New Jersey Appellate Division Rules that the Right to Attorneys’ Fees Can Be Waived High-Low Agreement

By: Christopher J. Cerullo

A high-low agreement can protect defendants from excessive attorneys’ fees otherwise recoverable under the Offer of Judgment Rule. In Serico v. Rothberg, M.D., the New Jersey Appellate Division ruled that, absent an express reservation of rights, a party abandons its claim for attorneys' fees after entering a high-low agreement.
 
Pursuant to New Jersey Court Rule 4:58, a plaintiff-offeror is entitled to attorneys’ fees after obtaining a verdict that is 120% or greater than a prior offer that was not accepted; a defendant-offeror is entitled to attorneys’ fees on a verdict that is 80% or less than a prior offer that was not accepted. A high-low agreement is a commonly used method for the parties to control damages in negligence cases. The defendant agrees to pay the plaintiff a minimum sum in exchange for the plaintiff’s agreement to accept a maximum sum, regardless of the verdict.
           
In Serico, the plaintiff made a pre-trial offer to the defendant seeking $750,000.00 to settle the matter. The offer was never accepted and the case proceeded to trial. During jury deliberations, the parties entered into a high-low agreement, setting the “low” at $300,000.00 and the “high” at $1,000,000.00. The jury returned a $6,000,000.00 verdict in favor of plaintiff. Pursuant to Rule4:58, the plaintiff contended that she was entitled to attorneys’ fees because the verdict was more than 120% in excess of her previous unaccepted offer. The trial court denied the plaintiff’s application, ruling that the custom and usage of high-low agreements in New Jersey required plaintiffs to reserve their right to recover attorneys' fees or they would be waived.
 
On appeal, the plaintiff argued that attorneys’ fees were mandatory under Rule 4:58 and that, absent an express waiver, a high-low agreement is a contract that does not extinguish this right. The Appellate Division disagreed. While the Appellate Division agreed that a high-low agreement is a contract, it held that the contract must be enforced as written. As such, the Appellate Division reasoned that the high-low agreement contracts for a maximum recovery to plaintiff that cannot be exceeded absent an express provision to the contrary.
 
The Appellate Division’s ruling in Serico highlights one available defense to defendants against excessive attorneys’ fees. By contracting for a fixed ceiling on judgments, defendants can save some money by contractually bypassing the Offer of Judgment Rule and other fee-shifting provisions.