New Orleans City v. Muni Admin Svc Inc

United States Court of Appeals
Fifth Circuit
F I L E D
July 20, 2004
Charles R. Fulbruge III
Clerk
In the
United States Court of Appeals
for the Fifth Circuit
_______________
m 03-30872
_______________
CITY OF NEW ORLEANS,
Plaintiff-
Counter Defendant-
Appellant,
VERSUS
MUNICIPAL ADMINISTRATIVE SERVICES, INC.,
Defendant-
Counter Claimant-
Appellee.
_________________________
Appeal from the United States District Court
for the Eastern District of Louisiana
_________________________

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Before SMITH, WIENER, and BENAVIDES,
Circuit Judges.
JERRY E. SMITH, Circuit Judge:
The City of New Orleans appeals a judg-
ment awarding Municipal Administrative Ser-
vices, Inc. (“MAS”), the amount due it under
a contingency fee contract. Finding no error,
we affirm.
I.
MAS1 entered into a contract with the city
to audit BellSouth’s royalty payments to the
city. The contract provided that in addition to
a fixed fee, the city would pay MAS 20% of
the amount it recovered from BellSouth.
MAS found that 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
liability for the past royalties, but agreed to
pay the city $5.5 million per year for five
years, and the city agreed to support changes
in Louisiana governing law.
The city refused to pay MAS its 20% con-
tingency fee and sued in state court for a de-
claratory judgment that it did not owe the fee.
MAS removed to federal 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 for
remand on the basis of a contractual clause by
which, the city claimed, MAS had waived its
right to removal. The district court denied
remand.
After a bench trial, the court entered judg-
ment for MAS, awarding damages and a de-
claratory judgment that the city must pay MAS
a portion of its recovery from BellSouth in
future years. The city appeals, arguing that the
district court erred in denying its motion to
remand, committed clear error in finding that
the amount of its settlement with BellSouth
constitutes a recovery as a result of MAS’s
audit within the meaning of its contract, and
erred in finding that its contingency fee ar-
rangement did not violate the Louisiana Con-
stitution’s prohibition on the donation of pub-
lic funds.
II.
We review the denial of a motion to remand
de novo. Miller v. Diamond Shamrock Co.,
275 F.3d 414 (5th Cir. 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 to remand on the basis of a contract
clause that the city claims requires litigation
exclusively in the CDC.
The clause in question reads as follows:
Jurisdiction
The undersigned Contractor does further
hereby consent and yield to the jurisdiction
1 MAS was founded in 1987 by George White,
who had been employed in the Franchise Admin-
istration 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, resulting in substantial recoveries
for other cities.

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of the State Civil Courts of the Parish of
Orleans and does hereby formally waive
any pleas of 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 re-
move to federal court. MAS counters that the
clause evinces consent to personal jurisdiction
in the Louisiana state courts but does not spe-
cify those courts as the exclusive venue for
lawsuits arising from the contract, and does
not waive MAS’s right of removal. The dis-
trict court agreed with MAS, holding that the
clause was not a clear and unequivocal waiver
of MAS’s removal rights and that any ambi-
guity 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. McDermott Int’l, Inc. v. Lloyds
Underwriters, 944 F.2d 1199 (5th Cir. 1991);
Waters v. Browning-Ferris Indus., Inc., 252
F.3d 796 (5th Cir. 2001). A party may waive
its rights by explicitly stating that it is doing
so, by allowing the other party the right to
choose venue, or by establishing an exclusive
venue within the contract.
A party’s consent to jurisdiction in one for-
um does not necessarily waive its right to have
an action heard in another. For a forum selec-
tion 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 exclu-
sive. Keaty v. Freeport Indonesia, Inc., 503
F.2d 955 (5th Cir. 1974). It is important to
distinguish between 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
than establish that one forum will have
jurisdiction.
In Keaty, id. at 956, the clause in question
read, “This agreement shall be construed and
enforceable according to the law of the State
of New York and the parties submit to the
jurisdiction of the courts of New York.” The
court held that this provision demonstrated
consent to be subject to the jurisdiction of the
courts of New York, but did not constitute a
mandatory forum-selection 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 contrac-
tual clause may defeat the right of removal, de-
spite that it does not explicitly use the word
“removal” or “venue.” Properly understood,
however, Rose City is inapposite. The clause
in Rose City stated,
[W]e, at your request agree to submit to
the jurisdiction of any Court of Competent
jurisdiction withing 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.
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 court of the policy-
holder’s choosing.” The decision turned not

