Courts Split on Punitive Damages Recovery in Legal Malpractice Cases

Statutes in Some States Bar Punitive Damages in Legal Malpractice Actions

Illinois bars the recovery of punitive damages in legal malpractice actions. In Fortier v. Terani Law Firm, the defendant law firm in a legal malpractice action successfully used the statutory bar to dismiss a case from federal court for lack of subject matter jurisdiction. The 2018 decision from the Seventh Circuit Court of Appeals held that the statutory bar prevented the plaintiff from including the amount claimed for punitive damages when calculating whether the plaintiff met the minimum jurisdictional amount in controversy.

“Lost” Punitive Damages Can Sometimes Be Recovered

States that allow the recovery of “lost” punitive damages—those punitive damages that would have been awarded in the underlying case—place paramount weight on the purpose of damages. According to Jacobsen v. Oliver, damages are intended to make the injured party whole, to give the client what was lost because of the lawyer’s negligence. The Jacobsen court characterized the punitive damages recoverable from the original tortfeasor as compensatory damages recoverable from the lawyer. Similarly, in Hunt v. Dresie, a Kansas court found that in a malpractice lawsuit, damages are those losses which proximately result from the attorneys’ negligence, and so properly include “lost” punitive damages.

Not All States Agree that “Lost” Punitive Damages Are Recoverable

Some courts hold that allowing recovery of “lost” punitive damages doesn’t satisfy any of the punishment and deterrence policy objectives that underlie punitive damages. In Ferguson v. Lieff, Cabraser, for example, a California court found that the attorney in the legal malpractice case did not commit and had no control over the intentional misconduct of the tortfeasor in the underlying case and so awarding the plaintiff “lost” punitive damages would neither punish nor deter the culpable tortfeasor. Moreover, the amount of the award would not have any relation to the gravity of the attorney’s misconduct or wealth.

Awarding “Lost” Punitive Damages Raises Practical and Public Policy Concerns

“Allowing lost punitive damages to be recovered against the lawyer or law firm in a malpractice action, as compensatory damages, is completely contrary to the public policy behind punitive damages and distorts the true purpose behind punitive damages,” says Miranda Lundeen Soto, Miami, FL, cochair of the Attorneys’ Liability Subcommittee of the Section of Litigation’s Professional Liability Litigation Committee. “Allowing the recovery of ‘lost’ punitive damages would present difficult proof issues because there would be two burdens of proof. The award of punitive damages is typically a gross negligence or reckless conduct standard and compensatory damages are a greater weight or preponderance of the evidence standard. Requiring a jury to find by a preponderance or greater weight of the evidence that plaintiff was entitled to and should have received punitive damages to make plaintiff whole again would be extremely challenging for a jury,” cautions Soto. “The jury would be asked to completely speculate as to what they think the plaintiff would have or could have recovered in punitive damages in the underlying case.”

“Theoretically, a jury could also award punitive damages as a compensatory damage for the underlying case and then award punitive damages in the malpractice case against the lawyer or law firm,” Soto warns. “The purpose behind punitive damages is to punish the tortfeasor for wrongful, malicious behavior and to deter him, her or others from similar extreme conduct. The amount awarded for punitive damages should not be so low that there is no discomfort as to the defendant; conversely, the amount should not be so high that it destroys, cripples or annihilates the defendant. Allowing a situation where the plaintiff could potentially be awarded punitive damages twice in the same lawsuit frustrates the entire purpose behind punitive damages.”

“Although there is an argument that the plaintiff should not bear the loss of punitive damages if an attorney commits malpractice, there are problematic policy and practical considerations in allowing the recovery of ‘lost’ punitive damages,” says Nicole M. Reid, Miami, FL, cochair of the Attorneys’ Liability Subcommittee of the Section’s Professional Liability Litigation Committee. “The purpose of punitive damages is to punish and deter, to make the tortfeasor feel the pain but not put them out of business. If the tortfeasor is a multimillion dollar corporation, the amount of punitive damages that would be appropriate to deter them would likely be more than many practitioners could afford to pay and would put them out of business,” adds Reid.

In Soto’s view, “allowing the recovery of ‘lost’ punitive damages, as compensatory damages in the underlying case, could significantly influence malpractice insurance policies and carriers, as punitive damages are uncapped and could potentially result in extraordinary, large verdicts.” Allowing the recovery of “lost” punitive damages may also affect the way lawyers practice. “Since many settlements drop punitive damage claims, some lawyers may be reluctant to bring a punitive damage claim in a case, as dropping it in settlement negotiations could lead to a malpractice claim,” says Reid.

James A. Sweeney is a contributing editor for Litigation News.

Hashtags: #PunitiveDamages, # LegalMalpractice

Resources

• Fortier v. Terani Law Firm, 732 Fed.Appx. 467 (N.D. Ill. 2018).
• Jacobsen v. Oliver, 201 F. Supp.2d 93 (D. D.C. 2002).
• Hunt v.Dresie, 241 Kan. 647, 661, 740 P.2d 1046, 1957 (1987).
• Ferguson v. Lieff, Cabraser, Heimann & Bernstein, 30 Cal.4th 1037, 69 P.3d 965 (2003).

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