May Punitive Damages Obtained in the Underlying Action (But Subsequently Lost on Appeal) Be Recovered as Compensatory Damages in a Legal Malpractice Case Predicated on Negligence? A Hypothetical

by Manoo Mofidi1

Consider the following hypothetical. The plaintiff's suit is tried successfully to a jury, resulting in a verdict that includes a punitive damages award. The jury finds that the plaintiff sufficiently established the defendant's malice, oppression, or fraud to support the punitive award. On appeal, the verdict is reversed on grounds that the plaintiff's attorney failed to properly exhaust the plaintiff's administrative remedies within the requisite statutory period. The plaintiff then files a legal malpractice action based on negligence against the attorney, seeking to recover the verdict (including the punitive award) obtained in the underlying case. Assuming the plaintiff prevails in the legal malpractice suit, may the plaintiff recover as compensatory damages the punitive damages the plaintiff would have obtained in the underlying action but for the attorney's malpractice?

The issue would be a matter of first impression in Missouri. There does exist, however, a body of case law from other jurisdictions on this issue. It is likely, therefore, that a Missouri court presented with the issue would turn to these authorities for guidance. Before analyzing these authorities, however, we should examine the pertinent fundamentals of legal malpractice law and punitive damages in Missouri.

I. Elements of a Legal Malpractice Suit Based on Negligence and Measure of Damages

In an action for legal malpractice based on negligence in Missouri, the plaintiff must "plead and prove": "(1) [the] plaintiff and [the] defendant had an existing attorney/client relationship; (2) [the] defendant acted negligently or in breach of a contract; (3) such acts were the proximate cause of [the] plaintiff's damages; and (4) but for [the] defendant's actions, the plaintiff would have been successful in the prosecution of his underlying . . . action."² The measure of damages in a legal malpractice suit is "the amount a client would have received 'but for' the attorney's negligence."³

Applying the above principles to our hypothetical, had the defendant not failed to exhaust the plaintiff's administrative remedies in the underlying case, the plaintiff would have recovered the entire judgment in the underlying action, including the punitive award. Therefore, assuming the plaintiff prevails in the legal malpractice suit, the measure of the plaintiff's damages seemingly would be the entire verdict, including the punitive award, because that is what the plaintiff would have obtained but for the defendant's negligence.

Easy analysis, one might say. But how would we reconcile this result with the well-established rule that to justify punitive damages, there must first be "some element of wantonness or bad motive?"⁴ The omission on the part of our hypothetical defendant lacks the requisite wantonness or bad motive that would justify an award of punitive damages. The plaintiff's suit is predicated on negligence, which means that the defendant is alleged to have "failed to exercise that degree of skill and learning ordinarily exercised by members of the profession under the same or similar circumstances."⁵ Furthermore, under Missouri's long-standing policy, punitive damages are not compensatory, but are private fines imposed "to punish reprehensible conduct and to deter the wrongdoer from engaging in the same type of activity."⁶ Here, however, there was no reprehensible conduct to punish, nor any wrongful activity to be deterred by punitive damages.

II. Guidance From Other Jurisdictions

Were a Missouri court to consult case law from other states for illumination on the issue, it would discover a split in authority. The majority view posits that punitive damages lost in the failed underlying action may be recovered as compensatory damages in the malpractice case, because that is the amount the plaintiff would have received but for the attorney's negligence. The minority view precludes recovery of the punitive award as compensatory damages on public policy grounds. A review of the applicable case law illuminates the rationale underlying these two viewpoints. Because the facts in these authorities are similar to those in our hypothetical, they have, for the most part, been omitted from the discussion.

A. The Majority View

Seven published cases form the majority view. Hunt v. Dresie⁷ represents one of the earliest formulations of the majority view. In that case, the Kansas Supreme Court held that the proper measure of damages in an attorney malpractice case includes the amount of any punitive damages assessed against the client as the result of the attorney's malpractice. The court quoted a decision of the Kansas Court of Appeals, explaining that although the damages the client had to pay were punitive damages, in the client's legal malpractice action:

[D]amages are simply those which proximately resulted from his attorney's negligence; they are no longer properly called punitive damages. If they were called punitive damages and the trial court's decision properly denied their recovery, then any attorney representing a client who might be assessed punitive damages in a lawsuit could rest easy, secure in the knowledge that any improper handling of the suit, even intentional actions, could not subject the attorney to any malpractice liability at all.8

