Ethics/Professional Responsibility
Jul. 2, 2003
Legal-Malpractice Plaintiff Can't Sue for Value of Lost Punitives
Focus Column - Legal Malpractice - By Alec H. Boyd - In Ferguson v. Lieff, Cabraser, Heimann & Bernstein , 30 Cal.4th 1037 (2003), the California Supreme Court adopted a bright-line rule that precludes a legal-malpractice plaintiff from recovering damages for the lost value of a punitive-damages claim. Writing for a four-justice majority, Justice Janice Rogers Brown held that "public policy considerations strongly militate against allowing a plaintiff to recover lost punitive damages."
Legal Malpractice
By Alec H. Boyd
In Ferguson v. Lieff, Cabraser, Heimann & Bernstein, 30 Cal.4th 1037 (2003), the California Supreme Court adopted a bright-line rule that precludes a legal-malpractice plaintiff from recovering damages for the lost value of a punitive-damages claim. Writing for a four-justice majority, Justice Janice Rogers Brown held that "public policy considerations strongly militate against allowing a plaintiff to recover lost punitive damages."
The three remaining justices, in an opinion by Justice Joyce L. Kennard, separately concurred and dissented to emphasize that they "would leave for another day the determination of whether today's holding applies to cases outside the class action context, when considerations different than those involved here may lead to a different conclusion."
Ferguson provides a much-needed clarification of a hotly disputed and unresolved issue. For almost 10 years, the only California decision to address the recoverability of the lost value of a punitive-damages claim in a legal-malpractice action was Merenda v. Superior Court, 3 Cal.App.4th 1 (1992).
In Merenda, the 3rd District Court of Appeal took note of the general rule that an attorney's "liability, as in other negligence cases, is for all damages directly and proximately caused by his negligence." The court held that a client could recover damages from a negligent attorney for the value of a lost claim for punitive damages. In reaching this conclusion, however, the 3rd District Court of Appeal gave only scant attention to the issue of proximate cause and to public-policy considerations.
More recently, in Piscitelli v. Friedenberg, 87 Cal.App.4th 953 (2001), the 4th District court created a split in authority by rejecting Merenda and holding that public policy prohibits awarding "lost punitive damages" as compensatory damages.
The 1st District Court of Appeal, in rendering its decision in Ferguson, followed Piscitelli without any modification to its reasoning.
Thereafter, in O'Connor Agency Inc. v. Brodkin, 99 Cal.App.4th 488 (2002), the 4th District, which had rendered Piscitelli, rejected Piscitelli's reasoning and followed Merenda. The state Supreme Court granted review of both Ferguson and O'Connor, deferring consideration of O'Connor pending review of Ferguson.
In Ferguson, the Supreme Court resolved this split in authority by siding squarely with Piscitelli and disapproving of Merenda to the extent that it holds that punitive damages are recoverable.
Ferguson arises from a mass tort action, in which class counsel stipulated to the certification of a mandatory nonopt-out class with respect to punitive damages. To settle the action, class counsel agreed to dismiss the punitive-damages claims with prejudice. Despite objections from some class members, the trial court approved the settlement and dismissed the punitive-damages claims. Two of the dissenting class members sued the class counsel for legal malpractice, seeking recovery of the punitive damages that they would have recovered but for the class counsel's alleged negligence in dismissing the punitive-damages claims.
The Supreme Court analyzed the question of whether legal-malpractice plaintiffs may recover lost punitive damages as an element of compensatory damages through the lens of proximate cause. Under California law, a finding of proximate cause requires the existence of "cause in fact" and the absence of any "public policy considerations" that would warrant immunizing the defendant from liability. PPG Indus. Inc. v. Transamerica Ins. Co., 20 Cal.4th 310 (1999).
In Ferguson, there was no dispute as to the existence of "cause in fact." Instead, the court found that public-policy considerations "strongly militate" the conclusion that a legal-malpractice plaintiff should not be able to recover lost punitive damages.
All seven justices agreed that allowing recovery of lost punitive damages in the class-action context would "hinder the ability of the trial courts to manage and resolve mass tort actions by discouraging the use of mandatory, non-opt-out punitive damage classes."
