Daily Blast March 11, 2016

The California Supreme Court issued an opinion in DeSaulles v. Community Hospital of the Monterey Peninsula(Mar. 10, 2016, S219236) __ Cal.4th __, analyzing whether a plaintiff who voluntarily dismissed an action after entering into a monetary settlement is a prevailing party under Code of Civil Procedure section 1032, subdivision (a)(4) (“section 1032”). (Slip opn., p. 1.) The Supreme Court answered in the affirmative holding when a defendant pays money to a plaintiff to settle a case, the plaintiff obtains a net monetary recovery and a dismissal pursuant to such a settlement is not a dismissal in the defendant’s favor. (Id. at p. 2.)

This case arose from the defendant’s termination of the plaintiff’s employment. (Slip opn., p. 2.) The plaintiff sued the defendant for multiple causes of action including breach of contract and breach of implied covenant of good faith and fair dealing. (Ibid.)  After the defendant prevailed on summary adjudication and after motions in limine, the court precluded the plaintiff from introducing evidence and argument on any cause of action except breach of contract and breach of the implied covenant of good faith and fair dealing. The parties settled these two remaining causes of action. (Id. at pp. 2-3.) Pursuant to the settlement, the defendant agreed to pay plaintiff $23,500 and prepare a judgment preserving the right to appeal the rulings of the court in exchange for a dismissal with prejudice. (Id. at p. 3.) The plaintiff appealed the judgment and the Court of Appeal affirmed. (Id. at pp. 3-4.) After the Court of Appeal issued its remittitur, the parties each claimed to be the prevailing party entitled to costs. (Id. at p. 4.)  The trial court found the defendant to be the prevailing party and awarded costs. The Court of Appeal reversed holding that the plaintiff had obtained a net monetary recovery and was the prevailing party. (Ibid.)  The Supreme Court granted review. (Id. at p. 5.)

The Supreme Court first analyzed whether the defendant was a prevailing party under section 1032. The Supreme Court held that in light of section 1032’s basic purpose of imposing costs on the losing party, the definition of “prevailing party” as “a defendant in whose favor a dismissal was entered” was not intended to encompass defendants that entered into a monetary settlement in exchange for dismissal. (Slip opn., p. 14.) The court next analyzed whether a plaintiff who obtains a monetary settlement is a prevailing party. According to the court, there was no reason why a monetary settlement cannot fit within the definition of “monetary recovery” provided in section 1032. (Ibid.) Thus, the court held the term “recovery” in section 1032 encompasses situations in which a defendant settles with a plaintiff for some or all of the money that the plaintiff sought through litigation. (Id. at p. 15.) Thus, the plaintiff is the prevailing party within the meaning of section 1032. (Id. at p. 21.) The Supreme Court disapproved the contrary holding in Chinn v. KMR Property Management (2008) 166 Cal.App.4th 175, 185-190.

In the dissenting opinion, Justices Kruger and Werdegar agreed that a plaintiff who receives a monetary settlement in exchange for dismissal has received a net monetary recovery and is a prevailing party under section 1032. However, according to the dissent, the defendant in whose favor a dismissal is entered is also a prevailing party under section 1032. (Slip dis. opn., p. 1.) The dissenting opinion notes that because both parties cannot be entitled to costs as a matter of right, such cases are to be determined by the trial court. (Ibid.)

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