The United States District Court for the Southern District of Mississippi has held that a forum selection clause allowing GE Capital to litigate – at its option – in venues other than the contractually agreed upon forum, renders the clause “permissive” rather than “mandatory,” and negates the necessity of the court to order a venue transfer.

The decision, Waterman v. MCI Financial Services, Inc., et al., Action No. 04cv659BN (S.D.Miss. March, 2005), followed the court’s consideration of GE Capital’s motion to transfer venue pursuant to 28 United States Code (“U.S.C.”), Section 1404(a).

GE Capital and Plaintiff Waterman Charter Services, Inc. (“Waterman”) – a charter service company with its principal place of business in Mississippi – were parties to a Master Security Agreement, whereby GE Capital agreed to finance Waterman’s purchase of certain equipment. Contemporaneously with the execution of the Master Security Agreement, GE Capital and Waterman entered into several Commercial Transportation Lease Agreements, pursuant to which Waterman agreed to lease certain motor coach buses from GE Capital. Both the Master Security Agreement and Commercial Transportation Lease Agreements contained forum selection language which provided, in relevant part, that “the parties … agree that all actions or proceedings arising … from [these agreements], shall be litigated, at the option of the secured party, in courts having situs within the State of Connecticut….” (emphasis added).

In its motion to transfer venue, GE Capital argued that convenience to witnesses and the interests of justice were best served by transfer of the suit to the contractually agreed upon forum—the District of Court for the District of Connecticut—and noted the significant weight courts traditionally afford forum selection clauses.

After weighing the miscellaneous transfer factors, including convenience and interests of justice factors, the court determined that “while the question [was] close,” transfer of venue would be denied because the optional nature of the forum selection clause preserved GE Capital’s right to litigate in forums other than the contractually agreed upon forum. According to the court, the optional nature suggested the forum selection clause was “permissive” rather than “mandatory” and transfer was neither mandatory nor required.

The court grounded its conclusion on the holding of Bentley v. Mutual Benefits Corp., 237 F.Supp.2d 699, 701 (S.D. Miss. 2002). In Bentley, the court defined a mandatory forum selection clause as one containing “express language limiting the action to the courts of a specific locale which is clear, unequivocal and mandatory.” The court observed that those courts that have found forum selection clauses to be mandatory have done so because of limiting language in the contracts, such as “only” or “must,” thereby bestowing exclusive jurisdiction or venue on a court of a specific locale.

Given Bentley, the court in Waterman reasoned that because GE Capital reserved a right to litigate in venues other than the agreed upon forum, the clause lacked the type of limiting language necessary to find the clause “mandatory” and, accordingly, refused GE’s request to transfer the case.

Hence, in drafting future contracts, GE may need to choose between the desire to litigate in an agreed upon forum and the advantage of choosing a forum after a dispute arises. In instances in which it is important to choose the forum upfront, contract drafters should create a “mandatory” forum selection clause that does not leave open the opportunity to litigate disputes under the agreement in other venues.