In Elliott v. Videan⁹ the court reached the same result as Hunt, but employed a slightly different rationale. Unlike Hunt, which focused, in part, on the possible complacence (on the part of an attorney representing a client who might be assessed punitive damages in a lawsuit) that might result from denying recovery to the plaintiff, Elliott simply considered the damages that were proximately caused by the attorney's negligence. The facts in the case essentially mirrored those in our hypothetical. The trial court granted judgment notwithstanding the verdict, setting aside an $800,000 jury verdict against the defendant attorney that consisted of the value of punitive damages in the underlying case lost through the attorney's negligence. The appellate court reversed, rejecting the attorney's contention he could not be held liable for punitive damages because such damages are intended solely to punish and deter future wrongful conduct. ¹⁰ The court explained:

[The attorney] misperceives the nature of a malpractice action. The jury award of punitive damages is not a finding that [the attorney's] conduct was motivated by an evil mind; it is a finding that [the underlying defendant's] conduct was. Although [the attorney's] conduct was only negligent, it nevertheless caused [plaintiff] to lose his entire underlying claim.¹¹

Similarly, in Scognamillo v. Olsen,¹² the court held that "punitive damages assessed in the underlying case [were] part . . . of the damages plaintiffs suffered as a result of defendants' alleged negligence," and were to be included "as a component of [the] plaintiff's compensatory damages" in the legal malpractice case. The defendants contended, inter alia, "that the trial court erred in allowing the plaintiffs to include the punitive damages assessed against them . . . as a component of their actual and compensatory damages."¹³ In rejecting the defendant's contention, the Colorado Court of Appeals stated:

Compensatory damages for negligence are those which flow directly and proximately from a defendant's breach of his duty to plaintiff. In a legal malpractice action based on an attorney's breach of his duty to represent his client in a prior case, it is the defendant attorney's conduct and its consequences, rather than the conduct of the client that resulted in the underlying case, which governs the analysis of damages. Thus, if the defendant attorney's negligence results in entry of a judgment when there otherwise would have been no judgment, the proper measure of damages is the entirety of the prior judgment regardless of the theory upon which the prior judgment was entered or the nature of the damages assessed thereunder. 14

Merenda v. Superior Court¹⁵ also framed the issue narrowly, focusing on damages proximately caused by the defendant attorney's negligence. The Third District Court of Appeals relied on "[t]he general rule . . . that a plaintiff is entitled to be made whole" when his attorney's negligence causes a loss. The court reasoned that recovery of "unrecovered punitive damages" as compensatory damages was consistent with the general damages provisions of the California Civil Code and found recovery of such damages "no more speculative than would be the direct recovery of punitive damages in the underlying action . . . ."¹⁶ The court further rejected the argument that the "purpose [of punitive damages] is not served by making attorneys liable for the oppressive, fraudulent or malicious conduct of others":

Plaintiff does not seek punitive damages against defendants. Rather, she seeks the value of the recovery she lost through defendants' negligence. That value includes punitive damages she would have recovered against [the underlying defendant]. In the malpractice action, such damages are compensatory, not punitive.17

In a more recent articulation of the majority view, the district court for the District of Columbia grounded its holding using both rationales: to make the plaintiff whole and to deter possible attorney complacence.¹⁸ The plaintiff brought a malpractice action, arguing that the defendants had been negligent in failing to sue the underlying defendants for punitive damages. The "[d]efendants argue[d] that punitive damages cannot be assessed as a matter of public policy against 'someone who has not acted in an outrageous manner, unless doing so will deter others from engaging in like conduct.'"¹⁹ Jacobsen held that the plaintiff "may sue to recover as compensatory damages those damages that would have been available as punitive damages in the plaintiff's underlying action."²⁰ In rejecting the logic underlying the defendant's position, the court determined that "the issue is not the purpose of punitive damages, but the purpose of compensatory damages, which is to give the client what she lost because of the lawyer's negligence . . . ."²¹ Although the court grounded its ruling on "the purpose of compensatory damages," it nevertheless purported to buttress its decision with the policy argument typically cited in support of awarding punitive damages:

[R]ecovery of so-called "lost punitives" . . . may, at least in an indirect way, further the goal of deterrence. Attorneys who appreciate that they will be liable in malpractice actions for "lost punitives" will be motivated to exercise reasonable care in investigating or defending punitive damages claims.22

