Community Hospital of the Monterey Peninsula hired Maureen deSaulles in February 2005 as a part-time patient business services registrar. Four months later, she began complaining about her work shift assignments to the emergency room. The Hospital placed deSaulles on a leave of absence the following January and terminated her in July 2006.

deSaulles then sued the Hospital for failure to accommodate, retaliation, wrongful termination and breach of contract. The Hospital moved for summary judgment, which the trial court granted except for the claims of breach of contract and breach of the implied covenant of good faith and fair dealing.

The parties then placed a settlement on the record which required deSaulles to dismiss the two remaining claims with prejudice in exchange for $23,500. deSaulles filed a request for dismissal with prejudice and the trial court entered an amended judgment stating that deSaulles would not recover anything from the Hospital and the parties would wait until appeals were exhausted to seek to recover fees and costs.

deSaulles appealed the trial court's dismissal and the Court of Appeal affirmed. The parties returned to the trial court and both claimed to be the prevailing party entitled to recover costs. The trial court found the Hospital to be the prevailing party because it prevailed on significant claims and entered into a settlement on the remaining claims. The Court of Appeal disagreed. It held that deSaulles had obtained a net monetary recovery and was therefore the prevailing party. The California Supreme Court then granted review.

Code of Civil Procedure section 1032 defines the "prevailing party" in litigation to be "the party with a net monetary recovery" or "a defendant in whose favor a dismissal is entered." Prevailing parties are entitled to recover their court costs. The issue to be decided by the Supreme Court was whether a plaintiff who voluntarily dismisses an action after entering into a monetary settlement is a prevailing party under section 1032.

The Court first concluded that section 1032's definition of prevailing party as "a defendant in whose favor a dismissal is entered" was not intended to encompass defendants that enter into monetary settlement agreements in exchange for a dismissal. Rather, the Court held, the definition was intended to preclude unsuccessful plaintiffs from evading the cost statute by dismissing their suits.

The Court then noted that section 1032(a)(4) defines the party with a "net monetary recovery" as the "prevailing party" and held that there was no reason why a monetary settlement could not fit within the definition of "monetary recovery". The Court also determined that money obtained through a settlement could constitute "net monetary relief" which was synonymous with "net monetary recovery". Accordingly, the Supreme Court concluded, the term "recovery" in section 1032(a)(4) encompasses situations in which a defendant settles with a plaintiff for some or all of the money the plaintiff sought through litigation. The Court held that deSaulles was the prevailing party and entitled to recover her costs.

Note:

If a defendant settles a lawsuit, and the plaintiff obtains some net monetary recovery from that settlement, the plaintiff is likely able to recover costs from the defendant. This outcome is easily avoided by ensuring that the settlement agreement includes a provision clearly stating that each party shall bear its own costs or that expressly allocates the costs, including the amounts, that will be paid to either side. Parties should not assume that settling automatically precludes a plaintiff from obtaining costs, even if the plaintiff has unsuccessfully litigated a substantial portion of his or her lawsuit.

DeSaulles v. Community Hospital of the Monterey Peninsula ___ Cal.4th ___ [2016 WL 903944].