A plaintiff who voluntarily dismisses a lawsuit after entering into a monetary settlement may be a “prevailing party” entitled to costs and fees under California law.

deSaulles v. Community Hospital of the Monterey Peninsula, Cal. Supreme Court No. S219236.

On March 10, 2016, the California Supreme Court decided whether a plaintiff who voluntarily dismisses an action after entering into a monetary settlement is a “prevailing party” under California Code of Civil Procedure (“CCP”) section 1032, subdivision (a)(4), entitling plaintiff to costs and attorney’s fees. The Supreme Court answered this question in the affirmative, affirming the decision of the Court of Appeal.

The underlying case was an employment dispute, in which the plaintiff, Maureen deSaulles  began her employment as a part-time patient business services registrar at the Community Hospital of the Monterey Peninsula in February 2005. In June 2005, deSaulles began complaining about her emergency room work shift assignments. In January 2006, deSaulles was placed on a leave of absence and was eventually terminated in July 2006. 

A year later, in July 2007, deSaulles filed a lawsuit against the hospital alleging failure to accommodate disability, retaliation for exercising her rights under California’s Fair Employment and Housing Act, breach of implicit conditions of employment contract, breach of the implied covenant of good faith and fair dealing, negligent and intentional infliction of emotional distress, and wrongful termination in violation of public policy. The hospital successfully obtained partial summary judgment and subsequently, moved in limine, to preclude deSaulles from introducing evidence in support of any of the causes of action, except for breach of the implicit conditions of employment contract and breach of the implied covenant of good faith and fair dealing. Before the jury was empaneled, the parties stipulated to a settlement in the amount of $23,000, pursuant to CCP section 664.6, for dismissal of the remaining two causes of action.

Pursuant to the parties’ stipulated settlement, deSaulles filed a request for dismissal with prejudice of the breach of contract and breach of covenant claims. On January 6, 2009, the trial court entered an amended judgment, adjudicating, inter alia, that deSaulles was to recover nothing from the lawsuit, and the parties would defer seeking recovery of costs and fees on the judgment. deSaulles appealed.   

The Court of Appeal affirmed the trial court’s judgment, but each party claimed to be the prevailing party, such that it would be entitled to costs under CCP section 1032. While the trial court found the hospital was the prevailing party, awarding it costs totaling $12,731.92, the Court of Appeal reversed this ruling. Instead, the Court of Appeal held that deSaulles obtained a “net monetary recovery” within the meaning of the statute and, accordingly, was the “prevailing party.” In so deciding, the Court of Appeal disagreed with a prior Court of Appeal ruling in Chinn v. KMR Property Management (2008) 166 Cal.App.4th 175, which held that the statutory definition of “prevailing party” includes “a defendant in whose favor a dismissal is entered” and that a settlement is not a “net monetary recovery.” Chinn, 166 Cal.App.4th at 188. 

The Supreme Court affirmed the Court of Appeal’s interpretation—likewise disagreeing with the Chinn rule that a defendant is a prevailing party if a CCP section 998 offer to compromise includes an agreement to dismiss the action, no matter how favorable to the plaintiff, finding this reading inequitable and contrary to the purpose of section 1032. The Supreme Court reasoned that when a defendant pays money to a plaintiff to settle a case, the plaintiff thus gains a “net monetary recovery,” and as a result, a dismissal pursuant to such a settlement is not a settlement in the defendant’s favor. 

The Supreme Court further held that a plaintiff that enters into a stipulated judgment to be paid money in exchange for a dismissal has obtained a “net monetary recovery” within the meaning of section 1032(a)(4), regardless of whether the judgment mentions the parties’ settlement. Importantly, the Supreme Court held that its ruling only serves as a default rule but that the parties may make their own arrangements regarding costs.

The deSaulles  decision makes clear that practitioners should ensure that any settlement agreement in which plaintiff is to receive a monetary payment, includes an express waiver of attorney’s fees and costs, or plaintiff will be considered the “prevailing party,” entitled to recover attorney’s fees and costs.