B. The Minority View

Five cases (four published, one unpublished) represent the minority view. A New York federal district court held that punitive damages would not be allowed against an attorney, though the damages could have been recovered against the defendant in the underlying action.²³ The court reasoned that, because "the purpose of punitive damages in the [underlying] action was to punish [the party], it is 'illogical' to hold [the lawyer] liable" where the deterrent or exemplary purpose could not be achieved.²⁴

The same reasoning was followed by a recent New York appellate court decision.²⁵ The court reasoned that holding "the law firm liable for causing the loss of a claim for punitive damages which are meant to punish the wrongdoer and deter future similar conduct . . . would not further the purpose of punitive damages to punish and deter."²⁶

Piscitelli v. Friedenberg²⁷ arguably represents the leading case for the minority view. The court held that public policy considerations precluded awarding "lost punitive damages" against an attorney as compensatory damages.²⁸ The court grounded its decision on two points: First, in a legal malpractice claim, punitive damages from the underlying claim are not a loss that must be compensated to make the plaintiff whole; and second, any loss of punitive damages that would have been awarded in the underlying case was not proximately caused by the malpractice because public policy considerations dictate that punitive damages should only be awarded against the actual wrongdoer.²⁹ In so holding, the court expressed its disagreement with Merenda's reasoning.³⁰

Piscitelli's holding was recently relied upon in Ferguson v. Lieff, Cabraser, Heimann & Bernstein.³¹ In concurring with the reasoning and policy rationale underlying Piscitelli, the court offered little analysis, stating only that "[t]o relabel as compensatory an award intended to punish a wrongdoer guilty of oppression, malice or fraud causes an innocent defendant to suffer that wrongdoer's punishment." ³²

C. Jurisprudential Flux in California

Piscitelli by no means represent settled precedent in California. In O'Connor Agency, Inc. v. Brodkin,³³ the court disagreed with Piscitelli, holding that lost punitive damages can be recovered by a plaintiff in a legal malpractice action. The court based its decision on "relevant statutes regarding the measure of damages due an injured plaintiff, and [the fact]. . . that any exception to these statutes should be established by the legislature, not the courts.³⁴ The court dismissed the two grounds upon which Piscitelli predicated its holding. The court criticized Piscitelli for ignoring the difference between a legal claim and punitive damages:

Although punitive damages are not compensatory in the underlying case, they are compensatory in the context of a legal malpractice case — they are part of the recovery the client would have received, were it not for the attorney's negligence. Characterizing lost punitive damages as a "windfall" [as Piscitelli did] is simply inaccurate; lost punitive damages are properly considered compensatory in the legal malpractice setting.35

The court also disagreed with Piscitelli's public policy argument, stating that while it is "correct that punitive damages are meant to punish and deter, that simply does not hold true once the underlying case becomes a legal malpractice claim."³⁶ The court noted that Piscitelli represents the minority view and considered it significant that only two other published cases, Cappetta and Ferguson, agree with Piscitelli. With respect to Cappetta, the court criticized its holding for "completely ignor[ing] the issue of fully compensating the plaintiff for the attorney's malpractice by awarding the plaintiff the full value of the lost claim."³⁷ As for Ferguson, the court observed that it "simply cites Piscitelli and adopts its holding without analysis."³⁸ Finally, the court pointed out that "[i]f a different conclusion is appropriate based on public policy considerations, it should be the legislature, not the courts, which reaches this decision."³⁹

The most recent (unpublished) opinion to come out of California, Ferguson v. Meadows,⁴⁰ confirms the unsettled nature of the law in that state. The Court of Appeals for the First District relied on Piscitelli and held that, as a matter of law, lost punitive damages are not recoverable as compensatory damages for legal malpractice.⁴¹ Predicating its holding on several public policy considerations, the court first reasoned that "to saddle a defendant with damages intended to punish another for oppressive, malicious or fraudulent conduct punishes the wrong person and thwarts the twin goals of deterrence and punishment."⁴² Second, the court observed that holding the defendant attorney legally responsible for lost punitive damages would dilute the responsibility for intentional wrongdoing by transferring it to another, thereby undercutting "the policy of not allowing liability for intentional wrongdoing to be offset or reduced by the negligence of another."⁴³ Finally, the court expressed unease with the scenario necessary to prove entitlement to punitive damages with its concomitant "potential for making a travesty of the civil justice system":

The task would be nothing less than trying to distill what a competent attorney might have convinced a hypothetical jury to impose as damages to punish a nonparty transgressor, complete with proof of the nonparty's underlying transgressions and net worth.⁴⁴

III. How Might a Missouri Court Decide the Issue?

Although the split in authority precludes prognostication as to how a Missouri court might resolve the issue, it is fairly easy to predict the arguments that would be advanced by the parties. Both sides will have, at their disposal, valid positions based on legitimate but competing considerations.

