Trial Law “Tip” #16
“High-Low” Settlement Agreements—Nothing “Smellie” About Them
by Roy D. Wasson
Board Certified in Appellate Practice
A very useful but underutilized settlement technique is a “High-Low” agreement, which guarantees that the plaintiff will recover decent money, even if the jury returns a goose egg for a verdict, and which provides the defendant with a strong incentive to agree to pay that amount. Most often agreed to during or shortly before the start of trial, a “High-Low” settlement involves two numbers: 1) a bottom number that is the minimum the defendant will have to pay, even if the verdict is for less; 2) a top number which is the maximum the defendant is exposed to pay, even if the verdict is for more. If the verdict is between those two numbers, the plaintiff collects the actual verdict amount.
“High-Low” settlements are legal in Florida and permissible in any kind of case. Although possible in single-defendant cases, such settlements are more useful in multi-defendant cases, like malpractice trials, where the respective fault percentages and financial responsibility levels of two defendants are unequal. The settling defendant has the incentive of bringing certainty to the question of his or her exposure and your client will have a sure recovery of something significant, even if the jury does the wrong thing.
Your author has had luck negotiating such settlements. In one case, my co-counsel and I agreed to a “High-Low” with a radiologist in a case where the damages range could very likely have exceeded that defendant’s $1million limits, but we felt that another defendant (the neurologist) was much more at fault. In that case, the high end of our agreement with the radiologist was $500,000 and the low end was $200,000. We collected that “Low” amount even though the jury zipped us as to the radiologist. The verdict was for $850,000, with 90% apportioned to the neurologist, and 10% on a Fabre defendant doctor, and zero liability on the radiologist, so we collected $765,000 from the neurologist and $200,000 from the exonerated radiologist, for more than the total verdict.
Non-settling defendants during the heat of trial try to snow the judge with the argument that a “High-Low” is barred by the Supreme Court’s ban on Mary Carter1 agreements announced in Dosdourian v. Carsten, 624 So. 2d 241 (Fla. 1993), or that the “High-Low” agreement can be disclosed to the jury. Plaintiffs’ lawyers know what two things the defense is up to in putting the settlement before the jury: 1.) implying that the settling defendant must be more culpable than the remaining defendant (or why didn’t the remaining defendant settle?) to reduce the percentage of fault against the non-settling defendant; 2) poisoning the well with evidence that plaintiff will receive money from the settlement, to reduce the verdict amount. This “TIP” provides you with the legal arguments and authorities to enforce the “High-Low” settlement without the jury ever knowing about it.
The grandmother of all cases on this issue is Smellie. That is not to say that the decision stinks; to the contrary, it is a sweet one. In 27th Avenue Gulf Service Ctr. v. Smellie, 510 So. 2d 996 (Fla. 3d DCA 1987), the Third District reversed Judge Smith’s ruling allowing the jury to hear about a “High-Low” between the plaintiff and one of the defendants, during the trial against the other defendants, holding as follows:
Appellees [the non-settling defendants] call the Gibson-Gulf settlement a Mary Carter Agreement which is admissible as evidence to be commented upon. . . . Appellant Gibson [the plaintiff] disagrees . . . that the Gibson-Gulf settlement is a Mary Carter agreement. He contends the agreement is an ordinary settlement which was not admissible as evidence.
A true Mary Carter Agreement is “basically a contract by which one codefendant secretly agrees with the plaintiff that, if such defendant will proceed to defend himself in court, his own maximum liability will be diminished proportionately by increasing the liability of the other codefendants,” Ward v. Ochoa, 284 So.2d 385, 387 (Fla. 1973), and is admissible as evidence. We have examined the agreement in question and find that it is totally devoid of that liability shifting feature essential to a Mary Carter Agreement. An agreement where the defendant and plaintiff agree to a minimum and maximum amount of a judgment notwithstanding the jury verdict is a common form of settlement. It does not diminish the liability of one party by proportionately increasing the liability of another party.
Admission of the agreement into evidence was therefore prejudicial error.
Id. at 998(emphasis added).
The argument that a “High-Low” settlement was a Mary Carter agreement was rejected by the Third District in a post Dosdourian case called Cardona v. Metro Dade Transit Agency, 680 So. 2d 1098 (Fla. 3d DCA 1996). The court in that case followed Smellie and held:
We cannot agree that the high-low stipulation was an unenforceable Mary Carter Agreement. A Mary Carter Agreement is “a contract by which one co-defendant secretly agrees with the plaintiff that, if such defendant will proceed to defend himself in court, his own maximum liability will be diminished proportionately by increasing the liability of the other co- defendants.” Dosdourian v. Carsten, 624 So. 2d 241, 243 (Fla. 1993). . . The hallmark of a Mary Carter Agreement is the pitting of one defendant against the remaining defendants at trial. Ward v. Ochoa, 284 So. 2d 385 (Fla. 1973). In contrast, the agreement in this case is “totally devoid of that liability shifting feature essential to a Mary Carter Agreement.” 27th Avenue Gulf Serv. Ctr. v. Smellie, 510 So. 2d 996, 998 (Fla. 3d DCA 1987).
