Under certain circumstances, a trial court must award costs and even attorney fees in favor of a "prevailing party" in an action. (Code Civ. Proc.,
Based on the plain language of these statutes, we conclude that the plaintiffs here, ordered to take nothing against the nonsettling defendants due to the settlement offset, did not obtain a "net monetary recovery." As we explain further below, we disapprove of Wakefield v. Bohlin (2006) 145 Cal.App.4th 963, 982-983 [52 Cal.Rptr.3d 400] (Wakefield), which reached a contrary conclusion. We also distinguish the following cases that suggest otherwise: Great Western Bank v. Converse Consultants, Inc. (1997) 58 Cal.App.4th 609, 613 [68 Cal.Rptr.2d 224] (Great Western); Zamora v. Shell Oil Co. (1997) 55 Cal.App.4th 204, 213-215 [63 Cal.Rptr.2d 762] (Zamora); Pirkig v. Dennis (1989) 215 Cal.App.3d 1560, 1566 [264 Cal.Rptr. 494] (Pirkig); see also Syverson, supra, 171 Cal.App.3d at page 113 (interpreting prior version of § 1032); Ferraro v. Southern Cal. Gas Co. (1980) 102 Cal.App.3d 33, 52-53 [162 Cal.Rptr. 238] (Ferraro) (same).
FACTUAL AND PROCEDURAL BACKGROUND
In March 2000, Randall L. Goodman and Linda Guinther (collectively, plaintiffs) contracted with Jesus and Natalia Lozano to purchase a newly constructed house in Laguna Beach for $1.25 million. The house was built by AMPM Construction, a company formed by Alberto and Patricia Mobrici in 1996. The Mobricis were equal partners with the Lozanos on numerous residential construction projects; Jesus Lozano "provide[d] the money to build," and Alberto Mobrici was the "construction arm of the venture."
In 2001, plaintiffs sued the Lozanos, Alberto Mobrici, AMPM Construction, the architect, and the real estate brokers, based on construction defects in their new house. Plaintiffs sued several of the defendants for various causes of action (including negligence, fraud, breach of warranties and negligent misrepresentation), but sued only the Lozanos for breach of contract. "Plaintiffs' residential purchase agreement with the Lozanos contained a bilateral provision authorizing attorney fees for a prevailing party." In 2004, Alberto Mobrici and AMPM Construction settled with plaintiffs for $200,000, and other defendants—except for the Lozanos—settled with plaintiffs for a total of over $30,000. The trial court found these settlements were made in good faith. Plaintiffs subsequently rejected the Lozanos' section 998 settlement offer of $35,000.
In 2005, a bench trial was held on plaintiffs' action against the Lozanos. The trial judge, who was not informed of plaintiffs' settlement with the other defendants, found in favor of plaintiffs and calculated a "total damage award" of just under $146,000, of which $64,000 went to plaintiffs' contract claim. After learning that the prior settlements totaled over $230,000, the judge determined that the Lozanos should receive credit for the settlements. Because the settlement amount easily surpassed the $146,000 awarded to plaintiffs, the trial judge found that plaintiffs should receive nothing by the action. Exercising his discretion under section 1032(a)(4), the trial judge determined that the Lozanos were the prevailing parties because they paid nothing under the judgment. He awarded the Lozanos $132,000 in attorney fees and $12,000 in costs. Plaintiffs appealed from both the net zero judgment and the order finding the Lozanos to be the prevailing parties and awarding them fees and costs.
The Court of Appeal affirmed. It expressly disagreed with the majority in Wakefield, supra, 145 Cal.App.4th at page 969, which held that a party who receives a damage award against a defendant but whose judgment is reduced to zero by operation of section 877, "categorically qualifies as a prevailing party" "with a net monetary recovery" under section 1032(a)(4). Construing what it found to be the plain language of section 1032(a)(4), the Court of Appeal here reasoned: "A litigant cannot actually recover or `gain' anything without an order or a judgment. An award or verdict without a judgment is
We granted review to resolve the conflict.
