Ferguson v. Lieff, Cabraser, Heimann & Bernstein, LLP

Citation135 Cal.Rptr.2d 46,69 P.3d 965,30 Cal.4th 1037
Decision Date09 June 2003
Docket NumberNo. S104444.,S104444.
CourtUnited States State Supreme Court (California)
PartiesBrent FERGUSON et al., Plaintiffs and Appellants, v. LIEFF, CABRASER, HEIMANN & BERNSTEIN, LLP, et al., Defendants and Respondents.

Adams . Nye . Sinunu . Walker, David J. Becht, Bruce Nye, San Francisco and Ross L. Libenson, Denver, CO, for Plaintiffs and Appellants.

Howard, Rice, Nemerovski, Canady, Falk & Rabkin, Jerome B. Falk, Jr., Ethan P. Schulman and Deborah A. Kane, San Francisco, for Defendants and Respondents.

Bird, Marella, Boxer & Wolpert and Thomas R. Freeman, Los Angeles, for Los Angeles County Bar Association, Orange County Bar Association and Beverly Hills Bar Association as Amici Curiae on behalf of Defendants and Respondents.

Greines, Martin, Stein & Richland and Robert A. Olson, Los Angeles, for Association of Southern California Defense Counsel as Amicus Curiae on behalf of Defendants and Respondents.

Lewis Brisbois Bisgaard & Smith, Richard B. Wolf, Los Angeles and Raul L. Martinez, for Lawyers Mutual Insurance Company, Continental Casualty Company, Carolina Casualty Insurance Company and Admiral Insurance Company as Amici Curiae on behalf of Defendants and Respondents.

BROWN, J.

In a mass tort action, class counsel stipulated to the certification of a mandatory, non-opt-out class with respect to punitive damages. To settle the action, class counsel agreed to dismiss the punitive damages class claims with prejudice. Despite objections from some class members, the trial court dismissed the punitive damages claims and approved the settlement. Two of these objectors now contend class counsel committed legal malpractice and seek to recover the punitive damages they would have recovered but for counsel's negligence. We now consider whether plaintiffs in a legal malpractice action may recover as compensatory damages the punitive damages they allegedly lost due to the negligence of their attorneys in the underlying litigation (lost punitive damages). We conclude they may not.

I. Facts
A. The Underlying Class Action

In 1994, a processing tower at a refinery in Rodeo, California, released hydrogen sulfide and a toxic chemical called Catacarb into the atmosphere. The release of these substances affected thousands of residents living near the refinery.

Soon thereafter, respondent Lieff, Cabraser, Heimann & Bernstein, LLP (Lieff Cabraser), filed a class action lawsuit against Union Oil Company of California (Unocal), the owner of the refinery. The complaint sought, among other things, punitive damages. Other law firms also filed individual and class action lawsuits against Unocal—including Casper, Meadows & Schwartz (Casper Meadows), which had entered into contingent fee contracts with and filed suit on behalf of appellants Brent Ferguson and Florencia Prieto (collectively appellants) and other individuals. Pursuant to a pretrial order, the trial court consolidated these actions against Unocal and designated them as complex litigation. The court gave primary responsibility for managing the consolidated actions to a steering committee of plaintiffs' counsel—which included Lieff Cabraser and Casper Meadows. The court designated Lieff Cabraser as co-lead class counsel and Casper Meadows as co-lead direct action counsel.

Lieff Cabraser then filed a first amended model complaint identifying four potential classes: (1) personal injury, (2) property damage, (3) medical monitoring, and (4) punitive damages (Unocal Class Action). Several months later, Lieff Cabraser, its co-lead class counsel, and Unocal entered into a stipulation and order approved by the trial court. Under the stipulation and order, the class action plaintiffs agreed to withdraw the allegations of the personal injury and property damage classes. The parties also stipulated to the "certification of a mandatory, non-opt-out" punitive damages class and agreed to schedule the issue of certification of the medical monitoring class for briefing and decision. Finally, the stipulation and order gave individuals with claims for personal injury or property damage 60 days to file their claims and gave plaintiffs the right to seek certification of the personal injury and property damage classes if Unocal moved to decertify or substantially modify the punitive damages class.

