In Goodman v. Lozano (2008) 159 Cal.App.4th 1313, the plaintiffs obtained settlements totalling approximately $ 230,000 yet proceeded to trial against nonsettling defendants whom the court found were liable for $ 146,000, all of which was offset by the prior settlements. (Goodman, supra, 159 Cal.App.4th at p. 1319.) The trial court concluded that under section 1032, subdivision (a)(4) it had discretion to determine the prevailing party and in the exercise of its discretion found that the nonsettling defendants had prevailed and were thus entitled to recover their costs of suit. The Court of Appeal agreed with the trial court and refused to follow Wakefield, under which it "would be forced to conclude" that the plaintiffs were " 'categorically' the prevailing parties." (159 Cal.App.4th at p. 1324.)
In holding that the plaintiffs whose entitlement to damages was eliminated by the offset did not obtain "a net monetary recovery" within the meaning of the first sentence of section 1032, subdivision (a)(4), the Court of Appeal assumed that the second sentence of subdivision (a)(4) applied, under which the trial court has discretion to determine the prevailing party.
The court stated that "unless plaintiffs fall into the category 'the party with a net monetary recovery,' the question of who was the prevailing party would be a matter for trial court discretion, and the trial court's determination, being at least reasonable, would necessarily have to be upheld." (Goodman, supra, 159 Cal.App.4th at p. 1326.)
However, if the plaintiffs did not come within the meaning of the nondiscretionary first sentence of subdivision (a)(4) because they did not obtain a "net monetary recovery," the defendants came within the meaning of that sentence because they were "defendants as against those plaintiffs who do not recover any relief against those defendants."
Under the Goodman interpretation of "net monetary recovery," the trial court had no choice but to award defendants their costs of suit. Although under the facts in Goodman, that result was reached by the trial court in exercising its discretion, in other cases the Goodman interpretation may require the court to deny costs to the plaintiff where other considerations seem to call for a different result.
In Goodman v. Lozano (2010) home buyers sued for construction defects and eventually obtained a trial award of $146,000 against the sellers, but a zero net judgment due to $230,000 settlements received from the homebuilder and other defendants being credited against the trial award.
The trial court concluded that the home sellers were prevailing parties entitled to fees and costs. (Goodman, supra, at p. 1331.)
The Court of Appeal agreed, as did the Supreme Court.
In expressly disapproving of the majority opinion in Wakefield v. Bohlin (2006) 145 Cal.App.4th 963, the high court reasoned:
"'The common meaning of the word "net" is "free from all charges or deductions" or "to get possession of: GAIN ." (Webster's Collegiate Dict. (10th ed. 1993) p. 780.) The word "monetary" obviously means "relating to money." (Webster's Collegiate Dict., supra, at p. 750.)
The word "recover" means "to gain by legal process" or "to obtain a final legal judgment in one's favor." (Webster's Collegiate Dict., supra, at p. 977.) Thus the common meaning of the phrase "the party with a net monetary recovery" is the party who gains money that is "free from ... all deductions." ... A plaintiff who obtains a verdict against a defendant that is offset to zero by settlements with other defendants does not gain any money free from deductions. Such a plaintiff gains nothing because the deductions reduce the verdict to zero.' (Wakefield, supra, 145 Cal.App.4th 963, 992 (dis. opn. of Mihara, J.).)" (Goodman, supra, 47 Cal.4th 1327, 1333-1334.)
The court noted that this interpretation is consistent with section 877. "Under section 877, subdivision (a), a plaintiff's settlement with a defendant serves to 'reduce the claims against' the remaining codefendants. (§ 877, subd. (a); .)
Thus, any reduction for prior settlements is made before the entry of judgment. Accordingly, when a plaintiff's prior settlement is more than the award received at trial, the plaintiff ultimately recovers nothing. In other words, the net recovery is zero." (Goodman, supra, 47 Cal.4th at pp. 1334-1335.)
In sum, in Goodman v. Lozano (2010) the plaintiffs purchased a newly constructed house from defendants. Plaintiffs sued defendants, the contractor, the architect, and the real estate broker under various theories alleging the house was defective. By the time of trial, the plaintiffs had settled with all parties, except the defendants, for a total of $230,000.
The trial court found these settlements were made in good faith. After the settlements were reached, the defendants made an offer pursuant to section 998 in the amount of $35, 000, which plaintiffs rejected. The plaintiffs prevailed at the bench trial, but obtained only a "'total damage award' of ... $146,000." (Goodman, supra, 47 Cal.4th at p. 1331.)
After the trial court determined the plaintiffs' damages, it was informed of the settlements reached before trial. Since the settlements exceeded the damages determined by the trial court, it concluded that section 877 required the damages be reduced by the pretrial settlements and ordered that the plaintiffs recover nothing. The trial court then determined the defendants were the prevailing parties and awarded them costs. (Goodman, at p. 1331.)
The plaintiffs appealed, arguing that because the trial court concluded that they had suffered damages of $146,000, they were the prevailing parties pursuant to section 1032, subdivision (a)(4), notwithstanding the pretrial settlements (the result reached in Wakefield v. Bohlin (2006) 145 Cal.App.4th 963).
The issue determined by the Supreme Court, therefore, was whether the term "net monetary recovery" as used in section 1032, subdivision (a)(4), should be interpreted to include offsets for pretrial settlements or to exclude pretrial settlements.
The Supreme Court concluded that the term meant exactly what it said -- a plaintiff's net monetary recovery was the award it received after all deductions and offsets. (Goodman, supra, 47 Cal.4th at pp. 1333-1334.)