In DeSaulles v. Community Hospital (March 10, 2016) case no. S219236, the Supreme Court has weighed in with what it calls a "default" rule regarding which party may be entitled to costs when an action is dismissed by way of settlement. Such a "default" rule in effect overturns the prior holding in Chinn v. KMR Property Management (2008) 166 Cal. App.4th 175, at 185–190.
The settlement in Desaulles was made and put on the record during trial as a result of rulings by the Court and included a monetary payment plus the Defendant to prepare a Judgment of Dismissal with prejudice with respect to certain adverse rulings that Plaintiff wanted to appeal. The settlement preserved the right to seek costs after the appeal was complete: "The Parties shall defer seeking any recovery of costs and fees on this Judgment coming final after the time for all appeals." Plaintiff filed an appeal and lost. Upon remand, Plaintiff filed for costs as prevailing party and the Supreme Court reversed the trial court's ruling that Plaintiff was not the "prevailing party" under CCP 1032(a)(4), holding that under the statute, the monetary payment was a "net monetary recovery" which made the Plaintiff the prevailing party entitled to costs.
By referring to this as a "default" rule, the Court's opinion applies to cases where the parties have not addressed "costs" in the settlement agreement or in a CCP 998 offer.
The Supreme Court indicated this "default" may be altered by express agreement of the parties and that trial courts may look to such agreement of the parties when considering the issue of who is the prevailing party for purposes of costs when there has been a settlement. The Court stated: ". . . settling parties are free to make their own arrangements regarding costs," and "Section 1032 merely establishes a default rule, and a settling defendant is in a far better position to calibrate the terms of a settlement, including allocations of costs, with appropriate provisions in the settlement."
Costs, including defense fees as costs pursuant to a statute or contract, should be addressed in a written Settlement and Release Agreement which expressly provides either that costs are included in the settlement amount and/or that each side is waiving and releasing all claims, including costs. If there is an attorney fees provision at issue in the case, then a 998 offer should either include or exclude recoverable costs (which can include attorney fees). If costs are excluded and Plaintiff accepts the 998 offer of money, plaintiff can then file a motion for recovery of fees as costs. The same is true if a defendant accepts a Plaintiff's 998 offer that is silent on the issue of costs.
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