Following extensive discovery, Lieff Cabraser engaged in settlement negotiations with Unocal under the aegis of Retired Judge Daniel H. Weinstein, the court-appointed settlement master. After "extensive negotiations and discussion," the parties tentatively agreed to an $80 million global settlement of the consolidated class and individual actions. The settlement required the dismissal of the punitive damages class claims with prejudice.

The parties then stipulated to an order referring all issues concerning the good faith and scope of the settlement and the allocation of settlement proceeds to Judge Weinstein. Pursuant to this order, Judge Weinstein reported that the settlement negotiations "were conducted at arm's length by highly qualified counsel who were thoroughly knowledgeable about the evidence and the law." He further concluded that the $80 million settlement was "a fair, reasonable, and just settlement for all of the settling parties." Observing that the settlement "could not have been achieved without Class Counsel's agreement to dismiss with prejudice the punitive damages allegations of the non-opt-out punitive damages class" and finding "the handful of objections to the proposed dismissal ... to be unpersuasive," Judge Weinstein recommended "that the Court grant Class Counsel's motion to dismiss the punitive damages class claims with prejudice."

After providing notice of the proposed dismissal of the punitive damages class claims, Lieff Cabraser filed the motion to dismiss. The motion included authorizations from the various attorneys representing the individual plaintiffs—including Casper Meadows—to dismiss their clients' claims in exchange for participation in the $80 million global settlement.

Over 12,000 individual members of the punitive damages class received notice of the motion; eight, including appellants, filed objections. Appellants focused on the purported inadequacy and unfairness of the settlement and asked the court to allocate the $80 million settlement solely to the punitive damages claims. Ferguson himself attended the hearing on the motion and personally voiced his objections to the court. Appellants proceeded in propria persona because Casper Meadows refused to represent them in opposing the motion and settlement and because they could not find another attorney to assist them.

At the hearing, the trial court approved the settlement and dismissed the punitive damages class claims with prejudice. In doing so, the court stated: "I'm ... satisfied that those concerns that you [the objectors] have [have] been fully considered by the class counsel that are proposing this settlement. And I'm satisfied that this appears to be a fair and reasonable settlement for all parties involved.... [¶] My understanding of the settlement ... [is] that the $80 million settlement does encompass all punitive damages claims that have been filed, and I'm hearing from everyone that I have a great deal of confidence in that this is a settlement that should be approved and that the dismissal of the punitive claims would be appropriate."

In its written order dismissing the punitive damages class claims, the court concluded "that the public's interest in punishing Unocal for its conduct" at its Rodeo "refinery, and in deterring Unocal from future such conduct has been achieved." The court also issued an order finding that the settlement "is fair, reasonable and made in good faith, as that term is used in Code of Civil Procedure Section 877.6."

Appellants did not appeal the dismissal of the punitive damages claims. Instead, represented by Casper Meadows, they participated in the claims process created by the settlement. Ferguson received an award of $125,000 and Prieto received an award of $100,000 from the $80 million settlement. Neither Ferguson nor Prieto appealed or otherwise challenged these awards.

B. The Legal Malpractice Action

A few weeks after receiving the settlement awards, appellants filed the instant action against, among others, Lieff Cabraser and the individual attorneys at Lieff Cabraser involved in the settlement of the Unocal Class Action—respondents William Bernstein, Donald C. Arbitblit, and Jonathan D. Selbin (collectively respondents). After initial demurrer rulings by the trial court,1 appellants filed a third amended complaint. The complaint stated 11 causes of action, including: (1) negligence, (2) legal malpractice, (3) breach of fiduciary duty, (4) fiduciary fraud, (5) intentional fraud, (6) breach of contract, (7) constructive fraud, (8) breach of the implied covenant of good faith and fair dealing, (9) conspiracy to commit fraud, and (10) unjust enrichment. The gist of the complaint was that the settlement and related notices were inadequate and that respondents breached their fiduciary duty and committed malpractice by certifying the non-opt-out punitive damages class, negotiating and recommending the settlement, and refusing to support appellants' objections to the settlement. As compensatory damages, appellants alleged they lost a potential award of punitive damages against Unocal and received an award of compensatory damages far below the amount they would have received but for respondents' tortious conduct.

The trial court initially sustained respondents' demurrers to the fraud-related causes of action. The court later granted summary judgment for respondents on appellants' remaining claims because the undisputed evidence established that these claims were "barred by the doctrine of collateral estoppel." The court also found no due process violation because appellants received adequate notice of the proceedings in...

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