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The Morrison Law Journal
February 2010
Volume V, Edition 2

When Settlement Dollars Really Count: California Supreme Court Rules That Set Offs
From Pre-Trial Settlements Must Be Considered In Determining Whether A Plaintiff
Can Be Considered A "Prevailing Party" For Purposes Of California's Costs Statute

By: Edward F. Morrison, Jr., Esq.
Brett C. Drouet, Esq.

It is not often the case, but it does happen.

A plaintiff will file an action against multiple Goint tortfeasor) defendants and some
defendants, but not all, settle before trial and the "pre-trial" settlements exceed the verdict
against the non settling defendants who went to trial. Under California Code of Civil
S 877, since the pre-trial settlements are credited against the verdict against the
non settling defendants by way of set offs, the plaintiff is left with a no net dollar recovery
against the non settling defendants.

In cases such as this, the question then arises as to whether the plaintiff, saddled
with a no net dollar recovery, can still claim the status of a "prevailing" party for purposes
of recovery of costs under the California recovery of costs statute found in California Code
of Civil Procedure
S 1032.1

This question had previously appeared to have been answered in the California
Court of Appeal, 6th District decision in Wakefield v. Bohlin (2006) 145 Cal.App.4th 963
(sometimes herein, the "Wakefield" case). In the Wakefield case, a home buyer had brought
an action against a husband and wife team which had remodeled and sold a single family
residence. The plaintiff home buyer sued not only the sellers, but the sellers' real estate
broker and at least one subcontractor. Prior to the trial of the Wakefield case, the sellers'
real estate broker and a subcontractor settled for the sum of $96,700. At trial, the home
buyer achieved a verdict against one of the sellers for the sum of $33,950, which was little
more than a third of the pre-trial settlements.

1 California Code of Civil Procedure S 1032 provides in pertinent part:
"'[p]revailing party' includes the party with a net monetary recovery, a defendant in whose
favor a dismissal is entered, a defendant where neither plaintiff nor defendant obtains any
relief, and a defendant as against those plaintiffs who do not recover any relief against that
defendant ... "


In Wakefield, the sellers argued that because the set offs from the pre-trial
settlements resulted in a no net monetary recovery to the home buyer, they should be
considered a "prevailing" defendant under the costs statute. The Court of Appeal
disagreed and ruled that the term "recovery"was broad enough to "encompass any type of
award" and concluded:

"the party with the net monetary recovery is determined by
comparing the competing damage claims on both sides of the
litigation. If both sides have claims, whichever party obtains
the most money from the other prevails. If only one party has
damage claims, any success in pressing those claims against
the losing party results in a net award".

Wakefield v. Bohlin, supra, 145Cal.App.4th at 983. On that basis, the Court of Appeal held
that the home buyer "categorically" qualified as a prevailing party under Code of Civil
S 1032and that the home buyer was entitled, in that case, to attorney fees and
costs. The Wakefield case was the subject of a stinging dissent by Justice Mihara who
argued, unsuccessfully, that the language of Code of Civil Procedure S 1032 required a
"net"monetary recovery for there to be prevailing party status.

This very issue then arose again in the case of Goodman v. Lozano (2010)D.A.R.
1925(sometimes herein, the "Goodman" case). In Goodman, another residential real estate
case, the home purchasers brought an action against a construction partner, its construction
financing partners, the architect and brokers alleging negligence, fraud, breach of
warranties, negligent misrepresentation and breach of contract. Prior to trial, settlements
were reached with certain of the defendants totaling over $230,000. The non settling
defendants offered the sum of $35,000in a Statutory Offer to Compromise, which was

Following a bench trial in the home purchasers' action against the non settling
defendants, the trial judge, who was not informed of the plaintiffs' pre-trial settlements
with the other defendants, found in favor of plaintiffs and calculated a "total damage
award" of just under $146,000,$64,000of which was allocated to the plaintiffs' contract
claim. After learning that the prior settlements totaled over $200,000, the trial judge
determined that the non settling defendants should receive set offs for the settlements.
Because the pre-trial settlements easily surpassed the $146,000 award to the home
purchasers, the trial judge further found that home purchasers should receive no money.
Exercising the Court's discretion under Code of Civil Procedure section 1032(a)(4),the trial
court then ruled that the non-settling defendants were the "prevailing"parties because they
paid nothing under the judgment and awarded the non settling defendants $132,000in
attorney's fees and $12,000in costs.


On appeal, the Court of Appeal affirmed the decision of the trial court and expressly
disagreed with the majority in the Wakefield case. The California Supreme Court then
granted review. In the California Supreme Court's decision, following an analysis of the
legislative history of Code of Civil Procedure S 1032 as well as S 877, the California
Supreme Court commented that the plain meaning and interpretation of "net monetary
recovery" is consistent with the statutory language of Code of Civil Procedure S 877which
deals with set offs and found that the Wakefield decision had been improvidently decided.
The Supreme Court went on to rule that pre-trial settlements which are the subject of set
offs under Code of Civil Procedure S 877 may be considered in determining whether a
plaintiff has achieved a net monetary recovery for purposes of being a "prevailing" party.
On that basis, the Supreme Court ruled that the trial court did not abuse its discretion in
finding the non settling defendants to be the prevailing party.

The Goodman case is important and it will apply in many cases in the future where
there are multiple defendants and significant pre-trial settlements. The authors further
believe that the Goodman decision was properly decided and presents a common sense
interpretation of the California Costs Statute.

About the Authors: Edward F. Morrison, Jr. is the founding partner and Brett C. Drouet is
a partner of The Morrison Law Group, a professional corporation. Their biographies can
be viewed at

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