Stanford Law School - Robert Crown Law Library

Filed 6/9/03

IN THE SUPREME COURT OF CALIFORNIA

BRENT FERGUSON et al.,
Plaintiffs
and
Appellants,
S104444
v.
) Ct.App.
1/4
A091877
LIEFF, CABRASER, HEIMANN &
BERNSTEIN, LLP, et al.,
City & Co. San Francisco
Defendants and Respondents. )
Super. Ct. No. 996044

In a mass tort action, class counsel stipulated to the certification of a
mandatory, non-opt-out class with respect to punitive damages. To settle the
action, class counsel agreed to dismiss the punitive damages class claims with
prejudice. Despite objections from some class members, the trial court dismissed
the punitive damages claims and approved the settlement. Two of these objectors
now contend class counsel committed legal malpractice and seek to recover the
punitive damages they would have recovered but for counsel’s negligence. We
now consider whether plaintiffs in a legal malpractice action may recover as
compensatory damages the punitive damages they allegedly lost due to the
negligence of their attorneys in the underlying litigation (lost punitive damages).
We conclude they may not.
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I. FACTS
A. The Underlying Class Action
In 1994, a processing tower at a refinery in Rodeo, California, released
hydrogen sulfide and a toxic chemical called Catacarb into the atmosphere. The
release of these substances affected thousands of residents living near the refinery.
Soon thereafter, respondent Lieff, Cabraser, Heimann & Bernstein, LLP
(Lieff Cabraser) filed a class action lawsuit against Union Oil Company of
California (Unocal), the owner of the refinery. The complaint sought, among
other things, punitive damages. Other law firms also filed individual and class
action lawsuits against Unocal—including Casper, Meadows & Schwartz (Casper
Meadows), which had entered into contingent fee contracts with and filed suit on
behalf of appellants Brent Ferguson and Florencia Prieto (collectively appellants)
and other individuals.
Pursuant to a pretrial order, the trial court consolidated these actions against
Unocal and designated them as complex litigation. The court gave primary
responsibility for managing the consolidated actions to a steering committee of
plaintiffs’ counsel—which included Lieff Cabraser and Casper Meadows. The
court designated Lieff Cabraser as co-lead class counsel and Casper Meadows as
co-lead direct action counsel.
Lieff Cabraser then filed a first amended model complaint identifying four
potential classes: (1) personal injury, (2) property damage, (3) medical
monitoring, and (4) punitive damages (Unocal Class Action). Several months
later, Lieff Cabraser, its co-lead class counsel, and Unocal entered into a
stipulation and order approved by the trial court. Under the stipulation and order,
the class action plaintiffs agreed to withdraw the allegations of the personal injury
and property damage classes. The parties also stipulated to the “certification of a
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mandatory, non-opt-out” punitive damages class and agreed to schedule the issue
of certification of the medical monitoring class for briefing and decision. Finally,
the stipulation and order gave individuals with claims for personal injury or
property damage 60 days to file their claims and gave plaintiffs the right to seek
certification of the personal injury and property damage classes if Unocal moved
to decertify or substantially modify the punitive damages class.
Following extensive discovery, Lieff Cabraser engaged in settlement
negotiations with Unocal under the aegis of Judge Daniel H. Weinstein (ret.), the
court-appointed settlement master. After “extensive negotiations and discussion,”
the parties tentatively agreed to an $80 million global settlement of the
consolidated class and individual actions. The settlement required the dismissal of
the punitive damages class claims with prejudice.
The parties then stipulated to an order referring all issues concerning the
good faith and scope of the settlement and the allocation of settlement proceeds to
Judge Weinstein. Pursuant to this order, Judge Weinstein reported that the
settlement negotiations “were conducted at arm’s length by highly qualified
counsel who were thoroughly knowledgeable about the evidence and the law.” He
further concluded that the $80 million settlement was “a fair, reasonable, and just
settlement for all of the settling parties.” Observing that the settlement “could not
have been achieved without Class Counsel’s agreement to dismiss with prejudice
the punitive damages allegations of the non-opt-out punitive damages class” and
finding “the handful of objections to the proposed dismissal . . . to be
unpersuasive,” Judge Weinstein recommended “that the Court grant Class
Counsel’s motion to dismiss the punitive damages class claims with prejudice.”
After providing notice of the proposed dismissal of the punitive damages
class claims, Lieff Cabraser filed the motion to dismiss. The motion included
authorizations from the various attorneys representing the individual plaintiffs—
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including Casper Meadows—to dismiss their clients’ claims in exchange for
participation in the $80 million global settlement.
Over 12,000 individual members of the punitive damages class received
notice of the motion; eight, including appellants, filed objections. Appellants
focused on the purported inadequacy and unfairness of the settlement and asked
the court to allocate the $80 million settlement solely to the punitive damages
claims. Ferguson himself attended the hearing on the motion and personally
voiced his objections to the court. Appellants proceeded in propria persona
because Casper Meadows refused to represent them in opposing the motion and
settlement and because they could not find another attorney to assist them.
At the hearing, the trial court approved the settlement and dismissed the
punitive damages class claims with prejudice. In doing so, the court stated: “I’m
. . . satisfied that those concerns that you [the objectors] have [have] been fully
considered by the class counsel that are proposing this settlement. And I’m
satisfied that this appears to be a fair and reasonable settlement for all parties
involved. . . . [¶] My understanding of the settlement . . . [is] that the $80 million
settlement does encompass all punitive damages claims that have been filed, and
I’m hearing from everyone that I have a great deal of confidence in that this is a
settlement that should be approved and that the dismissal of the punitive claims
would be appropriate.”
In its written order dismissing the punitive damages class claims, the court
concluded “that the public’s interest in punishing Unocal for its conduct” at its
Rodeo “refinery, and in deterring Unocal from future such conduct has been
achieved.” The court also issued an order finding that the settlement “is fair,
reasonable and made in good faith, as that term is used in Code of Civil Procedure
Section 877.6.”
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Appellants did not appeal the dismissal of the punitive damages claims.
Instead, represented by Casper Meadows, they participated in the claims process
created by the settlement. Ferguson received an award of $125,000 and Prieto
received an award of $100,000 from the $80 million settlement. Neither Ferguson
nor Prieto appealed or otherwise challenged these awards.
B. The Legal Malpractice Action
A few weeks after receiving the settlement awards, appellants filed the
instant action against, among others, Lieff Cabraser and the individual attorneys at
Lieff Cabraser involved in the settlement of the Unocal Class Action—
respondents William Bernstein, Donald C. Arbitblit, and Jonathan D. Selbin
(collectively respondents). After initial demurrer rulings by the trial court,1
appellants filed a third amended complaint. The complaint stated 11 causes of
action, including: (1) negligence, (2) legal malpractice, (3) breach of fiduciary
duty, (4) fiduciary fraud, (5) intentional fraud, (6) breach of contract, (7)
constructive fraud, (8) breach of the implied covenant of good faith and fair
dealing, (9) conspiracy to commit fraud, and (10) unjust enrichment. The gist of
the complaint was that the settlement and related notices were inadequate and that
respondents breached their fiduciary duty and committed malpractice by certifying
the non-opt-out punitive damages class, negotiating and recommending the
settlement, and refusing to support appellants’ objections to the settlement. As
compensatory damages, appellants alleged they lost a potential award of punitive
damages against Unocal and received an award of compensatory damages far
below the amount they would have received but for respondents’ tortious conduct.