Generally, a trial court's determination that a litigant is a prevailing party, along with its award of fees and costs, is reviewed for abuse of discretion. (See Villa De Las Palmas Homeowners Assn. v. Terifaj (2004) 33 Cal.4th 73, 94 [14 Cal.Rptr.3d 67, 90 P.3d 1223]; PLCM Group, Inc. v. Drexler (2000) 22 Cal.4th 1084, 1095 [95 Cal.Rptr.2d 198, 997 P.2d 511].) However, the issue here involves the interpretation of a statute, a question of law that we review de novo. (See California Teachers Assn. v. San Diego Community College Dist. (1981) 28 Cal.3d 692, 699 [170 Cal.Rptr. 817, 621 P.2d 856] (California Teachers).)
A. Sections 1032 and 877
(3) Also relevant to the issue here, section 877, subdivision (a), provides that if a party gives a release to "one or more other co-obligors mutually subject to contribution rights," that party's "claims against the others" may be reduced by the amount of the prior settlement. (§ 877, subd. (a).) "Section 877 establishes that a good faith settlement bars other defendants from seeking contribution from the settling defendant (§ 877, subd. (b)), but at the same time provides that the plaintiff's claims against the other defendants are to be reduced by `the amount of consideration paid for' the settlement (§ 877, subd. (a)). Thus, while a good faith settlement cuts off the right of other defendants to seek contribution or comparative indemnity from the settling defendant, the nonsettling defendants obtain in return a reduction in their ultimate liability to the plaintiff." (Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 873 [239 Cal.Rptr. 626, 741 P.2d 124]; see Wade v. Shrader (2008) 168 Cal.App.4th 1039, 1046 [85 Cal.Rptr.3d 865] (Wade).) As noted above (see p. 1330, ante), if a plaintiff's settlement completely offsets a damage award against a nonsettling joint tortfeasor or co-obligor, "it reduces the judgment to zero by operation of law." (Syverson, supra, 171 Cal.App.3d at p. 110.)
The Court of Appeal here followed the Wakefield dissent, which explained: "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.'
We agree with the instant Court of Appeal and the Wakefield dissent that the term "net monetary recovery" is clear and that we must give effect to it "`according to the usual, ordinary import of the language employed . . . .'" (California Teachers, supra, 28 Cal.3d at p. 698.) The Wakefield dissent's interpretation of "net monetary recovery" reflects the common understanding of these words. (Wasatch Property Management v. Degrate (2005) 35 Cal.4th 1111, 1121-1122 [29 Cal.Rptr.3d 262, 112 P.3d 647] ["When attempting to ascertain the ordinary, usual meaning of a word, courts appropriately refer to the dictionary definition of that word."].) There is nothing to suggest that the Legislature intended to define these words with a different meaning. (See Fairbanks v. Superior Court (2009) 46 Cal.4th 56, 63 [92 Cal.Rptr.3d 279, 205 P.3d 201].) While the Wakefield majority concluded that "any success in pressing . . . claims against the losing party results in a net award" (Wakefield, supra, 145 Cal.App.4th at p. 981), this amorphous concept of "success" is contrary to the language of section 1032(a)(4), which uses the specific term "net monetary recovery."
Although we conclude that the meaning of "net monetary recovery" is plain, it is helpful to look at section 1032's legislative history in light of the conflict on this issue. (See Doe, supra, 42 Cal.4th at p. 543.)
B. Section 1032's Legislative History
In 1986, the Legislature repealed the former version of section 1032 and added it in its current form. (Stats. 1986, ch. 377, §§ 5, 6, p. 1578.) Before its repeal, former section 1032 provided that costs are allowed for either a plaintiff or a defendant "upon a judgment in his favor" in various actions, and in other actions not mentioned, the trial court may award costs in its discretion. (Former § 1032, subds. (a)-(c), as amended by Stats. 1957, ch. 1172, §1, p. 2464.) The purpose of the 1986 legislation, which was sponsored by the California Judges Association (CJA), was to streamline the rules and procedures on the award of litigation costs, which were deemed "hard to find and hard to follow." (Sen. Rules Com., Off. of Sen. Floor Analyses, Rep. on Sen. Bill No. 654 (1985-1986 Reg. Sess.) as amended July 8, 1986, p. 3 (Report on Senate Bill No. 654).)
