A taxpayer who dismissed his suit against the Franchise Tax Board after the agency granted his requested relief was the “prevailing party” for purposes of recovering legal costs, the Third District Court of Appeal ruled December 11 in an unpublished decision (David Fillerup v. Franchise Tax Board).
Under Code of Civil Procedure section 1032(b), prevailing parties in civil actions generally are entitled to recover their costs as a matter of right. For purposes of that law, and “unless the context clearly requires otherwise,” a prevailing party includes, among others, the party with a net monetary recovery, and a defendant in whose favor a dismissal was entered.
Section 1032 also defines when a trial court has discretion to award costs. The statute states that if any party recovers “other than monetary relief and in situations other than as specified,” the trial court shall determine who is the prevailing party and has discretion over whether to allow costs – and how to apportion the costs between the parties.
In this case, taxpayer David Fillerup, representing himself, sued the FTB in October 2022 alleging that the agency mishandled his payment of estimated taxes. He said a $1,500 payment mailed in December 2021 was designated in writing to be applied to the 2021 tax year, but the FTB instead applied it to his 2020 taxes without notifying him.
After the suit was filed, but before it was heard in Sacramento County Superior Court, the FTB went back and applied the payment to 2021, as Fillerup requested. Thus, the FTB told the court, no controversy existed, and the suit was moot.
Fillerup did not oppose the FTB’s demurrer, and filed a request for dismissal without prejudice. The court dismissed the suit the day his request was filed. Fillerup later sought a court order to require the FTB to pay $565 to cover $435 in filing and motion fees and $130 for service of process. The FTB objected.
The trial court sided with the FTB, opining that the agency was the prevailing party as a defendant in whose favor a dismissal was entered. The court added that the FTB was the only party entitled to recover costs (although the FTB did not seek to do so).
Not so, the Court of Appeal concluded.
“Plaintiff was not an unsuccessful party,” the appellate court wrote. “He had requested the Board to allocate his estimated tax payment to the 2021 tax year three times, to no avail. It was not until he sued the Board that the Board reallocated his payment. That he dismissed his complaint without prejudice did not erase the recovery he had gained through the legal process – a recovery that was other than monetary relief. Accordingly, it fell to the discretion of the trial court to determine which party was the prevailing party because a party recovered other than monetary relief. … The Attorney General contends plaintiff cannot recover costs because his recovery was not the result of a court order. Rather, it was the result of the Board resolving plaintiff’s still pending administrative tax refund claim. We disagree. The Board resolved the claim only upon plaintiff suing it. And while the recovery was not the result of a court order, it was the result of legal process.”
The case was remanded to the trial court for a determination of the amount to be awarded to Fillerup, and the Court of Appeal noted that his costs related to the appeal also must be paid by the FTB.