1
In their demurrer to the initial complaint, respondents contended appellants
could not recover lost punitive damages. In ruling on the demurrer, the trial court
apparently rejected this contention.
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The trial court initially sustained respondents’ demurrers to the fraud-
related causes of action. The court later granted summary judgment for
respondents on appellants’ remaining claims because the undisputed evidence
established that these claims were “barred by the doctrine of collateral estoppel.”
The court also found no due process violation because appellants received
adequate notice of the proceedings in the Unocal Class Action. Finally, the court
barred appellants’ unjust enrichment claim because respondents received no
benefit at appellants’ expense. Pursuant to these findings, the court entered
judgment in favor of respondents.
The Court of Appeal affirmed. The court found that the trial court properly
sustained the demurrers to appellants’ fraud-related causes of action because
“knowledge of all relevant events and notices by [Casper Meadows] was imputed
to them.” The court then upheld the summary judgment because appellants could
recover no damages from respondents as a matter of law. First, the court held that
appellants, by participating in the claims process, waived their claims of
inadequate compensatory damages. Second, the court held that “as a matter of
law, lost punitive damages are not recoverable as compensatory damages for legal
malpractice.” Because the court found no cognizable damages, it did not address
any other issues.
We granted review solely to determine whether lost punitive damages are
recoverable in a legal malpractice action and conclude they are not.
II. DISCUSSION
Citing Merenda v. Superior Court (1992) 3 Cal.App.4th 1, 14, appellants
contend they merely “seek[] the value of the recovery [they] lost through
[respondents’] negligence”—i.e., the punitive damages they should have
recovered from Unocal. Because these lost punitive damages “are compensatory,
not punitive,” in the context of a legal malpractice action (ibid.), they contend they
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may recover these damages even though respondents did not act oppressively,
fraudulently, or maliciously (see Civ. Code, § 3294, subd. (a)). Respondents
counter that appellants may not recover lost punitive damages as compensatory
damages for attorney negligence under the reasoning of Piscitelli v. Friedenberg
(2001) 87 Cal.App.4th 953. According to respondents, allowing recovery of lost
punitive damages contravenes the purpose of punitive damages awards and cannot
be justified “as a matter of policy.” (Id. at pp. 981-982.) We agree with
respondents, and find that legal malpractice plaintiffs may not recover lost
punitive damages as compensatory damages.
“Detriment is a loss or harm suffered in person or property.” (Civ. Code, §
3282.) “For the breach of an obligation not arising from contract, the measure of
damages . . . is the amount which will compensate for all the detriment
proximately caused thereby, whether it could have been anticipated or not.” (Civ.
Code, § 3333, italics added.) Thus, “an attorney’s ‘liability, as in other negligence
cases, is for all damages directly and proximately caused by his negligence.’ ”
(Smith v. Lewis (1975) 13 Cal.3d 349, 362, overruled on another point in In re
Marriage of Brown (1976) 15 Cal.3d 838, 851, fn. 14, quoting Pete v. Henderson
(1954) 124 Cal.App.2d 487, 489.)
“Proximate cause involves two elements.” (PPG Industries, Inc. v.
Transamerica Ins. Co. (1999) 20 Cal.4th 310, 315 (PPG).) “One is cause in fact.
An act is a cause in fact if it is a necessary antecedent of an event.” (Ibid.)
“Whether defendant’s negligence was a cause in fact of plaintiff’s damage . . . is a
factual question for the jury to resolve.” (Smith v. Lewis, supra, 13 Cal.3d at p.
360, fn. 9.)
By contrast, the second element focuses on public policy considerations.
Because the purported causes of an event may be traced back to the dawn of
humanity, the law has imposed additional “limitations on liability other than
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simple causality.” (PPG, supra, 20 Cal.4th at pp. 315-316.) “These additional
limitations are related not only to the degree of connection between the conduct
and the injury, but also with public policy.” (Id. at p. 316.) Thus, “proximate
cause ‘is ordinarily concerned, not with the fact of causation, but with the various
considerations of policy that limit an actor’s responsibility for the consequences of
his conduct.’ ” (Ibid., quoting Mosley v. Arden Farms Co. (1945) 26 Cal.2d 213,
221 (conc. opn. of Traynor, J.).)
Applying this understanding of proximate causation in the punitive
damages context, we recently refused to hold a negligent insurer liable for punitive
damages assessed against its insured. In PPG, an insurer refused to settle an
action against its insured for an amount within the insured’s policy limits. As a
result, the insured suffered a judgment for $1 million in punitive damages. (PPG,
supra, 20 Cal.4th at p. 313.) The insured sued its insurer for breach of the
covenant of good faith and fair dealing and sought to recover as compensatory
damages the $1 million “it had been ordered to pay as punitive damages . . . .”
(Id. at p. 314.) The trial court granted summary judgment for the insurer, and the
Court of Appeal affirmed. (Ibid.)
We agreed. Although the insurer’s negligence was the cause in fact of the
punitive damages award (PPG, supra, 20 Cal.4th at p. 315), we nonetheless
concluded that the insurer’s negligence did not proximately cause the award (id. at
p. 316). In reaching this conclusion, we held that “three policy considerations”
“strongly militate against allowing the insured, the morally culpable wrongdoer in
the third party lawsuit, to shift to its insurance company the obligation to pay
punitive damages resulting from the insured’s egregious misconduct in that
