IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 18-40320

THE LAW FUNDER, L.L.C., 

 Plaintiff - Appellee

v.

SERGIO MUNOZ, JR.; LAW OFFICES OF SERGIO MUNOZ, JR. P.C., doing 

business as Munoz Law Firm, 

 Defendants - Appellants

Appeal from the United States District Court

for the Southern District of Texas

Before KING, SMITH, and WILLETT, Circuit Judges.

PER CURIAM:

The Law Funder, L.L.C., sued Sergio Munoz, Jr., and his law firm for 

legal malpractice. Finding a series of discovery violations and related 

malfeasance, the district court struck Munoz’s answer. Munoz did not move to 

replead, and the district court entered default judgment against him. The 

district court then held a bench trial on damages and awarded Law Funder 

nearly $3 million. Munoz appeals, challenging both the default judgment and 

the district court’s award. We AFFIRM the district court’s entry of default 

judgment against Munoz. But because we conclude the district court 

United States Court of Appeals

Fifth Circuit

FILED

May 16, 2019

Lyle W. Cayce

Clerk

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No. 18-40320

2

improperly calculated damages under Texas law, we VACATE the district 

court’s final judgment and REMAND for a new trial on damages. 

I.

A.

The Law Funder, L.L.C., (“Law Funder”) is a litigation-financing firm. It 

grants nonrecourse loans to plaintiffs and attorneys to cover the expenses of 

lawsuits in exchange for the rights to portions of the lawsuits’ eventual 

winnings. As relevant here, Law Funder held rights to portions of the proceeds 

of 21 lawsuits litigated by Servicios Legales de Mesoamerica S. de R.L. 

(“SLM”), a Mexican law firm. Seeking to protect its investments into SLM’s 

litigation, Law Funder intervened in a Texas state-court divorce proceeding 

involving Wilfrido Garcia, who had an ownership interest in SLM that became 

part of the marital estate. 

The state court ordered a number of law firms and attorneys to pay 

litigation debts owed to SLM. Only one attorney complied, so the state court 

appointed receivers to locate and collect the remainder of the debts owed to 

SLM. Several of SLM’s creditors intervened in the Garcia divorce and claimed 

entitlement to the funds the receivers collected, although testimony below 

established that Law Funder’s claim was the most substantial. Law Funder 

retained several attorneys, including defendants Sergio Munoz, Jr., and his 

law firm, Law Offices of Sergio Munoz, Jr., P.C., (collectively, “Munoz”) to help 

locate these funds and secure their ultimate disbursement to Law Funder. 

Unbeknownst to Law Funder, Munoz had a close professional 

relationship with Judge Jesus Contreras, who was presiding over the Garcia 

divorce: Munoz and Judge Contreras were coprincipals in a professional 

corporation, Contreras & Munoz, P.C. About a year after Law Funder retained 

Munoz, an intervenor in the Garcia divorce with a competing claim to the SLM 

receiver funds discovered this conflict and moved to disqualify Judge 

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Contreras. A different state-court judge heard the motion and ordered Judge 

Contreras disqualified. The state court subsequently voided all orders Judge 

Contreras had entered in the case, including the order appointing the 

receivers. At this point, Law Funder had expended almost $2 million in 

attorney fees and expenses trying to collect SLM’s debt. Left without enough 

funding to start over, Law Funder ceased pursuing its claims in the Garcia 

divorce. 

B.

Invoking the district court’s diversity jurisdiction, Law Funder brought 

the present suit against Munoz for negligence, breach of fiduciary duty, and 

legal malpractice under Texas law. Munoz filed an answer, and the case 

proceeded to discovery. The district court later found Munoz committed a 

litany of discovery violations and other procedural transgressions. Because the 

district court had a front-row seat to the saga below, we quote its description 

of events at length:

Plaintiff served Defendants with its first request for 

production on May 29, 2015. Due to Defendants’ failure to produce 

any documents, Plaintiff subsequently filed a motion to compel 

production. Thereafter, Defendants promised to act in good faith 

and turn over appropriate documentation. In light of this promise, 

Judge Randy Crane ordered Defendants “to produce any relevant, 

unprivileged documents in their possession as indicated in their 

objections and responses to Plaintiff’s first request for production 

within fourteen days of this order . . . .” 

