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Words Matter When Drafting Forum Selection Clauses

A forum selection clause is a provision where the parties to a contract may agree in advance to submit to the jurisdiction of a given court. Forum selection clauses serve the purpose of dispelling any confusion where lawsuits arising from a contract must be brought and defended, sparing litigants the time and expense of pretrial motions to determine the correct forum.

There are two types of forum selection clauses: mandatory and permissive. Permissive clauses constitute nothing more than a consent to jurisdiction and venue in the named forum and do not exclude jurisdiction or venue in any other forum. In contrast, mandatory forum selection clauses provide for a mandatory and exclusive place for future litigation. The determination as to whether a clause is mandatory or permissive is a matter of pure contractual interpretation.

Courts apply several principles in making this determination. First, clauses containing language of exclusivity are construed as mandatory. No “magic words” are required, but the language must evince the parties’ clear intent to an exclusive venue. In the absence of such language, a clause is deemed permissive.

The Third District Court of Appeal in the case of EcoVirux, LLC v. BioPledge, LLC recently had the opportunity to examine these principles to determine whether a forum selection clause containing the following language was mandatory or permissive:

The exclusive venues for any dispute(s). . . may be brought in the state and federal courts for Denton County, Texas.

The Third District explained that courts have consistently construed clauses containing the word “exclusive” and its variants as mandatory; however, the plaintiff argued that the word “may” is permissive or, at a minimum, renders the clause ambiguous. The Third District acknowledged that the phrase “may be brought” could be interpreted as permissive; however, the court went on to explain that words and phrases in a contract cannot be considered in isolation. The Third District ultimately determined that the clause is clearly mandatory and that the phrase “may be brought” does not detract from the parties’ expressed intention of exclusivity and affirmed the trial court’s dismissal of the case with prejudice for improper venue.

If you need assistance in drafting contracts or determining your contractual rights, Rosenthal Law Group will assist you. Rosenthal Law Group has successfully litigated jurisdiction and venue issues at trial and appellate levels.