City of New Orleans v. Municipal Administrative Services, Inc.

United States Court of Appeals
Fifth Circuit
F I L E D
In the July 20, 2004

United States Court of AppealsCharles R. Fulbruge III
Clerk
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
_________________________
Before SMITH, WIENER, and BENAVIDES, counterclaim for the fees, after which the city
Circuit Judges. dropped its claim for declaratory judgment,
and both sides acknowledged that MAS would
JERRY E. SMITH, Circuit Judge: bear the burden of proof of establishing that it
was entitled to the fees. The city moved for
The City of New Orleans appeals a judg- remand on the basis of a contractual clause by
ment awarding Municipal Administrative Ser- which, the city claimed, MAS had waived its
vices, Inc. (“MAS”), the amount due it under right to removal. The district court denied
a contingency fee contract. Finding no error, remand.
we affirm.
After a bench trial, the court entered judg-
I. ment for MAS, awarding damages and a de-
1
MAS entered into a contract with the city claratory judgment that the city must pay MAS
to audit BellSouth’s royalty payments to the a portion of its recovery from BellSouth in
city. The contract provided that in addition to future years. The city appeals, arguing that the
a fixed fee, the city would pay MAS 20% of district court erred in denying its motion to
the amount it recovered from BellSouth. remand, committed clear error in finding that
MAS found that BellSouth had incorrectly the amount of its settlement with BellSouth
stated its revenue and owed the city additional constitutes a recovery as a result of MAS’s
royalties. After negotiation and litigation, the audit within the meaning of its contract, and
city entered into an agreement with BellSouth erred in finding that its contingency fee ar-
according to which BellSouth did not admit its rangement did not violate the Louisiana Con-
liability for the past royalties, but agreed to stitution’s prohibition on the donation of pub-
pay the city $5.5 million per year for five lic funds.
years, and the city agreed to support changes
in Louisiana governing law. II.
We review the denial of a motion to remand
The city refused to pay MAS its 20% con- de novo. Miller v. Diamond Shamrock Co.,
tingency fee and sued in state court for a de- 275 F.3d 414 (5th Cir. 2001). The city filed
claratory judgment that it did not owe the fee. suit in Orleans Parish Civil District Court
MAS removed to federal court and filed a (CDC), seeking a declaratory judgment. MAS
removed to federal court, alleging diversity of
citizenship. The city does not deny that the
1
MAS was founded in 1987 by George White, requirements of 28 U.S.C. § 1332 are met but
who had been employed in the Franchise Admin- moved to remand on the basis of a contract
istration Department of the City of Houston, where clause that the city claims requires litigation
he had acquired expertise in the field of utility tax
exclusively in the CDC.
franchises. White realized that few people outside
city government possessed franchise expertise, and
he founded MAS to provide consulting services to The clause in question reads as follows:
municipal governments. MAS provided services to
approximately one hundred municipalities, and Jurisdiction
White had experience auditing Southwestern Bell’s The undersigned Contractor does further
franchise fees, resulting in substantial recoveries hereby consent and yield to the jurisdiction
for other cities.

2
 of the State Civil Courts of the Parish of when interpreting such clauses. Although it is
Orleans and does hereby formally waive not necessary for such a clause to use the
any pleas of jurisdiction on account of the word “venue” or “forum,” it must do more
residence elsewhere of the undersigned than establish that one forum will have
Contractor. jurisdiction.