lawsuit.” (Ibid., fn. omitted.) First, allowing the insured to shift to its insurer “its
responsibility to pay the punitive damages in the third party action would violate
the public policy against reducing or offsetting liability for intentional wrongdoing
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by the negligence of another.” (Id. at p. 317.) Second, allowing the insurer to
assume liability for punitive damages premised on the egregious conduct of its
insured would defeat the public policies underlying these damages. (Ibid.)
Finally, requiring the insurer to pay punitive damages incurred by its insured
would violate “the public policy against indemnification for punitive damages.”
(Id. at p. 318, fn. omitted.)
Applying a similar analysis, we conclude that public policy considerations
strongly militate against allowing a plaintiff to recover lost punitive damages as
compensatory damages in a legal malpractice action. First, allowing recovery of
lost punitive damages would defeat the very purpose behind such damages.
“Punitive damages by definition are not intended to compensate the injured party,
but rather to punish the tortfeasor whose wrongful action was intentional or
malicious, and to deter him and others from similar extreme conduct.” (City of
Newport v. Fact Concerts, Inc. (1981) 453 U.S. 247, 266-267 (City of Newport);
see also Civ. Code, § 3294, subd. (a) [punitive damages are “damages for the sake
of example and by way of punishing the defendant”].) “That purpose is a purely
public one.” (Adams v. Murakami (1991) 54 Cal.3d 105, 110.) “The essential
question therefore in every case must be whether the amount of [punitive]
damages awarded substantially serves the societal interest.” (Ibid.)
Making a negligent attorney liable for lost punitive damages would not
serve a societal interest, because the attorney did not commit and had no control
over the intentional misconduct justifying the punitive damages award. Imposing
liability for lost punitive damages on negligent attorneys would therefore neither
punish the culpable tortfeasor (see City of Newport, supra, 453 U.S. at p. 267
[“Under ordinary principles of retribution, it is the wrongdoer himself who is
made to suffer for his unlawful conduct”]), nor deter that tortfeasor and others
from committing similar wrongful acts in the future (see Cappetta v. Lippman
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(S.D.N.Y. 1996) 913 F.Supp. 302, 306). Indeed, allowing appellants to recover
lost punitive damages would not effectuate the public purpose behind such
damages in this case because, as the trial court in the Unocal Class Action found,
“the public’s interest in punishing Unocal . . . and in deterring Unocal from future
such conduct has been achieved” by the $80 million settlement. (See ante, at p.
4.)
Allowing recovery of lost punitive damages as compensatory damages in
legal malpractice actions would also violate public policy, because the amount of
the award bears no relation to the gravity of the attorney’s misconduct or his or her
wealth. A plaintiff seeking to recover lost punitive damages from his negligent
attorney is “deliberately seeking an award disproportionate (or at least unrelated)
to the [attorney’s] ability to pay. That result . . . is contrary to the public purpose
of punitive damages.” (Adams v. Murakami, supra, 54 Cal.3d at p. 122.)
Contrary to appellants’ assertion, awarding lost punitive damages would
not indirectly further the deterrent purpose of punitive damages by encouraging
attorneys “to exercise reasonable care in investigating or defending punitive
damages claims.” (Jacobsen v. Oliver (D.D.C. 2002) 201 F.Supp.2d 93, 102.)
“ ‘ “The policy considerations in a state where, as in [California], punitive
damages are awarded for punishment and deterrence, would seem to require that
the damages rest ultimately as well as nominally on the party actually responsible
for the wrong.” ’ ” (Peterson v. Superior Court (1982) 31 Cal.3d 147, 157, fn. 4,
italics added.) By ultimately and nominally imposing damages on an attorney,
purporting to punish and deter a wrongdoer who was not responsible for the
wrong, an award of lost punitive damages necessarily frustrates the purpose of
such damages.
Even assuming an award of lost punitive damages may have some indirect
deterrent effect, it still conflicts with the public purpose behind punitive damages.
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“The ultimately proper level of punitive damages is an amount not so low that the
defendant can absorb it with little or no discomfort [citation], nor so high that it
destroys, annihilates, or cripples the defendant.” (Rufo v. Simpson (2001) 86
Cal.App.4th 573, 621-622.) Thus, an award of lost punitive damages can only
further the goal of deterrence if it deters “without being excessive.” (Adams v.
Murakami, supra, 54 Cal.3d at p. 111.) Because an award of lost punitive
damages bears no relation to the gravity of the attorney’s misconduct or his or her
wealth, it cannot further the deterrent purpose behind such damages. Indeed,
where, as here, the intentional wrongdoer is a wealthy corporation whose alleged
misconduct was especially reprehensible, any award of lost punitive damages is
likely to be “disproportionate to the [attorney’s] ability to pay” (id. at p. 112) and
may financially destroy the attorney. Such a result would undoubtedly contravene
the purpose of punitive damages, which “is to deter, not destroy.” (Ibid.)
Second, permitting recovery of lost punitive damages would violate the
public policy against speculative damages. “[D]amages may not be based upon
sheer speculation or surmise, and the mere possibility or even probability that
damage will result from wrongful conduct does not render it actionable.” (In re
Easterbrook (1988) 200 Cal.App.3d 1541, 1544, disapproved on other grounds by
People v. Romero (1994) 8 Cal.4th 728, 744, fn. 10.) “Damage to be subject to a
proper award must be such as follows the act complained of as a legal certainty
. . . .” (Agnew v. Parks (1959) 172 Cal.App.2d 756, 768.)