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on the use of the word “jurisdiction,” and not
on venue or forum, but on the contract’s giv-
ing one party the exclusive right to choose the
forum of any proceedings.
The most reliable reading of Rose City is
that a clause granting one party the right to
choose venue must plainly give the party that
right. Here, however, there is no indication
that MAS gave the city the exclusive right to
choose the venue in which the suit would pro-
ceed. Rather, as in Keaty, one jurisdiction is
specified, but neither is any other jurisdiction
excluded, nor does MAS consent to something
so indefinite as the jurisdiction of the city’s
choosing. The city’s reliance on Rose City is
unfounded.
The city claims that the clause in this case is
sufficiently explicit and unequivocal to con-
stitute waiver of MAS’s removal rights. The
city maintains that for the clause to have mean-
ing, it cannot be read as merely consenting to
personal jurisdiction in the Louisiana courts,
because jurisdiction is established by statute in
Louisiana, so the clause must therefore
establish exclusive jurisdiction. The city
further avers that by waiving “pleas of juris-
diction on account of the residence elsewhere
of the undersigned Contractor,” MAS effec-
tively agreed not to invoke the diversity juris-
diction of the federal courts.
The district court properly rejected this ar-
gument. 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 attempts to beg the ques-
tion that personal jurisdiction would exist ab-
sent the clause, it is by no means certain that
this assertion would survive a challenge or that
the city did not benefit by avoiding any
potential litigation expenses it might have in-
curred had MAS been permitted to challenge
personal jurisdiction. Moreover, the city’s in-
terpretation ignores the possibility that MAS
might have brought suit first and might have
done so in a venue where it was not required
to plead its citizenship to establish jurisdiction.
The failure of the clause to demonstrate a
clear and unequivocal waiver of MAS’s re-
moval rights is highlighted by contrast to an
effective clause in a different city contract. In
City of New Orleans v. Nat’l Serv. Cleaning
Corp., 1996 U.S. Dist. LEXIS 10637 (E.D.
La. July 24, 1996), the city included the fol-
lowing clause in its contract: “The contractor
hereby consents to and stipulates to the per-
sonal jurisdiction and venue of the Civil Dis-
trict Court for the Parish of Orleans, Louisiana
in any litigation brought under this Article.”
The court noted the clarity of the clause in
specifying that the contractor “consents” and
“stipulates” to “personal jurisdiction” and
“venue.” Here, by contrast, the clause evinces
conclusively no more than that MAS con-
sented to 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 ambiguity must
be construed against the city as drafter. The
very presence of ambiguity indicates that the
clause does not contain a “clear and unam-
biguous” waiver of removal rights and is there-
fore ineffective as a waiver. The city’s motion
to remand was properly denied.
III.

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The city also cites as error the district
court’s findings of fact. The contract between
the city and MAS required the city to pay
MAS 20% 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 not entitled to a
contingency fee on that amount.
After a bench trial, the district court made
findings of fact and conclusions of law, pur-
suant to FED. R. CIV. P. 52(a). We review
findings of fact for clear error. Alexander v.
Cockrell, 294 F.3d at 628; Anderson v. City of
Bessemer City, N.C., 470 U.S. 564, 573
(1985); FED. R. CIV. P. 52(a) (“Findings of fact
shall not be set aside unless clearly erroneous,
and due regard shall be given to the op-
portunity of the trial court to judge of the
credibility of the witnesses.”). We review con-
clusions of lawSSincluding contractual inter-
pretationsSSde novo. Marquette Transp. Co.
v. La. Mach. Co., 367 F.3d 398, 402 (5th Cir.
2004).
The district court found that the terms 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 con-
tract as a whole, the court found that the set-
tlement with Bellsouth constituted a recovery.
It also found that the recovery was a result of
MAS’s audit, and that therefore MAS was en-
titled to its 20% contingency fee. The court
based this finding on its credibility determina-
tions regarding the testimony of several wit-
nesses regarding the nature of the settlement
and MAS’s contribution to it. This was not
error.
IV.
The city contends that payment of MAS’s
contingency fee would constitute a donation of
public funds in violation of the Louisiana
Constitution. The district court held that the
fee is not unconstitutional. We review de novo
the district court’s conclusion of law derived
from its factual findings. United States v.
Villalobos,161 F.3d 285 (5th Cir. 1998).
It is a settled matter of state law that a mu-
nicipality may agree to a contingency fee.
Town of Mamou v. Fontenot, 816 So. 2d 958,
966 (La. App. 3d Cir.), writ denied, 827 So.
2d 1162 (La. 2002). The City, however, con-
tends that MAS has already been sufficiently
compensated and that payment of the contin-
gency fee would constitute an unreasonable
bonus. A bonus violates the Louisiana Consti-
tution if not based on services and is an addi-
tional payment for duties the party was already
contractually obligated to perform and was re-
ceiving compensation. Varnado 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 was part of its bargained-for com-
pensation,2 and that the amount recovered by
2 Apparently, the city did not notice the pur-
ported 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 arrangement was
illegal. In response, the city represented that
“[t]here is no prohibition of this type of arrange-
ment 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...)

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the city was a result of the services MAS pro-
vided. Considering evidence of the difficulty
of the work MAS performed and the expertise
that MAS possessed but the city lacked, the
court concluded that the fee was not un-
reasonable and could not, therefore, be charac-
terized as a donation of public funds. In light
of these factual findings, the district court’s
conclusion that the city had no legal basis for
refusing to pay MAS in accordance with the
contract is fully correct.
AFFIRMED.
2(...continued)
of hours it worked.
In attempting to reduce a contingency fee ar-
rangement to an hourly rate, the city misrepresents
the nature of such an arrangement. 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 justification for
refusing 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 MAS 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
commensurate contingency fee, are much larger
than a party expected at the outset does not
invalidate the fee. Rather, it demonstrates that the
contract properly constructed incentives such that
both parties are even better off than they had
anticipated.

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