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Seventh Circuit Holds Plan Sponsors Can Enforce Forum Selection Clauses in ERISA Plans

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The Seventh Circuit joins the Sixth Circuit in holding that the plan sponsor may enforce a forum selection clause in an employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”).

Background

Section 502(e)(2) of ERISA provides “where an action under [under ERISA] 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, and process may be served in any other district where a defendant resides or may be found.” The issue is whether (1) a plan sponsor may enforce the forum selected in the plan document for a civil action under Section 502 or (2) a plan participant has the right to select the forum from among the options set forth in the statute. While a number of district courts addressed this issue, prior to 2014, the issue had not been reviewed by a circuit court.

In 2014, the issue was first addressed by the Sixth Circuit court in Smith v. Aegon Cos. Pension Plan, 769 F.3d 922 (6th Cir. 2014); cert. denied, 136 S.Ct. 791 (2016). The Sixth Circuit, in a majority opinion, held that a forum-selection clause in an ERISA plan document is enforceable even if as a result the plan participant’s choice of venue as permitted under Section 502(e)(2) of ERISA is limited.

Seventh Circuit Follows the Sixth Circuit in in In re Mathias

The Seventh Circuit addresses the application of Section 502(e)(2) in In re Mathias, 867 F.3d 727 (7th Cir. 2017). In this action, the plaintiff filed suit against the relevant ERISA health plans of Caterpillar, Inc. in the Eastern District of Pennsylvania, as Caterpillar maintains distributorships in cities throughout this district. The relevant plan documents require that suits be brought in the Central District of Illinois; accordingly, Caterpillar moved to have the case transferred. Following the transfer, the plaintiff moved to have the case transferred back to Pennsylvania. After the plaintiff’s motion was denied, he petitioned the Seventh Circuit for mandamus relief.

The plaintiff claimed that Section 502(e)(2) of ERISA gives plan beneficiaries a statutory right to choose from any of the venues it names. The plaintiff went on to argue that a forum-selection clause in a plan document is unenforceable and invalid as it restricts the rights of beneficiaries under ERISA. The Secretary of the Department of Labor (“DOL”) submitted an amicus curiae brief in support of the plaintiff’s interpretation of ERISA. The plaintiff and the DOL argued that under ERISA’s broad beneficiary-protection purpose “forum-selection clauses in plan documents are categorically invalid because they deprive plan participants and beneficiaries of the right to select from the menu of venue options offered by [Section 502(e)(2)].”

In a majority opinion, the Seventh Circuit denied the plaintiff’s writ of mandamus. (In a footnote, the court pointed out that the Eighth Circuit recently denied without explanation a similar writ of mandamus in which the petitioner also argued that a plan’s contractual forum-selection clause was invalid under ERISA.)

The Seventh Circuit reasoned that because “contractual forum-selection clauses are presumptively valid even in the absence of arm’s length bargaining” the forum selection clause in the Caterpillar health plans “is controlling unless ERISA invalidates it.” In agreement with the Sixth Circuit’s reasoning in Smith, the Seventh Circuit further noted that Section 502(e)(2) uses the phrase “may be bought” which is permissive and no other provision of ERISA prohibits the plan document from contractually limiting the options. The court further reasoned that a forum selection clause was consistent with the general policies underlying ERISA, as it “preserve[d] ready access to federal court.” The court also noted that “forum-selection clauses promote uniformity in plan administration and reduce administrative costs and in that sense are consistent with the broader statutory goals of ERISA.”

The dissenting judge in In re Mathias argued that “a contractual clause that restricts the right of an ERISA plan participant to an action in a forum far away from his home and his place of employment with the defendant contravenes the strong public policy embodied in ERISA itself,” agreeing with the reasoning in Dumont v. PepsiCo, Inc., 192 F.Supp. 3d 209 (D. Me. 2016), a district court in the First Circuit which found such a plan provision invalid. Additionally, the dissenting judge believed the court should have given “some respect” to the view of the DOL.

Practical Implications

The decision in In re Mathias supports the use of forum-selection clauses in ERISA plan documents, as it represents a second circuit court in support of this interpretation of Section 502(e)(2) of ERISA. It remains to be seen whether other circuits, including the Fifth Circuit, will follow the Sixth and Seventh Circuit holdings in Smith and In re Mathias. Although it was not the situation before the Sixth Circuit, the Smith court stated that a venue selection clause providing for venue outside of the three options provided by Section 502(e)(2) would still control. The Seventh Circuit did not address this issue. Thus, it is unclear whether a forum selection clause that does not choose from the venue options listed in Section 502(e)(2) would be enforceable.

In the meantime, it is suggested that plan sponsors review their plan documents and, if the documents do not currently have a forum-selection provision, consider whether to add such a provision.

 

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