Rep. Sergio Munoz Jr.

McAllen attorney and State Rep. Sergio Munoz Jr., D-Mission, committed legal malpractice when representing a New York-based litigation financing company, but a district court erred when it awarded $2.99 million in damages for Munoz's negligence, according to the U.S. Court of Appeals for the Fifth Circuit.

The Fifth Circuit remanded the case, The Law Funder v. Munoz, to the district court for a new trial on damages.

The good news for Munoz: The appellate panel found the district court improperly awarded attorney fees that the litigation financier, The Law Funder, incurred before it ever hired him.

The bad: The Fifth Circuit upheld the default judgment against Munoz, potentially leaving the attorney on the hook for any fees the company paid because of his negligence. Munoz might also have to forfeit more than $21,000 the company paid him for his services, plus $1.2 million The Law Funder claims it could have won in the underlying matter.

“The determination is a minor setback. We are going to continue to pursue Mr. Munoz,” said Law Funder counsel Michael Smikun, partner at Callagy Law in Paramus, New Jersey. “I believe from the inception of the litigation, he's been engaging in the highest level of gamesmanship. My client has been substantially injured and damaged as a result of his conduct.”

Munoz didn't return a call or email seeking comment before deadline, and neither did his lawyer, San Antonio solo practitioner John Carroll.

The May 16 opinion explains the background of the case. Munoz was representing Law Funder to intervene in a Texas divorce case because one of the spouses had an ownership interest in a Mexican law firm that was litigating 21 lawsuits in which Law Funder had provided funding and was expecting a portion of winnings. Court pleadings say that at the time, Law Funder did not know Munoz and the judge in the divorce case had a close relationship as co-principals in Contreras & Munoz, an Edinburg law firm. That conflict of interest eventually disqualified the judge, whose orders were voided.

In an ironic twist, Law Funder stopped pursuing its claims because it didn't have enough money to start the litigation over from scratch, according to court filings. It then sued Munoz for legal malpractice, negligence and breach of fiduciary duty.

The district court found that Munoz committed discovery violations that delayed the case by two years through noncompliance with court orders, failing to produce documents, not appearing at hearings and being uncooperative in scheduling depositions.

The court sanctioned him by striking his pleadings. A month later, Law Funder moved for a default judgment and Munoz didn't respond, so the court entered a default judgment against him.

On appeal to the Fifth Circuit, Munoz argued the district court improperly struck his pleadings, but the Fifth Circuit disagreed and affirmed the default judgment. He also argued that the damages award was an error because it included damages for attorney fees and costs that Law Funder would have paid regardless of Munoz's negligence, the opinion said.

The Fifth Circuit agreed, explaining that the lower court awarded damages for fees and expenses that Law Funder paid before it even hired Munoz, yet had not established Munoz was the cause in fact that made Law Funder lose that money. It also found Munoz's negligence might have cost Law Funder either the $1.2 million it expected to recover in the underlying matter, or attorney fees in pursuing the fruitless matter—but not both.

“The district court accordingly issued Law Funder a double recovery,” ruled the court, which remanded the case for a new trial on damages.

Since 2011, Munoz has served in the Texas Legislature as the Representative for District 36 in South Texas. He got his law license in 2007, according to his State Bar of Texas profile.