Id. at 1099.
Note that the Cardona case involves a trial judge refusing the enforce a “High-Low” agreed to between the plaintiff and all of the defendants: “Here, all of the defendants agreed to the settlement, shared the benefits of the liability cap, and liability was not shifted.” Thus, you may hear an argument from the defense in your case that a “High-Low” settlement with only one of the defendants is different than the situation in Cardona, and is more like a Mary Carter agreement. Argue in response that the Cardona court reaffirmed Smellie, which was a “High-Low” with fewer than all defendants.
The Fifth District muddied the Smellie waters somewhat in Garrett v. Mohammed, 686 So. 2d 629 (Fla. 5th DCA 1996). First on the enforceability issue, the court made the following confusing (but generally favorable) pronouncement:
It is unclear whether the supreme court in Dosdourian intended to outlaw high-low agreements in addition to “Mary Carter Agreements.” This uncertainty is in part due to the court’s failure to discuss 27th Avenue Gulf Service Center v. Smellie, 510 So. 2d 996 (Fla. 3d DCA 1987), wherein the third district upheld the use of high-low agreements. Specifically, the third district concluded that a “high-low agreement” is distinguishable from a “Mary Carter Agreement” in that a high-low agreement does “not diminish the liability of one party by proportionately increasing the liability of another party.” Id. at 998.
Perhaps the question of whether high-low agreements are covered by Dosdourian should turn on a case by case analysis of whether such agreements are in fact true settlements. In deciding whether the agreements are true settlements, the trial court should consider whether the agreement requires the co-defendant to participate in the trial. In other words, is the high range of the agreement contingent on participation in the trial. The trial court should also consider the amount in controversy as a result of the agreement. The greater the window between the “high” and the “low” limits of the agreement, the more incentive a co-defendant has in genuinely and aggressively litigating the dispute. If the trial court concludes that the “high-low agreement” is not a settlement and the codefendant still has a genuine incentive to defend, then in our view the agreement would not be prohibited by Dosdourian.
686 So. 2d at 630. (Emphasis added).
A line of dictum elsewhere in the opinion is not helpful on the issue of the admissibility of the “High-Low” agreement by a non-settling defendant. In deciding that the agreement in that case was not a Mary Carter agreement, the court stated:
Under the agreement, Pierce was not required to remain in the litigation. She was free to either participate in the litigation or to walk away. The agreement was at all times subject to discovery by the appellant and could have been admitted into evidence. The trial court heard argument from the parties on the appellant’s motion for mistrial and concluded that Pierce had in good faith defended the case and that the appellant was not prejudiced by the agreement. Therefore, the proscription set out in Dosdourian does not apply to the instant case and the trial court acted within its discretion in denying the motion for mistrial.
686 So. 2d at 630(emphasis added).
I would argue that the foregoing sentence is not authority for allowing the jury to hear evidence of the “High-Low,” but that the court can receive the agreement into evidence in a hearing to determine whether the agreement in a give case is barred by Dosdourian. It would not make any sense for the Fifth DCA to basically hold that Smellie is still good law—to the extent that a “High-Low” in a given case is not a Mary Carter agreement—and yet ignore the key holding in Smellie: that it is error to put the fact of the “High-Low” before the jury.
Also, you can minimuze the Garrett decision as having been overruled by the Fifth DCA in Allstate Ins. Co. v. Sarkis, 809 So. 2d 6 (Fla. 5th DCA 2001), albeit on different grounds (multipliers on fee awards under proposals for settlement).
Here is one suggestion to deal with the possibility of introduction of the agreement into evidence before the jury: Depending on the amounts involved, think about including a provision in the agreement that the deal is off if the court allows the jury to hear about it. And here’s a practical idea: Think about the issue of taxable costs and negotiate something for the situation where you get a verdict in the range between the “High” and the “Low.” Either make those amounts high enough to cover your costs too, or add a term into the agreement that taxable costs will be paid too if you beat the “Low” amount.
Remember, if at first you don’t succeed, just . . .
1See Booth v. Mary Carter Paint Co., 202 So. 2d 8 (Fla. 2d DCA 1967).