The Wakefield majority concluded that the revision from "judgment" to "net monetary recovery" "makes it even easier to distinguish between a jury verdict awarding net damages to a litigant (a net recovery) and the ultimate judgment, which necessarily comes later and may reflect offsets from other parties' contributions." (Wakefield, supra, 145 Cal.App.4th at p. 982.) Additionally, the majority based its decision on cases interpreting the prior version of section 1032. (Wakefield, supra, 145 Cal.App.4th at pp. 981-982.) Ultimately, the Wakefield majority concluded that "net monetary recovery" is determined "without regard to settlements or other contributions from unrelated defendants or from other parties." (Id. at p. 982.) The Court of Appeal below, however, criticized both the Wakefield majority's analysis and its reliance on earlier cases. Echoing the Wakefield majority, plaintiffs here argue that the 1986 legislation did not break from earlier cases that had construed the prior statutory phrase (a party with "a judgment in his favor") without
The CJA's statement above refers to the then existing law regarding "which costs are, and are not, allowable." (Rep. on Sen. Bill No. 654, supra, at p. 3 [legislation necessary to avoid having "to search through myriad statutes, cases and treatises in order to determine whether a particular cost item is allowable"]; Assem. Com. on Judiciary, Rep. on Sen. Bill No. 654 (1985-1986 Reg. Sess.) as amended Mar. 31, 1986, p. 1 [lists of costs "are essentially restatements of existing law, and to a large extent are codifications of case law"].) It did not refer to the definition of a "prevailing party." The legislative history reveals instead that at the time current section 1032 was reenacted, the "existing statutes d[id] not fully explain the concept of the `prevailing party,'" and that a "comprehensive definition" was necessary to "further eliminate confusion." (Rep. on Sen. Bill No. 654, supra, at pp. 1, 3.)
We conclude that the Wakefield dissent persuasively reasoned that the Legislature effectively rejected the holdings of Ferraro and Syverson through this 1986 legislation. (See Wakefield, supra, 145 Cal.App.4th 963, 994-996 (dis. opn. of Mihara, J.).) The Wakefield dissent first observed that the Courts of Appeal in Ferraro and Syverson found that the respective plaintiffs had failed to obtain "`net judgment[s],'" and were "`not entitled to recover'" any damages from the defendants due to so-called "indirect offsets" (that is, offsets from a plaintiff's settlement with other defendants). (Wakefield, supra, 145 Cal.App.4th at p. 995 (dis. opn. of Mihara, J.), quoting Syverson, supra, 171 Cal.App.3d at pp. 112-113; Ferraro, supra, 102 Cal.App.3d at pp. 51, fn. 4, 52.) Nonetheless, these courts held that the respective plaintiffs had received judgments "`in [their] favor'" within the meaning of former section 1032, subdivision (a). (Wakefield, supra, 145 Cal.App.4th at p. 995.)
Based on the foregoing, the Wakefield dissent concluded: "The Legislature's decision in July 1986, after both Ferraro and Syverson, to repeal the `judgment in his favor' language in former section 1032 and replace it with `the party with a net monetary recovery' in the new section 1032 can easily be seen as a rejection of the results in Ferraro and Syverson. Ferraro and Syverson both dealt with indirect offsets and characterized the results of these indirect offsets as the absence of a recovery and the absence of a `net' judgment. In light of Ferraro and Syverson, the Legislature's decision to use the phrase `net monetary recovery' without any qualification that precluded consideration of indirect offsets demonstrated that the Legislature was aware that a party whose judgment was reduced to zero by indirect offsets would
Indeed, those cases reaching a contrary conclusion on the import of these prerevision cases did not critically analyze section 1032's legislative history. Pirkig, the first decision to conclude that the 1986 legislation did not substantially change the definition of "prevailing party," and that, as such, Ferraro and Syverson were still controlling, did not rely on or provide any analysis of section 1032's legislative history. (Pirkig, supra, 215 Cal.App.3d at pp. 1566-1568 & fn. 5.) Other cases following Pirkig, including Wakefield, have also adopted this conclusion with little critical analysis. (Wakefield, supra, 145 Cal.App.4th at pp. 981-982; Great Western, supra, 58 Cal.App.4th at p. 613; Zamora, supra, 55 Cal.App.4th at pp. 214-215.) Significantly, except for Wakefield, none of these cases dealt with section 1032(a)(4)'s category of prevailing party ("the party with a net monetary recovery") at issue in this case.
