January 26, 2016
Benefits Law Alert
Author(s): Eric Paley
Sponsors of ERISA-governed plans, particularly those with participants in multiple states, often include venue-selection clauses in their plan documents to better ensure uniform administration of benefit claims and manage associated costs. The plaintiff’s bar has maintained for years that provisions like this violate ERISA and can serve to deny claimants a meaningful opportunity to challenge instances of misadministration. Until recently, however, the dispute had never moved beyond the federal district court level.
Although it did not explicitly bless venue-selection clauses, the U.S. Supreme Court has denied review of a Sixth Circuit case, Smith v. Aegon Companies Pension Plan, which upheld a venue-selection clause in a retirement plan. The plaintiff in Smith retired and started to receive pension benefits in 2000, seven years before the plan was amended to require that all court challenges be brought in the district court located in Cedar Rapids, Iowa, where the plan was administered. Four years after that, the plan notified the plaintiff that it had been overpaying his benefit since distributions began, and the plaintiff appealed the plan’s determination. After exhausting his administrative remedies, the plaintiff ultimately brought suit against the plan in the District Court for the Western District of Kentucky, where he resided and where he alleged the breach had taken place. The plan moved to dismiss the case on the basis of the venue-selection clause, and the Court granted the motion to dismiss.
The Court of Appeals for the Sixth Circuit upheld the dismissal, ruling that ERISA does not preclude venue-selection clauses. The court reasoned that Section 502(e)(2) of ERISA does not mandate a particular venue, as it provides that a claim “may be brought in the district where the plan is administered, where the breach took place, or where the defendant resides or may be found.” Noting that Congress did not prohibit private parties from narrowing the options to just one of these venues, the court concluded that the plan complied with this provision in requiring suit to be brought in the district where the plan was administered. The court further reasoned that the plan would have complied with ERISA even if the venue-selection clause required a venue other than those listed under the statute, because federal courts have otherwise upheld arbitration clauses under ERISA, allowing plan sponsors to preclude venue in federal court entirely. If plan sponsors have the leeway to adjudicate claims outside of the court system, the court reasoned, it would be illogical to say they cannot require venue in one particular federal court, or that so doing would inhibit the plaintiff’s access to the federal court system.
Citing similar cases, the court also reasoned that such clauses advance ERISA’s goal of uniformity in plan interpretation and administration, because they allow one federal court to oversee the administration of the plan and to gain special familiarity with the plan document.
Although a favorable rule for plan sponsors continues to stand in the Sixth Circuit, that rule is not settled law. The Supreme Court declined to review the case, but before reaching that decision it asked the U.S. Solicitor General to weigh in on the matter. The Solicitor General did not support a grant of certiorari, contending that there does not currently exist a true circuit split on the question of whether or not ERISA prohibits venue-selection clauses.
The Solicitor General did argue, however, that the Sixth Circuit’s ruling is inconsistent with ERISA’s broad objective of granting plan participants ready access to federal courts in order to enforce their rights under the statute, and that eliminating jurisdictional and procedural obstacles that would otherwise keep participants from enforcing their rights is one of the key principles underlying ERISA. According to the Solicitor General, the venue-selection clause at issue in Smith contravened this broad objective by requiring participants to bring suit in what may be a distant court, and it violated the specific terms of ERISA’s venue-selection clause by eliminating two of the three venues provided under the statute. Finally, the Solicitor General rejected the Sixth Circuit’s argument relating to arbitration clauses, as earlier cases have upheld arbitration under ERISA as specifically required under the Federal Arbitration Act, not because such clauses support the objectives of ERISA. The Department of Labor shares the view of the Solicitor General and has argued the same position in amicus briefs before other courts of appeal, which ultimately did not address the question.
While venue-selection clauses may well face future court challenges, plan sponsors who have them can keep them for now, and those who don’t have them should consider adding them. In doing so, they will at least preserve an argument that a participant’s action must be brought in a particular venue. And as highlighted by the Court, by restricting all such potential actions to one court, a plan sponsor may well avoid competing interpretations of its plan that might otherwise arise were participants to bring suits against the plan in different district courts, and may reduce the costs of defending those claims by allowing one court to gain special familiarity with the plan.
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