Settling plaintiff is prevailing party entitled to costs even if remaining claims are voluntarily dismissed

California Code of Civil Procedure §1032(a)(4) defines the “prevailing party” to include “the party with a net monetary recover” and “a defendant in whose favor a dismissal is entered.”  The statute entitles the prevailing party to the costs in the proceeding.  In a recent proceeding, the California Supreme Court was faced with the question of whether a plaintiff who settles some claims and voluntarily dismisses the remaining claims is considered the prevailing party and therefore entitled to costs.

In DeSaulles v. Community Hospital of the Monterey Peninsula (62 Cal.4th 1140 [2016]), Maureen DeSaulles sued Community Hospital of the Monterey Peninsula (the “Hospital”) for: (1) failing to accommodate physical disability or medical condition; (2) retaliation under Cal. FEHA; (3) breach of implied conditions of an employment contract; (4) breach of the implied covenant of good faith and fair dealing; (5) negligent and (6) intentional infliction of emotional distress; and (7) wrongful termination.  The Hospital successfully moved for summary judgment and the exclusion of evidence for all but DeSaulles' third and fourth claims.

Prior to trial, the parties settled the remaining claims. Under the settlement, the Hospital would pay DeSaulles $23,500, DeSaulles retained the right to appeal the summarily adjudicated claims, and DeSaulles would voluntarily dismiss her remaining causes of action.  After the Court of Appeal affirmed summary judgment in the Hospital’s favor, both parties sought costs as the prevailing party.  The district court held the Hospital to be the prevailing party based on the fact that it succeeded on the majority of claims pleaded.  The Court of Appeal reversed, holding DeSaulles as the prevailing party for obtaining a net monetary recovery.  The Court of Appeal explained that summary judgment did not dispose of the case;  As two causes of action remained for trial, the Hospital at most obtained a partial dismissal.  The California Supreme Court granted review.

The Court explained that an award of costs is justified on the theory that “to a plaintiff […] the default of the defendant made it necessary to sue him, and to a defendant, that the plaintiff sued him without cause.”  Put otherwise, the party responsible for initiation of the lawsuit pays the costs to the blameless party.  Under CCP §1032, a prevailing party is entitled to recover costs and defines the prevailing party as: “a party with a net monetary recovery, a defendant in whose favor a dismissal is entered, a defendant whether neither plaintiff nor defendant obtains any relief, and a defendant against those plaintiffs who do not recover any relief against that defendant.”  A recovery other than monetary relief or outside of the described situations, vests the court with discretion to award costs.  The statutory rule is only a default rule and can be modified by agreement of the parties.

The Hospital relied upon Chinn v. KMR Property Management (166 Cal.App.4th 175 [2008]) for the holding that settlement proceeds are not a “net monetary recovery” that would make the settling plaintiff the prevailing party.  Reviewing the legislative history of Section 1032 and the related case law, the Court overturned the holding in Chinn.  The Court explained that the language providing for costs to a defendant when the plaintiff voluntarily dismissed the case did not include the situation where the plaintiff obtained a monetary settlement as well.  Costs available to a defendant prevented a plaintiff from filing a claim without merit and driving up the costs, only to dismiss on the eve of trial and force the expense of a frivolous lawsuit on the defendant.  A situation where the plaintiff obtained a monetary settlement was separate and distinct.

Since Chinn no longer applied, the question remained whether a plaintiff who obtains a monetary settlement and voluntarily dismisses the remaining claims is entitled to costs as the prevailing party.  The Court found no reason why a monetary settlement was outside the definition of “monetary recovery.”  Just as a plaintiff cannot avoid costs if a suit without merit is dismissed prior to trial, a defendant cannot avoid costs if it settles also prior to trial.

The Court held that a dismissal pursuant to a monetary settlement is not a dismissal in the defendant’s “favor” and the plaintiff is entitled to costs.  The rule only clarified the default rule, while leaving open the availability of a private agreement between the parties apportioning costs.  The Court disapproved the holding of Chinn and affirmed the Court of Appeal’s judgment.