Two months later, Plaintiff moved for sanctions on the 

ground that Defendants had not complied with this order. The 

Court subsequently permitted David Calvillo, then counsel of 

record, to withdraw but abated the case for 30 days to allow 

Defendants to obtain new counsel. Despite the fact that the 

abatement ended on May 12, 2016, no appearance was made by 

counsel at that time. The Court held a hearing on June 6, 2016 to 

discuss the pending motion for sanctions, but Defendants did not 

appear. Nevertheless, the Court ordered Defendants to produce 

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certain documents requested by Plaintiff in its first request for 

production, most notably certain electronic documents. 

Defendants, through their new counsel, subsequently requested an 

extension of time to comply with the production order, claiming 

that Counsel had just been retained. No other explanation was 

given for the request, thus the Court denied the request. The Court 

thereafter held a hearing on September 13, 2016 to discuss the 

status of the case but Defendants again failed to appear. The Court 

reset the hearing to October 18, 2016 at which time the Court was 

made aware that Defendants had never produced the electronic

documents which the Court had ordered Defendants to produce. 

The Court ordered Defendants to tender the electronic documents 

to Plaintiff within three days of the October 1, 2016 status 

conference, or else it would consider sanctions upon Plaintiff’s 

motion.

Plaintiff also served Defendants with its second request for 

production on September 8, 2016. Defendants never responded, 

and Plaintiff’s counsel raised this issue with the Court during the 

October 18, 2016 status conference. The Court ordered Defendants 

to respond to Plaintiff’s second request for production within three 

days of that hearing, and warned Defendants that failure to timely 

respond could result in sanctions. Exactly three days later, at

12:40 P.M., Plaintiff filed its second motion for sanctions, stating 

that “Defendants have still not fully complied with the Court’s 

original order compelling the production of documents and had not 

responded to Plaintiff’s second request for production.” It is not 

entirely clear from the face of Plaintiff’s motion whether 

Defendants have yet tendered the electronic documents identified 

in Plaintiff’s first production request.

The Court observes more generally that Defendants have 

materially impeded the discovery process and therefore resolution 

of this case. Defendants asserted perfunctory objections to many of 

Plaintiff’s requests for production and were uncooperative in 

scheduling depositions. The Court thus had to order Defendants to 

appear for their depositions. Also, Defendants failed to adequately 

respond to Plaintiff’s request for admissions, because they copied 

and pasted the same “vagueness” objection to twenty-nine of the 

thirty-six admissions requests. Defendants and Defendants’ 

counsel have also failed to appear or have arrived late at three 

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hearings held specifically for the purpose of resolving discovery 

disputes. Plaintiff’s counsel also informs the Court that 

Defendants failed to “produce a single document” in response to 

Plaintiff’s subpoena duces tecum. In sum, this case was filed in 

federal court in December of 2014, and after almost two years, 

discovery has not been completed.

(omission in original) (footnotes omitted).

As alluded to in the above-quoted passage, Law Funder filed a second 

motion to sanction when Munoz failed to meet the district court’s deadline to 

comply with Law Funder’s second request for production. Law Funder 

represented in its motion that Munoz objected to sanctions, but Munoz failed 

to file an opposition. After noting Munoz’s litany of litigatory misbehavior and 

failure to oppose Law Funder’s motion, the district court determined a sanction 

was warranted under Federal Rule of Civil Procedure 37(b)(2)(A). The district 

court applied the four-factor test for weighing a sanction for failing to make a 

required evidentiary disclosure that we articulated in United States v. Garza, 

448 F.3d 294 (5th Cir. 2006): “(1) the reasons why the disclosure was not made; 

(2) the amount of prejudice to the opposing party; (3) the feasibility of curing 

such prejudice with a continuance of the trial; and (4) any other relevant 

circumstances.” Id. at 299-300. It concluded that the reason for Munoz’s 

disobedience was unclear, that the delay and expense caused by his violations 

prejudiced Law Funder, and that continuing the case would only exacerbate 

that prejudice. The district court further found all other relevant 

circumstances “weigh[ed] heavily in favor of sanctions.” Specifically, it noted 

that Munoz “is an attorney who should fully understand the need to comply 

with the Federal Rules of Civil Procedure and the need to cooperate in 

discovery” and that he had “unreasonably and systematically prolonged this 

case almost from inception.” 

