Recovering Punitive Damages in Attorney Malpractice Cases

by Jessica Kelly

Legal Analysis

Former clients of attorneys frequently assert Chapter 93A claims in legal malpractice cases, but they do not often win Chapter 93A damages.  In Massachusetts, a plaintiff, in extreme circumstances, may recover under Chapter 93A as a result of an attorney’s unfair and deceptive conduct.  It is unclear, however, whether a former client can recover Chapter 93A damages he or she could have recovered in an underlying case in a subsequent legal malpractice action.  Available Massachusetts case law, including an unreported decision on a motion in limine by the Superior Court in Chafetz v. Day Pitney LLP, et al., No. SUCV 1484-03597 (Mass. Super. Ct. May 25, 2018), suggests that lost punitive damages, such as those available under Chapter 93A, are not recoverable in a professional negligence case.

     I.      General Law on Damages Recoverable in Legal Malpractice Actions

Legal malpractice claims represent a hybrid of contract and negligence causes of action, yet recovery is generally limited to tort-based damages, e.g. direct and consequential damages for the reasonably foreseeable losses plaintiff suffered as a result of the attorney’s negligent conduct.  Plaintiffs often try these claims as a “case-within-the-case,” having to prove that they would have obtained a better outcome in the underlying matter had the attorney not breached the standard of care.  Plaintiffs also have to prove both the damages they would have recovered, and the collectability of those damages.

Direct damages are those reasonably flowing from the tortious conduct, such as the value of a lost settlement or judgment or the attorneys’ fees incurred to fix an attorney’s mistake.  Consequential damages are those losses that occur as a result of the direct loss, such as damage to reputation, lost profits and other economic losses.  The economic loss doctrine, which usually precludes recovery for purely economic losses in negligence actions, is inapplicable to legal malpractice claims.[i]

Plaintiffs must also prove that their damages are more than speculative and, if relevant, that they would be recoverable in the underlying action.  Emotional distress damages are probably not recoverable in a Massachusetts legal malpractice action absent exceptional circumstances (such as a client being imprisoned as a result of attorney negligence), because emotional distress is usually not a reasonably foreseeable result of an economic loss.[ii]  As discussed in detail below, punitive damages and attorneys’ fees incurred to prosecute a malpractice action are also not recoverable, unless the former client can also prove that the attorney’s conduct violated Chapter 93A.

     II.     Recovery of Legal Malpractice Damages Under Chapter 93A

Chapter 93A, which protects consumers and businesses against unfair and deceptive business practices, applies broadly to the conduct of any business engaged in trade or commerce.  Legal malpractice plaintiffs often plead a Chapter 93A claim on the assumption that the threat of treble damages and attorneys’ fees can lead to quicker and more favorable settlements.  The reality, however, is that it is rare for a legal malpractice plaintiff to recover damages under Chapter 93A.  This is because ordinary negligence or breach of contract alone does not rise to the level of unfair and deceptive conduct.  To recover under Chapter 93A, evidence of something more, such as self-dealing or fraudulent acts, must exist.[iii]  It is also unlikely, albeit unsettled, that plaintiffs can recover lost Chapter 93A damages in a subsequent malpractice action.

     A.  Direct Claims Against Attorneys For Violation of Chapter 93A

The ability of a plaintiff to bring a direct claim under Chapter 93A in a legal malpractice action depends on whether the alleged conduct of the defendant attorney occurred within trade or commerce and whether the conduct is unfair or deceptive.  Courts have held that “the practice of law constitutes trade or commerce for purposes of liability under [Chapter] 93A,” but the outcome is very fact dependent.[iv]

The closer question is whether the attorney’s conduct was actually unfair or deceptive.  An attorney will only be directly liable for violation of Chapter 93A for conduct involving “dishonesty, fraud, deceit or misrepresentation.”[v]  There are few decisions where a Massachusetts court has allowed a claim against an attorney to proceed past a dispositive motion[vi] and even fewer where the attorney was actually found liable under Chapter 93A.[vii] This limited set of case examples suggests, however, that conflicts of interest, financial misconduct and dishonesty are common themes for successful direct Chapter 93A claims regarding attorney misconduct.

     B.  Claims to Recover Lost Chapter 93A Damages

Although there is no Massachusetts appellate precedent on the issue, legal malpractice plaintiffs are likely barred from seeking punitive damages that they would have recovered in the underlying case absent their attorney’s negligence.  Stated differently, it is unlikely that plaintiffs can seek from a former attorney in a legal malpractice action their missed opportunity to recover under Chapter 93A in the original litigation.  The rationale was set forth in a motion in limine decision in a recent Superior Court action, Chafetz v. Day Pitney LLP, et al.

