Court Rules that Client Can Sue Lawyers over Punitive Damages Award

In a recent decision, the Illinois Supreme Court held that clients ordered to pay punitive damages can sue their attorneys to recover the money. In doing so the Court considered and rejected arguments that state law and public policy protect lawyers from being subject to punitive damages awards.

Midwest Sanitary Service Inc. retained St. Louis law firm Sandberg, Phoenix & Von Gontard to represent it in a whistleblower retaliation case filed against it by a former employee. Midwest lost the trial which resulted in a jury award of $160,000 in compensatory damages and, important to the case before the Court, $625,000 in punitive damages against the company. Following the verdict, Midwest sued its lawyers for malpractice alleging that the attorneys had committed various mistakes in the case including failing to designate defense witnesses in time and eliciting harmful testimony from a state official during cross-examination.

For their part, the attorneys sought dismissal of the legal malpractice suit arguing that Section 2-1115 of the Illinois Code of Civil Procedure prohibition against awarding punitive damages in medical or legal malpractice cases precluded Midwest from recovery of the punitive damages award. It also argued that allowing recovery in a legal malpractice suit of punitive damages awarded in an underlying suit would violate the public policy of Illinois. The trial court rejected the law firm’s arguments that it could not be held responsible for the punitive damages award. The Fifth District appellate court sided with the trial court. The Illinois Supreme Court granted the law firm’s petition for leave to appeal.

Initially, the Court noted that the malpractice case was still ongoing and that the appeal had not come from a final and appealable judgment but was an interlocutory appeal brought pursuant to Illinois Supreme Court Rule 308. As such, the Court’s task was to answer the question of whether, in a legal malpractice action, punitive damages incurred in an underlying action, which were proximately caused by the alleged negligence of the attorneys in the underlying action, can be recovered as compensatory damages from the allegedly negligent attorneys in a legal malpractice action.

The Court noted that the parties disputed the nature of the damages sought in the malpractice suit. Midwest argued that the $625,000 were compensatory damages resulting from the malpractice while the law firm argued that they were punitive damages and thus non-recoverable in the malpractice suit. To resolve the issue the Court examined the nature and definition of punitive damages. Following its analysis, the Court held that “the punitive damages Midwest paid in the underlying retaliatory discharge action are an element of compensatory damages in the legal malpractice action because they do not punish the attorneys but instead replace the loss caused by the attorneys’ alleged misfeasance or nonfeasance.”

The Court also distinguished the case from its 2006 decision in Tri-G, Inc. v. Burke, Bosselman & Weaver which also involved a dispute in a legal malpractice suit over punitive damages. In Tri-G, unlike in Midwest’s malpractice suit, the issue concerned the ability of a plaintiff in the underlying suit to recover punitive damages that it claimed it would have won but didn’t due to its lawyer’s malfeasance. In that case, the Court refused to allow recovery of such speculative damages holding that allowing such suits would burden courts by making it harder to reach settlements where plaintiffs believe they lost out on some speculated amount of punitive damages. Unlike in Tri-G, the Court explained, “Midwest is not speculating but is certain about the amount of punitive damages it paid in the underlying action, and it now seeks to be made whole in the legal malpractice action.”

The Court also rejected the argument that a recovery of previously awarded punitive damages would violate the public policy underlying Section 2-1115. The Court concluded that, “there is no risk of a societal cost—potentially subjecting attorneys to a greater financial liability or consumers running the risk of not being able to obtain legal services or obtain recovery from legal malpractice,” because the damages that Midwest was seeking were known and had already been paid by the company.

The Court’s full opinion is available here.

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