On July 19, 2018, the New Jersey Supreme Court, affirming both the trial court and Appellate Division, decided Serico v. Rothberg (A-69-16). In its decision denying Plaintiff’s attempt to recover her attorney’s fees and costs pursuant to New Jersey’s offer of judgment rule (R. 4:58, et seq.), the Supreme Court relied upon basic principles of contract interpretation and reminded all New Jersey lawyers and parties of the risks of relying upon silence and omission when later enforcing one’s rights.
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.” Continue reading “New Jersey Offer of Judgment Rule: NJ Supreme Court Holds High-Low Agreement Supersedes Plaintiff’s Offer of Judgment”
The offer-of-judgment rule and the high-low agreement are two mechanisms that exist to help litigants manage their risk in litigation. The offer-of-judgment rule, codified at Rule 4:58-1 to -6, allows a party to take a monetary judgment, or to allow a judgment to be taken against it, for a sum certain. If the offer of a claimant is not accepted and the claimant obtains a money judgment equal to or greater than 120 percent of the offer, the claimant is entitled to costs including all reasonable litigation expenses incurred following non-acceptance of the offer. See R. 4:58-2(a).
A high-low agreement is a settlement agreement that guarantees a minimum recovery for a plaintiff and limits a defendant’s exposure to an agreed upon maximum, regardless of the jury’s award. This maximum, or high-limit, is inclusive of costs and fees and it is a basic assumption of high-low agreements that the plaintiff cannot recover more than the “high-limit.”
Recently, the New Jersey Appellate Division addressed the intersection of these two risk management mechanisms. In Serico v. Rothberg, Plaintiff brought a medical malpractice action for failure to diagnose colon cancer. While the matter was awaiting a trial date, Plaintiff made an offer-of-judgment to accept $750,000 from the Defendant. Defendant did not respond to the offer. The matter went to trial and while the jury was deliberating, the parties entered a high-low agreement that provided a “low” of $300,000 for the Plaintiff and limited Defendant’s liability to a “high” of $1 million. During negotiations for the high-low agreement, Plaintiff’s possible entitlement to fees under the offer-of-judgment rule (R. 4:58-2(a)) was never discussed. It was not expressly waived by the Plaintiff, no demand for waiver was made by the Defendant, and the offer of judgment was not mentioned when terms of the high-low agreement were placed on the record.
The jury then returned a verdict in favor of the Plaintiff for $6 million, well over 120 percent of Plaintiff’s offer-of-judgment. Absent the high-low agreement, Plaintiff would have been entitled to costs and fees under the offer-of-judgment rule. However, Although the high-low agreement permitted a maximum award of $1 million. Despite this ceiling, Plaintiff’s counsel filed a motion for an award of attorney’s fees and costs, arguing that absent an express waiver, a high-low agreement does not waive a plaintiff’s right to seek sanctions under R. 4:58-2(a). Plaintiff claimed that the purpose of the Rule is “to impose financial consequences on a party [that] rejects a settlement offer” and the offer-of-judgment rule “accords judges no discretion regarding whether or not to award attorney’s fees.” The Court disagreed and the Appellate Division affirmed.
The Appellate Division explained that by entering into the high-low agreement, Plaintiff “could not recover any amount beyond the ‘high’ to which she agreed.” A high-low agreement is a contract and, like any contract, if the terms of the agreement are clear they must be enforced as written. The high-low agreement made no mention of Plaintiff’s offer of judgment and “Plaintiff did not come forward with any evidence that she preserved her rights [to attorney’s fees] under the Rule.” Although parties are always free to preserve any claim they might have, they must clearly state that intention at the time of the settlement. Unless expressly preserved, a claim for an additional amount beyond the “high-limit” is considered to be encompassed within the negotiated high-low agreement.