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Yes, You May. But Can You?

In a contract, every word on every page has consequential meaning. Whether a case is litigated in California or Louisiana could depend on a court’s interpretation of words in the contract like can, may, shall, must, and will be; ambiguity can sway a finding drastically. This article looks at an example in which a court’s ruling on the word may determined in which state a suit was litigated, which in turn determined what state’s law governed the dispute.

Plaintiff Arkel International, L.L.C. (“Arkel”) and Defendant Parsons Global Services, Inc. (“Parsons”) reached a dispute over sums due under their contracts. Plaintiff filed a suit in the Middle District of Louisiana. In response, citing improper venue, defendant filed a Motion to Dismiss or requested, in the alternative, that the suit be transferred to California. The Middle District of Louisiana, the defendant argued, is excluded as an authorized and proper venue by the parties’ forum selection clause:

“If, …, the parties have not succeeded in negotiating a resolution of the dispute, either party may institute suit in the Superior Court of the State of California for the County of Los Angeles, or, if mutually agreed to by the parties, the dispute shall be settled by arbitration in Pasadena, California ….” Arkel Int’l, L.L.C. v. Parsons Glob. Servs., Inc., No. CV 07-474-FJP-DLD, 2008 WL 11413369, at *3 (M.D. La. Jan. 8, 2008)

In other words, the defendant claimed that the clause permits “either a lawsuit in state court in Los Angeles, or arbitration in Pasadena…there are two options and the parties may choose either one … The clause does not indicate that the parties ‘may’ do anything else.”

The Plaintiff, in opposition, stated that the clause is permissive rather than mandatory, since the beginning of the clause says that “either party may institute suit in the Superior Court of the State of California.” The clause does not establish the chosen venue as exclusive and does not prohibit litigation elsewhere. The Plaintiff also asked that if the Court finds the language of the forum selection clause subject to more than one reasonable interpretation, the Court “should construe any ambiguity against the drafter of the contract (Parsons) pursuant to traditional contract interpretation” and deny defendants’ motion to dismiss.

And so the court did. The Court, located in the Fifth Circuit, found that the forum selection clause was permissive rather than mandatory. The Fifth Circuit explained that “for a forum selection clause to be exclusive, it must…clearly demonstrate the parties’ intent to make that jurisdiction exclusive.” Accordingly, the Defendants motion to dismiss was denied. However, the Court found that the parties’ inclusion of the State of California in the agreement was significant, as otherwise there would have been no point in its inclusion. Following this line of thought, the Court granted the defendants’ motion to transfer the case to California. Finding the clause permissive does not render the forum selection clause irrelevant or unenforceable.

For these reasons, the Court denied defendant’s Motion to Dismiss but granted defendant’s alternative Motion to Transfer.

Lawyers at NDH work on a variety of cases; contract disputes being one of them. Call us so we can help you.