from the United States District Court for the Southern
District of Texas
KING, SMITH, and WILLETT, Circuit Judges.
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
improperly calculated damages under Texas law, we VACATE the
district court's final judgment and REMAND for a new
trial on damages.
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.
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.
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
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.
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 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 hearings held specifically for the
purpose of resolving discovery disputes. Plaintiff's
counsel also informs the Court that Defendants failed to
"produce a single ...