United States Court of Appeals

Fifth Circuit



## FILED

July 20, 2004

Charles R. Fulbruge III

Clerk 

## In the



# United States Court of Appeals

for the Fifth Circuit

_______________



### m 03-30872

_______________



### C ITY OF 

### N EW 

### O RLEANS



### ,

PlaintiffCounter DefendantAppellant,

VERSUS



### M UNICIPAL 

### A DMINISTRATIVE 

### S ERVICES



### , I NC



### .,

DefendantCounter ClaimantAppellee.

_________________________

Appeal from the United States District Court

for the Eastern District of Louisiana

_________________________2

Before S MITH , W IENER , and B ENAVIDES

, Circuit Judges.

J ERRY E. S MITH , Circuit Judge:

The Cit y of New Orleans appeals a judgment awarding Municipal Administrative Services, Inc. (“MAS”), the amount due it under

a contingency fee contract. Finding no error,

we affirm.

I.

MAS 1 entered into a contract with the city

to aud it BellSouth’s royalty payments to the

city. The contract provided that in addition to

a fixed fee, the cit y wo uld pay MAS 20% of

the amount it recovered from Be l lSouth.

MAS found t hat BellSouth had incorrectly

stated its revenue and owed the city additional

royalties. After negotiation and litigation, the

city entered into an agreement with BellSouth

according to which BellSouth did not admit its

liabilit y for the past roy alties, but agreed to

pay the city $5.5 millio n per year for five

years, and the city agreed to support changes

in Louisiana governing law.

The city refused to pay MAS its 20% cont ingency fee and sued in state court for a declaratory judgment that it did not owe the fee.

MAS removed to fe deral court and filed a counterclaim for the fees, after which the city

dropped its claim for declaratory judgment,

and both sides acknowledged that MAS would

bear the burden of proof of establishing that it

was entitled to the fees. The city moved fo r

remand on the basis of a contractual clause by

which, the city claimed, MAS h a d waived its

right to removal. The district court denied

remand.

After a bench trial, the court entered judgment for MAS, awarding damages and a declaratory judgment that the city must pay MAS

a porti on of

it s recovery from BellSouth in

future years. The city appeals, arguing that the

district court er red in denying its motion to

remand, committed clear error i n finding that

the amount of its settlement with BellSouth

constit ut es a recovery as a result of MAS’s

audit within the meaning of its contract, and

erred in finding that its contingency fee arrangement did not violate the Louisiana Constitution’s prohibition on the donation of public funds.

II.

We review the denial of a motion to remand

de novo

. Miller v. Diamond Shamrock Co.

, 275 F.3d 414 (5th C ir. 2001). The city filed

suit in Orleans Parish Civil District Court

(CDC), seeking a declaratory judgment. MAS

removed to federal court, alleging diversity of

citizenship. The city does not deny that the

requirements of 28 U.S.C. § 1332 are met but

moved t o remand on the basis of a contract

cl ause that the city claims requires litigation

exclusively in the CDC.

The clause in question reads as follows:

Jurisdiction

The undersigned Contr actor does further

hereby consent and yield to the jurisdiction 1 MAS was founded in 1987 by George White,

who had been employed inthe Franchise Administration Department of the City of Houston, where

he had acquired expertise in the field of utility tax

franchises. White realized that few people outside

city government possessed franchise expertise, and

he founded MAS to provide consulting services to

municipal governments. MAS provided services to

approximately one hundred municipalities, and

White had experience auditing Southwestern Bell’s

franchise fees, re sulting in substantial recoveries

for other cities.3

o f the State Civil Courts of the Pa rish of

Orlean s and does hereby formally waive

any plea s o f jurisdiction on account of the

residence elsewhere of the undersigned

Contractor.

The city claims that this clause constitutes not

only MAS’s consent to jurisdiction in the

CDC, but also a waiver of MAS’s right to remove to federal court. MAS counters that the

clause evinces consent to personal jurisdiction

in the Louisiana state courts but does not specify those courts as the exclusive venue for

lawsuits arising from the contract, and does

not waive MAS’s right of removal. The district court agreed with MAS, holding that the

clause was not a clear and unequivocal waiver

of MAS’s rem

o val rights and that any ambiguity should be construed against the city as

the drafter of the contract.

For a contractual clause to prevent a party

from exercising its right to removal, the clause

must give a “clear and unequivocal” waiver of

that right. M

cDermott Int’l, Inc. v. L loyds

Underwriters

, 944 F.2d 1199 (5th Cir. 1991);

Waters v. Brow ning-Ferris Indus ., Inc., 252

F.3d 796 (5th Cir. 2001). A party may waive

its rights by explicitly stating that it is d oing

so, by allowing the other party the ri ght to

choose venue, or by establishing an exclusive

venue within the contract.

