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California’s Fourth District Court of Appeal reversed a $221 million legal malpractice verdict against a San Diego lawyer on March 14, saying an attorney’s negligence does not make him liable for lost punitive damages that a client might have collected if counsel hadn’t screwed up. The justices noted that punitive damages are meant to punish oppressive, malicious or fraudulent acts, not the negligent attorneys who fail to provide effective counsel to combat such acts. “In legal malpractice actions, permitting a jury to impose punitive damages on a negligent defendant by restyling them as compensatory ‘lost punitive damage’ is unjust and contrary to public policy,” wrote Justice Terry O’Rourke. Justice Patricia Benke and James McIntyre concurred. The ruling in Piscitelli v. Friedenberg, 01 C.D.O.S. 2093, stems from the high-profile case brought by former Prudential Securities stockbroker Michael Piscitelli against his lawyer Robert Friedenberg. Beginning in 1992, a number of clients brought complaints against Piscitelli because of investment losses on limited partnerships marketed by Prudential. The company paid for Piscitelli’s defense and settled the claims, but the client complaints were placed on his permanent broker record. He ultimately left Prudential due to depression, but the black marks in his file barred him from getting employed elsewhere. Piscitelli retained Friedenberg to pursue claims that Prudential had lied about the investments’ performance and risk. Piscitelli sued for malpractice after Friedenberg failed to opt him out of a class action, meaning he was barred from pursuing any additional claims and recovering economic damages. Prudential later paid $330 million to settle charges brought by securities regulators. Though Prudential was not on trial, Piscitelli put on evidence before a San Diego County jury that Prudential was guilty of oppression, malice or fraud in its conduct. The jury also found that — had his claim against Prudential been allowed to go forward — a panel of New York Stock Exchange arbitrators would have awarded Piscitelli more than $221 million in punitive damages. But the Fourth District this week said the jury, in holding Friedenberg responsible for the lost punitive damages, was punishing “an innocent actor for another’s oppressive, malicious or fraudulent wrongdoing.” In deciding the case, the justices split with a 1992 ruling from the Third District Court of Appeal. Merenda v. Superior Court, 3 Cal.App.4th 1, had been the sole case law addressing the issue in California, and it said lost punitives could be recovered as compensatory damages. O’Rourke called Merenda‘s reasoning “flawed in several respects.” “It is incorrect to characterize a punitive damage claim as a ‘loss’ for which a legal malpractice plaintiff may be compensated in order to make him or her ‘whole,’” O’Rourke wrote. “While Friedenberg’s negligence may be the cause in fact of Piscitelli’s lost claims, we decline to extend the doctrine of legal causation to hold his negligence proximately caused the loss of punitive damages that might have been recovered from a third party,” he concluded. Peter Abrahams, a partner with Encino, Calif.’s Horvitz & Levy and one of Friedenberg’s appellate attorneys, said Wednesday that “If Merenda were the rule, you’d have independent plaintiffs attorneys being exposed to large punitive damage awards.” James Frantz, one of Piscitelli’s attorneys, said the decision wasn’t a surprise given the way oral argument went. But he said the court rejected Friedenberg’s argument that he had no duty to opt Piscitelli out, calling it “an important finding.” Given the split in authority, the case could be ripe for review by the California Supreme Court. But Frantz, of San Diego’s Frantz & Geraci, said his client hasn’t yet decided whether to appeal.

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