The city claims that this clause constitutes not In Keaty, id. at 956, the clause in question
only MAS’s consent to jurisdiction in the read, “This agreement shall be construed and
CDC, but also a waiver of MAS’s right to re- enforceable according to the law of the State
move to federal court. MAS counters that the of New York and the parties submit to the
clause evinces consent to personal jurisdiction jurisdiction of the courts of New York.” The
in the Louisiana state courts but does not spe- court held that this provision demonstrated
cify those courts as the exclusive venue for consent to be subject to the jurisdiction of the
lawsuits arising from the contract, and does courts of New York, but did not constitute a
not waive MAS’s right of removal. The dis- mandatory forum-selection clause, and was
trict court agreed with MAS, holding that the therefore insufficient to constitute a waiver of
clause was not a clear and unequivocal waiver the right to removal.
of MAS’s removal rights and that any ambi-
guity should be construed against the city as The city commends City of Rose City v.
the drafter of the contract. Nutmeg Ins. Co., 931 F.2d 12 (5th Cir. 1991),
as standing for the proposition that a contrac-
For a contractual clause to prevent a party tual clause may defeat the right of removal, de-
from exercising its right to removal, the clause spite that it does not explicitly use the word
must give a “clear and unequivocal” waiver of “removal” or “venue.” Properly understood,
that right. McDermott Int’l, Inc. v. Lloyds however, Rose City is inapposite. The clause
Underwriters, 944 F.2d 1199 (5th Cir. 1991); in Rose City stated,
Waters v. Browning-Ferris Indus., Inc., 252
F.3d 796 (5th Cir. 2001). A party may waive [W]e, at your request agree to submit to
its rights by explicitly stating that it is doing the jurisdiction of any Court of Competent
so, by allowing the other party the right to jurisdiction withing the United States and
choose venue, or by establishing an exclusive will comply with all requirements necessary
venue within the contract. to give such Court jurisdiction and all
matters arising hereunder shall be
A party’s consent to jurisdiction in one for- determined in accordance with the law and
um does not necessarily waive its right to have practice of such court.
an action heard in another. For a forum selec-
tion clause to be exclusive, it must go beyond Id. at 14.
establishing that a particular forum will have
jurisdiction and must clearly demonstrate the The Rose City court held that the clause
parties’ intent to make that jurisdiction exclu- defeated Nutmeg’s right to removal because it
sive. Keaty v. Freeport Indonesia, Inc., 503 unambiguously required that Nutmeg “submit
F.2d 955 (5th Cir. 1974). It is important to to the jurisdiction of any court of the policy-
distinguish between jurisdiction and venue holder’s choosing.” The decision turned not

3
on the use of the word “jurisdiction,” and not sent the clause, it is by no means certain that
on venue or forum, but on the contract’s giv- this assertion would survive a challenge or that
ing one party the exclusive right to choose the the city did not benefit by avoiding any
forum of any proceedings. potential litigation expenses it might have in-
curred had MAS been permitted to challenge
The most reliable reading of Rose City is personal jurisdiction. Moreover, the city’s in-
that a clause granting one party the right to terpretation ignores the possibility that MAS
choose venue must plainly give the party that might have brought suit first and might have
right. Here, however, there is no indication done so in a venue where it was not required
that MAS gave the city the exclusive right to to plead its citizenship to establish jurisdiction.
choose the venue in which the suit would pro-
ceed. Rather, as in Keaty, one jurisdiction is
specified, but neither is any other jurisdiction The failure of the clause to demonstrate a
excluded, nor does MAS consent to something clear and unequivocal waiver of MAS’s re-
so indefinite as the jurisdiction of the city’s moval rights is highlighted by contrast to an
choosing. The city’s reliance on Rose City is effective clause in a different city contract. In
unfounded. City of New Orleans v. Nat’l Serv. Cleaning
Corp., 1996 U.S. Dist. LEXIS 10637 (E.D.
The city claims that the clause in this case is La. July 24, 1996), the city included the fol-
sufficiently explicit and unequivocal to con- lowing clause in its contract: “The contractor
stitute waiver of MAS’s removal rights. The hereby consents to and stipulates to the per-
city maintains that for the clause to have mean- sonal jurisdiction and venue of the Civil Dis-
ing, it cannot be read as merely consenting to trict Court for the Parish of Orleans, Louisiana
personal jurisdiction in the Louisiana courts, in any litigation brought under this Article.”
because jurisdiction is established by statute in The court noted the clarity of the clause in
Louisiana, so the clause must therefore specifying that the contractor “consents” and
establish exclusive jurisdiction. The city “stipulates” to “personal jurisdiction” and
further avers that by waiving “pleas of juris- “venue.” Here, by contrast, the clause evinces
diction on account of the residence elsewhere conclusively no more than that MAS con-
of the undersigned Contractor,” MAS effec- sented to jurisdiction and agreed not to raise
tively agreed not to invoke the diversity juris- pleas to jurisdiction.
diction of the federal courts.
As the district court noted, the clause is, at
The district court properly rejected this ar- the very least, susceptible to more than one
gument. Although such a reading is possible, reasonable interpretation. This ambiguity must
it is not the only plausible reading of the be construed against the city as drafter. The
clause, nor is it the most felicitous. It ignores very presence of ambiguity indicates that the
the chance that, absent the clause, MAS could clause does not contain a “clear and unam-
challenge the exercise of personal jurisdiction biguous” waiver of removal rights and is there-
by the Louisiana courts. fore ineffective as a waiver. The city’s motion
to remand was properly denied.
Although the City attempts to beg the ques-
tion that personal jurisdiction would exist ab- III.