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The district court then concluded that the most appropriate sanction was 

to strike Munoz’s pleadings. In reaching this conclusion, the district court cited 

the extent of Munoz’s violations and his attempts to systemically undermine 

discovery. It also observed that striking Munoz’s pleadings was particularly 

warranted because Munoz thwarted Law Funder’s attempts to gather evidence 

about his relationship with Judge Contreras, jeopardizing Law Funder’s 

ability to prove its claims. 

In striking Munoz’s pleadings, the district court did not say whether it 

would entertain a motion from Munoz to replead. Munoz filed no such motion. 

Law Funder then moved for default judgment against Munoz. Law Funder 

again indicated that Munoz opposed the motion, but Munoz again failed to 

respond. The district court instructed the clerk of the court to enter a default 

against Munoz. It subsequently examined Law Funder’s pleadings, 

determined they sufficiently stated a legal-malpractice claim under Texas law, 

and entered a default judgment holding Munoz liable to Law Funder.

C.

Following Munoz’s default, the case proceeded to a bench trial on 

damages. Law Funder presented three witnesses: its managing member;

Michael Smikun, Law Funder’s coordinating counsel in the Garcia divorce;1

and an attorney proffered as an expert on legal-malpractice damages. Law 

Funder’s expert testified that Law Funder’s damages totaled to $2,988,660.61. 

He reached this figure by combining the following:

(1) $1,767,430 for the cost Law Funder incurred in the Garcia 

divorce (including reasonable and necessary attorney fees paid to 

Law Funder’s counsel), excluding payments to Munoz;

 

1 Smikun is also counsel of record for Law Funder in this appeal.

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(2) $1,200,000 that Law Funder would have collected if the 

receivership order was not vacated; and

(3) $21,230.61 Law Funder paid to Munoz. 

Munoz did not present any witnesses. 

The district court entered final judgment in favor of Law Funder and 

awarded it $2,988,660.61—the same figure presented by Law Funder’s 

expert—without further explanation. Munoz then filed separate motions for a 

new trial and for relief from judgment. The district court denied both motions.

Munoz appeals.

II.

We first consider Munoz’s argument that the district court improperly 

struck his pleadings. Rule 37(b)(2)(A) allows a district court to impose a 

sanction when a party fails to comply with a discovery order, and the court has 

broad discretion in fashioning its sanction when it does so. See Smith & Fuller,

P.A. v. Cooper Tire & Rubber Co., 685 F.3d 486, 488 (5th Cir. 2012). We thus

review a Rule 37(b)(2)(A) sanction for abuse of discretion. United States v. 

$49,000 Currency, 330 F.3d 371, 376 (5th Cir. 2003). We review the district 

court’s factual findings underpinning its sanction order for clear error. Positive 

Software Sols., Inc. v. New Century Mortg. Corp., 619 F.3d 458, 460 (5th Cir. 

2010).

Our caselaw imposes a heighted standard for litigation-ending sanctions 

(sometimes called “death penalty” sanctions). For a lesser sanction, we broadly 

require the district court to determine the sanctions are “just” and “related to 

the particular ‘claim’ which was at issue in the order to provide discovery.” 

Compaq Comput. Corp. v. Ergonome Inc., 387 F.3d 403, 413 (5th Cir. 2004) 

(quoting Ins. Corp. of Ir. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 

707 (1982)). But the district court must make four additional findings to impose 

a litigation-ending sanction: (1) the discovery violation was committed willfully 

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or in bad faith; (2) the client, rather than counsel, is responsible for the 

violation; (3) the violation “substantially prejudice[d] the opposing party”; and 

(4) a lesser sanction would not “substantially achieve the desired deterrent 

effect.” FDIC v. Conner, 20 F.3d 1376, 1380-81 (5th Cir. 1994).

