Opinion ID: 67517
Heading Depth: 2
Heading Rank: 1

Heading: The McDermott Standard.

Text: 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. City of New Orleans v. Mun. Admin. Servs., Inc., 376 F.3d 501, 504 (5th Cir.2004). The New Orleans court cited McDermott International, Inc. v. Lloyds Underwriters, 944 F.2d 1199 (5th Cir.1991), one of very few federal cases addressing waiver of removal rights under the Convention, for the clear-and-unequivocal standard. Id. [2] There are three ways in which a party may clearly and unequivocally waive its removal rights: [1] by explicitly stating that it is doing so, [2] by allowing the other party the right to choose venue, or [3] by establishing an exclusive venue within the contract. New Orleans, 376 F.3d at 504. The Underwriters claim, however, that under McDermott only the first of those methods is applicable in the Convention context. In effect, they propose a magic words approach to waiver. The McDermott court, however, never stated that it would reject purported waivers that do not incant the specific words that the Underwriters claim are required. The Underwriters rely instead on a literal reading of the McDermott court's use of the words explicit and express in explaining its waiver standard. Because all waivers that do not use the term waive or remove are by definition implicit, the Underwriters say, there is no waiver here. [3] The McDermott court's choice of terms does not bear the weight that the Underwriters apply. Contrary to the Underwriters' reading, the court actually formulated its waiver test in several ways, using a number of terms and phrases. In fact, the McDermott court used the terms explicit, express, unambiguous, and clear and unequivocal almost interchangeably. [4] These words, of course, mean different things, and none of them demands the reading that the Underwriters urge. [5] To understand the McDermott standard, we must therefore consider the McDermott court's actual reasoning, and a close reading of McDermott shows that the Underwriters misunderstand the standard it articulates. Although waiver must be clear and unequivocal, it may be implicit where necessary to give effect to all contractual provisions.
McDermott 's precise holding is not that Convention removal waivers must contain magic words, as the Underwriters claim, but merely that the following language from the contract's service of suit clause was insufficient to waive the right of removal to federal court of the particular question being litigated: It is agreed that in the event of the failure of Underwriters hereon to pay any amount claimed to be due hereunder, Underwriters hereon, at the request of the Assured will submit to the jurisdiction of any court of competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such court. McDermott, 944 F.2d at 1200 (citations omitted). That provision  because it allowed one party to select a venue  superficially appears consistent with the second of the three New Orleans bases for waiver, but it is not explicit. If the McDermott court had required actual reference to waiver and removal, the analysis of the McDermott contract would have been straightforward: The court could merely have decided that because no such reference was present, there was no waiver. But the McDermott court did not do so; quite to the contrary, it began its analysis by observing that [w]hen a policy's service-of-suit clause applies, its probable effect is to waive the insurer's removal rights. Id. at 1204-05 (citing Nutmeg, 931 F.2d at 15-16). The McDermott court, in other words, would have considered accepting a waiver based on the second ground used in New Orleans, notwithstanding the fact that such a waiver would have been implicit. Other aspects of the contract, however, persuaded the McDermott court that the service-of-suit clause did not in fact constitute a waiver and that the contract's apparent consistency with the second New Orleans basis was illusory. The venue question in McDermott was venue for disputes concerning the proper forum to decide arbitrability questions. Id. at 1205. That question, though, was covered not only by the service-of-suit clause but by a potentially co-equal forum selection clause governing venue for arbitration. The McDermott contract was therefore ambiguous, and the service-of-suit clause did not answer the venue question. Id. The court also observed that the service-of-suit clause could be read as a waiver of personal jurisdiction only, therefore leaving open the possibility of subsequent removal. [6] The court reasoned as follows: Underwriters' exercise of its federal removal right is not necessarily inconsistent with any of its obligations under the service-of-suit clause. Underwriters may remove a case after submitting to the jurisdiction of Louisiana's courts and complying with all necessary requirements to give Louisiana's courts power over the suit. There would be no final decision in that court for Underwriters to abide by if it exercised its removal right. All matters would be determined in accordance with the practice and law of the court chosen by McDermott in the sense that all state courts follow the removal law established by Congress. Id. at 1206. Not only was the McDermott contract's service-of-suit clause ambiguous with respect to venue, but the venue selected in accordance with it would not be exclusive. In short, instead of merely relying on the contract's lack of explicit references to waiver and venue, the McDermott court showed, in great detail, that the contract did not plainly set a venue at all and could in fact permit invocation of federal removal from a state venue. The Underwriters' proposed rule would treat that discussion as redundant. It is evident, nonetheless, that the McDermott court found no waiver  not because the other bases for waiver later set out in New Orleans were inapplicable, but because they were not satisfied. [7]
