Employment Law Daily Settlement payment to employee was 'net monetary recovery'; employer not prevailing party
Tuesday, March 15, 2016

Settlement payment to employee was 'net monetary recovery'; employer not prevailing party

By Brandi O. Brown, J.D. Affirming the judgment of the Court of Appeal in favor of an employee who was sacked by her employer, the California Supreme Court ruled that under Code of Civil Procedure Section 1032 a defendant's payment to a plaintiff to settle the case is a "net monetary recovery." Dismissal pursuant to that settlement was not a dismissal in the defendant's favor. Although the court noted that this holding was a "default rule," it also noted that settling parties were free to make their own arrangements. Justice Kruger filed a separate dissent in which Justice Werdegar concurred (DeSaulles v. Community Hospital of the Monterey Peninsula, March 10, 2016, Liu, G.). Discharge and settlement. Approximately a year after she began working as a part-time patient business services registrar for a California hospital, the employee was placed on a leave of absence and, a few months later, fired. She filed suit, alleging claims of failure to accommodate, retaliation, breach of the implicit conditions of her employment contract, breach of the implied covenant of good faith and fair dealing, wrongful discharge, and negligent and intentional infliction of emotional distress. Motions by the employer resulted in court rulings precluding her from introducing evidence and arguments on all causes of action except for the breach of contract and breach of implied covenant claims. Prior to empanelment of a jury, the parties settled the case, agreeing that in consideration for dismissal of the remaining claims, the employer would pay the employee $23,500. The employee filed a request for dismissal with prejudice of those claims and the court entered an amended judgment noting settlement of the two causes of action and adjudging that the plaintiff would recover nothing from the defendant and the parties would defer seeking costs and fees after time for appeals. Costs to employer. After appeals, the parties sought recovery of costs and the trial court awarded almost $13,000 in costs to the employer, concluding that it was the prevailing party. The Court of Appeal reversed, finding that the employee had obtained a net monetary recovery and that she was the prevailing party. In so doing, the court expressed disagreement with Chinn v. KMR Property Management, a 2008 Court of Appeal decision which held that the defendant was the prevailing party where a settlement resulted in dismissal. The California Supreme Court granted review. Chinn was wrong. Explaining that section 1032 codified the approach that litigation costs are typically awarded to the prevailing party, the state high court considered the propriety of the Chinn decision. In that case the appeals court had reversed an award of fees to a plaintiff, concluding that the plaintiff was not the prevailing party and could not recover costs. Looking to section 1032's legislative history, the court found that in light of the language and history of the section, dismissal of the action made the defendant the prevailing party. It also found that settlement proceeds did not qualify as a "net monetary recovery" that would make the plaintiff a prevailing party. Defendant was not prevailing party. The high court considered the same legislative history and disagreed with the Chinn court’s conclusion. The rationale supporting an award of costs to a defendant on dismissal in cases existing prior to 1986 (and relied upon by Chinn), was that injustice would result if a plaintiff were to dismiss an unmeritorious matter before judgment and therefore evade an award of costs to the defendant. Considering the section's general purpose of imposing costs on the losing party and in view of the case law the statute was intended to incorporate, the court found that the definition of "prevailing party" was not intended to include defendants who entered into a monetary settlement in exchange for dismissal. But plaintiff was. However, a plaintiff who obtained a monetary settlement was a prevailing party, the court continued. Under the terms of section 1032, a party with a "net monetary recovery" is included in the definition of "prevailing party." The court saw no reason that a monetary settlement could not fit within the definition of "monetary recovery." It found that the term encompassed situations, such as this one, wherein the defendant settles with a plaintiff for some or all of the money the plaintiff sought in litigation. This was also consistent with the purpose of the section, and was further reinforced by the case law that predated the 1986 reenactment of the section. In cases such as this one, said the court, where the parties stipulate that the plaintiff was paid an amount of money in exchange for dismissal, the plaintiff is "as legally entitled to receive money from the defendant as a plaintiff who obtains a stipulated judgment without a dismissal." Therefore, Chinn's rule was "inequitable and inconsistent" with section 1032's purpose. Although a monetary settlement in favor of a plaintiff did not mean the lawsuit was necessarily meritorious, a default rule that a partial recovery, as long as it was a net monetary recovery, entitled a plaintiff to costs would prevent the burden of determining the merit of a complaint from falling on the courts. Courts should, however, exercise their "gatekeeping function" under section 664.6 and inquire whether parties have resolved the allocation of costs in their settlement agreements. "In sum," the court explained, "a dismissal pursuant to a monetary settlement is not a dismissal in the defendant’s favor as that term is used in section 1032(a)(4)" and a plaintiff who enters into a stipulated judgment to receive money as an exchange for dismissal will have "obtained a 'net monetary recovery'" under section 1032, regardless of whether the settlement is mentioned in the judgment. Dissent. Although agreeing that a plaintiff who received a monetary settlement in exchange for dismissal was a prevailing party presumptively entitled to costs under section 1032, Justice Kruger also believed that a defendant in whose favor dismissal was entered was also presumptively entitled based on the clear language of the statute. In the event of both parties being entitled to costs in this way, Justice Kruger explained, the statute's language offered the solution by permitting trial courts to determine which party had, in fact, prevailed and to allocate costs on that basis. To understand the section's operation, therefore, it was unnecessary to consider the legislative history. By doing so, the majority deviated from normal statutory interpretation. Moreover, Justice Kruger added, the legislative history on which the majority based its conclusions was "not especially revealing in any event." While a plain reading of the statutory text might place more of a burden on the courts, it was the approach "most consistent with both the text of the statute and its underlying equitable purposes."

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