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Two decisions bring relief and concern

Diane Karpman

By Diane Karpman

The legal profession breathed a collective sigh of relief when the Supreme Court issued Ferguson v. Lieff, Cabraser, Heimann & Bernstein, LLP ( "Legal malpractice plaintiffs may not recover lost punitive damages as compensatory damages."

The 4-3 decision clarified a jurisdictional split by focusing on the public policy element of proximate cause. Proximate cause encompasses cause in fact and unabashedly includes factoring in the real life impact of a decision. A flummoxed lawyer in a negligence action should not be the victim of the moral condemnation designed to punish the original tortfeasor, possibly a "wealthy corporation" engaged in intentional wrongdoing.

Our system is overburdened. Lawyers are beleaguered and carriers are fleeing California. The potential liability of lost punitive damages "would likely increase the cost of malpractice insurance, cause insurers to exclude coverage for these damages, or further discourage insurers from providing" coverage. Imposing liability for lost punitive damages would increase "defensive" legal practice, because everyone would be constantly looking over their shoulders trying to foresee the future. Lawyers who are constantly focusing on the future are distracted from providing legal services to clients in the present.

The court agreed that in class actions, which are favored by public policy and where settlement is encouraged, lost punitive damages are unavailable. However, the dissent maintained that today's insurance crisis does not justify "flipping" a rule that has prevailed in many jurisdictions for years and rejected the public policy arguments as being within the province of the legislature.

Other lawyers are catching their breath this month as a result of Hernandez v. Paicius (June 3, 2003) 2003 WL 21267487, a case involving the duty of loyalty owed to a current client. Because of this, some lawyers are now revising their intake forms and conflicts checking systems to add the names of witnesses.

In Hernandez, a litigator cross-examined a treating physician who also was designated as an expert for the opposing party. As luck would have it, that witness also was a current client of the firm in other unrelated matters. The litigator, therefore, owed loyalty concurrently to the plaintiff and the witness, which equals "divided loyalty."

Pandora's box has been jarred open. Often, the list of witnesses develops with the progression of a case. Nobody knows who they are until they are needed. Although this may sound shocking and cynical, there is a concept known as "taint shopping," where a lawyer or firm is retained to "create" grounds for a conflict in order to make a disqualification motion.

Gentle reader, it may be prudent to obtain the names of adverse witnesses at the intake of a new client, or as soon as witnesses are disclosed, to run a conflicts check. The extreme conflict of interest, and many other egregious and unusual factors in Hernandez, caused the judgment to be reversed and the case remanded. The court also ordered that the litigator be referred to the State Bar. A chilling result.

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