Because an award of punitive damages constitutes a moral determination,
lost punitive damages are too speculative to support a cause of action for attorney
negligence. In determining compensatory damages in a legal malpractice action,
“ ‘the jury’s task is to determine what a reasonable judge or fact finder would have
done’ ” in the underlying action absent attorney negligence. (Mattco Forge, Inc.
v. Arthur Young & Co. (1997) 52 Cal.App.4th 820, 840, quoting Brust v. Newton
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(Wash.Ct.App. 1993) 852 P.2d 1092, 1095.) The standard is “an objective one.”
(Mattco Forge, at p. 840.) Lost punitive damages, however, are not amenable to
an objective determination. “ ‘Unlike the measure of actual damages suffered,
which presents a question of historical or predictive fact, [citation], the level of
punitive damages is not really a “fact” “tried” by the jury.’ ” (Cooper Industries,
Inc. v. Leatherman Tool Group, Inc. (2001) 532 U.S. 424, 437, quoting Gasperini
v. Center for Humanities, Inc. (1996) 518 U.S. 415, 459 (dis. opn. of Scalia, J.).)
Instead, a jury’s “imposition of punitive damages is an expression of its moral
condemnation.” (Cooper Industries, at p. 432.) Indeed, a plaintiff is not
“ ‘entitled, as of right’ ” to an award of punitive damages (Brewer v. Second
Baptist Church (1948) 32 Cal.2d 791, 801 (Brewer)), even if the jury finds the
defendant “guilty of oppression, fraud, or malice” (Civ. Code, § 3294, subd. (a)).
Thus, to award lost punitive damages, the trier of fact must determine what moral
judgment would have been made by a reasonable jury. Because moral judgments
are inherently subjective, a jury cannot objectively determine whether punitive
damages should have been awarded or the proper amount of those damages with
any legal certainty. (See Rest.3d Law Governing Lawyers, § 53, com. h, p. 393
[an award of lost punitive damages “calls for a speculative reconstruction of a
hypothetical jury’s reaction”].) Lost punitive damages are therefore too
speculative to support a cause of action for legal malpractice. (See In re
Easterbrook, supra, 200 Cal.App.3d at p. 1544; Agnew v. Parks, supra, 172
Cal.App.2d at p. 768.)
Third, the complex standard of proof applicable to claims for lost punitive
damages militates against the recovery of such damages. Because the standards of
proof governing compensatory and punitive damages are different (compare Evid.
Code, § 115 [“Except as otherwise provided by law, the burden of proof requires
proof by a preponderance of the evidence”] with Civ. Code, § 3294, subd. (a)
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[plaintiff may recover punitive damages only “where it is proven by clear and
convincing evidence that the defendant has been guilty of oppression, fraud, or
malice” (italics added)]), the standard of proof for lost punitive damages will be,
in essence, a standard within a standard. To recover lost punitive damages, a
plaintiff must prove by a preponderance of the evidence that but for attorney
negligence the jury would have found clear and convincing evidence of
oppression, fraud or malice. In light of this complex standard, “[t]he mental
gymnastics required to reach an intelligent verdict would be difficult to
comprehend much less execute.” (Wiley v. County of San Diego (1998) 19 Cal.4th
532, 544 (Wiley).) This pragmatic difficulty provides additional support for
barring recovery of lost punitive damages in a legal malpractice action. (See ibid.)
Fourth, allowing recovery of lost punitive damages in this case would
hinder the ability of trial courts to manage and resolve mass tort actions by
discouraging the use of mandatory, non-opt-out punitive damages classes.
“[C]ourts have encouraged the use of mandatory class actions to handle punitive
damages claims in mass tort cases. Mandatory class actions avoid the unfairness
that results when a few plaintiffs—those who win the race to the courthouse—
bankrupt a defendant early in the litigation process. They also avoid the possible
unfairness of punishing a defendant over and over again for the same tortious
conduct.” (In re Exxon Valdez (9th Cir. 2000) 229 F.3d 790, 795-796.) Making
class counsel liable for lost punitive damages would, however, discourage counsel
from using these mandatory classes because counsel would otherwise face the
specter of multiple legal malpractice lawsuits from disgruntled class members.
Indeed, allowing lost punitive damages may adversely impact the overall
ability of courts to manage their caseloads by making settlement more difficult in
cases involving punitive damages claims. Because dissatisfied clients may seek
such damages based solely on an allegation of negligent undervaluation of the
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punitive damages claims, the settlement of such claims exposes plaintiffs’
attorneys to potentially devastating liability. Faced with this risk, plaintiffs’
attorneys will likely be more hesitant to settle and more intransigent in their
settlement demands.
Finally, allowing recovery of lost punitive damages as compensatory
damages in a legal malpractice action may exact a significant social cost.
Exposing attorneys to such liability would likely increase the cost of malpractice
insurance, cause insurers to exclude coverage for these damages, or further
discourage insurers from providing professional liability insurance in California.
(See Ahern, What’s a Firm to Do?, S.F. Recorder (Dec. 18, 2002) p. 4 [“This past
year, California saw the departure of nine insurance companies that provide
professional liability insurance to attorneys”].) The resulting financial burden on
attorneys would probably make it more difficult for consumers to obtain legal
services or obtain recovery for legal malpractice. At a minimum, the specter of
lost punitive damages would encourage the practice of “ ‘defensive’ law.” (Wiley,
supra, 19 Cal.4th at p. 544.) “ ‘[I]n our already overburdened system it behooves
no one to encourage the additional expenditure [of] resources merely to build a
