The Law Funder, LLC v. Munoz, Jr. et al

Filing 187

ORDER AND OPINION (Signed by Judge Micaela Alvarez) Parties notified.(klopez, 7)

Case 7:14-cv-00981 Document 187 Filed on 09/16/22 in TXSD Page 1 of 3
United States District Court
Southern District of Texas

ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
MCALLEN DIVISION

September 16, 2022
Nathan Ochsner, Clerk

THE LAW FUNDER, L.L.C.,

§
§
Plaintiff,
§
§
VS.
§
§ CIVIL ACTION NO. 7:14-cv-00981
SERGIO MUÑOZ, JR., and LAW
§
OFFICES OF SERGIO MUÑOZ, JR., P.C. §
d/b/a The Muñoz Law Firm,
§
§
Defendants.
§
ORDER AND OPINION
The Court now considers the issue of fee forfeiture in this case. The Fifth Circuit vacated
this Court’s award of damages and remanded this case for a new trial, which was held on August
15-16, 2022.1 There, the Jury returned a verdict of damages in favor of Plaintiff.2 Upon receipt of
the Jury’s verdict, Plaintiff moved for judgment in its favor and also moved for fee forfeiture in
the amount of $21,230.61 that it paid to Defendants for Mr. Muñoz’ services. The Court now
addresses that issue.
On appeal, the Fifth Circuit stated that its “opinion should not be read to prevent Law
Funder from recovering as a fee forfeiture the $ 21,230.61 it paid Munoz for his services in the
Garcia divorce. Texas law authorizes fee forfeiture as independent damages for breach of fiduciary
duty regardless of causation.”3 As the Texas Supreme Court has held, and the Fifth Circuit has
adopted, “[a] client does not have to prove either causation or injury to be entitled to a fee forfeiture

1

L. Funder, L.L.C. v. Munoz, 924 F.3d 753 (5th Cir. 2019), as revised (June 6, 2019).
Dkt. No. 183.
3
L. Funder, L.L.C., 924 F.3d at 762 (5th Cir. 2019), as revised (June 6, 2019)(citing Liberty Mut. Ins. Co. v.
Gardere & Wynne, L.L.P., 82 Fed. Appx. 116, 120 (5th Cir. 2003)(unpublished); Burrow v. Arce, 997 S.W.2d 229
(Tex. 1999)).
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Case 7:14-cv-00981 Document 187 Filed on 09/16/22 in TXSD Page 2 of 3

as a remedy for an attorney’s breach of fiduciary duty.”4 Thus, the “amount of the fee to be
forfeited is a question for the court, not a jury.”5 However, the forfeiture is not automatic and not
necessarily complete.6 To grant an automatic complete forfeiture would run awry of the foundation
of the agent/principal relationship. As the Texas Supreme Court stated in Burrow,
[i]t would be inequitable for an agent who had performed extensive services
faithfully to be denied all compensation for some slight, inadvertent misconduct
that left the principle unharmed, and the threat of so drastic a result would
unnecessarily and perhaps detrimentally burden the agent’s exercise of judgment
in conducting the principal’s affairs.7
Thus, the remedy of fee forfeiture is reserved for “clear and serious” violations of duty.8
The Restatement (Third) of The Law Governing Lawyers states: “A violation is clear if a reasonable
lawyer, knowing the relevant facts and law reasonably accessible to the lawyer, would have known
that the conduct was wrongful.”9 Further, “[a] lawyer is not entitled to be paid for services rendered
in violation of the lawyer’s duty to a client or for services needed to alleviate the consequences of
the lawyer’s misconduct.”10 Thus, “[o]rdinarily, forfeiture extends to all fees for the matter for
which the lawyer was retained . . . .”11 However, “[s]ometimes forfeiture for the entire matter is
inappropriate, for example when a lawyer performed valuable services before the misconduct
began, and the misconduct was not so grave as to require forfeiture for all services.”12
The factors outlined in the restatement are, “the gravity and timing of the violation, its
willfulness, its effect on the value of the lawyer’s work for the client, any other threatened or actual
harm to the client, and the adequacy of other remedies.”13 Further, the Texas Supreme Court adds,

4

Liberty Mut. Ins. Co. 82 Fed. Appx. at 121 (citing Burrow, 997 S.W.2d at 240).
Burrow, 997 S.W.2d at 232
6
Id. at 241.
7
Id.
8
Id.
9
Id. (citing RESTATEMENT (THIRD) OF THE LAW GOVERNING LAWYERS § 49).
10
Id.
11
Id.
12
Id.
13
Id. at 243.
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Case 7:14-cv-00981 Document 187 Filed on 09/16/22 in TXSD Page 3 of 3

and places great weight on “the public interest in maintaining the integrity of attorney-client
relationships.”14 Phrased another way, “the extent to which the attorney’s or firm’s conduct offends
a public sense of justice and propriety.”15
This approach is reinforced by the Restatement (Second) of Agency which provides that:
An agent is entitled to no compensation for conduct which is disobedient or which
is a breach of his duty of loyalty; if such conduct constitutes a wilful and deliberate
breach of his contract of service, he is not entitled to compensation even if properly
performed services for which no compensation is apportioned.16
The necessary factual disputes in this case have now been settled. Thus, the Court is left
with determining “whether the attorney’s conduct was a clear and serious breach of duty to his
client and whether any of the attorney’s compensation should be forfeited, and if so, what
amount.”17 The Court holds that Sergio Muñoz Jr.’s conflict of interest resulting in the
disqualification of Judge Contreras rises to the level of a clear and serious breach of duty to his
client, The Law Funder, LLC. Further, the Court finds that the entire fee amount of $21,230.61
should be forfeited, most importantly due to the strong public interest in maintaining the integrity
of attorney-client relationships.
A separate final judgment outlining the specific terms in accordance with Federal Rule of
Civil Procedure 58(a) to follow.
IT IS SO ORDERED.
DONE at McAllen, Texas, this 16th day of September 2022.

__________________________________
Micaela Alvarez
United States District Judge

14

Id. at 244.
Id.
16
Id. (citing RESTATEMENT (SECOND OF AGENCY § 469 (1958)).
17
Id. at 246.
15

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