Seventh Circuit Upholds ERISA Plan's Forum Selection Clause | Practical Law

Seventh Circuit Upholds ERISA Plan's Forum Selection Clause | Practical Law

In In re Mathias, the US Court of Appeals for the Seventh Circuit held that a forum selection clause in a health plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) was enforceable. The forum selection clause limited venue to a specific federal district court.

Seventh Circuit Upholds ERISA Plan's Forum Selection Clause

Practical Law Legal Update w-009-8282 (Approx. 5 pages)

Seventh Circuit Upholds ERISA Plan's Forum Selection Clause

by Practical Law Employee Benefits & Executive Compensation
Published on 14 Aug 2017 • USA (National/Federal)
In In re Mathias, the US Court of Appeals for the Seventh Circuit held that a forum selection clause in a health plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) was enforceable. The forum selection clause limited venue to a specific federal district court.
In a mandamus petition involving an issue of first impression, the US Court of Appeals for the Seventh Circuit held that ERISA's venue provision (29 U.S.C. § 1132(e)(2)) did not invalidate a forum selection clause in an ERISA-governed health plan (In re Mathias, (7th Cir. Aug. 10, 2017)). The Seventh Circuit characterized its decision as consistent with Smith v. Aegon Cos. Pension Plan, 769 F.3d 922, 931-34 (6th Cir. 2014), cert. den., No. 14-1168 (Jan. 11, 2016), in which the Sixth Circuit held that forum selection clauses in ERISA plans are enforceable and not inconsistent with ERISA's venue provision (or ERISA's purposes generally) (see Legal Update, Venue Selection Clause in Retirement Plan is Enforceable: Sixth Circuit and ERISA Litigation Toolkit).

Background

After experiencing serious health issues, the participant in this case received health insurance coverage through his employer as an employee on long-term disability. The employer billed the participant accordingly for his portion of the health premiums. The participant later retired, effective retroactively, but the employer neglected – for several years – to update his employment status and therefore undercharged him for premiums. Upon realizing its mistake, the employer informed the participant that he owed more than $9,500 in past-due premiums, representing the difference between the rate for a long-term disabled employee and a retiree.
The participant sued the employer and its health plans in federal court in the Eastern District of Pennsylvania. However, the controlling plan documents required that suit be brought in federal court in the Central District of Illinois, and the employer moved to transfer the case under 28 U.S.C. Section 1404(a) (see Standard Document, Motion to Transfer Venue (Federal): Motion or Notice of Motion). The participant opposed the motion, arguing that the plan's forum selection clause was invalid in light of ERISA's venue provision.
Relying largely on the Sixth Circuit's decision in Smith (at the time, the only appellate ruling on this issue), the district court:
  • Rejected the participant's argument.
  • Granted the employer's motion and transferred the case to the Central District of Illinois.
When the case arrived in the Central District, the participant moved to transfer it back to Pennsylvania, but that motion was denied. The participant then petitioned for mandamus relief in the Seventh Circuit, asking that the case be transferred to either the Eastern District of Pennsylvania or the Middle District of Pennsylvania (where the participant lived, where the plant at which the participant had worked was located, and where the employer had dealerships).

Outcome

Denying the participant's mandamus petition, the Seventh Circuit held that the plan's forum selection clause was enforceable. Noting that a party seeking mandamus in the transfer context has an "uphill fight," the Seventh Circuit first concluded that the plan's forum selection clause was controlling unless it was invalidated by ERISA.
Under ERISA's venue provision, an action may be brought in the district court where:
  • The plan is administered.
  • The breach took place.
  • A defendant resides or may be found.
(29 U.S.C. § 1132(e)(2) (ERISA § 502(e)(2)); see Standard Clause, SPD Language, Restriction on Venue.)
The Seventh Circuit observed that nothing in the venue provision's text expressly invalidated forum selection clauses in ERISA plans. The participant, however, argued that ERISA's overarching purpose of protecting participants required the court to read the venue provision as conferring on participants a statutory right to choose any of the listed venues without regard to the plan's forum selection clause. In the participant's view, plan forum selection clauses are categorically invalid because they deprive participants of the right to choose from the venue options available under 29 U.S.C. Section 1132(e)(2). The participant was joined in this argument by the Department of Labor (DOL), as amicus curiae.
This interpretation of ERISA's venue provision, the Seventh Circuit noted, had been carefully considered and rejected by the Sixth Circuit in Smith. In that case, the Sixth Circuit reasoned that:
  • The "may be brought" phrasing of ERISA's venue provision is entirely permissive.
  • No other statutory language prohibited the parties from contractually narrowing the options to one of the venues listed in ERISA.
The Seventh Circuit characterized this reasoning as convincing, and noted with approval the Sixth Circuit's conclusion that plan language limiting litigation to a single federal district promotes uniformity in decisions interpreting the plan (thereby reducing administrative costs for plan sponsors and participants alike). According to the Seventh Circuit, the plan's forum selection clause, by funneling litigation to a venue listed in Section 1132(e)(2), simply "settled on one of the various statutory options." Moreover, the Seventh Circuit concluded that this outcome reflected the significant leeway that ERISA affords plan sponsors in designing their benefit plans.

Practical Impact

This decision gives employers in the Seventh Circuit (which covers Illinois, Indiana, and Wisconsin) some assurance that their plan venue provisions will be upheld if challenged by a participant or beneficiary in a litigated benefits dispute. As the Seventh Circuit noted, however, only one other appellate court (the Sixth Circuit, covering Kentucky, Michigan, Ohio, and Tennessee) has ruled on this question, and other appellate courts might reach a more participant-friendly conclusion. Moreover, neither the Sixth Circuit's Smith decision nor this one was unanimous, and the DOL continues to challenge the validity of forum selection clauses. In Mathias, for example, a dissenting judge took the view that ERISA gives plan participants certain procedural protections, which include the right to select from among the venues listed in the statute. As a result, employers in jurisdictions outside the Sixth and Seventh Circuits should bear in mind that there is less certainty regarding whether their plan venue provisions will be enforced.