record against a potential malpractice claim.’ ” (Id. at pp. 544-545, quoting Bailey
v. Tucker (Pa. 1993) 621 A.2d 108, 114.) Even though respondents and amici
curiae provide no concrete evidence that this parade of horribles will occur, “we
deem it unwise to inflict the risk” “[a]bsent a compelling reason” to do so. (City
of Newport, supra, 453 U.S. at p. 271.)
And appellants offer no compelling reason to take this risk. The general
rule that “the measure of damages [in a legal malpractice action] is the value of the
claim lost” does not preclude us from barring recovery of lost punitive damages
for public policy reasons. (Smith v. Lewis, supra, 13 Cal.3d at p. 361.) A plaintiff
in a legal malpractice action “is entitled only to be made whole.” (Ibid.) But “[i]t
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should be presumed a plaintiff has been made whole for his injuries by
compensatory damages . . . .” (State Farm Mutual Automobile Ins. Co. v.
Campbell (2003) __ U.S. __, __ [123 S.Ct. 1513, 1521]; see also Adams v.
Murakami, supra, 54 Cal.3d at p. 120 [“Whatever his or her injury, a plaintiff will
be made whole by the award of compensatory damages”].) Thus, “[b]y definition
[punitive damages] are not intended to make the plaintiff whole by compensating
for a loss suffered.” (Lakin v. Watkins Associated Industries (1993) 6 Cal.4th 644,
664.) “An award of punitive damages, though perhaps justified for societal
reasons of deterrence, is a boon for the plaintiff. ‘Such damages constitute a
windfall . . . .’ ” (Adams, at p. 120.) Although the plaintiff is “ ‘entitled [as] of
right to compensatory damages,’ ” he or she is “ ‘never entitled to’ ” punitive
damages. (Brewer, supra, 32 Cal.2d at p. 801; Davis v. Hearst (1911) 160 Cal.
143, 173.) Because legal malpractice plaintiffs are made whole for their injuries
by an award of lost compensatory damages, allowing these plaintiffs to recover
lost punitive damages would give them an undeserved windfall. This is especially
true where, as here, the plaintiffs have been fully compensated for their injuries.
The fear that insulating negligent attorneys from liability for lost punitive
damages will foster misconduct is also overblown. Given the potential size of
punitive damage awards and the typical contingent fee arrangements, attorneys
already have a strong incentive to properly pursue these claims without subjecting
them to liability for lost punitive damages. Moreover, in most cases, potential
liability for lost compensatory damages—which are often substantial—provides an
adequate deterrent to attorney misconduct. Finally, the specter of disciplinary
action, increases in malpractice premiums, and losses in future business gives
attorneys more than enough incentive to handle their cases properly. In any event,
we believe the overwhelming public policy considerations militating against
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recovery of lost punitive damages significantly outweigh any countervailing risk
of encouraging attorney negligence.
Neither Granquist v. Sandberg (1990) 219 Cal.App.3d 181 nor Norton v.
Superior Court (1994) 24 Cal.App.4th 1750 (Norton) dictates a contrary result. In
Granquist, the Court of Appeal held that the personal representative of a deceased
tort victim may recover pain, suffering, or disfigurement damages in a legal
malpractice action. (Granquist, at p. 185.) Concluding that former Probate Code
section 573, subdivision (c)—limiting recovery by a personal representative “to
the loss or damage the decedent sustained or incurred prior to death”—did not
apply, the court found no reason to deviate from the general rule that the measure
of damages in a legal malpractice action is the value of the claim lost (Granquist,
at pp. 186-187). By contrast, strong public policy considerations militate against
allowing recovery of lost punitive damages. (See ante, at pp. 9-14.)
Norton is also inapposite. In Norton, the Court of Appeal held that the
collateral source rule applied in legal malpractice actions as a matter of
“practicality.” (Norton, supra, 24 Cal.App.4th at p. 1758.) According to the
court, “the defendant attorney stands in the shoes of the underlying tortfeasor
insofar as the collateral source rule is concerned.” (Ibid.) The court carefully
limited its holding to the collateral source rule and did not address the question of
proximate causation. Indeed, the court apparently found that no public policy
barred the application of the collateral source rule. (See ibid.) That is not true
here. (See ante, at pp. 9-14.) Finally, the court concluded that “[t]he result . . . in
this case merely allows the plaintiffs in a legal malpractice action to be made
whole.” (Norton, at p. 1759.) By contrast, an award of lost punitive damages
gives appellants a windfall that they were not entitled to in the underlying action.
(See ante, at pp. 14-15.)
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Finally, we decline to follow the out-of-state cases cited by appellants.
Most of these cases provide little or no analysis and permit recovery of lost
punitive damages solely based on the general rule that the measure of damages in
a legal malpractice action is the value of the lost claim. These cases largely ignore
public policy—including the public purpose of punitive damages.2 Only the
federal court in Jacobsen v. Oliver, supra, 201 F.Supp.2d at pages 101-102, even
attempted to weigh the relevant public policy considerations. Its analysis,
however, is incomplete, and we do not find it persuasive for the reasons stated
above. (See ante, at pp. 9-16.) Accordingly, we agree with Piscitelli v.
Friedenberg, supra, 87 Cal.App.4th 953, 983, Cappetta v. Lippman, supra, 913
F.Supp. 302, 306, and Summerville v. Lipsig (N.Y.App.Div. 2000) 704 N.Y.S.2d
598, 599, and hold that a plaintiff in a legal malpractice action may not recover
lost punitive damages as compensatory damages.3 We therefore disapprove of
Merenda v. Superior Court, supra, 3 Cal.App.4th 1, to the extent it conflicts with
our decision today.

