Case Title: Ferguson v. Lieff, Cabraser

Citation: 

Docket Number: S104444

State: california

Court: California Supreme Court

Date: 2003-06-09T00:00:00Z

Document:
1
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. 
 
6
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 
 
8
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 
 
10
(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.  
 
11
“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 
 
12
(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) 
 
13
[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 
 
14
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 
 
15
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 
 
16
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. 
 
18
DISPOSITION 
We affirm the judgment of the Court of Appeal. 
 
 
 
 
 
 
 
BROWN, J. 
WE CONCUR: 
 
 
GEORGE, C.J. 
 
BAXTER, J. 
 
CHIN, J. 
 
 
1 
 
 
 
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 
2 
 
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 
3 
 
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 
4 
 
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.  
5 
 
 
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. 
6 
 
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 
7 
 
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. 
1 
 
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. 
 
 
 
2 
 
 
 
 
 
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