91-6046, Pakhoed argues that Pease's Rule 60(b) motion was baseless and vexatiously

mult iplied the proceedings in the case. It urges that sanctions are merited under both Rule 11 and

§ 1927. We do not agree.The Supreme Court has held, "an appellate court should apply an abuse-of-discretion standard

in reviewing all aspects of a district court's Rule 11 de t ermination." C ooter & Gell v. Hartmarx

Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 2461, 110 L.Ed.2d 359 (1990). We review the district

court's § 1927 determination under the same deferential standard. B row ning v. Kramer, 931 F.2d

340, 344 (5th Cir.1991).

In essence, Pakhoed contends that Pease's counsel failed to make sufficient pre-filing inquiries

to support the allegations contained within Pease's Rule 60(b) Moti on for Relief. The motion, argues

Pakhoed, was both factually and legally untenable and simply served to prop up a meritless claim.

Although we agree with the district court that Pease's Rule 60(b) claims are unavailing, we conclude

that his contentions are not so abusive or frivolous as to violate Rule 11. At the very least, Pease's

arguments fall within the protective ambit of Rule 11's "good faith argument" provision, mentioned

earlier in note 4.

We likewise refuse to usurp the district court's singular perspective and endorse sanctions

under § 1927, a statute we have characterized as invo lving sanctions which are "penal in nature."

Monk v. Roadw ay Express, Inc., 599 F.2d 1378, 1382 (5th Cir.1979), aff'd in relevant part sub nom.

Roadw ay Express, Inc. v. Piper, 447 U.S. 752, 100 S.Ct. 2455, 65 L.Ed.2d 488 (1980). Under §

1927, the fees, expenses, and costs associated with "the persistent prosecution of a meritless claim"

may be awarded. Thomas v. Capital Sec. Serv., Inc., 836 F.2d 866, 875 (5th Cir.1988) (en banc).

We reject the arguments advanced by Pease's counsel as unpersuasive, but the arguments are not so

untenable as to be "vexatious" or "unreasonable." Under turbulent circumstances and difficult time

pressures, Pease's new cou nsel came aboard and pursued Pease's claim in an earnest, albeit

unsuccessful, fashion. As we have stated: "Strict construction of this statute is necessary so that the

legitimate zeal of an attorney in representing her [or his] clie nt is not dampened." B rowning, 931

F.2d at 344; s ee also H.R.C ONF

. R EP .N O . 96-1234, 96th Cong., 2d Sess., r eprinted in 1980

U.S.C ODE C ONG

. & A DMIN

. N EWS 2716, 2781, 2782-83.

We conclude that the district court acted within its broad discretion in den ying sancti ons

under both Rule 11 and § 1927. We perceive no compelling reason to disturb its decision. Pakhoed'srequest for legal fees and expenses related to the combined appeals is denied, as is Pease's request for

costs against Pakhoed in appealing the district court's sanction decision.

III. CONCLUSION

The district court acted properly in denying the Rule 60(b) motion and in denying sanctions

against plaintiff for pursuing the Rule 60(b) motion.

AFFIRMED.