August 1, 2018
In a recent decision, New Jersey’s Supreme Court ended a controversy as to whether a plaintiff that recovered a verdict, which was subsequently molded downwards pursuant to a negotiated high/low agreement, could thereafter obtain legal fees and interest pursuant to R. 4:58, the offer of judgment rule. In Serico v. Rothberg, 2018 N.J. LEXIS 928 (2018), the Court held that high/low agreements are settlement contracts, and are to be interpreted as all such contracts are – relying upon the maxim that where a contract is unambiguous, it will be enforced as written. Unless a party expressly reserves the right to seek fees and expenses under the offer of judgment rule as part of the high/low agreement, the very making of the agreement is likely to be interpreted by courts as an extinguishment of the offer of judgment – including any penalties that attach to non-acceptance of an offer.
In Serico, a medical malpractice action, the Plaintiff made an offer of judgment during the course of the litigation in the amount of $750,000. That offer was rejected by the defendant, Dr. Robert M. Rothberg, M.D. The matter proceeded to trial. During deliberations, the parties reached a “high/low agreement,” with a low of $300,000 and a high of $1,000,000. This agreement was placed on the record before the trial judge. No reference to the offer of judgment was made at any time. However, the trial transcript makes clear that the parties were discussing the “high” and “low” parameters with the expectation that those awards would be final, including the waiver of any appeals. After the basic terms were placed on the record, Plaintiff’s attorney asked for verification that there was no insurance coverage, including any excess coverage, for Dr. Rothberg over the $1,000,000 high amount. With an insurance carrier representative present, this stipulation was made and the agreement was entered into.
After a trial, the jury’s verdict exceeded $1,000,000, and the trial court molded it down to $1,000,000. The Plaintiff then made an application for costs and fees, arguing that the $1,000,000 made it a “prevailing party” under its earlier offer of judgment in the amount of $750,000. In New Jersey, offers of judgment are effective settlement mechanisms and can exert real pressure on the parties to take reasonable settlement positions. If a Plaintiff makes an offer of judgment in an action, and subsequently recovers 120% or more of that offer at trial, the Plaintiff can collect fees and costs from the date of non-acceptance. If a defendant – or in a multi-defendant action, all defendants – makes such an offer, and then obtains a verdict for 80% or less of that offer, they can be awarded fees and costs, with various exceptions.
In Serico, the $1,000,000 “high” award was in excess of 120% of the offer of judgment. However, the Court ruled that because no express reservation of the offer of judgment penalties was made with regard to the high low agreement, the offer of judgment was extinguished and superseded by the high/low agreement. The Court noted that this high/low agreement was entered into during jury deliberations, and was not intended to avoid litigation expenses or save time. Rather, it was entered into to mitigate the inherent risk to the parties of a jury verdict, and to limit subsequent appeals. The plain language of the agreement was silent as to the offer of judgment, and the Court looked only to the agreement placed on the record, which was unambiguous.
Thus, the Court ruled that unless a party to a high/low agreement preserves their R. 4:58 penalties/remedies, entering into a high/low agreement renders such penalties unenforceable.