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Brent Ferguson and Florencia Prieto were dumbfounded in 1997 when the class counsel in their suit against Unocal Corp. chose not to seek punitive damages in order to cement an $80 million global settlement. Ferguson and Prieto, now residing together in Mendocino County, had gotten a total of $225,000 in compensatory damages, but wanted to pursue punitives to punish Unocal for a 1994 accident that released 100 tons of the toxic chemical Catacarb from a facility near Crockett. Denied that relief, the two turned on the class counsel — Lieff Cabraser Heimann & Bernstein — by suing for legal malpractice for the “lost” punitive damages that could have been awarded. They claimed that “but for” Lieff Cabraser’s alleged negligence, they might have gotten an enormous punitive damages award. It’s a difficult argument. The trial court judge found the settlement hammered out by Lieff Cabraser a fair one and granted the firm summary judgment. The appeal court followed suit, but the California Supreme Court granted review. Oral arguments are set for Wednesday in San Francisco. “This is a collateral attack on the original class action settlement, and it’s not proper,” said Jerome Falk Jr., the Howard, Rice, Nemerovski, Canady, Falk & Rabkin partner who represents Lieff Cabraser. “The ultimate answer should be that this kind of lawsuit cannot be brought at all.” There are hordes of lawyers and insurers who hope the high court agrees, especially because the ultimate ruling would not apply only to class counsel. It would pertain to all lawyers. Letting disgruntled plaintiffs sue to recover allegedly lost punitive damages, many say, could financially cripple law firms while doing nothing to deter the misconduct that was the target of the original, underlying suit. “This would expose lawyers to potentially ruinous liability imposed upon no other persons or entities under California law,” Thomas Freeman, a partner at Los Angeles’ Bird, Marella, Boxer & Wolpert, wrote in an amicus curiae brief filed by the Los Angeles County, Orange County and Beverly Hills bar associations. “This special liability risk . . . would significantly impair the quality of legal services provided to the public — and produce no viable social benefit.” Also filing amici in support of Lieff Cabraser were the Southern California Defense Counsel and four insurance companies that underwrite liability policies for thousands of California attorneys. “Transferring virtually unlimited punitive damage exposure from the wrongdoer — whose behavior necessarily rises to the level of fraudulent, oppressive or despicable conduct — to attorneys in legal malpractice cases,” Raul Martinez, a partner at L.A.’s Lewis Brisbois Bisgaard & Smith, wrote for the insurers, “will have disastrous consequences for lawyers whose policy limits will in most cases not be sufficient to satisfy these awards.” Studies, he noted, show that the average punitive damages award by California juries between 1991 and 2000 was more than $13 million. “Plaintiffs attorneys who would normally litigate large punitive damage cases,” he said, “will decline to do so for fear of unlimited personal liability.” Ferguson and Prieto, who lived near the Unocal plant that allegedly belched Catacarb into the air for 16 days in 1994, originally retained Michael Meadows, a partner at Walnut Creek’s Casper, Meadows & Schwartz. Meadows was later named co-lead counsel when the cases were consolidated, and Lieff Cabraser was named class counsel. After extensive discovery and negotiations, Unocal’s lawyers and Lieff Cabraser placed the punitive damage claims in a mandatory, non-opt-out class. But the claims were then dismissed as part of an $80 million global settlement of all claims that was approved by the court in 1997. “My clients didn’t agree with the way the mandatory class was being handled,” said David Becht, who represents Ferguson and Prieto. “Now, their claim was taken away by the attorneys, so they didn’t have the opportunity to seek punitive damages. “They didn’t even know Lieff was involved in the case,” the Adams Nye Sinunu Bruni Becht partner said, “until they received notice from the court that it was going to dismiss the punitive damages claim.” Despite Ferguson and Prieto’s best efforts, the First District Court of Appeal ruled against them last year. “As a matter of law,” Justice Timothy Reardon wrote, “lost punitive damages are not recoverable as compensatory damages.” The court’s decision tracked the reasoning of Piscitelli v. Friedenberg, 87 Cal.App.4th 953, a 2001 ruling by San Diego’s Fourth District, and rejected Merenda v. Superior Court, 3 Cal.App.4th 1, a 1992 ruling by Sacramento’s Third District, which viewed lost punitive damages as simply one more component of compensatory damages for malpractice. “To re-label as compensatory an award intended to punish a wrongdoer guilty of oppression, malice or fraud,” the First District held last year, “causes an innocent defendant to suffer that wrongdoer’s punishment.” Falk said he believes the case will hinge on the issue of proximate cause. “A party has the right to recover tort damages for injury,” he wrote in court papers, “only if it can show that the defendant was not only a cause-in-fact, but the proximate cause of that injury.” Falk also said a claim for punitive damages for legal malpractice would be highly speculative. “It really raises the stakes,” he said, “because punitive damages can be very large numbers. And they are a wild card. You really don’t know what a jury would do.” But, Becht said, the purpose of punitive damages is to send a message that wrongdoing should not be repeated. “What we’re really saying is [lawyers] have to adhere to the standard of care,” he said. “We are not saying they are guaranteeing the outcome of a case. We are just saying they have to [try] it competently.” Becht knows he’s not popular with his fellow lawyers on this issue. Not a single person or agency weighed in on his side in the form of an amicus, he said. His opponents would say that’s because the harm of allowing punitive damages for legal malpractice far outweighs any good. “There likely would be an increase in the assertion of marginal punitive damage claims, countervening express statutory policies,” Robert Olson, a partner in L.A.’s Greines, Martin, Stein & Richland, wrote in the amicus filed by the Southern California Defense Counsel. “Settlements would be discouraged. The courts would be further clogged,” he added. “All for providing plaintiffs with a recourse for the ‘loss’ of their supposed shot at the litigation lottery. That is not good policy.”

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