Keywords: pension plans, ERISA, venue selection clauses
Benefits plan sponsors often include venue selection clauses in their plans, requiring claimants to file suit in a particular jurisdiction. They do this in an effort to mitigate the risk that claims for employees' benefits owed under ERISA plans will devolve into costly lawsuits filed in a variety of venues across the country. The enforceability of such clauses, however, has been disputed by plan participants on the basis that they are inconsistent with ERISA's liberal venue provisions and its stated policy of providing "ready access to the Federal courts."1
While some district courts have agreed with plan participants, the Sixth Circuit's recent 2-1 decision in Smith v. Aegon Companies Pension Plan,2 lends strong support for the prevailing view among the district courts that venue selection clauses are enforceable.
In Smith v. Aegon, after Aegon reduced Smith's monthly pension benefit to recoup alleged overpayments, Smith filed suit in the US District Court for the Western District of Kentucky to have those benefits reinstated. Aegon immediately moved to dismiss Smith's case pursuant to Rule 12(b)(6). Specifically, Aegon argued that Smith could not pursue his claim in the Western District of Kentucky because his pension plan included a "Restriction on Venue" clause, which provided that "[a] participant or beneficiary shall only bring an action in connection with the Plan in Federal District Court in Cedar Rapids, Iowa." The Western District of Kentucky agreed with Aegon and dismissed Smith's complaint without prejudice. Rather than re-file in the Northern District of Iowa as required by under the plan, Smith appealed to the Sixth Circuit.
On appeal, the Sixth Circuit identified two distinct, but related, questions governing the enforceability of the pension plan's venue selection clause: (i) whether the clause was enforceable as a matter of contract law and (ii) whether the clause was consistent with ERISA. The Sixth Circuit answered both questions affirmatively.
With respect to the first question—whether the venue selection clause was enforceable as a matter of contract law—the Sixth Circuit held that under Supreme Court precedent the clause was "presumptively valid and enforceable." Relying on its decision in Wong v. PartyGaming, Ltd.,3 the Sixth Circuit held that in order to overcome this presumption, Smith was required to demonstrate that the clause was: (i) obtained by fraud, duress, or other unconscionable means; (ii) that the designated forum would ineffectively or unfairly handle the suit; or (iii) that the designated forum would be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust. However, Smith failed to do so.
The Sixth Circuit then turned to whether the venue selection clause was inconsistent with either the policies supporting ERISA or ERISA's own venue provision set forth in ERISA § 502(e)(2). The court held that it was not. The court noted that ERISA's goal of providing participants "ready access to the Federal courts," would still be furthered when the venue selection clause designated a federal court as a forum. In fact, the court found that, if anything, venue selection clauses furthered the policies underlying ERISA by promoting uniform decision-making and minimizing plans' administrative costs.
Finally, the court addressed whether a plan's venue selection clause was inconsistent with ERISA's own venue provision. Under ERISA § 502(e)(2), an ERISA plan participant can file suit in any district in which: (i) the plan is administered, (ii) a breach of the plan occurred or (iii) a defendant may be found. The court found that § 502(e)(2) was wholly consistent with the pension plan's venue selection clause because the plan was administered in Cedar Rapids, Iowa. The court went even further, however, and found that even if a venue selection clause identified a venue that did not fall within one of the three jurisdictions identified by § 502(e)(2), it would still be enforceable.
Admittedly, the Sixth Circuit's decision in Smith v. Aegon is only the first step toward resolving the dispute among the district courts regarding the enforceability of venue selection clauses. However, cases such as Aegon, which follows the Supreme Court's recent decision in Heimeshoff to enforce plan provisions limiting the time to file suit, may be part of a larger trend toward allowing plan sponsors to include reasonable "plan-based" restrictions on participants' ability to file costly litigation.
Practical Implications for Plan Sponsors
- Plan sponsors should consider adopting provisions that limit the venues available to plan participants.
- Choosing the appropriate venue will likely require a balancing of both the plan participants' and the plan sponsor's interests in order to avoid risks that the clause will be deemed unenforceable as a matter of contract law.
- A prudent approach for plan sponsors may be to identify the forum in which the plan administrator resides.
- Practitioners should continue to monitor the judicial trend toward allowing reasonable "plan-based" limitations on participants' suits.
1 29 U.S.C. § 1001(b).
2 No. 13-5492, --- F.3d --- (6th Cir. 2014).
3 589 F.3d 821 (6th Cir. 2009).
Originally published - 23 October 2014
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