A party’s consent to jurisdiction in one forum does not necessarily waive its right to have

an action heard in another. For a forum selection clause to be exclusive, it must go beyond

establishing that a part icular forum will have

jurisdict io n and must clearly demonstrate the

parties’ intent to make that jurisdiction exclusive. K eaty v. Freeport Indonesia, I nc. , 503

F.2d 9 55 (5th Ci r. 1974). It i s i m portant to

distinguish betwe en jurisdiction and venue when interpreting such clauses. Although it is

not necessary for such a clause to use the

word “venue” or “forum,” it must do more

th an establish that one forum will have

jurisdiction.

In Keaty

, id. at 956, the clause in question

read, “This agreement shall be construed and

enforceab le according to the law of the State

of New York an d t he parties submit to the

jurisdiction of the courts of New York.” The

court held that this pro vision demonstrated

consent to be subject to the jurisdiction of the

courts of New York, but di d not consti tute a

mandatory forum-select io n clause, and was

therefore insufficient to constitute a waiver of

the right to removal.

The city commends City of Rose City v.

Nutmeg Ins. Co.

, 931 F.2d 12 (5th Cir. 1991),

as standing for the proposition that a contractual clause may defeat the right of removal, despite that it does not explicitly use the word

“ remo val” or “venue.” Properly understood,

however, Rose City is inapposite. The clause

in Rose City stated,

[W]e, at y our request agree to subm it to

the jurisdiction of any Court of Competent

jurisdiction withing the United States and

will comply with all requirements necessary

t o give such Court jurisdiction and all

matters arising hereunder shal l be

determined in accordance with the law and

practice of such court.

Id. at 14.

The Rose City court held that the clause

defeated Nutmeg’s right to removal because it

unambiguously required that Nutmeg “submit

to the jurisdiction of any

co urt of the policyholder’s choosing.” The decision turned no t4

on the use of the word “jurisdiction,” and not

on venue or forum, but on the contract’s giving one party the exclusive right to choose the

forum of any proceedings.

The most reliable reading of R ose City i s

that a clau se granting one party the right to

choose venue must plainly give the party that

r ight. Here, however, there is no indicat io n

that MAS gave the city the exclusive right to

choose the venue in which the suit would proceed. Rather, as in K

eaty, one jurisdiction is

specified, but neither is any other jurisdiction

excluded, nor does MAS consent to something

so indefinit e as the jurisdiction of the city’s

choosing. The city’s reliance on R ose City is

unfounded.

The city claims that the clause in this case is

sufficiently explicit and unequivocal to consti tute waiver of MAS’s removal rights. The

city maintains that for the clause to have meaning, it cannot be read as merely consenting to

personal jurisdiction in t h e Louisiana courts,

because jurisdiction is established by statute in

Louisiana, so th e clause must therefore

establish exclusive jurisdictio n

. The city

further avers that by waiving “pleas of jurisdiction on account of the residence elsewhere

of the undersigned Contractor,” MAS effectively agreed not to invoke the diversity jurisdiction of the federal courts.

The district court properly rejected this argument. Although such a reading is possible,

it is not the only plausible reading of the

clause, nor is it the most felicitous. It ignores

the chance that, absent the clause, MAS could

challenge the exercise of personal jurisdiction

by the Louisiana courts.

Although the City attem

pts to beg the question that personal jurisdiction would exist absent the clause, it is by no means certain that

this assertion would survive a challenge or that

the city did no t benefit by avoiding any

potential litigation expenses it might have inc urred had MAS been permitted to challenge

personal jurisdiction. Moreover, the city’s interpretati on ignores the possibility that MAS

m ight have brought suit first and might ha v e

done so in a

venue where it was not required

to plead its citizenship to establish jurisdiction.

The failure o f the clause to demonstrate a

clea r and unequivocal waiver of MAS’s remov al rights is highlighted by contrast to an

effective clause in a different city contract. In

City of New Orlean s v. Nat’l Serv. Cleaning

Corp., 1996 U.S. Dis t. LEXIS 10637 (E.D.

La. July 24, 1996), the city included the following clause in its contract: “The contractor

hereby consents to and stipulates to the personal jurisdiction and venue of the Ci vil District Court for the Parish of Orleans, Louisiana

in any litigation

bro ught under this Article.”

The court noted the clarity of th e clause in

specifying that the co nt ractor “consents” and

“stipulates” to “personal jurisdiction” and

“venue.” Here, by contrast, the clause evinces

conclusively no more than that MAS consent ed t o jurisdiction and agreed not to raise

pleas to jurisdiction.

As the district court noted, the clause is, at

the very least, susceptible to more than one

reasonable interpretation. This ambiguit y must

be construed against the city as dra fter. The

very presence of ambiguity indicates that t he

clause does not co ntain a “clear and unambiguous” waiver of removal rights and is therefore ineffective as a waiver. The city’s motion

to remand was properly denied.