Munoz argues that the district court abused its discretion by striking its 

pleadings because it did not consider the four factors we articulated in Conner. 

But in failing to oppose Law Funder’s motion to sanction, Munoz has forfeited 

any argument that the district court’s sanction order was improper. See State 

Indus. Prods. Corp. v. Beta Tech. Inc., 575 F.3d 450, 456 (5th Cir. 2009) (“Under 

our general rule, arguments not raised before the district court are waived and 

will not be considered on appeal unless the party can demonstrate 

‘extraordinary circumstances.’” (quoting N. Alamo Water Supply Corp. v. City 

of San Juan, 90 F.3d 910, 916 (5th Cir. 1996))); see also, e.g., Quest Med. v. 

Apprill, 90 F.3d 1080, 1088 (5th Cir. 1996) (“We are a court of errors, and will 

not consider matters raised for the first time on appeal, unless our failure to 

do so would result in manifest injustice.”). Munoz’s citation to Colonial Penn 

Insurance v. Market Planners Insurance Agency Inc., 157 F.3d 1032 (5th Cir. 

1998), does not save him from the inevitable. In Colonial Penn, we held that a 

litigant need not specifically move under Federal Rule of Civil Procedure 50 to 

preserve a sufficiency-of-the-evidence argument following a bench trial (as a 

litigant would need to do following a jury trial). See id. at 1036. Munoz cites to 

no authority suggesting we should except him from the normal rule that 

parties must raise any arguments below that they seek to press on appeal.2

 

2 Munoz does not argue that he preserved his Conner argument by raising it in his 

postjudgment motions, nor does he otherwise argue the district court erred in denying those 

motions. Cf. Williams v. Toyota Motor Eng’g & Mfg. N. Am., Inc., 470 F. App’x 309, 313 (5th 

Cir. 2012) (unpublished) (“Motions to reconsider ‘cannot be used to raise arguments which 

could, and should, have been made before the judgment issued.’” (quoting Rosenzweig v. 

Azurix Corp., 332 F.3d 854, 863 (5th Cir.2003))).

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We may reverse on a forfeited argument when the district court has 

committed plain error. See Crawford v. Falcon Drilling Co., 131 F.3d 1120, 

1123 (5th Cir. 1997). Munoz makes no argument that the district court’s 

sanctions order amounted to plain error, and we conclude it did not. Even 

assuming the district court abused its discretion in failing to apply the Conner 

factors when weighing whether to strike Munoz’s pleadings, its error was not 

“clear or obvious.” Jimenez v. Wood County, 660 F.3d 841, 847 (5th Cir. 2011) 

(en banc) (quoting United States v. Ellis, 564 F.3d 370, 377-78 (5th Cir. 2009)). 

It might be an obvious abuse of discretion to fail to consider the Conner factors 

in assessing a litigation-ending sanction, but it was not obvious that the 

district court assessed a litigation-ending sanction in striking Munoz’s 

pleadings. As the district court noted, it did not grant default judgment in its 

sanctions order; it did so more than a month later in a separate order and upon 

Law Funder’s separate motion (which Munoz again failed to oppose). Even 

then, the district court did not grant the motion as a mere formality—it 

substantively analyzed Law Funder’s complaint to ensure default was 

warranted. Moreover, the record is silent as to whether the district court would 

have in the interim entertained a motion from Munoz to replead (perhaps after 

taking steps to remedy his violations). Although we need not resolve the issue 

here, we observe that the cases in which we have previously treated an order 

striking a defendant’s pleadings as a litigation-ending sanction have all 

suggested that it is either the simultaneous grant of default or the denial of a 

motion to replead that makes it a litigation-ending sanction. See Smith v. Legg 

(In re United Mkts. Int’l, Inc.), 24 F.3d 650, 654 (5th Cir. 1994) (“Striking a 

defendant’s answer and denying a request to replead is equally as harsh a 

sanction as dismissal of a plaintiff’s case with prejudice . . . .”); Pressey v. 