In Chafetz, the former clients sued two attorneys and two law firms alleging negligence in the handling of a lawsuit against the builder of the former clients’ home and in the builder’s eventual bankruptcy.  Specifically, in relevant part, the former clients alleged that the defendants failed to file a non-dischargeable Chapter 93A claim in the builder’s bankruptcy action.  The former clients claimed that the “lost potential punitive damages” were a “‘reasonably foreseeable loss’ caused by [their attorneys’] negligence and thus recoverable in the malpractice action.”

On its face, the former clients’ claim made sense, assuming they could prove that the defendant in the underlying matter actually violated Chapter 93A.  If it turned out that the attorneys were negligent in not bringing the Chapter 93A claim, the former clients’ missed opportunity to bring such a claim was an actual harm.  The former clients’ ability to pursue damages for that harm is founded on the notion that plaintiffs in tort actions should be compensated “for all of the damages proximately caused by the defendant’s negligence.”[viii]

The position that lost punitive damages are compensable in a legal malpractice action, however, is the minority view.  This view was stated in Jacobsen v. Oliver, 201 F. Supp. 2d 93, 102 (D.D.C. 2002) where the United States District Court for the District of Columbia held that the former clients could assert claims for “lost punitives” in their legal malpractice action.  The Court held that the policy reasons for compensating the plaintiffs for their actual harm caused by their attorneys’ negligence was more important than the policy reasons for shielding attorneys in a subsequent malpractice case from lost punitive damages.  The Court also noted that “[a]ttorneys 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.”[ix]  Courts in other jurisdictions have taken similar positions.[x]

The Chafetz Court, however, took the majority view and granted Defendants’ motion in limine to preclude the recovery of punitive damages and/or any mention of them during trial.  The Court held that plaintiffs could not seek the lost Chapter 93A damages because the public policy behind the statute is to punish and deter the wrongdoer, e.g. the defendant in the underlying case, and thus, would not be served by making the attorney defendants pay them.  The Court also held that the Legislature enacted Chapter 93A to encourage the wrongdoer to settle and take responsibility early on for unfair and deceptive behavior.  The Court wrote that the “public policy goal is not fostered by permitting recovery of lost punitive damages in a negligence case against a lawyer.”

The Chafetz Court relied, in substance, on three cases.  The first was Kraft Power Corp. v. Merrill, 464 Mass. 145, 159 (2013), where the Supreme Judicial Court held that a plaintiff cannot seek Chapter 93A damages against a defendant who becomes or is deceased.  This is because Chapter 93A “can no longer achieve the goals of punishing a defendant or deterring him from future misconduct when the wrongdoer has died.”  While not on point to the circumstances in Chafetz, the Kraft case emphasizes that the purpose behind Chapter 93A is no longer served when the punitive and deterring effects of Chapter 93A are no longer directed at the actual wrongdoer.

The second case was Dwidar-Kotb v. Altman & Altman, LLP, NO. MICV2011-04614, 2013 LEXIS 840 (Mass. Super. Ct. Mar. 13, 2013), another Superior Court decision.  In Dwidar-Kotb, the former client sued his lawyer for negligence arising from an employment matter in which the former client had sought, among other claims, damages under the Massachusetts Wage Act, which, like Chapter 93A, allows for the recovery of punitive damages.  The Court held that the plaintiff could not seek punitive damages under the Wage Act in the subsequent malpractice action, holding that the “purpose of awarding punitive damages would not be accomplished or served in a malpractice claim against attorneys.”  In other words, where the attorneys were not responsible for the Wage Act violations, but rather for the failure to bring the Wage Act claims, the purpose of imposing punitive damages no longer existed.[xi]

The third case was Ferguson v. Lieff, Cabraser, Heimann & Bernstein, LLP, 69 P.3d 965 (Cal. App. 4th 2003), in which the California Supreme Court disallowed the recovery of lost punitive damages in a legal malpractice action.  In Ferguson, the Court focused on, among other things, the “moral determination” involved in the award of the punitive damages and that such a determination is a highly subjective decision for the judge or jury in the first instance.  As such, the Chafetz Court noted that it would be speculative for it to determine whether and what the Bankruptcy Court may have awarded as punitive damages in the underlying case assuming that the former clients proved that the attorney defendants had been negligent in not bringing the Chapter 93A claim.

The Chafetz Court distinguished the case before it from cases where the legal malpractice plaintiff was a defendant in the underlying case who then sought to recover the punitive damages awarded against him or her, which the plaintiff alleges would not have been assessed but for attorney negligence.  Other courts have not made this distinction and have cited to cases involving both situations interchangeably.[xii]  From a practical standpoint, seeking to recover punitive damages against an attorney that were actually assessed in an underlying action, is much less speculative than seeking to recover damages that may or may not have been awarded in an underlying action.  Perhaps the Chafetz Court left the door open for such claims in Massachusetts because of this significant difference.