In the concurring and dissenting opinion of Kennard, joined by Justices Kathryn Werdegar and Carlos Moreno, this rationale was sufficient, in and of itself, to warrant affirmance of the Court of Appeal in light of the strong public policies supporting the use and settlement of class actions. Richmond v. Dart Industries Inc., 29 Cal.3d 462 (1981); Franklin v. Kaypro Corp., 559 F.2d 1326 (9th Cir. 1989). In their view, the court should have limited its decision to only those legal-malpractice claims arising from the class-action context.
In the view of the majority, however, four additional public policy rationales warranted the creation of a bright line rule precluding legal-malpractice plaintiffs from recovering lost punitive damages in any legal-malpractice context.
First, the Supreme Court reasoned, allowing a plaintiff to recover lost punitive damages would "defeat the very purpose behind such damages." Citing City of Newport v. Fact Concerts Inc., 453 U.S. 247 (1981), the court explained that the purpose of punitive damages is not to compensate the injured party but to "punish the tortfeasor whose wrongful action was intentional or malicious, and to deter him and others from similar extreme conduct."
Thus, the court concluded that allowing a legal-malpractice plaintiff to recover lost punitive damages would not effectuate the public policy behind punitive damages and instead would violate public policy because the amount of the award would bear "no relation to the gravity of the attorney's misconduct or his or her wealth."
Second, the Supreme Court held that permitting recovery of lost punitive damages would violate the public policy against speculative damages. The court reasoned that because "an award of punitive damages constitutes a moral determination," the level of punitive damages is not really a "fact" tried by the jury. Instead, punitive damages are an expression of the jury's "moral condemnation."
Thus, because moral judgments are inherently speculative, the court reasoned that a jury in a legal-malpractice case "cannot objectively determine whether punitive damages should have been awarded or the proper amount of those damages with any legal certainty."
Third, the court held that the "complex standard of proof" required in determining the value of a claim for lost punitive damages would confuse the jury by asking whether the legal-malpractice plaintiff proved by a "preponderance of the evidence" that the jury in the underlying action would have found "clear and convincing evidence" of fraud, oppression or malice sufficient to warrant punitive damages.
Finally, the court held that allowing recovery of lost punitive damages as compensatory damages in a legal-malpractice action might exact a significant social cost by increasing the cost of legal-malpractice insurance or further discouraging insurers from issuing professional liability insurance in California.
Kennard dissented from the majority's analysis of these four factors, based primarily on the view that an award of lost punitive damages is nothing more than the "value of the claim lost" by the attorney's negligence.
Kennard reasoned that denying legal-malpractice plaintiffs recovery of lost punitive damages would preclude plaintiffs from being made whole. However, in this regard, Kennard's opinion offers no convincing response to the majority's conclusion that punitive damages are not intended to compensate the injured plaintiff.
Two other arguments made by Kennard are more convincing. First, she argues that lost punitive damages are subject to proof in a legal-malpractice trial. Given that the value of an underlying claim is determined in legal-malpractice actions through the "trial within a trial" of the underlying action, the majority's apparent concern for the possibility of jury confusion is perplexing. A legal-malpractice jury is no more likely to be confused by the determination of the amount of punitive damages than the jury in the underlying action would have been, especially if the trial court utilizes appropriate bifurcation procedures.
Second, Kennard argues that the majority's concern that permitting recovery of lost punitive damages may "exact a significant social cost" is misplaced given that California, consistent with all but one other state, has allowed the recovery of lost punitive damages since Merenda was issued in 1992.
Ultimately, however, Kennard's arguments fail to refute the majority's core conclusion that allowing legal-malpractice plaintiffs to recover the value of a punitive-damages claim lost as a result of an attorney's negligence would not further the goals of punitive damages. Instead, as the majority concludes, allowing such a recovery would serve only to inappropriately punish negligent attorneys.
Alec H. Boyd litigates insurance coverage and professional liability matters with the San Francisco office of Arter & Hadden.
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