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In a High-Low Agreement, the Sky (or the Ceiling) is Indeed the Limit

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In Serico v. Rothberg, M.D., 2017 WL 631813, – A.3d — (N.J. Super. Ct. App. Div. Feb. 16, 2017), the plaintiff in a medical malpractice case appealed from the trial court’s order denying her motion for attorney’s fees under the offer of judgment rule (“Rule”), R. 4:58-1 et seq. While awaiting a trial date, the plaintiff made an offer to accept a judgment against defendant in the amount of $750,000, inclusive of costs and prejudgment interest, to which defendant did not respond. Later, while awaiting the jury was deliberating, the parties entered into a high-low agreement with minimum of $300,000 and a maximum of $1 million. No mention was made during the negotiation of the agreement of the Rule itself or the plaintiff’s intention to either waive or pursue remedies under the Rule. The jury returned a verdict of $6 million, which was then reduced down to $1 million by the high-low agreement. Since this $1 million was more than 120% of her offer of judgment, plaintiff would have been potentially entitled to fees and costs under the Rule. The trial court denied the motion for fees, explaining that the custom and usage in the New Jersey legal practice was that, failing a reservation of rights, a claim for fees under the Rule was waived by entering into a high-low agreement. Since there was no evidence to suggest that such a reservation was made, and “several colleagues [of the judge] . . . informed him that successful parties who entered into high-low agreements rarely, if ever, made an application for fees under the Rule, and in the rare instance when they did, the motion was denied,” the plaintiff was not entitled to fees under the Rule.

Plaintiff argued that barring an express waiver of the remedy, the trial court erred in its judgment. The Appellate Division disagreed, and affirmed the judgment of the trial court, although it concluded that the trial court had erred in relying on its experience and that of other judges. The panel found that high-low agreements are contracts, and as contracts must be enforced as written if the terms are clear. The Appellate Division stated that “by entering into the high-low agreement, plaintiff could not recover any amount beyond the ‘high’ to which she agreed because the agreement limits the total amount of defendant’s obligation to that amount.” Since there was no evidence presented by the plaintiff that she had preserved her rights under the Rule, and there was no dispute that neither party had mentioned a claim for any amount besides those agreed upon in the contract, plaintiff was not entitled to any other payments. The panel concluded by stating that “parties are always free to preserve any claim they might have pursuant to a court rule . . . but they must clearly state that intention at the time of the settlement.”

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