Patterson, 898 F.2d 1018, 1021 n.2 (5th Cir. 1990) (“[S]triking the pleadings of 

a defendant and rendering default judgment is equally as harsh a sanction as 

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dismissing the case of a plaintiff with prejudice.”). At best, our caselaw is 

unclear about whether an order striking a defendant’s pleadings, without 

more, is a litigation-ending sanction subject to Conner. Accordingly, the district 

court did not obviously abuse its discretion in failing to apply Conner.

Furthermore, any error was not prejudicial to Munoz and thus may not 

be reversed on plain-error review. See Crawford, 131 F.3d at 1125. Although 

the district court did not apply Conner, its various findings strongly suggest it 

would have reached the same result if it did. The district court explicitly found 

prejudice to Law Funder in its sanctions order, and it found in its order denying 

Munoz’s postjudgment motions that Munoz acted willfully and that lesser 

sanctions would not have sufficed. And although the district court did not 

explicitly find that Munoz was personally responsible, it implicitly found this 

factor, noting in its sanctions order that Munoz “is an attorney who should 

fully understand the need to comply with the Federal Rules of Civil Procedure 

and the need to cooperate in discovery.” In our review of the record, none of 

these findings is clearly erroneous. We affirm the district court’s order striking 

Munoz’s pleadings. 

III.

We next consider Munoz’s challenge to the district court’s damages 

award. Munoz raises four issues that more or less state the same argument: 

the district erred in awarding Law Funder compensatory damages for attorney 

fees and costs that it would have incurred regardless of Munoz’s negligence.

Reviewing the district court’s conclusions of law de novo and its findings of fact 

for clear error, see Grilletta v. Lexington Ins. Co., 558 F.3d 359, 364 (5th Cir. 

2009), we agree.

The remedy for legal malpractice under Texas law is compensatory 

damages, the goal of which is to put the plaintiff “in a position substantially 

equivalent in a pecuniary way to that which he would have occupied had no 

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tort been committed.” Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’l Dev. 

& Research Corp., 299 S.W.3d 106, 122 (Tex. 2009) (quoting Restatement 

(Second) of Torts § 903 cmt. a (Am. Law Inst. 1977)).3 Thus, a legal-malpractice 

plaintiff may recover as damages “attorney’s fees it paid for representation in 

the underlying suit, if it was the defendant attorney’s negligence that 

proximately caused the fees.” Id.4 In other words, Texas law does not allow a 

legal-malpractice plaintiff to recover attorney fees it would have incurred 

regardless of the defendant’s wrongdoing.

Despite a good deal of arguing past one another, the parties appear to 

agree on this much. The question, therefore, is whether Munoz’s negligence 

proximately caused the attorney fees and costs Law Funder incurred while 

trying to collect SLM’s debts in the Garcia divorce. “Proximate cause has two 

elements: cause in fact and foreseeability.” Id. We are concerned here only with 

cause in fact, which “must be established by proof that (1) the negligent act or 

omission was a substantial factor in bringing about the harm at issue, and (2) 

absent the negligent act or omission (‘but for’ the act or omission), the harm 

would not have occurred.” Id.

Law Funder’s claim to the attorney fees and costs it incurred in the 

Garcia divorce stumbles on cause in fact. We fail to understand Law Funder’s 

argument that it would not have incurred the contested fees and expenses but 

for Munoz’s negligence. If Munoz had disclosed his relationship with Judge 

Contreras when Law Funder first solicited Munoz’s services, then Law Funder 

in all likelihood would have found another attorney to take Munoz’s place and 

 

3 When hearing a case under diversity jurisdiction, we apply state substantive law. 

See, e.g., Block v. Tanenhaus, 867 F.3d 585, 589 (5th Cir. 2017). The parties here agree that 

Texas law applies to their dispute. 

4 To the extent Munoz argues that Texas law precludes Law Funder from recovering 

any attorney fees, regardless of whether his negligence proximately caused Law Funder to 

incur those fees, Akin Gump squarely forecloses this argument. 

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continued to litigate its claims in the Garcia divorce. And there is no indication 

it would have incurred less expense in doing so. Even more confounding is the 

district court’s apparent award of attorney fees and expenses Law Funder 

incurred before it retained Munoz: an effect cannot precede its cause.

