$223 Million Verdict for Broker Defrauded by Prudential Securities

During the 1980s, Prudential Securities recruited Michael Piscitelli as a broker and directed him to sell limited partnerships to clients, representing the investments as safe and reliable with projected annual yields of fifteen to twenty percent. The partnerships were neither. They were losing money from the start, and Prudential had hidden from its own brokers that distributions were funded largely by borrowed money and returns of principal, not actual earnings. Piscitelli sold the products in good faith and invested in them himself.

When the fraud became public, Piscitelli retained counsel to pursue his claims through New York Stock Exchange arbitration. What he did not know was that his attorney, Robert Friedenberg, had allowed a critical opt-out deadline to pass: a class action settlement reached by Prudential investors in October 1995 had extinguished claims that had not been separately preserved. Because Friedenberg never sought the settlement documents or advised Piscitelli to opt out, the broker's arbitration rights against Prudential were released without his knowledge.

Piscitelli then brought a legal malpractice action against Friedenberg in San Diego Superior Court, arguing that Friedenberg's negligence cost him the punitive damages a NYSE arbitration panel would have awarded against Prudential. James P. Frantz, representing Piscitelli at Frantz & Geraci, put the case to a jury after more than two years of litigation. The six-week trial centered on what the arbitration panel would have found had Piscitelli's claims survived. The jury concluded that Prudential had acted with oppression, malice, or fraud and that Piscitelli would have recovered $1.9 million in compensatory damages and $221.4 million in punitive damages from the firm. In November 1998, the San Diego jury returned a verdict of $223.82 million against Friedenberg.

The verdict was reported as the largest single-plaintiff jury verdict in California history at the time. Friedenberg appealed, and the California Court of Appeal for the Fourth District reversed in March 2001. The appellate court held that an attorney whose negligence was not itself intentional cannot be held liable for punitive damages the client might have collected from a third party. The court also found that expert testimony had improperly guided the jury on what arbitrators would have awarded, and that jury instructions on the applicable securities rules had been inadequate. The case was remanded; it later settled for a confidential amount.

The case is cited in California attorney malpractice law for the principle that lost punitive damages against a third party are not recoverable as compensatory damages in a pure negligence malpractice action.