Contract clause strong enough to upend ERISA forum provisions

This article was initially published in the Chicago Daily Law Bulletin on August 16, 2017.

By Mark D. DeBofsky

Mark D. DeBofsky is a name partner of DeBofsky, Sherman & Casciari P.C. He handles civil and appellate litigation involving employee benefits, disability insurance and other insurance claims and coverage, and Social Security law. He can be reached at [email protected].

A recent ruling issued by the 7th U.S. Circuit Court of Appeals resolved a controversial issue in Employee Retirement Income Security Act litigation: Does ERISA's venue provision, 29 U.S.C. Section 1132(e)(2), preclude enforcement of a forum-selection clause in an employee benefits plan?

The petitioner, George Mathias, the plan beneficiary, the secretary of labor, as amicus curiae, and 7th Circuit Judge Kenneth F. Ripple, the dissenting member of the appellate panel that decided this case maintained that the generous venue provisions in the ERISA preclude enforcement of a forum-selection clause.

However, the 7th Circuit followed the 6th Circuit's ruling in Smith v. Aegon Companies Pension Plan, 769 F.3d 922, 931-34 (6th Cir. 2014), in holding that ERISA's venue provisions are permissive and thus allow a benefit plan sponsor and plan administrator to designate the exclusive forum where benefit disputes may be heard.

The underlying case involved a dispute over health benefits sponsored by Caterpillar Inc., which Mathias, a resident of Pennsylvania, was receiving as a disabled Caterpillar employee. Caterpillar terminated Mathias' benefits when he failed to pay $9,500 in past-due premiums that Caterpillar claimed he owed following his retirement.

Mathias challenged Caterpillar's actions and filed suit in the Eastern District of Pennsylvania. Because the plan dictated that suit may be filed only in the U.S. District Court for the Central District of Illinois, the case was transferred to the Illinois court over the plaintiff's objection.

The plaintiff attempted to transfer the case back to Pennsylvania, but the district judge in Illinois denied the motion. Mathias then petitioned for mandamus relief against the Illinois district judge in the 7th U.S. Circuit Court of Appeals, seeking an order directing the transferee judge to send the case back to Pennsylvania.

The case is George W. Mathias v. Caterpillar Inc., et al. (No. 16-3808).

The court began its discussion by noting the appropriateness of mandamus relief since, "[w]ithout the availability of mandamus relief, the question of proper venue escapes meaningful appellate review. In re Hudson, 710 F.3d 716, 717 (7th Cir. 2013) (additional citations omitted)."

Before addressing the merits, the court described the difficulty of the challenge: To obtain relief in challenging a transfer order, the petitioner must show "the transfer order is a 'violation of a clear and indisputable legal right, or, at the very least, is patently erroneous.'" (Citations omitted.) The burden is even heavier where a transfer is made in accordance with a forum-selection clause in a contract.

The court described ERISA plans as "a special kind of contract." And consistent with Carnival Cruise Lines Inc. v. Shute, 499 U.S. 585, 593-95 (1991), forum-selection clauses in contracts are considered presumptively binding. Thus, as the court explained, "the forum-selection clause in the Caterpillar plan is controlling unless ERISA invalidates it." (Emphasis in original.)

ERISA's venue provision states: "Where an action under this subchapter 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." Section 1132(e)(2).

The court pointed out there is no express prohibition against forum-selection clauses in that provision.

The plaintiff argued, with support from the Labor Department, that ERISA's venue statute allows claimants to choose any of the listed venues irrespective of a forum-selection clause in order to fulfill ERISA's goal of "protect[ing] ... the interests of participants ... by providing ... ready access to the [f]ederal courts." 29 U.S.C. Section 1001(b).

The 6th Circuit rejected that argument, though, in Smith v. Aegon. There, the appeals court focused on the permissive language of the statute ("may be brought") to find that the provision did not preclude the parties from contractually agreeing to a specific designated forum.

The 6th Circuit also suggested that limiting litigation to a single district "promotes uniformity in decisions interpreting the plan, thus reducing administrative costs for plan sponsors and beneficiaries alike." The appellate panel's majority agreed with that interpretation.

"The forum-selection clause in the Caterpillar plan," the majority held, "chooses from among the venue options listed in [S]ection 1132(e)(2) and nothing in the statute makes that choice invalid."

The dissent challenged the premise of the majority's rationale based on the statutory text and ERISA's purpose.

The dissent acknowledged that the Supreme Court has upheld forum-selection clauses in contracts, most recently in Atlantic Marine Construction Company Inc. v. U.S. District Court for the Western District of Texas, 134 S.Ct. 568 (2013)). However, the secretary of labor's position resonated with Ripple in its recognition that ERISA was enacted for the protection of plan participants and their beneficiaries.

"In my view," Ripple added, "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."

The dissent also cited a district court opinion on the issue, Dumont v. PepsiCo, Inc., 192 F.Supp.3d 209 (D. Me. 2016), which based its conclusion on the context in which ERISA was enacted and its paternalistic purpose.

Moreover, as Dumont pointed out, an employee benefit plan is not negotiated in an arms-length transaction. Ripple also maintained that the statutory interpretation advanced by the secretary of labor is entitled to respectful consideration.

In addition to the statutory text debated in this decision, at least two appellate courts have cited a provision from ERISA's legislative history, which describes a congressional intent that ERISA provide "a method for workers and beneficiaries to resolve disputes over benefits inexpensively and expeditiously." Semien v. Life Insurance Company of North America, 436 F.3d 805, 815 (7th Cir. 2006); Perry v. Simplicity Engineering, 900 F.2d 963, 967 (6th Cir. 1990).

The entire dispute here was over $9,500. The majority's ruling obligated Mathias, a resident of Hanover, Pa., who worked in York, Pa., to hire a lawyer to litigate his claim in Peoria. On top of the added costs, a claimant such as Mathias might also be deterred from even challenging his employer's actions because of the geographic impracticability of locating counsel in Illinois who would be willing to litigate a dispute over $9,500 for an affordable fee.

It is hard to square Congress' promise of "ready access to the [f]ederal courts" with a conclusion that every courthouse door but one that may be thousands of miles away is closed.

- I represented the plaintiff in the Semien case cited in this article.