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Serico v. Rothberg

Supreme Court of New Jersey

July 19, 2018

LUCIA SERICO, Executrix of the Estate of BENJAMIN SERICO, deceased, and LUCIA SERICO, Individually, Plaintiffs-Appellants,
v.
ROBERT M. ROTHBERG, M.D., Defendant-Respondent, and MOUNTAINSIDE HOSPITAL and RICHARD ROE, M.D., Defendants.

          Argued April 9, 2018

          On certification to the Superior Court, Appellate Division, whose opinion is reported at 448 N.J.Super. 604 (App.Div. 2017).

          Bruce H. Nagel argued the cause for appellants (Nagel Rice, attorneys; Bruce H. Nagel and Robert H. Solomon, on the briefs).

          James B. Sharp argued the cause for respondent (Schenck Price Smith & King, attorneys; James B. Sharp, of counsel and on the brief, and Benjamin Hooper, on the brief).

         FERNANDEZ-VINA, J., writing for the Court.

         This appeal arises from plaintiff Lucia Serico's motion for attorney's fees and other litigation expenses pursuant to Rule 4:58 after a jury trial on medical malpractice claims against Robert M. Rothberg, M.D. At issue is whether Serico may collect attorney's fees from Rothberg despite entering into a "high-low agreement" that limited the amount she could recover at trial to $1, 000, 000.

         Before trial, Serico served Rothberg with an offer of judgment for $750, 000 "inclusive of costs and prejudgment interest." The offer letter contained a warning that Serico would seek "all reasonable litigation expenses including costs, interest, and attorney's fees in accordance with Rule 4:58," the rule governing offers of judgment. Rothberg declined the offer.

         During trial, the parties entered into a high-low agreement on the record. The "low" was $300, 000 and the "high" was $1, 000, 000. Neither party mentioned Rule 4:58, nor did they explicitly waive or preserve rights pursuant to the Rule. Rothberg's counsel stated "that if there is a no cause, [Serico] gets $300, 000.00. If there is a verdict in favor of [Serico] in excess of $1, 000, 000, [Serico] gets $1, 000, 000. If there is a verdict in favor of [Serico] . . . for an amount of money of any point between $300, 000.00 and $1, 000, 000, [Serico] gets that amount of money without interest." Upon further questioning by the trial judge, both parties agreed the "medical expenses are subsumed within the amount" of the agreement. Counsel confirmed that Rothberg did not have insurance coverage in excess of $1, 000, 000.

         The jury awarded Serico a total amount of $6, 000, 000. The court entered judgment in the amount of $1, 000, 000 as specified in the agreement. Serico moved for litigation expenses, including attorney's fees, pursuant to Rule 4:58-2. The trial court denied the motion, applying a custom and usage analysis. Serico appealed.

         An Appellate Division panel affirmed the trial court's decision. 448 N.J.Super. 604 (App. Div. 2017). Because high-low agreements are contracts, the panel determined, the terms are to be enforced as written, if clear. Id. at 614. In the interest of encouraging settlement, a plaintiff cannot recover more than the "high" of the agreement unless she explicitly preserves the right to seek more. Id. at 615-16.

         Serico petitioned for certification, which the Court granted. 230 N.J. 416 (2017).

         HELD: The high-low agreement is a settlement subject to the rules of contract interpretation. Based on the expressed intent of the parties and the context of the agreement, the agreement set $1, 000, 000 as the maximum recovery. Therefore, Serico may not seek additional litigation expenses allowed by Rule 4:58. The judgment of the Appellate Division is accordingly affirmed.

         1. Rule 4:58 prescribes the process and consequences of making a pre-trial offer of judgment. The fundamental purpose of the rule is to induce settlement. Rule 4:58-1 provides, in relevant part, that "any party may, at any time more than [twenty] days before the actual trial date, serve on any adverse party . . . an offer to take a monetary judgment in the offeror's favor, or as the case may be, to allow judgment to be taken against the offeror, for a sum stated therein (including costs)." R. 4:58-1(a). The Rule continues: "The making of a further offer shall constitute a withdrawal of all previous offers made by that party. An offer shall not, however, be deemed withdrawn upon the making of a counter-offer by an adverse party but shall remain open until accepted or withdrawn as is herein provided." R. 4:58-1(b). Finally, the Rule describes the consequences of a party's failure to accept the offer and proceeding to trial. R. 4:58-2(a); -3(a). In essence, the rule imposes financial consequences on a party who rejects a settlement offer that turns out to be more favorable than the ultimate judgment. It is designed so that a party who has rejected a settlement may not escape mandatory payment for any portion of the costs incurred as a result of his decision. All costs that result from the rejection of an offer of judgment, including those incurred in Appellate Division and Supreme Court proceedings, fall within the scope of Rule 4:58-2. (pp. 7-10)