2 (See,
e.g.,
Ingram v. Hall, Roach, Johnston, Fisher & Bollman (N.D.Ill.
1996) 1996 WL 54206, p. *2; Hunt v. Dresie (Kan. 1987) 740 P.2d 1046, 1057;
Haberer v. Rice (S.D. 1994) 511 N.W.2d 279, 286; Patterson & Wallace v. Frazer
(Tex. 1906) 94 S.W. 324, 326; Elliott v. Videan (Ariz.Ct.App. 1990) 791 P.2d 639,
645-646; Scognamillo v. Olsen (Colo.Ct.App. 1990) 795 P.2d 1357, 1361.)
3
Of course, plaintiffs may recover punitive damages in a legal malpractice
action if the attorneys, themselves, are guilty of “oppression, fraud, or malice”
(Civ. Code, § 3294, subd. (a)), but the measure of punitive damages would depend
on the gravity of the attorneys’ misconduct and their wealth.
17

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DISPOSITION
We affirm the judgment of the Court of Appeal.
BROWN, J.
WE CONCUR:

GEORGE,
C.J.
BAXTER,
J.
CHIN,
J.

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CONCURRING AND DISSENTING OPINION BY KENNARD, J.

I agree with the majority that these two plaintiffs in a legal malpractice
action may not recover as compensatory damages the punitive damages they
allegedly lost when, as part of a settlement in the underlying class action, the
attorneys for the class stipulated to a dismissal of the punitive damages sought by
the class. But, unlike the majority, I would leave for another day the
determination whether today’s holding applies to cases outside the class action
context, when considerations different from those involved here may lead to a
different conclusion.
I.
Plaintiffs are two of over 12,000 individuals who, after exposure to a toxic
chemical emanating from a leak at a refinery, joined a class action against the
refinery’s owner. Plaintiffs were among eight objectors to the $80 million
settlement, which included a stipulation for dismissal of the punitive damage
claims. The trial court approved the settlement, finding that “the public’s interest
in punishing . . . and deterring” the defendant had been achieved, and that the
settlement was made in good faith (Code Civ. Proc., § 877.6).
Under the terms of the settlement, plaintiffs were free to seek a jury trial on
their compensatory damage claims, but they did not do so. After receiving their
arbitration awards, plaintiffs collaterally attacked the settlement through this
malpractice action against class counsel, asking for punitive damages lost to them,
when as part of the settlement, counsel stipulated to a dismissal of the punitive
damage claims of the non-opt-out class.
I agree with the majority that this case presents important issues of public
policy. In my view, however, the crucial policy issues spring from both the nature
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and resolution of the underlying class action lawsuit. This court long ago
acknowledged that public policy encourages the use of class actions. (Richmond
v. Dart Industries, Inc. (1981) 29 Cal.3d 462, 473.) Public policy favoring
settlement is especially weighty for class actions. (Franklin v. Kaypro Corp. (9th
Cir.1989) 884 F.2d 1222, 1229; Cotton v. Hinton (5th Cir. 1977) 559 F.2d 1326,
1331.) Settlement of class actions is encouraged precisely because they “consume
substantial judicial resources and present unusually large risks for the litigants.”
(In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability
Litigation (3d Cir. 1995) 55 F.3d 768, 805.)
If we permitted all dissident members of a class to pursue a malpractice
action against class counsel for punitive damages relinquished by settlement,
attorneys would have little incentive to bring class actions and even less incentive
to settle them. Counsel acting pro bono would be especially unlikely to undertake
class representation. (See Thomas v. Albright (D.C. Cir. 1999) 77 F.Supp.2d 114,
123 [“In a world fraught with numerous injustices that can only be vindicated
through the vehicle of a class action, attorneys should not be dissuaded from
bringing meritorious actions by the threat of a state court malpractice law suit.”].)
And, as this case illustrates, permitting such a collateral attack undermines the
very authority of the judiciary. Here, two of 12,000 class members sought to
recoup from class counsel potential punitive damages based on a claim that had
been bargained away in exchange for a global settlement of $80 million, even
though the trial court expressly found the settlement to have been made in good
faith and to have vindicated the public interest in “punishing, . . . and deterring”
the defendant’s conduct. (Adams v. Murakami (1991) 54 Cal.3d 105, 110.)
To permit plaintiffs to now collaterally attack what they perceive to be an
insufficiently lucrative settlement in the underlying class action violates an
overriding public policy favoring settlement of class actions. On this point, I
2

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agree with the majority. Unlike the majority, however, I would stress the
narrowness of the holding, leaving for another day whether the same
considerations would apply outside the class action context. I outline my concerns
below.
II.
The vast majority of legal malpractice claims do not arise from class
actions or from class action settlements, as in this case. Probably the most
frequent type of attorney malpractice occurs when counsel fails to timely file a
complaint or preserve a claim, leaving the client with no recourse except a
malpractice action against counsel. The measure of damages for legal malpractice
is the value of the claim lost (Smith v. Lewis (1975) 13 Cal.3d 349, 361) or all
detriment proximately caused by the malpractice (Civ. Code, § 3333). But often
an injured client suffers only a small economic loss or incurs substantial
noneconomic harm not easily valued in dollars and cents. When the client’s injury
is caused by especially egregious conduct, the value of the client’s claim may lie
almost entirely in a large punitive damage recovery. (See BMW of North America,
Inc. v. Gore (1996) 517 U.S. 559, 582 [in such cases low compensatory damages
will support higher ratio of punitive damages].) By denying recovery for lost
punitive damages in every legal malpractice action, instead of limiting today’s
holding to the confines of a class action settlement, the majority effectively denies
such injured clients anything but a nominal recovery of compensatory damages,
insulating the attorneys while failing to fully compensate the clients for the loss
caused by the malpractice.
The majority condemns a claim of lost punitive damages as too speculative.
Yet, whether a jury trying the underlying claim would have awarded punitive
damages, and how much it would have awarded but for the claim’s forfeiture, are
no more speculative than whether the client would have prevailed had the claim
3

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gone to trial and how much in compensatory damages the jury would have
awarded. Lost punitive damages, like any other item of compensatory damage in
a malpractice action, must be proven to a degree of reasonable certainty.
(Clemente v. State of California (1985) 40 Cal.3d 202, 219.)
In a malpractice action, punitive damages lost because of attorney error are
not true punitive damages but are merely a measure of some of the injury resulting
from the attorney’s malpractice. Thus, lost punitive damages are a form of
compensatory damages. In tort law, a goal of awarding compensatory damages is
to deter harmful conduct by making the wrongdoer compensate the person
harmed. (1 Dobbs, The Law of Torts (2001) § 10, p. 17.) As Justice Puglia
explained in Merenda v. Superior Court (1992) 3 Cal.App.4th 1, a legal
malpractice plaintiff “should be entitled to recover . . . as compensatory damages
the amount of punitive damages [the plaintiff] proves she would have obtained . . .
in the underlying action. This amount is a portion of the difference between the
amount of the actual recovery . . . and the amount which would have been
recovered but for” the attorney’s negligence. (Id. at p. 12.)
When the majority here suggests that an award of lost punitive damages
inappropriately punishes a merely negligent attorney, it conflates lost punitive
damages as one measure of compensatory damage with punitive damages assessed
against a particularly culpable party. (Maj. opn., ante, at p. 9.) If the attorney has
not performed competently, the attorney is liable for the client’s injury, including
punitive damages lost to the client because of the attorney’s deficient performance.
Only if an attorney commits malpractice and does so oppressively, fraudulently, or
maliciously is the attorney liable for punitive damages. Conceivably, an attorney
could be liable for both types of damages, but analytically only the latter would be
punitive damages.
4