In sum, while section 1032's legislative history does not specifically address the precise question before us, it is nonetheless consistent with the conclusion that the meaning of "net monetary recovery" (§ 1032(a)(4)) is not controlled by those cases construing the prior version of section 1032. (See Syverson, supra, 171 Cal.App.3d at p. 113; Ferraro, supra, 102 Cal.App.3d at pp. 52-53.) In that regard, as we explain below, the Wakefield majority also erroneously relied on the reasoning of cases following Ferraro and Syverson to conclude that settlement offsets do not affect a prevailing party determination in this context. (See, e.g., Great Western, supra, 58 Cal.App.4th at p. 613; see also Zamora, supra, 55 Cal.App.4th at pp. 213-215; Pirkig, supra, 215 Cal.App.3d at p. 1566.)
C. Settlement Offsets
To reach its holding that a damage award that is offset to zero constitutes a "net monetary recovery," the Wakefield majority also relied on the broad
Based on the foregoing, we conclude that the Wakefield majority erred by misinterpreting the plain language of "net monetary recovery" (§ 1032(a)(4)) (see, ante, at p. 1334), and by concluding that settlement offsets do not otherwise affect whether a party has such a "net monetary recovery." As noted, we disapprove of Wakefield, supra, 145 Cal.App.4th 963, to the extent it is inconsistent with this opinion.
Plaintiffs maintain that even if they are not deemed the prevailing party in this case, the Court of Appeal nonetheless erred by applying the abuse of discretion standard because the Lozanos would otherwise qualify under another mandatory category of prevailing party. (See § 1032(a)(4).) We need not address this precise contention because we conclude that the trial court
"`The appropriate test for abuse of discretion is whether the trial court exceeded the bounds of reason. When two or more inferences can reasonably be deduced from the facts, the reviewing court has no authority to substitute its decision for that of the trial court.'" (Walker v. Superior Court (1991) 53 Cal.3d 257, 272 [279 Cal.Rptr. 576, 807 P.2d 418] (Walker); see Lincoln v. Schurgin (1995) 39 Cal.App.4th 100, 105-106 [45 Cal.Rptr.2d 874]; Slavin v. Fink (1994) 25 Cal.App.4th 722, 726 [30 Cal.Rptr.2d 750].) Under this test, we conclude that the trial court did not abuse its discretion.
In finding the Lozanos to be the prevailing party, the trial court observed: "The plaintiffs came to this trial with substantial moneys in hand from prior settlements. Both sides acknowledged that those funds would reduce any damages proven at this trial. Plaintiffs presented evidence regarding their entire list of dozens of alleged deviations and defects. The defendants did not dispute all of these claims and, in fact, acknowledged some errors. Although the defendants suggested lower corrective costs than the plaintiffs demanded, the defendants never suggested that no damages should be found by this court. The defendants' clear and undisputed trial goal was to get a decision awarding less damages than the sum of the prior settlements. They fully achieved this objective. It is also noteworthy that the settlements were consummated well before this trial, in ample time for the plaintiffs to reassess their strategy. Furthermore, these payments were not contingent or uncollected, but had been received by the plaintiffs before they sought further recovery from the Lozanos."
We affirm the judgment of the Court of Appeal.
George, C. J., Kennard, J., Baxter, J., Werdegar, J., Moreno, J., and Corrigan, J., concurred.
Moreover, we reject their contention that we must construe section 1032(a)(4) in light of Civil Code section 1717. (See Sears v. Baccaglio (1998) 60 Cal.App.4th 1136, 1143 [70 Cal.Rptr.2d 769] ["Rather than focusing on who receives the net monetary award, section 1717 defines the prevailing party as the one who recovers `a greater relief in the action on the contract.'"].)
Because we have concluded the statutory language and legislative history support this interpretation of section 1032(a)(4), it is not necessary to discuss any public policy considerations. (See MacIsaac v. Waste Management Collection & Recycling, Inc. (2005) 134 Cal.App.4th 1076, 1084 [36 Cal.Rptr.3d 650].)