Disclosure of High-Low Agreements—Recent Treatment of the Issue
A high-low agreement is a litigation technique which places a ceiling and a floor on the amount of money awarded at trial, regardless of the jury’s actual verdict. In theory, the agreement insures that neither the plaintiff nor the defendant will face a devastating jury verdict. For instance, instead of a defense verdict or a windfall plaintiff verdict, a high-low agreement provides a comfortable range of damages for both parties. A defendant utilizes a high-low agreement to cap damages at a reasonable level, while a plaintiff, seeking to avoid no recovery, uses the agreement to preserve a minimal damage award. The scope and use of a high-low agreement will depend generally upon the nature of the case, potential risk associated with the case, and plaintiff’s willingness to enter into such an agreement.
Not all attorneys take advantage of the benefits of high-low agreement. While the agreements may produce certain advantages depending on the circumstances of the case, the following analysis and discussion focuses on one of the potential pitfalls accompanying the use of high-low agreements at trial.
Although the advantages of high-low agreements were outlined above, what are the potential problems or issues which may arise when high- low agreements are utilized in multi-party litigation? In a recent case from New York’s highest court, Matter of Eight Jud. Dist. Asbestos Litig. v. Amchem Products Inc. (2007), 8 N.Y.3d 717, 721, 872 N.E.2d 232, the court held that the trial court’s failure to disclose a high-low agreement between plaintiffs and one of the defendants in the suit prejudiced the determination of the rights and liabilities of the nonagreeing defendant and warranted a new trial on liability and damages.
In the Amchem Products case, the plaintiff allegedly contracted asbestos-caused mesothelioma while employed at the Ashland Oil Refinery from 1942 through 1987. Id. at 719. At the commencement of trial, only two defendants remained in the action: Garlock Sealing Technologies LLC, a manufacturer, and Niagara Insulations, Inc., a distributor and installer. Id. at 720. Without Garlock’s knowledge, the plaintiffs and Niagara entered into a high-low agreement two weeks before the trial began. Id. The agreement limited Niagara’s damages to $185,000, but guaranteed plaintiffs at least $155,000. Id. At the close of trial, the jury returned a verdict of $3,750,000 for the plaintiffs, apportioning liability against Garlock and Niagara at 60% and 40%, respectively. Id. After Garlock discovered the high-low agreement, it moved to set aside the verdict and requested a new trial. Id.
On appeal, the Court of Appeals of New York concluded that the secretive high-low agreement had prejudiced the nonagreeing defendant, Garlock, in two ways. First, the agreement provided the plaintiffs with an incentive to maximize the Garlock’s liability while minimizing Niagara’s liability because the agreement capped Niagara’s damages, regardless of the jury verdict. Id. at 722. Second, nondisclosure of the high-low agreement deprived Garlock of the opportunity to seek appropriate procedural and evidentiary rulings before the trial court and argue the significance of the agreement to the jury. Id.
Due to these considerations, the court held that when a defendant who enters into a high-low agreement remains in the litigation, the parties must disclose the existence the agreement and its terms to the court and the nonagreeing defendant(s). Id. at 722-723. This rule balances a state’s public policy of encouraging the expeditious settlement of claims, and the need to ensure that all parties to the litigation are aware of the true posture of the litigation so they may tailor their strategy accordingly. Id.
On the other hand, in Gulf Industries Inc. v. Nair, (2007), 953 So. 2d 590, the court rejected a request for disclosure of a high-low agreement to the jury. In support of its ruling, the court noted that disclosure of the agreement may prejudice the plaintiffs and settling defendants. Specifically, disclosure of a high-low agreement to the jury may lead the jury to conclude that the parties to the high-low agreement “conspired to prevent a fair trial.” Id. Additionally, the court found that disclosure of the agreements to juries could prevent future parties from entering into the agreements for fear that disclosure to the jury could result in prejudice at trial. Id.
Several courts and jurisdictions, including Ohio, have not determined whether disclosure of high- low agreements is appropriate in multi-party litigation. Nevertheless, the varying views on the issue, treatment from separate courts, and the significant impact disclosure may have on litigants, renders the topic noteworthy. Defendants benefit from the use of high-low agreements where the potential for run-away jury verdicts is high. Likewise, Plaintiffs benefit from the use of such agreements where an outright defense verdict is a distinct possibility. Not all cases carry considerations making high-low agreements appropriate or advisable. However, when considering a high-low agreement in multi-party litigation, litigants and counsel should be aware that failure to disclose such agreements to the court or non-agreeing parties may ultimately render the agreement a nullity.
If you have any questions regarding such agreements or other issues involving settlement of claims in or outside of litigation, feel free to call one of our Practice Area Leaders.