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Not only are lost punitive damages subject to proof at trial of the
malpractice claim, but the amount of an award for lost punitive damages is
ultimately constrained by due process. As the United States Supreme Court held
recently, “few awards [of punitive damages] exceeding a single-digit ratio
between punitive and compensatory damages . . . will satisfy due process.” (State
Farm Mutual Automobile Ins. Co. v. Campbell (2003) ___ U.S. ___ [123 S.Ct.
1513, 1524].) The high court went on to note that “[w]hen compensatory damages
are substantial, then a lesser ratio, perhaps only equal to compensatory damages
can reach the outermost limit of the due process guarantee.” (Ibid.)
The majority here observes that permitting recovery of lost punitive
damages in legal malpractice actions may “exact a significant social cost” by
driving insurers offering professional liability coverage out of the California
market. (Maj. opn., ante, at p. 14.) That is an issue to be addressed to the
Legislature, not to this court. Moreover, the majority’s observation assumes that
until now, both in this state and in the majority of other jurisdictions that have
addressed the question, legal malpractice actions have not permitted recovery of
lost punitive damages as an item of compensatory damage. Not so. So far, only
one state excludes recovery of lost punitive damages. Thus, the general rule is
this: “Attorneys can be liable for exemplary or punitive damages lost or imposed
because of their negligence.” (3 Mallen & Smith, Legal Malpractice (5th ed.
2000) Damages, § 20.7, p. 136, fn. omitted.) The majority does not explain why a
malpractice insurance crisis will result from leaving in place a rule that has
prevailed until now in many jurisdictions, including California.
In sum, I am not persuaded that the public policy rationales the majority
advances support the broad rule it announces.
5

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III.
Finally, I reject the majority’s suggestion that its decision follows from this
court’s decision in PPG Industries, Inc. v. Transamerica Ins. Co. (1999) 20
Cal.4th 310 (PPG). In PPG, a driver who was seriously injured because of a
defectively installed windshield received an award of compensatory and punitive
damages against the window installer. In a later suit by the installer against its
insurer, we declined to permit the installer to shift to the insurer its liability for the
punitive damage award. The installer had intentionally used a faster and cheaper
way to install replacement windshields instead of the method recommended by the
truck’s manufacturer, but continued to charge an amount based on the
recommended method. (Id. at p. 314.) We explained that public policy would not
permit the installer to shift to its insurer liability for its own intentional
wrongdoing merely because the insurer had negligently failed to settle the case
before trial. (Id. at p. 317.) The installer, we said, should not be able to obtain
indemnification from the installer’s insurer for its own wrongdoing. We
concluded that allowing the installer to shift its duty to pay punitive damages
would not serve the public purpose of punishing and deterring the installer’s
egregious misconduct. Of the two culpable parties, the insurer, although liable for
failing to settle, was not “the party actually responsible for the wrong” inflicted
upon the truck driver. (Ibid.) PPG held that as between two potentially
blameworthy parties, sound policy reasons prohibited allowing the blameworthy
installer, whose conduct brought about the punitive damage award, from shifting
responsibility for punitive damages to its insurer, whose fault lay in failing to
settle the case before a punitive damage verdict was returned. (Id. at p. 319.)
In a client’s action against an attorney for lost punitive damages, unlike the
situation in PPG, only one of the parties—the attorney—is blameworthy. The
client is a victim twice over—a victim first of the third party’s intentional tort and
6

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second of the attorney’s malpractice. Such an action, unlike the lawsuit in PPG,
does not involve a more culpable party’s attempt to shift to a less culpable party a
liability resulting from its own intentional wrongdoing; instead, it involves a
nonculpable party’s attempt to obtain full compensation from a culpable party for
the complete financial loss caused by the culpable party’s negligence. No public
policy forbids such compensation.
For the reasons given above, I join in affirming the judgment of the Court
of Appeal, but I do not join in either the majority’s reasoning or the broad
application of the rule it announces.
KENNARD,
J.
WE CONCUR:
WERDEGAR, J.
MORENO, J.
7

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Ferguson v. Lieff, Cabraser, Heimann & Bernstein
__________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted

XXX 95 Cal.App.4th 154
Rehearing Granted

__________________________________________________________________________________

Opinion No.

S104444
Date Filed: June 9, 2003
__________________________________________________________________________________

Court:

Superior
County: San Francisco
Judge: William L. Cahill and Ronald Evans Quidachay

__________________________________________________________________________________

Attorneys for Appellant:

Adams • Nye • Sinunu • Walker, David J. Becht, Bruce Nye and Ross L. Libenson for Plaintiffs and
Appellants.

__________________________________________________________________________________

Attorneys for Respondent:

Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Jerome B. Falk, Jr., Ethan P. Schulman and Deborah
A. Kane for Defendants and Respondents.

Bird, Marella, Boxer & Wolpert and Thomas R. Freeman for Los Angeles County Bar Association, Orange
County Bar Association and Beverly Hills Bar Association as Amici Curiae on behalf of Defendants and
Respondents.

Greines, Martin, Stein & Richland and Robert A. Olson for Association of Southern California Defense
Counsel as Amicus Curiae on behalf of Defendants and Respondents.

Lewis Brisbois Bisgaard & Smith, Richard B. Wolf and Raul L. Martinez for Lawyers Mutual Insurance
Company, Continental Casualty Company, Carolina Casualty Insurance Company and Admiral Insurance
Company as Amici Curiae on behalf of Defendants and Respondents.

