Texas Lawyer reported that a U.S. District Judge ordered a Texas attorney to pay $2.9 million to a client, for failing to disclose his relationship with the judge who was presiding over the client’s case.

Background

The Law Funder, LLC, which is based in New York City, and according to its Bloomberg profile, “advances funds for motor vehicle accidents, slip and falls, products liability, discrimination/wrongful termination,…and commercial litigation”, hired sole practitioner Sergio Muñoz Jr., who is also a member of the Texas House of Representatives, representing District 36, to represent it in a divorce proceeding in which it claimed an interest in a Mexican law firm that was part of the division of assets.

Law Funder alleged that Muñoz failed to disclose that he used to be a partner in the law firm of Contreras & Munoz, with Jesses Contreras, the judge hearing the matter.

The Brownsville Herald reported that in July 2012 – over a year after Law Funder had retained Munoz – state senior District Judge Dick Alcala disqualified Contreras from hearing the divorce case “because of the corporate association with defendant Sergio Muñoz Jr., that was in existence when they were lawyers together and continued through the time Muñoz appeared for Law Funder.” Further, “…Judge Contreras arguably had an interest in the subject matter of the litigation and the court resolved that doubt in favor of disqualification.” 

Lawsuit

Law Funder sued Munoz and his firm in December, 2014 in US District Court, Southern District of Texas, claiming that it wouldn’t have hired him, if it had known of his prior relationship with Contreras.

Default Judgment

Munoz answered the suit, but Judge Alvarez granted a default judgment to Law Funder in February, 2017, ruling that he had delayed the case by refusing to cooperate in the discovery process, and that Law Funder had presented enough evidence to prove that Muñoz committed legal malpractice by failing to disclose his relationship with Contreras.

“The existence of defendants’ corporate association with Judge Contreras thus created a duty for the defendants to be honest with plaintiff from the beginning about this relationship, so plaintiff could make an informed decision about whether or not to retain defendants as counsel of record,”.

The judge also decided that Law Funder had sufficiently pled actual damages that Muñoz’s business relationship with Contreras led to Contreras’ disqualification, reversing years of litigation that cost Law Funder over a million dollars.

Damages

According to PACER’s summary of the docket (reg. req’d.), a bench trial on damages was held on 9/12/17. Defendants demanded a jury trial on damages, but the court denied it, based on precedential case law holding that defaulting defendants have no Constitutional right to a jury trial. Law Funder then presented its case, submitting exhibits and examining three witnesses, whom Defendant cross-examined.

Judge Alvarez entered her Final Judgment (PACER reg. req’d.) on 9/29/17:

On February 2, 2017, the Court granted judgment on liability in favor of Plaintiff The Law Funder, LLC and against Defendant Sergio Munoz, Jr. and Defendant Law Offices of Sergio Munoz, Jr., P.C.1 Thereafter, on September 12, 2017 the case came on for a trial on damages. Plaintiff and Defendants presented their cases to the bench and rested. The Court, having reviewed the evidence and other relevant documents, hereby GRANTS judgment as follows:

 It is ORDERED, ADJUDGED AND DECREED that Plaintiff The Law Funder, LLC have and recover from Defendant Sergio Munoz, Jr. and Defendant Law Offices of Sergio Munoz, Jr., P.C. jointly and severally the sum of $2,988,660.61. The Law Funder is also entitled to court costs.2 Post-judgment interest will accrue at an annual interest rate of 1.31%.3

IT IS SO ORDERED.

DONE at McAllen, Texas, this 29th day of September, 2017.

Munoz subsequently filed a Motion for Relief From Judgment, which Law Funder opposed, then a Notice of Appeal, and then a Motion for a New Trial.

The Law Funder, LLC v. Munoz, Jr. et al, Case Number: 7:14-cv-00981.