Division Three of the Fourth District has ruled that “lost” punitive damages are recoverable as compensatory damages in a legal malpractice action. It also ruled that the statute of limitations does not begin to run until a Court of Appeal decides against a party who succeeded in the trial court.
The O’Connor Agency sued former employees for misappropriation of clients and unfair competition. At trial O’Connor obtained a judgment for compensatory and punitive damages. On appeal, the punitive damages award was reversed because there was no evidence of the former employees’ net worth. The client sued the attorney less than one year after the appellate court decision was filed. The trial court ruled the statue of limitations barred the action.
On appeal the court rejected the reasoning of Piscitelli v. Friedenberg (2001) 87 Cal.App.4th 953, an opinion from Division One of the same District. (See, Professional Liability Update No. 102, March 15, 2001) The court disagreed with Piscitelli’s characterization of a punitive award as a mere windfall to a plaintiff, noting the additional procedural and evidentiary burdens on the plaintiff.
The Court did not embrace Piscitelli’s policy rationale of limiting punitive damages against wrongdoers guilty of oppression, fraud or malice. For a majority on this panel, the lost punitive damages are compensatory damages when sought in a legal malpractice action. A strong dissent argued that Piscitelli was correctly decided.
On the statute of limitations issue, the Court ruled that the plaintiff had not sustained actual injury before the trial court judgment was reversed on appeal. Although the client had incurred the cost of an appellate lawyer while defending the judgment on appeal, the court found this was not the type of “injury” contemplated by Code of Civil Procedure § 340.6(a)(1).
Statute of limitations issues depend on the specific facts of each case. Because defending the appeal would have been required even absent the alleged malpractice, no actual injury was suffered until the Court of Appeal reversed the favorable trial court judgment.
Comment: A petition for review has been filed in the Supreme Court. The Supreme Court will most likely “grant and hold” the case for disposition until it determines the punitive damages issue in Ferguson v. Lieff Cabraser 02 C.D.O.S. 342 (See, Professional Liability Update No. 120, May 2, 2002).