Enforceability of forum selection clause reviewed

March 20, 2013
By Mark D. DeBofsky

Mark D. DeBofsky is a name partner of Daley, DeBofsky & Bryant. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage .

The enforceability of a forum selection clause was the subject of a recent ruling issued by U.S District Judge Milton I. Shadur in Coleman v. Supervalu, Inc. Short Term Disability Program, 2013 U.S.Dist.LEXIS 13372 (N.D.Ill. Jan. 31, 2013).

The case involved Eboni Coleman, a retail pharmacist who worked at a Jewel-Osco store in Illinois. Litigation arose after Jewel-Osco's parent corporation denied Coleman's short-term disability benefit claim. Supervalu and the benefit plan moved to dismiss Coleman's lawsuit, claiming that a forum selection clause barred the case from proceeding in the Northern District of Illinois. The provision in question stated:

"All litigation in any way related to the program (including but not limited to any and all claims brought under (Employee Retirement Income Security Act) ERISA, such as claims for benefits (as described below) and claims for breach-of-fiduciary duty) must be filed in the U.S. District Court for the District of Minnesota."

Although the court acknowledged that such clauses are "prima facie valid" according to M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972), the 7th U.S. Circuit Court of Appeals has identified three reasons under which a forum selection clause may be disregarded:

1) If [its] incorporation into the contract was the result of fraud, undue influence or overweening bargaining power; 2) if the selected forum is so "gravely difficult and inconvenient that [the complaining party] will for all practical purposes be deprived of its day in court;" or 3) if enforcement of the clause[] would contravene a strong public policy of the forum in which the suit is brought, declared by statute or judicial decision.

Bonny v. Soc'y of Lloyd's, 3 F.3d 156, 160 (7th Cir. 1993)(citations omitted but quoting Bremen, 407 U.S. at 18). The plaintiff focused her argument on an assertion that the forum selection clause contravenes ERISA public policy.

Although no appellate court has addressed the issue, the court acknowledged several lower court rulings on the validity of forum selection clauses in ERISA-governed employee benefit plans.

Several district courts have upheld forum selection clauses within the context of ERISA: Rodriguez v. Pepsico Long Term Disability Program, 716 F. Supp. 2d 855, 861-62 (N.D. Cal. 2010); Klotz v. Xerox Corp., 519 F. Supp. 2d 430, 435-36 (S.D.N.Y. 2007); Bernikow v. Xerox Corp. Long-Term Disability Income Plan, No. CV 06-2612, 2006 WL 2536590 at *2 (C.D. Cal. Aug. 29). However, other courts have refused to enforce such clauses: Nicolas v. MCI Health & Welfare Program No. 501, 453 F. Supp. 2d 972, 974 (E.D. Tex. 2006) and Wellmark, Inc. v. Deguara, No. 02-CV-40534, 2003 WL 21254637 at *3 (S.D. Iowa May 28).

Ultimately, the court was persuaded by a novel argument presented by the plaintiff - that one of ERISA's fiduciary duty provisions, 29 U.S.C. Section 1104(a)(1)(D), barred plan fiduciaries from precluding plaintiffs from filing suit in a venue of their choice in accordance with ERISA's venue provision, 29 U.S.C. Section 1132(e)(2).

Although none of the cases that had ruled on this issue addressed that argument, the plaintiff directed the court to two friend-of-the-court briefs filed by the U.S. Department of Labor which had advanced that argument: Brief for the Sec'y of Labor as Amicus Curiae, Mozingo v. Trend Personnel Servs., No. 11-3284, 2012 WL 1966227 (10th Cir. May 24, 2012), and Brief for the Sec'y of Labor as Amicus Curiae, Nicolas v. MCI Health & Welfare Program, No. 09-40326 (5th Cir. 2009).

The statutory section in question requires that "a fiduciary shall discharge his duties with respect to a plan solely in the interest of the participants and beneficiaries and (D) in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this subchapter and Subchapter III of this chapter." Both the Department of Labor and the plaintiff argued that the quoted section bars a fiduciary from modifying plan participants' ERISA rights and remedies by unilaterally inserting terms into a benefit plan.

The defendants maintained that the Supreme Court has upheld forum designation clauses in such contexts as a cruise line's designation of choice of forum on the back of a ticket. Carnival Cruise Lines v. Shute, 499 U.S. 585, 593-95 (1991). The court distinguished Shute, however, by pointing out:

"But there is a vital difference between the context in which the Carnival Cruise Lines contract was formulated and the context in which ERISA plans are agreed to. There the contract was written on a blank slate, permitting the cruise line to dictate the terms by which it would be willing to serve its customers (including the requirement that customers submit to a forum selection clause).

When ERISA plans are formulated, however, participants automatically possess certain rights decreed by Congress. Even if a participant can waive certain of those rights, it must take more than his or her simple participation in a company wide plan unilaterally created by an employer to hold that the participant's congressionally conferred right has been waived."

The court also disagreed with the defendants' argument that rulings which have enforced arbitration clauses in ERISA plans would also support the enforceability of forum selection clauses as well.

The court explained, "Although both determine ex ante where disputes will be resolved, traditional forum selection clauses establish the judicial arena where an action can be brought, while arbitration clauses codify an agreement to avoid litigation altogether." The court further noted that the Department of Labor has promulgated regulations limiting the circumstances under which arbitration clauses may be enforced in ERISA plans. 29 C.F.R. Section 2560.503-1(c)(4)).

The court also granted a motion to dismiss a claim for penalties due to Supervalu's alleged failure to provide requested documents, finding that the plaintiff failed to direct her request to the correct entity necessary to invoke liability under 29 U.S.C. Section 1132(c).