The McDermott court then considered and rejected an analogy to Nutmeg  a case not involving the Convention  in which a similar contractual provision was deemed to waive removal. The Nutmeg contract had only a single forum selection clause reading: [W]e, at your request agree to submit to the jurisdiction of any Court of Competent jurisdiction within the United States and will comply with all requirements necessary to give such Court jurisdiction and all matters arising hereunder shall be determined in accordance with the law and practice of such court. Nutmeg, 931 F.2d at 14. That language, of course, also resembles the second of the three New Orleans bases for waiver of removal, but it is neither explicit nor express. The McDermott court  if it had adopted the rule that the Underwriters urge  could easily have distinguished Nutmeg just by pointing this out and explaining that although an implied waiver was adequate in Nutmeg, it could never be enough in the context of the Convention. Instead, the court demonstrated that although the Nutmeg contract was unambiguous, the McDermott contract was not. The McDermott court, 944 F.2d at 1207, pointed out that the Nutmeg decision resulted partly from the rule that contracts are to be construed against the drafter and that that rule was inapplicable to the McDermott contract. [8] The McDermott court also observed that the Nutmeg contract had only a single relevant venue provision instead of two potentially conflicting ones. Id. McDermott suggested only one way in which the Convention affected waiver of removal rights: The Convention applies to arbitration agreements and arbitration awards involving United States citizens and at least one foreign citizen. That was the case in McDermott. [9] In McDermott, though  as explained above  the presence of international defendants made the personal jurisdiction explanation more plausible. Id. at 1205-06 & n. 10. In Nutmeg, all the parties were domestic, and it therefore seemed less likely to the McDermott court that the parties would have specifically waived objections to personal jurisdiction. See id. at 1207. Thus the applicability of the Convention gave the McDermott court another reason to find ambiguity. [10] Though the McDermott court distinguished Nutmeg in many ways, it never said that the Convention affected the waiver standard. [11] Having shown that neither the contractual language itself nor an analogy to interpretations of similar language in other cases compelled a conclusion that removal rights had been waived, the McDermott court concluded that the parties had executed an ambiguous contract and disavowed any expressed intent regarding wavier of Convention removal rights, meaning that no waiver existed. Id. at 1209. If the McDermott contract had been unambiguous, or if the parties to it had somehow expressed intent to waive removal rights, the court presumably would have found a waiver despite the Convention's applicability and the lack of magic words.
Given the law described above, the two implicit bases for clear-and-unequivocal waiver in the New Orleans formulation work as well as the explicit basis does, even in cases involving the Convention. It is difficult, given the McDermott court's approach, to imagine that panel's coming to the same conclusion if it had been presented with language such as, e.g., Underwriters hereon, at the request of the Assured will submit to the exclusive jurisdiction of any court of competent jurisdiction. Nor does McDermott give us any reason to think that its waiver rule would be applied in ways that render contractual terms meaningless. No decision interpreting McDermott requires the contrary conclusion urged by the Underwriters. In Beiser v. Weyler, 284 F.3d 665, 672 (5th Cir.2002), the court explained: [In McDermott w]e established a clear statement rule for waivers of a litigant's rights under § 205. A party may only waive his right to remove under the [Convention] by clearly and explicitly saying so in the agreement. That language, though, is not unambiguous support for the Underwriters' position. A  clear statement rule does not mean the same thing as an  explicit statement rule. Beiser, at any rate, did not involve an application of the McDermott rule, so the quoted language is at best dictum. Nor did the Beiser court explain what it means for a waiver to be clear and explicit. Moreover, the New Orleans court made no effort to distinguish its approach to waiver from McDermott 's; the New Orleans court gave no indication of a special explicit waiver requirement that applies only in Convention cases. McDermott' s discussion of waiver in the Convention context seems almost indistinguishable from the explanation of waiver by forum selection in New Orleans. 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 particular forum will have jurisdiction and must clearly demonstrate the parties' intent to make that jurisdiction exclusive. New Orleans, 376 F.3d at 504. New Orleans, then, explains why the McDermott contract was not deemed a waiver. In fact, the McDermott court could have used this very language when it explained that the forum selection clause it interpreted was a waiver only of personal jurisdiction. The McDermott contract allowed McDermott to select venue, but not an exclusive venue; New Orleans explains that such a venue-selection provision would not be sufficient as a waiver in any case, Convention or not. It follows that the Underwriters' proposed heightened standard for Convention removal has no basis in law. McDermott permits waiver by means other than express waiver, and the New Orleans three-part synthesis, which accurately incorporates the McDermott standard, applies in the context of the Convention.