In the end, the Chafetz Court entered an order precluding plaintiffs from seeking lost treble damages under Chapter 93A as part of their damages in the legal malpractice action.  The decision is in line with the majority view and the purpose of Chapter 93A.  Punitive damage are not compensatory, but rather provide the plaintiff a windfall “to punish and deter the wrongdoer”.[xiii]  Therefore, lost punitive damages should not become compensable in a later malpractice action.[xiv]

     III.      Conclusion

In sum, legal malpractice plaintiffs can recover for their actual damages, assuming they are not speculative and can be proven to a reasonable certainty. Their ability to recover under Chapter 93A, however, is very limited, unless the lawyer’s own conduct was unfair or deceptive.  It is also likely that Massachusetts will follow the rationale of Chafetz and Dwidar-Kotb in regards to the recovery of lost punitives in a legal malpractice action if and when that issue reaches the appellate level.

 

Jessica is a litigation partner at Sherin and Lodgen LLP, where she assists clients in a variety of industries with complex business litigation, including finance, biotech, and national retail. She also represents lawyers and law firms in professional liability malpractice disputes and disciplinary investigations before the Massachusetts Board of Bar Overseers (BBO).

 

[i]  See Clark v. Rowe, 428 Mass. 339, 342-343 (1998).

[ii]  See Meyer v. Wagner, 429 Mass. 410, 423 (1999).

[iii]  See id., at 424.

[iv]  Compare Brown v. Gerstein, 17 Mass. App. Ct. 558, 571 (1984) (plaintiffs satisfied trade or commerce element because attorney represented them in the context of commercial real estate business), with First Enterprises, Ltd. v. Cooper, 425 Mass. 344, 348 (1997) (internal business dispute was not trade or commerce for purposes of Chapter 93A).

[v]  Poly v. Moylan, 423 Mass. 141, 151 (1996).

[vi]  See Blast Fitness Grp., LLC v. Dixon (In re Blast Fitness Grp., LLC), Ch. 7 Case No. 16-10236-MSH, Adv. No. 18-01011, 2019 WL 137109 (D. Mass. Jan. 8, 2019) (court held that a breach of duty of loyalty to clients was sufficient to state a claim for violation of Chapter 93A); Baker v. Wilmer Cutler Pickering Hale and Dorr LLP, 91 Mass. App. Ct. 835 (2017) (allegations that company’s lawyers participated in unlawful freeze out of minority members stated a claim for violation of Chapter 93A); Brown v. Gerstein, 17 Mass. App. Ct. 558 (1984) (trier of fact should have been allowed to determine whether attorney’s misrepresentation that he had filed complaint on behalf of clients to stop foreclosure violated Chapter 93A).  Of course, the more egregious allegations of lawyers violating Chapter 93A may never appear in court decisions because those cases often settle early in the litigation.

[vii]  See Sears, Roebuck & Co. v. Goldstone & Sudalter, P.C., 128 F.3d 10, 19 (1st Cir. 1997) (affirming judgement on Chapter 93A where attorney engaged in illegal billing practices); Guenard v. Burker, 387 Mass. 802, 809-810 (1982) (affirming finding that attorney’s reliance on unlawful fee agreement held to be a violation of Chapter 93A); Walsh v. Menton, No. 932738H, 1994 WL 879470, at *4 (Mass. Super. Ct. Sept. 23, 1994) (failing to apprise plaintiff “of the status of her account and to return her money upon demand was unfair as a matter of law”).

[viii]  Jacobsen v. Oliver, 201 F. Supp. 2d 93, 102 (D.D.C. 2002) (internal quotation omitted).

[ix]  Id. at 102.

[x]  See also Haberer v. Rice, 511 N.W.2d 279, 288 (S.D. 1994); Hunt v. Dresie, 740 P.2d 1046, 1057 (Kan. 1987); Scognamillo v. Olsen, 795 P.2d 1357, 1361 (Colo. App. 1990); Elliott v. Videan, 791 P.2d 639, 645 (Ariz. Ct. App. 1989); Herendeen v. Mandelbaum, 232 So. 3d 487, 492 (Fla. Dist. Ct. App. 2017), review denied, No. SC18-132, 2018 WL 3239289 (Fla. July 3, 2018).

[xi]  The same rationale would likely apply to bar claims seeking “lost punitives” in malpractice actions where punitive damages were potentially recoverable in the underlying case under the Massachusetts wrongful death statute, M.G.L. c. 229, or the Massachusetts employment discrimination statute, M.G.L. c. 151B.

[xii]  See, e.g., Jacobsen, 201 F. Supp. at 100.

[xiii]  See M. O’Connor Contracting, Inc. v. City Of Brockton, 61 Mass. App. Ct. 278, 285 & n.12 (2004) (holding that punitive damages against municipality “punishes only the taxpayers, who took no part in the wrongful conduct, but who nevertheless may incur an increase in taxes or a reduction in public services as a result of the award”).

[xiv]  According to the Chafetz docket, the case settled shortly thereafter and thus, the appellate courts will have to wait for another case to decide this issue as binding precedent.  Just as asserting a punitive damages claim can hasten settlement, so can removing it from consideration.



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