Daily Blast May 25, 2016

The Court of Appeal, Fourth Appellate District, Division Three (Santa Ana), issued a decision in Charton v. Harkey (May 24, 2016, G050514) __ Cal.App.4th __, analyzing whether: (1) the Legislature intended to eliminate the “unity of interest” exception as a basis for denying a prevailing party the right to recover costs; and (2) the trial court could allocate costs based solely on the number of jointly represented parties. (Slip opn., pp. 2-3.) The Court of Appeal determined that the unity of interest exception no longer applies. (Id. at p. 2.) The appellate court further concluded the trial court “may not make an across-the-board reduction based on the number of jointly represented parties because doing so fails to consider the reason for incurring the costs and whether they were reasonably necessary for the prevailing party.” (Id. at p. 3.)

Plaintiffs filed an action against National Financial Lending (a mortgage lender), Point Center Financial (“Point Center”) (National Financial’s manager), Diane Harkey (“Harkey”), and her husband (Point Center’s president and principal shareholder), to recover damages they suffered based on their investments in National Financial Lending. (Slip opn., p. 3.) After trial, the court entered judgment against Harkey’s husband and Point Center, but entered judgment in favor of Harkey. (Id. at p. 4.) Harkey joined with her husband and sought to recover costs. Plaintiffs moved to tax the costs arguing the court had the discretion to deny Harkey’s costs even though she prevailed because she was joined in interest with her husband and Point Center. The trial court found the unity of interest did not apply and granted the motion in part, taxing 75 percent of the costs and awarding the remaining 25 percent to Harkey as the only prevailing party out of four defendants. (Id. at pp. 4-5.) Plaintiffs appealed. (Id. at p. 5.)

The Court of Appeal affirmed the trial court’s decision that Harkey was a prevailing party, reasoning that the “unity of interest exception arose from the prior version of [Code of Civil Procedure] section 1032” and is no longer applicable. (Slip opn., p. 9.) The reenactment of Code of Civil Procedure section 1032 (“section 1032”) “provides no exception to a party’s right to recover costs when the party satisfies any of the four statutory definitions of a prevailing party.” (Id. at p. 12.) As such, “the Legislature intended to eliminate the unity of interest exception as a basis for denying costs to a prevailing defendant who otherwise is entitled to recover costs as a matter of right.” (Ibid.) The court declined to follow cases applying the unity of interest exception after the Legislature repealed and replaced section 1032 because the cases contained no analysis as to why the exception still existed despite the major statutory overhaul. (Id. at p. 13.) Accordingly, the trial court did not err in refusing to apply the unity of interest exception and properly determined Harkey was a prevailing party entitled to costs. (Id. at p. 14.)

However, the court determined the trial court did err in allocating costs based on the number of jointly represented parties. (Slip opn., p. 14.) The court reasoned that such an allocation violates Code of Civil Procedure section 1033.5, which requires that awarded costs be “reasonably necessary to the conduct of the litigation.” (Id. at p. 16.) Dividing costs between jointly represented defendants requires analysis of the necessity and reasonableness of the costs as well as whether the costs were incurred due to the nonprevailing parties or the prevailing party. (Ibid.) Thus, the trial “court erred because it failed to apply the proper legal standards in making the allocation.” (Ibid.)

Related Attorneys

Related Practices

• Appellate