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By Cathryn A. Conrad, Esq., Paul G. Griesemer, Esq., Linda Lemel Hoseman, Esq., Lori W. Jones, Esq., Michael D. Lane, Esq., Richard J. Pautler, Esq., Ruth A. Streit, Esq., Mark S. Weisberg, Esq., Patricia A. Winchell, Esq.
Thompson Coburn LLP , St. Louis, MO and Chicago, IL
The enforceability of forum selection clauses in ERISA plans has been a hot topic in ERISA litigation circles in recent years. The substantial majority of district courts have enforced forum selection clauses that have designated a federal court sitting in the district where the plan is administered. We have been successful in enforcing such clauses for our clients all 10 instances where they have been challenged, winning the argument before courts in Louisiana, Michigan, New York and Ohio and multiple courts sitting in California.
But the Department of Labor has filed amicus briefs opposing the enforceability of forum selection clauses and a handful of courts have adopted the Department's position.
The first federal appellate court has now weighed in on the issue and in a 2-1 decision held that such clauses are enforceable. Roger L. Smith v. Aegon Companies Pension Plan, 769 F.3d 922 (6th Cir. 2014). The Sixth Circuit majority held that the DOL's opinions expressed in its amicus brief were not entitled to any deference under either Chevron or Skidmore. Moreover, even if deference was given to the DOL's opinions, the majority held that it would enforce the forum selection clause before it. That clause required the Kentucky participant to litigate his claim in Cedar Rapids, IA.
The Sixth Circuit noted that plan sponsors are given great leeway by ERISA to draft their plans and that nothing in ERISA suggests that sponsors cannot include a forum selection clause. The appellate court explained it would apply the same rules it applied whenever any party challenged the enforceability of a forum selection clause. First, was the forum selection clause obtained by fraud, duress or unconscionable means? Second, would the designated forum ineffectively or unfairly handle the suit? Third, would the designated forum be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust?
Usually, it is the third question that is the focus of the court's analysis. We, however, have persuaded five different California judges to transfer cases to New York over the strenuous objections of the plaintiffs. Because courts most always resolve ERISA benefit claims on summary judgment decided on the briefs, it is not inconvenient to have the case decided in a distant forum. Rarely would the participant be required to travel to the distant court.
The Sixth Circuit adopted several of the reasons we have argued forum selection clauses in ERISA plans are enforceable. First, nothing in ERISA expressly prohibits forum selection clauses. Had Congress intended to forbid them, it could have included such a prohibition in ERISA, either initially or at any time since 1974. Second, limiting venue to one designated jurisdiction encourages uniformity of decisions interpreting the plan, thereby allowing administrators to establish a uniform administrative scheme. This uniformity allows for more consistent and less expensive administration. Third, other courts have enforced arbitration clauses in ERISA plans, and arbitration clauses are merely another form of forum selection clauses. Moreover, a plan participant forced to arbitrate loses the protection of having her case heard by an Article 3 judge and the benefits of the Federal Rules of Civil Procedure. Neither of these protections is lost when a court enforces a forum selection clause.
We have advised our clients that when they designate a forum, it should be where the plan is administered, one of the three venues permitted by ERISA §502(e). But the Smith majority, in dicta, allowed that the plan could select any forum, that its choices were not limited to one of the three specified in ERISA §502(e). This portion of the ruling surprises us. It seems to us that to allow a plan sponsor to mandate one of the three venues expressly allowed in ERISA is one thing. But to allow that sponsor to mandate a venue not permitted by ERISA is a further reach.
The dissenting judge argued that ERISA §502(e) was intended to grant an affirmative right to ERISA participants and beneficiaries to choose the forum where they wanted their cases heard and that a forum selection clause thwarts that right. He asserted that allowing a plan sponsor to designate the forum was contrary to ERISA's strong public policy considerations. He was specifically concerned that the clause would require the Kentucky plaintiff to litigate his claim in Iowa, more than 500 miles from his home.
The majority's opinion in Smith is not the last word on the issue. We expect the plaintiff will seek a rehearing en banc, and the Sixth Circuit has not been the most friendly of circuits for ERISA plan sponsors, administrators and fiduciaries.
But forum selection clauses offer many benefits to plan sponsors and we think it makes sense to seriously consider inserting them in every ERISA plan. Some facts may weigh against including such a clause. For instance, if your plan is administered in a district or circuit that is unfriendly to ERISA sponsors/administrators/fiduciaries (e.g., the Ninth Circuit), you may prefer not to have a forum selection clause.
For more information, in the Tax Management Portfolios, see Wagner, 374 T.M., Litigation, Procedure, Preemption and Other Title I Issues, and in Tax Practice Series, see ¶5590, Other Laws and Considerations Affecting Employee Benefit Plans.
© 2014 Thomas Coburn LLP
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