DeSaulles v. Community Hosp. of the Monterey Peninsula, 62 Cal. 4th 1140 (2016)

Maureen deSaulles agreed to dismiss her causes of action for breach of contract and breach of the implied covenant of good faith and fair dealing in exchange for a settlement payment from her former employer in the amount of $23,000. The trial court subsequently exercised its discretion and awarded $12,731.92 in costs to the employer. DeSaulles appealed, claiming that the settlement payment to her was a net monetary recovery, which entitled her – rather than the employer – to recover costs.

The Court of Appeal agreed and reversed, holding that the trial court should have recognized DeSaulles was entitled to costs under the statutory definition of "prevailing party" (Cal. Code Civ. Proc. § 1032(a)(4)). The Court further concluded that because the employer was not the prevailing party, the trial court should not have exercised its discretion to determine which party prevailed based on the merits of the case. Finally, the Court cautioned that "[o]f course, parties can avoid this mechanical approach by taking care to provide for costs in their settlements." The California Supreme Court affirmed.