         2. A high-low agreement, like the one at issue in this case, 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." Black's Law Dictionary 797 (9th ed. 2009). "Any outcome between the agreed limits is to be accepted by the parties." Benz v. Pires, 269 N.J.Super. 574, 578-79 (App.Div. 1994). The agreement is a settlement contract and subject to the rules of contract interpretation. Malick v. Seaview Lincoln Mercury, 398 N.J.Super. 182, 186, 190 (App. Div. 2008). In Benz, the Appellate Division determined that prejudgment interest could not be collected on a pretrial settlement unless specified in the agreement, and applied the rule to the high-low agreement. 269 N.J.Super. at 580. In Malick, the Appellate Division considered whether a plaintiff could recover interest pursuant to Rule 4:58 after entering into a high-low agreement of $175, 000 to $1, 000, 000. 398 N.J.Super. at 184-85. In negotiating the agreement, the plaintiff waived prejudgment interest but expressly reserved the right to pursue "legal fees and litigation costs" pursuant to Rule 4:58, if applicable. Id. at 185. The panel concluded that the agreement was ambiguous and remanded. Id. at 189. (pp. 10-11)

         3. In this case, the parties entered into a high-low agreement during jury deliberations. The agreement was not intended to avoid litigation expenses or save time; it was entered to mitigate the inherent risk to the parties of a jury verdict and to limit subsequent appeals. The plain language of the agreement is silent on the issue of Rule 4:58 expenses. In putting the agreement on the record, both parties had a chance to explain their position and discuss terms before the trial judge. The resulting agreement set a hard limit of $1, 000, 000, and expressly stated no interest or medical expenses would be added to that amount. The settlement through high-low agreement superseded and extinguished the offer of judgment. Although the high-low agreement is a settlement, it is not the sort of settlement contemplated by Rule 4:58; rather, it serves a different purpose and provides distinct benefits. (pp. 12-14)

         4. Here, the agreement on the record reveals a meeting of the minds on both the floor and ceiling of Serico's recovery, including fees and expenses. Because the contract superseded the qualifying offer of judgment, if Serico desired Rule 4:58 expenses, she would have been required to explicitly preserve the right to pursue them when entering into the high-low agreement in this case. A crucial aspect of any high-low agreement is finality; both parties benefit from the strict and explicit limitation of financial exposure that such agreements provide. The Appellate Division and trial court correctly denied Serico's motion for Rule 4:58-2 expenses. (p. 14)

         AFFIRMED.

          CHIEF JUSTICE RABNER and JUSTICES LaVECCHIA, ALBIN, PATTERSON, SOLOMON, and TIMPONE join in JUSTICE FERNANDEZ-VINA's opinion.

          OPINION

          FERNANDEZ-VINA, JUSTICE

         This appeal arises from plaintiff Lucia Serico's[1] motion for attorney's fees and other litigation expenses pursuant to Rule 4:58 after a jury trial on medical malpractice claims against Robert M. Rothberg, M.D. At issue is whether Serico may collect attorney's fees from Rothberg despite entering into a "high-low agreement"[2] that limited the amount she could recover at trial to $1, 000, 000. We determine that the high-low agreement is a settlement subject to the rules of contract interpretation. Accordingly, based on the expressed intent of the parties and the context of the agreement, we find that the agreement set $1, 000, 000 as the maximum recovery. Therefore, Serico may not seek additional litigation expenses allowed by Rule 4:58. The judgment of the Appellate Division is accordingly affirmed.

         I.

         A.

         This claim arose from Rothberg's negligent failure to diagnose Benjamin Serico -- who unfortunately passed away before trial -- with colon cancer. Before trial, in April 2014, Serico served Rothberg with an offer of judgment for $750, 000 "inclusive of costs and prejudgment interest." The offer letter contained a warning that Serico would seek "all reasonable litigation expenses including costs, interest, and attorney's fees in accordance with Rule 4:58," the rule governing offers of judgment. Rothberg declined the offer.

         During trial, in October 2015, the parties entered into a high-low agreement on the record. The "low" was $300, 000 and the "high" was $1, 000, 000. Neither party mentioned Rule 4:58, nor did they explicitly waive or preserve rights pursuant to the Rule. While the parties did not address the issue of attorney's fees and other litigation expenses, the trial transcript reveals the scope of the agreement. Rothberg's counsel stated:

We've offered a high low settlement agreement to the plaintiff, which the plaintiff has at this time accepted. The terms are $1, 000, 000 for the ...

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