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Litigation Funder Wins $1.2 Million Over Lawyer-Judge Connection

Sept. 19, 2022, 9:52 PM

A Texas attorney must pay $1.2 million to a litigation funder that sued him for malpractice after he failed to disclose a conflict of interest involving a judge, a US district court ruled.

The attorney, Sergio Muñoz Jr., failed to tell his ex-client, Law Funder LLC, he had a business relationship with a judge presiding over a case the company joined because of its litigation investments, the firm alleged in a lawsuit.

Muñoz’s conflict of interest “rises to the level of a clear and serious breach of duty,” District Judge Micaela Alvarez wrote in a Sept. 16 order in McAllen, Texas.

Muñoz’s firm, The Law Offices of Sergio Munoz Jr., P.C., based in Edinburg, Texas, just outside McAllen, also must return more than $21,000 to Law Funder as a fee forfeiture, according to Alvarez’s order.

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Litigation funders provide capital to plaintiffs or their lawyres in exchange for portions of cash settlements and financial awards. The Law Funder had retained Munoz in 2011 to protect its investments in lawsuits filed by a Mexican law firm whose ownership became a subject of a divorce proceeding.

Muñoz was a co-principal in a professional corporation with Judge Jesse Contreras, who presided over the divorce case. The connection ultimately prompted the removal of the judge in the case as well as a voiding of all his orders. Law Funder later withdrew from the proceedings because it didn’t have the money to start over.

Muñoz didn’t immediately respond to a request for comment. His lawyer declined to comment.

The judgment follows a two-day trial in August in which a federal jury reached the $1.2 million damages award. It also caps an eight-year legal dispute between Law Funder and Muñoz that has weaved it way between the district and circuit courts.

A Texas district court entered a default judgment against Muñoz in 2017 after he failed to comply with discovery. It later awarded damages of $3 million; however, the Fifth Circuit vacated that decision and ordered a new damages trial, saying the award wasn’t properly calculated.

Counsel for Muñoz argued in a Sept. 13 motion that The Law Funder failed to show evidence that Munoz’s alleged malpractice caused the firm to suffer damages worthy of a $1.2 million award.

The case is Law Funder LLC v. Munoz, S.D. Tex., No. 7:14-cv-00981, 9/16/22.

To contact the reporter on this story: Justin Wise at jwise@bloombergindustry.com

To contact the editors responsible for this story: Chris Opfer at copfer@bloomberglaw.com; John Hughes at jhughes@bloombergindustry.com