In Charton v. Harkey, (No. G050514 ), the California Court of Appeal for the Fourth District held that a “prevailing party” is entitled to recover costs as a matter of right even if that party shared costs with non-prevailing co-defendants. The Court further held a court cannot simply make an “across-the-board reduction” of a prevailing party’s costs based on the number of jointly represented parties for purposes of apportionment.
Plaintiffs filed an action against Diane Harkey and three other defendants for damages arising from investment losses. Harkey and the co-defendants were all jointly represented. During trial, plaintiffs dismissed their aiding and abetting claim against Harkey. The trial court also ruled in Harkey’s favor as to the remaining claims against her. However, the jury returned a verdict for more than $12.5 million in damages against the three other defendants. The trial court awarded Harkey costs as a “prevailing party” under Code of Civil Procedure Section 1032, which includes defendants whose favor a dismissal was entered or against whom plaintiffs did not recover. The trial court also awarded Harkey twenty-five percent of her costs because she was one of four jointly represented defendants.
On appeal plaintiffs argued, while Harkey satisfied the statutory definition of a “prevailing party,” the trial court abused its discretion by awarding costs based on the “unity of interest” exception of Section 1032. The Court rejected plaintiffs’ argument and explained the unity of interest exception arose from language in the former version of Section 1032, which vested trial courts with discretion on whether to award costs to a prevailing defendant “united in interest with other defendants.” The Court pointed out the current version of Section 1032 eliminated language concerning unity of interest and “provides for recovery of costs as a matter of right if the party fits one of the four prevailing party definitions listed in section 1032 . . . If a party satisfies one of these four definitions of a prevailing party, the trial court lacks discretion to deny prevailing party status to that party.”
Furthermore, the Court held a trial court may not make an “across-the board reduction” of a prevailing party’s costs based solely on the number of jointly represented parties. Instead, allocation of costs among jointly represented parties requires a trial court to examine the reason each cost was incurred, whether the cost was reasonably necessary to the conduct of the litigation on behalf of the prevailing party, and the reasonableness of the cost, as required by Code of Civil Procedure Section 1033.5. A court must distinguish between costs incurred as a result of the strategy of the prevailing jointly represented party as opposed to that of the non-prevailing jointly represented party.
This case is significant for two reasons. First, it rejects the applicability of the unity of interest exception and explains the cases which have continued to apply this rule have done so without regard to the reenacted version of Section 1032 and without analysis of the Legislature’s decision to eliminate the unity of interest language. Second, it clarifies that a court cannot shortcut the reasonableness analysis for costs required by Section 1033.5 by simply dividing the total costs incurred by jointly-represented defendants by the number of those defendants. In other words, lawyers should stick to words when calculating the reasonable apportionment of costs, not numbers.
This document is intended to provide you with information about general liability law related developments. The contents of this document are not intended to provide specific legal advice.