III.5

The city also cites as error the district

court’s findings of fact. The contract between

the city and MAS required t he city to pay

MAS 2 0% o f “any amounts recovered” from

BellSouth as a result of MAS’s audit. The city

claims that the money it receives pursuant to

its settlement agreement was not an amount

“recovered” under the terms of the contracts,

and contends that MAS is no t enti tl ed to a

contingency fee on that amount.

After a bench trial, the district court made

findings of fact and conclusions of law, pursuant to F ED

. R. C IV

. P. 52( a). We review

findings of fact for cl ear error. A lexander v.

Cockrell

, 294 F.3d at 628; Anderson v. City of

Bessemer City, N.C., 470 U.S. 564 , 573

(1985); F ED

. R. C IV

. P. 52(a) (“Findings of fact

shall not be set aside unless clearly erroneous,

and due regard shall be given to the opportunity of the trial

court to j udge of

the

credibility of the witnesses.”). We review conclusions o f law 

### S

S including contractual interpretations 

### SS

de novo

. Marquette Transp. Co.

v. La. Mach. Co.

, 367 F.3d 398, 402 (5th Cir.

2004).

The district c ourt found that the term s of

the contract were unambiguous. Reading the

provision that required the city to pay MAS “a

contingency fee equal to twenty percent (20%)

of any amounts recovered” in light of the contract as a whole, the court found that the settlement with Bellsouth constituted a recovery.

It also found that the recovery was a result of

MAS’s audit, and that therefore MAS was entitled to its 20% continge ncy fee. The court

based this finding on its credibility determinations regarding the testimony of several witnesses regarding the na t ure of the settlement

and MAS’s contribution to it. This was not

error. IV.

T he city contends that payment of MAS’s

contingency fee would constitute a donation of

public funds in violation o f the Louisiana

Consti t ut ion. The district court held that the

fee is not unconstitutional. We review d e novo

the district court’s conclu sion of law derived

fro m its factual findings. U nited States v.

Villalobos, 161 F.3d 285 (5th Cir. 1998).

It is a settled matter of state law that a municipality may agree to a contingenc y fee.

Town of Mamou v. Fontenot

, 816 So. 2d 958,

966 (La. App. 3d Cir.), w rit denied

, 827 So.

2d 1162 (La. 2002). The City, however, contends that MAS has already been sufficiently

compensated and that payment of the contingency fee wo u ld constitute an unreasonable

bonus. A bonus violates the Louisiana Constitution if not based on services and is an additional payment for duties the party was already

contractually obligated to perform and was receiving compensation. V

arnado v. Hosp. Serv.

Dist. No. 1 , 730 So. 2d 1066, 1068 (La. App.

1st Cir. 1999).

The district court made factual findings that

the contingency fee was not a bonus to MAS

but w a s part of its bargained-for compensation, 2 and that the amount recovered by

2 Apparently, the city did not noticethe purported illegality of the 20% contingency fee at the

time it entered into the contract. The district court

found that at the outset of MAS’s audit, BellSouth

refused to allow MAS access to its documents and

contended that the contingency arran gement was

illegal. In response, the city represented that

“[t]here is no prohibition of this ty pe of arrangement in Louisiana, nor is it recognized as unfair or

a violation of public policy.” The city now argues

that, given the size of its recovery, a 20% fee

would compensate MAS too much for the number

(continued...)6

the city was a result of the services MAS provided. Considering evidence of the difficulty

of the work MAS performed and the expertise

that MA S possessed but the city lacked, the

cou rt concluded that the fee was not unreasonable and could not, therefore, be characterized as a donation of public funds. In light

of these factual findings, t he district court’s

conclusion that the city had no legal basis for

re fusing to pay MAS in accordance with the

contract is fully correct.

AFFIRMED.

2 (...continued)

of hours it worked.

In attempting to re duce a contingency fee arrangement to an hourly rate, the city misrepresents

the nature of such an ar r a ngement. It ignores the

element of risk involved ex ante in MAS’s agreeing

to work for a contingency, and it attempts to make

an ex post appropriation of the upside of the deal.

The city has provided no legal jus tification for

r efusing to pay its contingency fee. There is no

comparison to customary fees in such situation, nor

is there an attempt to discount the resulting fee to

the time of the contract, nor an analysis of how the

premium M A S would achieve over its normal

hourly rate compares to the risk it bore and the

expertise it provided.

The sheer magnitude of a fee alone does make

it unreasonable or unenforceable. Where an initial

percentage is reasonable at the time the contract is

formed, the fact that the extent of recovery, and the

commensurat e contingency fee, are much larger

than a party exp ected at the outset does not

invalidate the fee. Rather, it demonstrates that the

contract properly constructed incentives such that

b oth parties are even better off than they had

anticipated.