1

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Counsel who argued in Supreme Court (not intended for publication with opinion):

David J. Becht
Adams • Nye • Sinunu • Walker
633 Battery Street, Fifth Floor
San Francisco, CA 94111
(415) 982-8955

Jerome B. Falk, Jr.
Howard, Rice, Nemerovski, Canady, Falk & Rabkin
Three Embarcadero Center, 7th Floor
San Francisco, CA 94111-4065
(415) 434-1600

2

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Opinion Information

Date:	Docket Number:
Mon, 06/09/2003	S104444

Disposition
Jun 9 2003	Opinion: Affirmed

Dockets
Feb 20 2002	Petition for review filed   Appellants [ Ferguson et al. ]
Feb 20 2002	Record requested   via e mail
Feb 21 2002	Received Court of Appeal record   file jacket/briefs/accordian file
Mar 12 2002	Answer to petition for review filed   by counsel for respondent (Lieff et al.)
Apr 15 2002	Time extended to grant or deny review   to and including May 21, 2002.
May 1 2002	Petition for review granted; issues limited (civil case)   The issue to be briefed and argued shall be limited to whether an attorney is liable for damages resulting form the loss of a punitive damage claim. Votes: George, CJ., Kennard, Baxter, Werdegar, Chin, Brown and Moreno, JJ.
May 1 2002	Letter sent to:   counsel regarding Certification of Interested Entities or Persons.
May 6 2002	Certification of interested entities or persons filed   Counsel for respondent.
May 21 2002	Certification of interested entities or persons filed   By counsel for appellant.
May 30 2002	Request for extension of time filed   Appellants asking until July 15, 2002 to file appellants' opening brief on the merits.
Jun 5 2002	Extension of time granted   To July 1, 2002 to file appellants opening brief on the merits. "No further extensions will be granted."
Jul 1 2002	Opening brief on the merits filed   By appellants {Brent Ferguson & Florencia Prieto}.
Jul 24 2002	Request for extension of time filed   By respondents asking until August 30, 2002 to file respondents' Answer Brief on the Merits.
Jul 29 2002	Extension of time granted   To August 30, 2002 to file respondents' answer brief on the merits.
Aug 30 2002	Answer brief on the merits filed   By counsel for Respondents {Lieff, Cabraser, Heimann & Bernstein et al.,}.
Sep 18 2002	Request for extension of time filed   by Appellants asking to September 30, to file appellants' reply brief on the merits.
Sep 25 2002	Extension of time granted   To September 30, 2002 to file appellants' Reply Brief on the Merits. No further extensions will be granted.
Sep 30 2002	Reply brief filed (case fully briefed)   by appellants Brent Ferguson and Florencia Prieto.
Oct 24 2002	Received letter from:   Counsel for respondent requesting that oral argument not be scheduled during the dates indicated.
Oct 28 2002	Received application to file amicus curiae brief; with brief   Los Angeles County Bar, Orange County Bar and Beverly Hills Bar Associations supports respondents Lieff, Cabraser, Heimann & Bernstein, LLP., etc. [application and brief are separate.]
Oct 30 2002	Received application to file amicus curiae brief; with brief   Lawyers Mutual Ins. Co., continental Casualty Co., Lawyers Mjutual Insurance Company, Continental Casualty Company, Carolina Casualty Ins. Co. and Admiral Ins Co. Brief/App separate supports respondents Lieff, Cabraser, Heimann & Bernstein, LLP.
Oct 31 2002	Received application to file amicus curiae brief; with brief   By Association of Southern California Defense Counsel in support of Respondent {Lieff, Cabraser, Heiman & Bernstein). / 40(K). (Application & brief under separate covers)
Nov 8 2002	Permission to file amicus curiae brief granted   Los Angeles County Bar Association et al., in support of respondents. Answer is due within twenty days.
Nov 8 2002	Amicus Curiae Brief filed by:   Los Angeles County Bar Association et al., in support of respondents. Answer is due within twenty days.
Nov 8 2002	Permission to file amicus curiae brief granted   The Association of Southern California Defense Counsel in support of Respondents. Answer is due within twenty days.
Nov 8 2002	Amicus Curiae Brief filed by:   The Association of Southern California Defense Counsel in support of Respondents. Answer is due within twenty days.
Nov 14 2002	Permission to file amicus curiae brief granted   Lawyers Mutual Insurance Company et al., in support of Respondents. Answer is due within twenty days.
Nov 14 2002	Amicus Curiae Brief filed by:   Lawyers Mutual Insurance Company, Continental Casualty Company et al., in support of Respondents. Answer is due within twenty days.
Dec 2 2002	Response to amicus curiae brief filed   By appellants to AC Brief of Association of Southern California Defense Counsel.
Dec 2 2002	Response to amicus curiae brief filed   By Appellants to AC Brief of Los Angeles County Bar Association, Orange County Bar Association and Beverly Hills Bar Association.
Dec 4 2002	Response to amicus curiae brief filed   By appellants to AC Brief of Lawyers Mutual Insurance Company, Continental Casualty Company, Carolina Casualty Insurance Company, and Admiral Insurance Company.}
Feb 3 2003	Case ordered on calendar   3-12-03, 9am, S.F.
Mar 12 2003	Cause argued and submitted
Mar 14 2003	Received:   Appellants' {Brent Ferguson & Florencia Prieto} notice of change of firm name.
Jun 9 2003	Opinion filed: Judgment affirmed in full   Majority Opinion Brown, J., ------ Opinion by George, CJ., Baxter, Chin, J., Concurring and Dissenting Opinion by Kennard, J., ------ Joined Werdegar, J., and Moreno, JJ.
Jul 21 2003	Remittitur issued (civil case)
Jul 21 2003	Received:   Receipt for remittitur from 1 DCA Div. Four.

Briefs
Jul 1 2002	Opening brief on the merits filed
Aug 30 2002	Answer brief on the merits filed
Sep 30 2002	Reply brief filed (case fully briefed)
Nov 8 2002	Amicus Curiae Brief filed by:
Nov 8 2002	Amicus Curiae Brief filed by:
Nov 14 2002	Amicus Curiae Brief filed by:
Dec 2 2002	Response to amicus curiae brief filed
Dec 2 2002	Response to amicus curiae brief filed
Dec 4 2002	Response to amicus curiae brief filed

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