The plaintiff will argue in favor of the majority view, contending that it can only be made whole if it can recover the entire value of the claim lost, which must include an amount for punitive damages. The defendant, espousing the minority view, will counter that collection of such "lost punitives" from attorneys thwarts the deterrent and punitive purposes of punitive damages.

The answer as to which argument the court adopts will hinge on where the court elects to place its emphasis. Were the court to focus on Missouri's law regarding the measure of damages in a legal malpractice suit, it will likely adopt the majority view and allow recovery of the punitive award as a component of the plaintiff's compensatory damages. Permitting recovery of punitive damages as compensatory damages in a legal malpractice action would be consistent with the position taken by the leading commentators on the issue:

Attorneys can be liable for exemplary or punitive damages lost or imposed because of their negligence. If the client should have recovered exemplary damages in the underlying action but for the attorney's wrongful conduct, then such a loss should be recoverable in the malpractice action as direct damages.⁴⁵

On the other hand, should the court emphasize Missouri's public policy regarding punitive damages, it will likely adopt the minority view, determining that the dual purpose of punitive damages to punish and deter is not served by making an attorney liable for the oppressive, fraudulent, or malicious conduct of another.

One possible predictor of the likely posture of the court is the extent to which punishment and deterrence is held to be the exclusive motivation for awarding punitive damages. Missouri law privileges punishment and deterrence as the underlying purpose of punitive damages. This approach is consistent with the law of most other states.⁴⁶

In a few jurisdictions, by contrast, punitive damages are deemed to serve purposes other than punishment and deterrence. In West Virginia, for example, punitive damages are seen as "additional compensation for the egregious conduct that has been inflicted on the injured party,"⁴⁷ and "encourag[ing] persons who have suffered only nominal or minimal damages, to sue those who conduct themselves outrageously . . . [and] provid[ing] a substitute for personal revenge by the wronged party."⁴⁸ Similarly, in Texas, courts have held that punitive damages serve numerous functions, many of which are related to the compensation of the victim rather than to the punishment of the tortfeasor.⁴⁹

It would follow, therefore, that courts in those jurisdictions, such as West Virginia and Texas, that add a compensatory layer to the underlying purpose of punitive damages would probably be more favorably disposed to allowing recovery of punitive damages as a component of the plaintiff's compensatory damages in a legal malpractice action. Given Missouri's emphasis on deterrence and punishment as the sole purpose of punitive damages, however, such a disposition by a Missouri court would be unlikely.

A final note. The terms "majority" and "minority" to describe the competing positions may be misleading in our context, for, as the dissenting opinion in Brodkin observed, the "minority" view "reflects not necessarily a weakness in rationale but a paucity of occasions to confront the issue." ⁵⁰ After all, as evidenced by the above discussion, there are seven published cases that support the majority view, and five (four published, one unpublished) cases that support the minority view. The tally is not sufficiently robust to provide guidance as to which viewpoint a Missouri court will adopt.

Footnotes

¹ Manoo Mofidi is an associate at Thompson Coburn LLP. I would like to thank Dan Cox, Dean Franklin, Carl Rowley, and Jeff Fink of Thompson Coburn, and Steve Strauss of Bryan Cave LLP, who provided feedback on earlier versions of this article. I am especially indebted to Mike Minton of Thompson Coburn, who gave graciously and generously of his time and counsel, and whose insight greatly improved this article. The ideas and opinions expressed in this article are the author's and do not necessarily reflect those of Thompson Coburn.

² Egan v. Craig, 967 S.W.2d 120, 124 (Mo. App. E.D. 1998).

³ Steward v. Goetz, 945 S.W.2d 520, 532 (Mo. App. E.D. 1997) (citing 2 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice, § 19.4 (4th ed. 1996)).

⁴ Vecchiotti v. Tegethoff, 745 S.W.2d 741, 744 (Mo. App. E.D. 1987).

⁵ Ladish v. Gordon, 879 S.W.2d 623, 628 (Mo. App. W.D. 1994).

