Lost punitive damages as compensatory loss.

• Author: Outten, Samuel W.

Writing in the November newsletter of the Legal Malpractice Committee, Samuel W. Outten and Lane Davis of Leatherwood Walker Todd & Mann, P.C., Greenville, South Carolina, discuss a thorny issue:

When a lawyer's malpractice causes a plaintiff to lose a claim for punitive damages, do those damages constitute compensatory damages in a later suit against the attorney? A loose majority of jurisdictions previously answered yes. See 2 MALLEN & SMITH, LEGAL MALPRACTICE (4th ed. 1996) (stating the majority rule). But see also Cappetta v. Lippman, 913 F.Supp. 302, 306 (S.D.N.Y. 1996) (stating minority position). The debate recently resumed, however, owing to a pair of divergent appellate decisions in California. Now slated to review the issue, the California Supreme Court has the first stab at revisiting a thorny issue likely to resurface in other states.

Diverging decisions

The issue arose when different divisions of the California Fourth District Court of Appeal reached opposite results in reviewing the lost punitive damages issue.

In March 2001, Division One of the Fourth Appellate District issued Piscatelli v. Friedenberg, 105 Cal.Rptr.2d 88 (Cal.App. 2001). The Piscatelli court refused to follow Merenda v. Superior Court, 4 Cal.Rptr.2d 87 (Cal.App. 1992), a Third District Court of Appeal case holding that lost punitive damages were recoverable as a compensatory loss in a later legal malpractice suit.

Then in May 2002, Division Three of the Fourth District decided O'Connor Agency Inc. v. Brodkin, 120 Cal.Rptr.2d 336 (Cal.App. 2002) (review granted). O'Connor rejected the Piscatelli analysis and reverted to the Merenda holding.

The First District Court of Appeal had joined the fray in January 2002 with its decision in Ferguson v. Lieff, Cabraser, Heimann & Bernstein, 115 Cal.Rptr.2d 342 (Cal.App. 2002) (review granted). The Ferguson court rejected Merenda and O'Connor, adopting the Piscatelli rationale.

Against this backdrop, the California Supreme Court agreed to review the issues raised by Piscatelli and O'Connor by reviewing Ferguson. That decision was pending in June 2003.

Piseatelli v. Friedenberg

In Piscatelli, the plaintiff, Michael Piscatelli, retained Friedenberg's law firm to pursue claims against his employer, Prudential Securities. Piscatelli, a broker for Prudential, was allegedly misinformed by his employer regarding the safety, operation and yields of certain limited partnership investments. Friedenberg failed to opt Piscatelli out...