NEW YORK COURTS ORDERS DISCLOSURE OF HIGH LOW SETTLEMENT DEALS

Fairness dictates that all parties involved in a multi-defendant liability action must be notified when any one of them reaches a high-low agreement with the plaintiffs to cap their exposure in the event of an adverse award ruling, the New York Court of Appeals determined Wednesday.

Garlock Sealing Technologies was “deprived of its right to a fair trial” because it did not know its co-defendant in an asbestos exposure case, Niagara Insulations Inc., had reached a high-low agreement with the plaintiff, the court ruled unanimously in Matter of Eighth Judicial District Asbestos Litigation, 89. The court ordered a new trial for Garlock.

“To ensure that all parties to a litigation are treated fairly, we hold that whenever a plaintiff and a defendant enter into a high-low agreement in a multi-defendant action which required the agreeing defendant to remain a party to the litigation, the parties must disclose the existence of that agreement and its terms to the court and the non-agreeing defendant(s),” Judge Eugene F. Pigott Jr. wrote for the court.

Disclosure “strikes a proper balance between this State’s public policy of encouraging the expeditious settlement of claims” and the need for all parties to be apprised of the “true posture of the litigation so they may tailor their strategy accordingly,” the court ruled.

The high-low agreement in question guaranteed plaintiff Donald H. Reynolds and his wife, Nancy H. Reynolds, $155,000 if a jury’s award was that amount or less, and $185,000 if the award was that amount or more. The couple would get the exact amount if the award was between $155,000 and $185,000.

The agreement proved to be a bargain for Niagara Insulates when the jury returned a verdict of $3.75 million (later reduced to $2.7 million) and apportioned 60 percent of the liability to Garlock and 40 percent to Niagara Insulates. The Reynoldses got the high payment from Niagara Insulates of $185,000.

Mr. Reynolds brought the suit after contracting mesothelioma he blamed on the asbestos he was exposed to while working at the Ashland Oil Refinery in Tonawanda from 1942 to 1987.

The Reynoldses entered into the high-low agreement two weeks before the trial in early 2005. The Supreme Court justice presiding over the trial knew about the agreement, though not the amounts involved, but Garlock was not notified. The jury also was not told, according to Wednesday’s ruling.

Michael J. Hutter of Powers & Santola in Albany, Garlock’s appellate attorney, said Garlock did not find out about the agreement until mention of it was made off-handedly during a post-trial hearing.

Both the Supreme Court and the Appellate Division, 4th Department, denied Garlock’s subsequent appeal of the verdict. In Matter of Eighth Judicial District Asbestos Litigation, 32 AD3d 1268 (2006), a 3-1 4th Department panel said there was no collusion between Niagara Insulates and the Reynoldses to disadvantage Garlock and that Garlock failed to show how the high-low agreement “realigned loyalties so as to prejudice” the company.

In reversing the 4th Department, the Court of Appeals took pains to praise Niagara County Supreme Court Justice James B. Kane for the “admirable” job he did brokering pretrial settlements of many claims in the “complex” litigation. Garlock and Niagara were the final two defendants in a case that once had included 19 defendants.

EFFECT ON LITIGATION

“Nonetheless, we are constrained to agree with Garlock that the court’s failure to disclose the existence of the high-low agreement rendered impossible a fair determination of Garlock’s rights and liabilities,” Judge Pigott wrote.

Garlock’s attorneys might have picked different jurors, employed different strategies and sought to have the agreement, and perhaps its provisions, made known to the jury, had Garlock known about the deal, the court found.

“Instead, Garlock was compelled to proceed blindly to trial without any meaningful opportunity to defend itself from the deleterious effects that the secret agreement may have had on Garlock’s defense,” Pigott wrote.

Hutter called the court’s finding a “very fair and just result.” He said Wednesday he had been frustrated that the lower courts had taken a no-harm, no-foul stance toward Garlock having been in the dark about the agreement.

Only Garlock will return to court. The high-low agreement settles the Reynoldses’ case against Niagara Insulates, the plaintiffs attorney, John N. Lipsitz of Lipsitz & Ponterio in Buffalo, said Wednesday.

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