We recognize the possibility—though remote and not well-supported by 

the evidence—that if Munoz had properly disclosed his conflict, then instead 

of finding a different attorney, Law Funder might have at that time concluded 

that it could not afford to seek new counsel and abandoned its claims in the 

Garcia divorce. In this scenario, Law Funder would not have expended the 

attorney fees and costs it thereafter spent fruitlessly pursuing its claims, so 

Munoz’s negligence would have at least been a but-for cause of those damages. 

But if this were the case, then the district court’s judgment would be in error 

for awarding Law Funder money it expected to recover from the SLM receivers. 

In that scenario, having abandoned its claims, Law Funder would have 

collected nothing from the SLM receivers regardless of Munoz’s negligence.

In sum, Munoz’s negligence might have cost Law Funder the $1,200,000

it expected to recover from the SLM receivers, or it might have cost Law 

Funder whatever portion of $1,767,430 it incurred after Munoz’s negligence in 

fruitless pursuit of the SLM receiver funds. But we can envision no scenario in 

which Munoz’s negligence cost Law Funder both. The district court accordingly 

issued Law Funder a double recovery by awarding it the attorney fees it spent 

litigating its claim in the Garcia divorce and its expected return on that 

litigation. To the extent the district court concluded that Texas law allowed it 

to award the attorney fees and expenses Law Funder incurred in the Garcia 

divorce regardless of whether Munoz’s negligence proximately caused those 

fees and expenses, it erred as a matter of law. To the extent the district court 

found as a factual matter that Munoz’s negligence proximately caused Law 

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Funder to both incur attorney fees and costs litigating the Garcia divorce and 

lose its claims to the SLM receiver funds, the district court clearly erred.

Law Funder also suggests that inquiry into whether Munoz’s negligence 

proximately caused its damages is improper because Munoz’s default judgment 

established proximate cause. We do not agree. A default judgment establishes 

the defendant’s liability but not the quantity of damages. United States ex rel. 

M-CO. Constr., Inc. v. Shipco Gen., Inc., 814 F.2d 1011, 1014 (5th Cir. 1987). 

Thus, while the default judgment established that Munoz proximately caused 

Law Funder some harm, the district court must apply Texas law to determine 

the quantity of those damages. Cf. id. at 1016 (remanding defaulted contract 

claim for new damages calculation because default judgment established 

plaintiff performed but not whether plaintiff substantially performed, affecting 

particular damages plaintiff could recover under Texas law). And as already 

established, proximate cause is a necessary component of the damages 

calculation under Texas law. See Akin, Gump, 299 S.W.3d at 122. The district 

court must therefore determine whether Munoz’s negligence proximately 

caused the specific damages Law Funder claims.

We accordingly vacate the district court’s damages award.5 On remand, 

the district court should allow Munoz to present evidence and conduct crossexamination relevant to whether his negligence proximately caused Law 

Funder’s claimed damages.

As a final note, we provide two caveats to our above analysis. First, we 

do not foreclose the possibility that Munoz’s negligence proximately caused 

Law Funder to incur any attorney fees or costs in the Garcia litigation. If Law 

Funder spent money contesting the disqualification order, for example, then 

 

5 Because we vacate the district court’s award, we have no occasion to consider 

Munoz’s arguments that the district court failed to make sufficient findings in support of the 

judgment and failed to provide adequate notice of the damages trial.

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Munoz’s negligence was at least the factual cause of those damages because 

there would have been no motion to disqualify Judge Contreras but for Munoz’s 

undisclosed conflict. Second, our 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. See 

Liberty Mut. Ins. Co. v. Gardere & Wynne, L.L.P., 82 F. App’x 116, 120 (5th Cir. 

2003) (unpublished); Burrow v. Arce, 997 S.W.2d 229, 239-40 (Tex. 1999). Law 

Funder specifically requested fee forfeiture in its complaint, and its expert 

separately calculated these damages at trial. Munoz makes no argument on 

appeal that fee-forfeiture damages were otherwise improper.

IV.

We AFFIRM the district court’s entry of default judgment against 

Munoz, but we VACATE its damages award and REMAND for a new trial. 

Each party shall bear its own costs. 

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