The offer of judgment rule can be an effective tool to encourage settlement, primarily based on the threat that if the case does not settle, the party rejecting the offer may be forced to pay substantial attorney’s fees and costs. Rule 4:58 provides that if a party extends an offer of judgment which is not accepted and the party obtains a money judgment in an amount that is 120 percent or more of the offer, then the offeror would be entitled to seek their costs of the lawsuit, including attorney’s fees. R. 4:58-2(a). A high-low agreement, unlike the offer of judgment rule, does not encourage settlement, but instead limits parties’ risk at trial. As defined by Black’s Law Dictionary, a high-low agreement is “[a] settlement in which a defendant agrees to pay the plaintiff a minimum recovery in return for the plaintiff’s agreement to accept a maximum amount regardless of the outcome at trial.”
In Serico, the New Jersey Supreme Court addressed the intersection between the offer of judgment rule and high-low agreements. There, the parties agreed to a high-low agreement with a low of $300,000 and a high of $1,000,000. The jury rendered a verdict of $6,000,000 resulting in a recovery of $1,000,000. Thereafter, Plaintiff sought to enforce her offer of judgment which would have resulted in recovery of its reasonable litigation expenses. Defendant objected to the enforcement of the offer arguing that the high-low agreement was a settlement agreement which provided that plaintiff could not recover more than $1,000,000.
After analyzing the offer of judgment rule and high-low agreements, the Supreme Court held that the high-low agreement was a settlement agreement, which superseded and extinguished the offer of judgment. Importantly, the Court held that the express intent of the high-low agreement was to limit Plaintiff’s recovery to $1,000,000. If the parties intended to permit Plaintiff to enforce its offer of judgment, then this preservation had to be set forth in the high-low agreement. In other words, Plaintiff could rely upon the fact that the high-low agreement was entered into without any mention of the impact of the offer of judgment.
Although Serico addresses a relatively unique set of facts, the holding is a lesson to New Jersey counsel and parties that absent an express preservation of the right to pursue remedies under the offer of judgment rule, a high-low agreement caps a plaintiff’s maximum recovery and extinguishes the offer of judgment.