Permissive Forum Selection Clause Is Not Enforceable in Franchisor’s Suit Against Franchisee
A key term of any franchise agreement is the venue selection clause as this page has previously explained.
This issue was at the forefront of Convenience Stores Leasing & Management, LLC’s (“CSLM”) August 2024 suit against its franchisees Sukhwinder Singh and Sanjay Arora for breach of contract. The dispute arose from a 2010 fuel supply agreement in which CSLM agreed to be the exclusive fuel supplier for a Shell-branded gas station in Indiana owned by the defendants. CSLM alleged that the defendants wrongfully terminated the agreement and removed Shell branding, which caused CSLM to violate its contractual obligations with Shell.
Defendants removed the case to federal court in the Eastern District of Wisconsin, citing diversity jurisdiction. They subsequently moved to transfer the case to the United States District Court for the Southern District of Indiana, arguing that Indiana was the more appropriate venue.
Ruling
On February 12, 2025, the court granted the defendants’ motion to transfer the case to the Southern District of Indiana under 28 U.S.C. § 1404(a). The court found that:
- Forum-Selection Clause Was Permissive. The supply agreement contained a clause stating that litigation “may” be brought in Ozaukee County, Wisconsin. However, the court determined that the clause was permissive rather than mandatory, meaning it did not prevent transfer to another jurisdiction.
- Convenience of Parties and Witnesses Favored Indiana. The defendants, their business operations, and key witnesses were all located in Indiana. The alleged contractual breaches and fuel supply issues also occurred in Indiana, making it the more appropriate venue.
- Interest of Justice Favored Transfer. Given that the events central to the case occurred in Indiana and the dispute impacted an Indiana business, the court found that Indiana had a stronger interest in resolving the matter.
Lessons for Franchisors
This ruling provides key takeaways for franchisors when drafting and enforcing agreements:
- Ensure Forum-Selection Clauses Are Mandatory. If a franchisor intends to require litigation in a specific jurisdiction, the contract should use mandatory language such as “must” or “shall” rather than permissive language like “may.”
- Consider Practical Convenience in Contract Enforcement. Courts will weigh the actual business operations and location of key witnesses when determining venue, especially in franchise agreements that span multiple states.
- Factor in Local Interests When Drafting Contracts. Even if a contract designates a specific governing law, courts may still consider the interests of the jurisdiction where the franchise operates, especially when disputes arise over business operations.
Franchisors should take these factors into account to ensure their agreements are enforceable in their preferred jurisdiction and avoid potential venue disputes.
