Settlement Agreements: Forgetting Costs May Cost You in California

DeSaulles v. Community Hospital of the Monterey Peninsula, No. H038184 (May 2, 2014): A California Court of Appeal recently considered the issue of whether one of the parties in a litigation can be considered to be “prevailing”—and thereby may collect costs—if an action is dismissed or settled. The court decided that a settlement payment that an employer made to an employee to resolve two of her causes of action qualified as a “net monetary recovery” thereby entitling her to recover litigation costs. According to the court, section 1032 of the California Code of Civil Procedure—which gives prevailing parties the right to recover litigation costs—entitled the employee to mandatory costs where, as here, the parties had not decided who would pay costs in their settlement agreement. In arriving at this conclusion, the court determined that section 1032 does not indicate that a party is not prevailing if the action is “dismissed or a judgment entered based on full or partial settlement.”

After the termination of her employment, Maureen DeSaulles sued Community Hospital of the Monterey Peninsula for disability discrimination (among other claims). The hospital asked the court for, and was granted, summary adjudication as to DeSaulles’s claim for failure to accommodate her disability. As a result, DeSaulles was precluded from moving forward with her claims for retaliation, wrongful termination, and intentional infliction of emotional distress. DeSaulles and her employer agreed to settle the remaining claims in exchange for payment of $23,500 and the claims were dismissed with prejudice.

Both DeSaulles and the hospital filed memoranda with the court asking for an award of litigation costs as  the “prevailing party.” Section 1032’s definition of “prevailing party” includes the party with a “net monetary recovery.” The trial court found the hospital to be the prevailing party since it “prevailed on significant causes of action” and awarded over $13,000 in costs to the hospital. DeSaulles appealed the decision.

The Court of Appeal reversed the trial court’s decision, holding that the settlement money received by DeSaulles is considered a “net monetary recovery,” making her the prevailing party and entitled to costs.

According to Rafael G. Nendel-Flores, a shareholder in the Orange County office of Ogletree Deakins: “The key takeaway from DeSaulles is that employers should specifically address costs in settlements that are entered into before trial courts. Otherwise, like the defendant in DeSaulles, employers must face the California courts’ often byzantine and conflicting interpretations of the terms ‘prevailing party’ and ‘net monetary recovery’ contained in section 1032. Since the parties did not expressly address costs, the DeSaulles court held that the employee was the ‘prevailing party’ because she received a ‘net monetary recovery’ even though she had to dismiss her claims in exchange for receipt of the $23,500 settlement payment. In turn, the DeSaulles court held that the employee was entitled to mandatory costs under Section 1032.” 

Nendel-Flores continued, “Interestingly, in reaching this result, the DeSaulles court rejected a prior California appellate opinion (Chinn v. KMR Property Management (2008) 166 Cal.App.4th 175) which held that settlement payments should be disregarded in determining whether a party received a ‘net monetary recovery.’”

Note: This article was published in the May 2014 issue of the California eAuthority.

 

Topics:  Appeals, Disability Discrimination, Employer Liability Issues, Legal Costs, Litigation Fees & Costs, Prevailing Party, Settlement

Published In: Civil Procedure Updates, Civil Remedies Updates, Civil Rights Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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