4
 The city also cites as error the district IV.
court’s findings of fact. The contract between The city contends that payment of MAS’s
the city and MAS required the city to pay contingency fee would constitute a donation of
MAS 20% o f “any amounts recovered” from public funds in violation of the Louisiana
BellSouth as a result of MAS’s audit. The city Constitution. The district court held that the
claims that the money it receives pursuant to fee is not unconstitutional. We review de novo
its settlement agreement was not an amount the district court’s conclusion of law derived
“recovered” under the terms of the contracts, from its factual findings. United States v.
and contends that MAS is not entitled to a Villalobos,161 F.3d 285 (5th Cir. 1998).
contingency fee on that amount.
It is a settled matter of state law that a mu-
After a bench trial, the district court made nicipality may agree to a contingency fee.
findings of fact and conclusions of law, pur- Town of Mamou v. Fontenot, 816 So. 2d 958,
suant to FED. R. CIV. P. 52(a). We review 966 (La. App. 3d Cir.), writ denied, 827 So.
findings of fact for clear error. Alexander v. 2d 1162 (La. 2002). The City, however, con-
Cockrell, 294 F.3d at 628; Anderson v. City of tends that MAS has already been sufficiently
Bessemer City, N.C., 470 U.S. 564, 573 compensated and that payment of the contin-
(1985); FED. R. CIV. P. 52(a) (“Findings of fact gency fee would constitute an unreasonable
shall not be set aside unless clearly erroneous, bonus. A bonus violates the Louisiana Consti-
and due regard shall be given to the op- tution if not based on services and is an addi-
portunity of the trial court to judge of the tional payment for duties the party was already
credibility of the witnesses.”). We review con- contractually obligated to perform and was re-
clusions of lawSSincluding contractual inter- ceiving compensation. Varnado v. Hosp. Serv.
pretationsSSde novo. Marquette Transp. Co. Dist. No. 1, 730 So. 2d 1066, 1068 (La. App.
v. La. Mach. Co., 367 F.3d 398, 402 (5th Cir. 1st Cir. 1999).
2004).
The district court made factual findings that
The district court found that the terms of the contingency fee was not a bonus to MAS
the contract were unambiguous. Reading the but was part of its bargained-for com-
provision that required the city to pay MAS “a pensation,2 and that the amount recovered by
contingency fee equal to twenty percent (20%)
of any amounts recovered” in light of the con-
2
tract as a whole, the court found that the set- Apparently, the city did not notice the pur-
tlement with Bellsouth constituted a recovery. ported illegality of the 20% contingency fee at the
It also found that the recovery was a result of time it entered into the contract. The district court
MAS’s audit, and that therefore MAS was en- found that at the outset of MAS’s audit, BellSouth
titled to its 20% contingency fee. The court refused to allow MAS access to its documents and
contended that the contingency arrangement was
based this finding on its credibility determina-
illegal. In response, the city represented that
tions regarding the testimony of several wit- “[t]here is no prohibition of this type of arrange-
nesses regarding the nature of the settlement ment in Louisiana, nor is it recognized as unfair or
and MAS’s contribution to it. This was not a violation of public policy.” The city now argues
error. that, given the size of its recovery, a 20% fee
would compensate MAS too much for the number
(continued...)

5
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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