Great Case on Whether Discretion is Limited

I love it when I spot an issue and analyze it, and subsequently a case comes down that hinges on exactly that issue.

You may recall that in this June 2007 post I discussed two subtle issues involving may. One issue involved limited discretion and the expectation of relevance. Here’s what the manuscript of MSCD2 has to say about this:

A grant of discretion to do one thing doesn’t necessarily constitute a prohibition against doing other things. If a mother tells her son that he may watch television, it wouldn’t necessarily follow that she’s thereby forbidding him from engaging in any alternative activity.

But the presumption that a grant of discretion doesn’t also entail prohibition comes up against the notion of relevance. The more specific a grant of discretion is, the more likely it is that the reader would conclude that the discretion is limited. Otherwise, there would be no point in being so specific.

Consider the sentence Acme may sell the Shares to Doe. It may be that the parties had in mind that Acme would be entitled to sell the Shares to anyone—they addressed sale to Doe explicitly simply because for some reason it otherwise would have been uncertain whether Acme could sell the Shares to Doe. But the expectation of relevance would suggest that if the parties only authorized sale to Doe, it’s because Acme was precluded from selling the Shares to anyone else.

To avoid any uncertainty regarding the expectation of relevance, be explicit as to whether or not discretion is limited. If Acme has unlimited discretion to sell the Shares, it would be preferable to say Acme may sell the Shares to any Person, including Doe. If its discretion is limited, it would be preferable to say The only Person to whom Acme may sell the Shares is Doe.

I wrote this about a week ago, so I was pleased to see Arkel Int’l, L.L.C. v. Parsons Global Servs., 2008 U.S. Dist. LEXIS 1624 (M.D. La. Jan. 8, 2008).

Parsons and Arkel were party to a series of subcontracts to build healthcare centers in Iraq. They got into a fight over money owed under the contracts, so Arkel filed suit.

In response, Parsons filed a motion to dismiss for improper venue, arguing that the contracts between the parties contain a forum-selection clause that excluded the Middle District of Louisiana as a proper forum. Parsons also contended that the forum-selection clause placed jurisdiction with the Superior Court of the State of California for the County of Los Angeles or arbitration, if agreed to, in Pasadena, California.

For its part, Arkel contended that the forum-selection clause was permissive rather than mandatory, thus making the Middle District of Louisiana a proper forum.

Here’s the forum-selection clause in question:

If, within ten (10) business days after such meeting, 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 …

Here’s my analysis: If the forum-selection clause had simply stated that either party may file suit in California, it would have been reasonable to conclude that it was permissive—the countervailing expectation of relevance would have been quite weak.

But instead, the provision said that either party may file suit in California or the parties may agree to arbitrate. The second alternative—arbitration—provides greater specificity and so gives greater force to the expectation of relevance.

Imagine that you say to me, “You may go to the movies.” That could mean “You may engage in any number of activities, one of which is going to the movies.” But it could also mean “The only activity that you’re permitted to engage in is going to the movies.”

But if you say to me, “You may go to the movies or you may go to the library,” that perhaps increases the odds that you’re telling me that those are my only two choices.

Of course, absent any context, intonation, and facial expressions, it’s impossible to say which meaning is intended.

I suspect that whoever drafted the forum-selection clause had in mind that it would be mandatory but didn’t feel the need to make it explicit, perhaps because they were swayed by the increased expectation of relevance afforded by the reference to arbitration.

But the court held that the forum-selection clause was permissive and not mandatory, so dismissal wasn’t warranted. I would have done the same—if you want to limit discretion, don’t rely on the expectation of relevance. The court in effect said as much in noting that any ambiguity should be construed against the drafter, Parsons.

But otherwise, the court’s analysis certainly didn’t come close to mentioning limited discretion and the expectation of relevance. I can’t blame them, seeing as I’ve only been aware of this issue myself for a few months.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.