IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 16-10691

SECURITIES AND EXCHANGE COMMISSION, 

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.

United States Court of Appeals

Fif h Circuit

FILED

September 18, 2017

Lyle W. Cayce

Clerk

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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 

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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).

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IFP DENIED; APPEAL DISMISSED; SANCTION WARNING 

ISSUED.1

 

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. 

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