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May an ERISA Plan Restrict Venue to a Single Federal District?

May an ERISA Plan Restrict Venue to a Single Federal District?


ERISA and Life Insurance News
(May 12, 2015)

When deciding where to bring an action in federal court to recover benefits under ERISA, a plan participant generally has three choices of venue.  29 U.S.C. § 1132(e)(2), provides:

Where an action under this subchapter is brought in a district court of the United States, it may be brought in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found …

Plan participants generally choose to sue where they reside, electing as the forum "the district … where the breach took place."  The plan sponsor may attempt to limit those choices, however, by including a venue selection provision in the plan documents.  For example, the plan may provide that an action to recover benefits must be brought in the jurisdiction where the plan sponsor is located and where the plan is administered.

Sixth Circuit Enforces Venue Selection Clause

In Smith v. AEGON Companies Pension Plan, 769 F.3d 922 (6th Cir. 2014), a pension plan participant, who resided in Kentucky, challenged a venue selection provision requiring him to file suit in Cedar Rapids, Iowa, where the plan was administered.  His several arguments were unsuccessful at both the district court and appellate court levels.

Smith, the plan participant, was employed by Commonwealth General Corporation when it agreed in 1997 to merge with AEGON USA, Inc.  Under a Voluntary Employee Retention and Retirement Program, Commonwealth General agreed to pay enhanced compensation to Smith if he remained with the company until the merger with AEGON was completed.  Smith was to retire on March 1, 2000, when he was to receive both monthly retirement benefits and a supplemental lump sum payment.

In 2007, seven years after Smith's retirement, the plan was amended to add a venue provision, which stated:  "A participant or beneficiary shall only bring an action in connection with the Plan in Federal District Court in Cedar Rapids, Iowa."

In 2011, the plan notified Smith that his retirement benefits had been overpaid for the past eleven years.  The plan reduced, and then eliminated, Smith's monthly benefits, stating that it would do so until the entire overpayment had been recovered.  Smith exhausted his administrative remedies by appealing to the AEGON Pension Committee.

Smith then sued Commonwealth General in state court in Kentucky, asserting state law claims for breach of contract, violations of wage and hour statutes, estoppel, and breach of the duty of good faith and fair dealing.  Commonwealth General removed the case to federal court in the Western District of Kentucky and filed a motion to dismiss on ERISA preemption grounds.

When that motion was granted, Smith sued the AEGON Companies Pension Plan under ERISA in the Western District of Kentucky.  The district court dismissed his complaint without prejudice, based on the plan's venue selection provision.  2013 WL 321632 (W.D. Ky. Jan. 28, 2013).  The district court noted that it previously had reviewed a forum selection clause in another plan and found it to be reasonable and enforceable.  See Williams v. CIGNA Corp., 2010 WL 5147257 (W.D. Ky. Dec. 13, 2010).

Smith appealed to the Sixth Circuit Court of Appeals, which reviewed de novo the enforceability of the venue selection provision.

Clause Did Not Deny Ready Access to Federal Courts

Smith argued that the plan's venue selection clause was precluded by ERISA, because enforcement of the clause would deny him the right to select any one of the three forums authorized by 29 U.S.C. § 1132(e)(2), thereby denying him "ready access to the Federal courts," as promised by 29 U.S.C. § 1001(b).

The Sixth Circuit rejected that argument, noting that "ERISA's venue provision is permissive: suit 'may be brought' in one of several districts," and that "AEGON's venue selection clause provides that suit is to be brought in one of those statutorily designated places, namely, the district where the plan is administered – Cedar Rapids, Iowa."

In fact, the court said that "even if the venue selection clause laid venue outside of the three options provided by § 1132, the venue selection clause would still control," noting that it previously had upheld the validity of mandatory arbitration clauses in ERISA plans.  See Simon v. Pfizer Inc., 398 F.3d 765, 773 (6th Cir. 2005).  An arbitration clause, the court said, is "in effect, a specialized king of forum-selection clause."

Further, the court stated that Smith failed to explain "how a venue provision inhibits ready access to federal courts when it provides for venue in a federal court."  To the contrary, the court said, the provision furthers ERISA's goal of consistency, because "limiting claims to one federal district encourages uniformity in the decisions interpreting that plan, which furthers ERISA's goal of enabling employers to establish a uniform administrative scheme so that plans are not subject to different legal obligations in different States," citing Rodriguez v. PepsiCo Long Term Disability Plan, 519 F. Supp. 2d 430, 436 (N.D. Cal. 2010).

In an earlier case, Wong v. Party Gaming LTD, 589 F.3d 821 (6th Cir. 2009), the court provided a three-part test to evaluate the enforceability of a forum selection clause:  "(1) whether the clause was obtained by fraud, duress, or other unconscionable means; (2) whether the designated forum would ineffectively or unfairly handle the suit; and (3) whether the designated forum would be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust."

Smith did not demonstrate that these factors precluded enforceability of the venue selection clause.  [A]s the district court noted,  "[Smith] has not argued that the clause was induced by fraud, that the Cedar Rapids federal court would ineffectively or unfairly handle the case, or that the inconvenience to [Smith] is unjust or unreasonable."

The Sixth Circuit also rejected Smith's arguments that the venue selection clause was not the product of an arms-length transaction, because it was added years after his benefits commenced; the clause imposed an excessive burden on ERISA litigants; and the 2007 amendment was inapplicable, because his claims had accrued in 2000.  As for the last argument, the court said that Smith's claims related only to action taken by the pension plan in 2011 to reduce his benefits, which occurred after the venue selection clause had been added.

The court cited Rodriguez, supra, and a number of other district court cases upholding the validity of venue selection clauses in ERISA-governed plans.  See Smith v. Aegon USA, LLC, 770 F. Supp. 2d 809 (W.D. Va. 2011); Gipson v.  Wells Fargo & Co., 563 F. Supp. 2d 149 (D.D.C. 2008); Klotz v. Xerox Corp., 519 F. Supp. 2d 430 (S.D.N.Y. 2007); Schoemann v. Excellus Health Plan, Inc., 447 F. Supp. 2d 1000 (D. Minn. 2006); Rogal v. Skilstaf, Inc., 446 F. Supp. 2d 334 (E.D. Pa. 2006); Williams v. CIGNA Corp., 2010 WL 5147257 (W.D. Ky. Dec. 13, 2010); Sneed v. Wellmark Blue Cross & Blue Shield of Iowa, 2008 WL 1929985 (E.D. Tenn. Apr. 30, 2008); Bernikow v. Xerox Corp. Long-Term Disability Income Plan, 2006 WL 2536590 (C.D. Cal. Aug. 29, 2006).

Dissenting Judge Would Find the Clause Unenforceable

A dissenting judge wrote that the "preclusive venue selection clause that the AEGON Companies Pension Plan … added in 2007 is inconsistent with the purpose, policy, and text of ERISA, and contravenes the 'strong public policy' declared by ERISA; therefore, the clause should be deemed unenforceable."

"Requiring [Smith] to litigate in a distant venue imposed a substantial increase in expense and inconvenience that obstructs his access to federal courts,"the dissent said.  "Because the express purpose and policy of ERISA is to provided unobstructed access to a forum in which participants and beneficiaries can pursue their claims for benefits, the unilaterally added venue selection clause … should be deemed unenforceable …"

Click here to view the full May 2015 Edition of the ERISA and Life Insurance News.

Authors
H. Sanders Carter
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Andrea K. Cataland
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Kenton J. Coppage
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Mary B. Ramsay
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Jennifer Noland Rathman
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Peter A. Rutledge
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