Can Punitive Damages Become Compensatory Damages?

This is a legal malpractice case brought by Plaintiffs against their attorneys individually and their law firm. Plaintiffs’ suit for malpractice claimed that Defendants were negligent in the trial of their case; and, as a result of their negligence, they were required to pay and did pay punitive damages in the sum of $625,000.00, plus compensatory damages. The Defendants filed a Motion to Dismiss the punitive damages portion of the claim, arguing that Illinois’ public policy, as set forth in 735 ILCS 5/2-1115, prohibits Plaintiffs in legal malpractice cases from recovering punitive damages from attorneys.

735 ILCS 5/2-1115 provides in part as follows:

“Sec. 2-1115. Punitive damages not recoverable in healing art and legal malpractice cases. In all cases, whether in tort, contract or otherwise, in which the Plaintiff seeks damages by reason of legal . . . malpractice, no punitive, exemplary, vindictive or aggravated damages shall be allowed.”

The Circuit Court denied the Defendants’ attorneys Motion to Dismiss but certified the following question for immediate appeal pursuant Illinois Supreme Court Rule 308:

“Does Illinois’ public policy on punitive damages and/or the statutory prohibition on punitive damages found in 735 ILCS 5/2-1115 bar recovery of incurred punitive damages in a legal malpractice case where the client alleges that, but for the negligence of the attorney in the underlying case, the jury in the underlying case would have returned a verdict awarding either no punitive damages or punitive damages in a lesser sum?”

The Illinois Appellate Court affirmed the judgment of the Circuit Court and also answered the question in a negative. The Illinois Supreme Court allowed the appeal. They also allowed the Illinois Defense Counsel to file an amicus curiae brief.

In the underlying case, an employee of Defendant filed a Complaint for a retaliatory discharge. After the trial, he was awarded $160,000.00 in compensatory damages and $625,000.00 in punitive damages. In their legal malpractice case, Plaintiffs claim their attorney breached their duty in the underlying action because they failed to disclose witnesses, failed to disclose voicemails, failed to object to language of the limiting instruction, failed to tender an alternative instruction and committed other errors, which they claimed resulted in the award for the compensatory and punitive damages. The Defendants’ attorneys filed a 2-619 Motion seeking to strike the request for punitive damages as violative of Section 2-1115 and Illinois Public Policy.

Initially, the Court analyzed the requirements of proof in a legal malpractice action. They discussed the requirement that the Plaintiff would have to prove the “case within a case.” They analyzed the proximate cause and “but for” requirements. They also discussed Plaintiff’s burden of proving the damages were incurred because of the attorney’s negligence. They noted that even if negligence is established, unless the Plaintiff can show the negligence proximately caused the punitive damages against Plaintiff, the case will fail.

The Court next distinguished punitive or exemplary damages from compensatory damages. They looked at cases where legal malpractice was claimed because the client allegedly lost its recovery of punitive damages due to the alleged malpractice. In other words, they discussed whether the Plaintiff in a legal malpractice case can recover lost punitive damages that were allegedly not recovered because of their attorney’s negligence.

Under those circumstances, they agreed with the California court which found that 1.) imposing liability for lost punitive damages against negligent attorneys would neither punish the culpable tortfeasor; nor 2.) deter others from committing similar wrongful acts. The Court also added that permitting recovery of lost punitive damages as compensatory damages in the malpractice case violates the public policy against speculative damages, as the punitive damages requires a moral determination as opposed to a factual determination based on actual damages. Also, there are different standards of proof for punitive damages versus compensatory damages. The Court also discussed other policy issues concerning punitive damages.

Nonetheless, they found the case at bar distinguishable. In this case, permitting Plaintiff to recover the punitive damages it actually paid would not punish the attorney Defendants. Instead, the punitive damages became an element of the claim for compensatory damages. An award of punitive damages actually paid would make Plaintiff whole because it replaces the money Plaintiff paid in the underlying action.

Also, because the Plaintiff actually paid the punitive damages, and it is a known amount - $625,000.00, there would be no speculation in the legal malpractice case. In other words, the jury in this case would not have to make the moral determination of the amount of punitive damages. In essence, the punitive damages under these circumstances are compensatory to Plaintiff.

Further, because these damages were already paid, this is not a situation where the jury is considering the lost shot at punitive damages at trial. There is no proof issue as far as the different burdens of proof are concerned. Because the malpractice jury determined negligence and proximate cause, the punitive damages are known in this action.

Finally, there is not risk of a societal cost, i.e., possibly subjecting the Defendants to a greater liable or consumers running the risk of not being able to obtain legal services or obtain a recovery from legal malpractice, because the damages are already set.

Based on that, and some further analysis, they concluded that the Trial and Appellate Courts would be affirmed and 735 ILCS 5/2-1115 does not bar recovery of punitive damages under the circumstances of this case