Business and Legal Insights

Parties to a contract may select the venue for legal disputes. Many contracts contain such “forum selection clauses” that may provide, for example, that “any disputes arising from or related to this contract shall be brought in Orange County, Florida.”  The parties typically assume that the forum selection clause means that any lawsuit may only be brought in state or federal court in Orange County, Florida. But that is not always the case – “shall” doesn’t always mean “shall.”

Mandatory v. Permissive

A forum selection clause is either permissive or mandatory: while a permissive clause merely authorizes jurisdiction in a designated forum and does not prohibit litigation elsewhere, mandatory clause dictates exclusive forum for litigation under contract.[1] For a clause to be mandatory and thus restrict venue to the court specified in the agreement, the clause must contain language that clearly designates a forum as the exclusive one.[2] If a plaintiff ignores a mandatory forum-selection clause and brings a lawsuit in a different venue, the existence of a mandatory clause almost always necessitates transfer to the proper forum selected by the parties.[3]

However, where a forum selection clause is permissive, transfer is inappropriate if venue was proper where the case was originally brought.[4] As mentioned above, the word “shall” in and of itself may not be enough to render a permissive venue provision mandatory.[5] If a forum-selection clause containing the word “shall” lacks additional exclusive language like “exclusive,” “sole,” or “only,” a court may find that clause to be permissive.[6]

Conclusion

To ensure that a contractual forum-selection clause is “mandatory,” parties are encouraged to use not only the word “shall” but also additional language of exclusivity. For example, “venue for any dispute arising under or in relation to this contract shall lie only in Orange County, Florida” is more likely to be considered mandatory and exclusive than the phrase described above.[7]

[1] Glob. Satellite Commc'n Co. v. Starmill U.K. Ltd., 378 F.3d 1269 (11th Cir. 2004).

[2] Wai v. Rainbow Holdings, 315 F. Supp. 2d 1261, 1270 (S.D. Fla. 2004).

[3] Trafalgar Capital Specialized Inv. Fund (In Liquidation) v. Hartman, 878 F. Supp. 2d 1274, 1285 (S.D. Fla. 2012).

[4] Juaire v. T-Mobile W., LLC, CIV 12-1284 JB/KBM, 2013 WL 6504326, at *14 (D.N.M. 2013) (explaining that “permissive forum selection clauses authorize jurisdiction in a designated forum, but do not prohibit litigation elsewhere.”) (internal citations omitted).

[5] See, e.g., Hunt Wesson Foods, Inc. v. Supreme Oil Co., 817 F.2d 75, 76 (9th Cir. 1987) (finding venue clause permissive despite inclusion of the “mandatory term” “shall”); Heckler & Koch, Inc. v. German Sport Guns GmbH, 71 F. Supp. 3d 866, 900 (S.D. Ind. 2014) (“But the use of the word “shall” in forum-selection clauses is no shibboleth,” “[i]n the cases Defendants cite, the mandatory intent of the contractual language was evident not on the basis of a single word, but the totality of the parties' statement”); Western Refining Yorktown, Inc. v. BP Corp. North America Inc., 618 F. Supp. 2d 513, 519 (E.D. Va. 2009) (finding that the following clause was construed to be permissive notwithstanding the use of the word “shall”: “Any action to enforce the terms hereof may be properly venued in, and shall be brought in, the federal or state courts located in Cook County in the State of Illinois on a nonexclusive basis.”).

[6] Montoya v. Fin. Fed. Credit, Inc., 872 F. Supp. 2d 1251 (D.N.M. 2012) (a forum-selection clause is mandatory, only when venue is specific with mandatory language; mandatory language is venue coupled with such terms as “exclusive,” “sole,” or “only.”); Air Ion Devices, Inc. v. Air Ion, Inc., No. C 02–1717 SI, 2002 WL 1482665, * 3 (N.D.Cal. July 5, 2002) (finding that because the contract contained a provision stating that the litigant “intends to subject itself to the jurisdiction of the courts of the State of California to this limited extent, and none other,” the venue provision indicating that any action “shall be brought” in a certain court was mandatory); Pioneer Life Ins. Co. v. Anderson, No. 88 C 20249, 1988 WL 143726, at *1, 1988 U.S. Dist. Lexis 15320, at *5 (N.D.Ill. Dec. 21, 1988) (finding the clause “Winnebago County, Illinois shall be the place of jurisdiction for service and legal purposes” permissive, noting that “the clause does not state that Illinois is the ‘exclusive’ place to bring a suit under the contract.”); Bowman v. Kona Univ., Inc., 119 Fair Empl. Prac. Cas. (BNA) 836 (“The language in Plaintiff's contract is mandatory because it contains exclusive language that “any legal actions ... shall be filed in the Hawaii judicial system only.”).

[7] Excell, Inc. v. Sterling Boiler & Mech., Inc., 106 F.3d 318, 321 (10th Cir. 1997).