⁶ Rodriguez v. Suzuki Motor Corp., 936 S.W.2d 104, 110 (Mo. banc 1996); Boyle v. Vista Eyewear, Inc., 700 S.W.2d 859, 866 (Mo. App. W.D. 1985) (citing Gertz v. Robert Welch, Inc., 418 U.S. 323, 349 (1974); Probst v. Probst, 595 S.W.2d 289, 292 (Mo. App. E.D. 1979)).

⁷ 740 P.2d 1046, 1057 (Kan. 1987).

⁸ Id. at 1057.

⁹ 791 P.2d, 639, 645-46 (Ariz. Ct. App. 1989).

¹⁰ Id. at 644-46.

¹¹ Id. at 645.

¹² 795 P.2d 1357, 1361 (Colo. Ct. App. 1990).

¹³ Id. at 1360.

¹⁴ Id. at 1361 (citing Hunt).

¹⁵ 4 Cal. Rptr. 2d 87 (Cal. Ct. App. 1992).

¹⁶ Id. at 87.

¹⁷ Id. at 87; see also Haberer v. Rice, 511 N.W.2d 279, 286 (S.D. 1994) ("The punitive damages which may have been awarded in the underlying claim [were] part and parcel of the damages [the plaintiff] suffered as a result of [the attorney's] negligence.")

¹⁸ Jacobsen v. Oliver, 201 F. Supp. 2d 93, 99-100 (D.D.C. 2002).

¹⁹ Id. at 100.

²⁰ Id. at 101.

²¹ Id.

²² Id. at 101-102 (citing Hunt).

²³ Cappetta v. Lippman, 913 F. Supp. 302, 306 (S.D. N.Y. 1996).

²⁴ Id.

²⁵ Summerville v. Lipsig, 704 N.Y.S.2d 598, 599 (N.Y. App. Div. 2000).

²⁶ Id.

²⁷ 105 Cal. Rptr. 2d 88 (Cal. Ct. App. 2001).

²⁸ Id. at 107-108.

²⁹ Id. at 106-108.

³⁰ Id. at 107.

³¹ 115 Cal. Rptr. 2d 342, 352 (Cal. Ct. App. 2002) (review granted on May 1, 2002).

³² Id. at 352.

³³ 120 Cal. Rptr. 2d 336, 339 (Cal. Ct. App. 2002) (review granted on Aug. 14, 2002).

³⁴ Id.

³⁵ Id. at 340.

³⁶ Id. at 341.

³⁷ Id. at 342.

³⁸ Id.

³⁹ Id. at 342.

⁴⁰ Nos. A094750, A095475, 2002 WL 31033065, at *1 (Cal. Ct. App. Sept. 12, 2002).

⁴¹ Ferguson, 2002 WL 31033065, at *6.

⁴² Id.

⁴³ Id.

⁴⁴ Id.

⁴⁵ 3 Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice § 20.7 (5th ed. 2000).

⁴⁶ See, e.g., Aetna Life Ins. Co. v. Lavoie, 470 So. 2d 1060, 1076 (Ala. 1984) (under Alabama law, as under the law of most states, punitive damages are imposed for purposes of retribution and deterrence); Merit Ins. Co. v. Colao, No. 75C899, 1985 WL 1481, at *3 (N.D. Ill. May 23, 1985) ("[T]he primary purpose of punitive damages in Illinois is not to compensate the plaintiff but rather to punish the defendant.") (citations omitted); Schimizzi v. Illinois Farmers Ins. Co., 928 F. Supp. 760, 783 (N.D. Ind. 1996) ("Indiana law permits punitive damages awards to punish defendants and deter those and others like them from like conduct in the future") (citations omitted).

⁴⁷ Hensley v. Erie Ins. Co., 283 S.E.2d 227, 233 (W. Va. 1981).

⁴⁸ Perry v. Melton, 299 S.E.2d 8, 13 (W. Va. 1982).

⁴⁹ Hofer v. Lavender, 679 S.W.2d 470, 474-75 (Tex. 1984) (punitive damages serve 1) "to reimburse for losses too remote to be considered as elements of strict compensation;" 2) as an "example for the good of the public and to compensate for inconvenience and attorney's fees"; and 3) "as compensation to the sufferer, as well as for punishment of the offender").

⁵⁰ Brodkin, 120 Cal. Rptr. 2d at 343 (Bedsworth, J., dissenting).

JOURNAL OF THE MISSOURI BAR
Volume 59 - No. 4 - July-August 2003