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21 février, 2008 16:57

Mary Pat Gallagher

New Jersey Law Journal

02-21-2008

A New Jersey state appeals court ruling on Wednesday underscored the hazards of using an offer of judgment and a high-low agreement in the same case.

A high-low agreement caps not only a defendant's liability but the amounts that would otherwise be recoverable under the offer of judgment rule, unless the parties clearly provide otherwise, held the Appellate Division in Malick v. Seaview Lincoln Mercury, A-4631-06.

It reversed an award for $224,552 in prejudgment interest, remanding for a decision on whether the parties did in fact agree that prejudgment interest above the "high" limit could be recovered under the offer of judgment rule.

The court also decided that if interest was found to be recoverable, it must be calculated based on the upper limit of the agreement, $1 million, rather than on the amount of the jury verdict of $5.8 million.

The agreement at issue was between R.C. Westmoreland, who represents plaintiff Thomas Malick, and William Davis, a litigation manager for Zurich Insurance Co., the defendant's carrier.

The deal, struck during the trial of Malick's personal injury suit over a fall at the car dealership, had a low of $175,000 and a high of $1 million.

An e-mail from Westmoreland to Davis during the negotiations said the numbers applied only to "the verdict and prejudgment interest" and not "to legal fees and litigation costs that may be awarded in the event that plaintiff's offer of judgment is successful."

Davis e-mailed back that he did not think legal fees would be an issue and agreed to what he termed the "marginal risk factor."

Westmoreland confirmed the understanding in a Jan. 19, 2007, letter that stated he was preserving his remedies under the offer of judgment rule.

Seven days later, the jury awarded $5.8 million, triggering the high-low agreement.

The verdict was well above the plaintiff's $650,000 offer of judgment, so Westmoreland moved for interest, costs and attorney fees under R. 4:58-2.

Defense counsel Mitchell Berman opposed the motion on the ground that interest was waived under the high-low agreement.

Atlantic County Superior Court Judger Joseph Kane agreed with Westmoreland and on March 27 ordered prejudgment interest of $224,552, on top of roughly $120,000 in legal fees and costs. Kane reasoned that the prejudgment interest excluded by the high-low agreement was distinct from the "sanction interest" mandated by the offer of judgment rule.

Reviewing Kane's decision de novo, the appeals court found the high-low agreement was an ambiguous contract to be construed against Westmoreland, who drafted the confirming letter.

Entering into a high-low agreement usually means a plaintiff cannot recover more than the agreed "high" and thus can only recover prejudgment interest if it falls within that limit, wrote Appellate Division Judge Susan Reisner, joined by William Gilroy and Michael King.

The parties were free to strike their own deal on the issue but if they did not, Malick would not be entitled to prejudgment interest above the $1 million cutoff, said the court.

Berman argued there was no agreement for the prejudgment interest and that Westmoreland had waived all prejudgment interest.

Westmoreland contended that he reserved Malick's rights under the offer of judgment rule, including the right to recover prejudgment interest, and that it is understood among attorneys that his mention of "costs" during negotiations encompassed interest under the rule.

The latter argument assumed Davis was a lawyer or somehow understood the difference between ordinary prejudgment interest and interest allowed under the offer of judgment rule, said the court.

In construing the high-low agreement, the question was "how a reasonable person in Davis' position might have understood the offer and, if there was evidence on the issue, how Davis in fact understood it," wrote Reisner.

The evidentiary record was insufficient to answer the question, requiring a remand for a hearing at which Westmoreland and Davis could testify about the negotiation of the high-low agreement and how they understood it.

If interest is allowed, it should be based on the $1 million judgment because "the parties reached a pre-verdict settlement in which they agreed to substitute their high number for the verdict if it was over $1 million," added Reisner.

That would reduce the amount of recoverable interest to $38,500, says Berman, a Vineland solo.

He says it is clear that the $1 million ceiling applied to prejudgment interest and that the only items excepted would be counsel fees and costs such as filing fees and deposition expenses.

"If he had some kind of intention to except out all remedies under the offer of judgment rule, he could very easily have done it," says Berman. "It would have involved one or two more words in his letter."

Berman adds that Davis is not a lawyer.

According to Westmoreland, the lesson for personal injury lawyers is "if you're going to use an offer of judgment, don't use a high-low" because the two are incompatible.

"We're never going to do the two again," he says, referring to his firm, Westmoreland Vesper & Quattrone, in West Atlantic City.

His law partner, Thomas Vesper, says that on remand, he plans to put Berman on the stand because it is hard to believe Davis did not seek legal advice before entering into the high-low agreement.