You may not be able to prevent litigation, but you can pick the court that will hear the case.
Our ERISA litigation team has had considerable success enforcing plan forum selection provisions. These plan provisions require that any claim relating to the plan must be brought in a particular court designated in the plan.
In four recent cases, we have defeated efforts to litigate in California, Virginia, Kentucky, and Florida — because they were not the venue designated under the plans’ forum selection provisions. The cases were transferred to the plans’ selected forum and dismissed.
The plans had provisions entitled “RESTRICTION ON VENUE” which stated that any action in connection with the plan could only be filed in the federal district court in the jurisdiction in which the plans’ sponsor was headquartered. That location was also where the plans were administered. The plan provision identified the particular district court. Each applicable summary plan description included the forum selection provision.
As the courts have explained: Enforcement of a forum selection provision “allows one federal court to oversee the administration of the … Plan and gain special familiarity with the … Plan Document, thereby advancing ERISA’s goal of establishing a uniform administrative scheme.” This translates into cost savings for the plan participants and the plan sponsor.
Participants have the “heavy burden” of proving that the forum selection provision is somehow “unreasonable” and not enforceable.
When a defendant raises a timely objection to venue, the plaintiff has the burden of showing that venue is proper. Outside the ERISA context, the Supreme Court has long ruled that forum selection provisions are presumptively valid unless enforcement is unreasonable under the circumstances. Under ERISA § 404(a)(1)(D), the terms of the “documents and instruments governing the plan” control. The Supreme Court stressed the controlling nature of the “plan document rule” under ERISA § 404(a)(1)(D) in Kennedy v. Plan Administrator for DuPont Savings and Investment Plan, 129 S.Ct. 865, 868 (2009).
Even if the forum selection provision is enforceable, courts must still determine whether the provision is reasonable under the particular circumstances. The courts have developed a three-prong test to determine whether to uphold a forum selection provision as reasonable: (1) whether the provision was obtained by fraud, duress, or other unconscionable means; (2) whether the designated forum would ineffectively or unfairly handle the suit; and (3) whether the designated forum would be so seriously inconvenient that requiring the plaintiff to bring suit there would be unjust.
Participant arguments are many, but they do not convince the courts to ignore the threepronged test for testing the reasonableness of a forum selection provision.
With respect to the first prong, in our cases participants have no argument. Instead, without benefit of citation, they have argued that the forum selection provision should not be applicable to them, because they did not negotiate the terms of the plans. The Supreme Court in Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585 (1991), enforced a forum-selection provision printed on the back of a cruise ticket, brushing aside arguments that many consumers do not read the fine print in their contracts, may not appreciate the significance or perhaps even the meaning, of a forum-selection provision, and have not negotiated the terms of the contract. In the ERISA context, the courts enforce forum selection provisions, because the participant’s consent to any modification of the plan is not necessary. See Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995) (“Employers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans.”).
As to the second prong — whether the designated forum would ineffectively or unfairly handle the suit — we have yet to see a participant even try to meet the burden. Understandably, no participant has argued to a federal district court that another federal district court, which happens to be located in another state, cannot effectively or fairly handle an ERISA benefit case.
As to the third prong — whether the designated forum would be so seriously inconvenient that requiring a plaintiff to bring suit there would be unjust — participants argued that their witnesses or medical providers who diagnosed and treated them are located in the state where they have sued, not in the plan’s selected forum. These arguments ignore the controlling case law that there are no witness appearances or testimony in benefit claims cases; benefit claims cases are generally decided on a closed administrative record. Therefore, the courts found that the location of witnesses is a non-issue which does not help participants carry the burden of showing that the forum selection provisions are unenforceable. As one court said when it rejected such an argument and enforced a plan’s forum selection provision: “In bringing this suit, [plaintiffs] claim rights under the Plan … They must take the bad with the good.”
Although plan forum selection provisions satisfy the three-prong test, we submit that the three-prong test is not necessary to enforce them. Given the overarching concern that ERISA requires compliance with the plan terms and the federal concern for uniformity, the plain language of the plans should be enforced.
More participant arguments that fail to stop enforcement of plan forum selection clauses.
In our cases, participants have also argued that the plan forum selection provision is unenforceable because it is superseded by ERISA’s venue provision, which provides that actions under ERISA “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.” The courts have rejected that argument. If Congress had wanted to prevent plans from avoiding the statutory venue provision through the use of a forum selection provision, Congress could have done so. There are provisions that ERISA expressly prohibits, but forum selection provisions are not among them. We have encountered participants who argued that the forum selection provision is unreasonable, because they allegedly had no prior notice of the provision. This argument arises in cases where the forum selection clauses were added by plan amendments adopted after the plaintiffs became plan participants. Whether notice is required is questionable. However we were able to rebut the argument with evidence of the Summaries of Material Modifications (SMMs) provided to all participants in the plans when they were amended to include the forum selection provision. This was sufficient to reasonably communicate the provision to the participants without regard to whether the participants read the SMMs.
Closing Note: Civil Procedure — The appellate courts are not in agreement.
Although the courts are willing to enforce plan forum selection provisions, the proper procedural vehicle for dismissing a case on the basis of a forum selection provision has been the source of considerable debate and some confusion. See Heinz v. Grand Circle Travel, 329 F. Supp. 2d 896, 899 n.6 (W.D. Ky. 2004) (collecting cases evidencing a split among the appellate courts of appeals as to whether Rule 12(b)(1), 12(b)(3), 12(b)(6), or 28 U.S.C. § 1404(a) is the answer to the “vexing” question of which is the proper manner to dispose of a case where a party seeks to enforce a forum selection provision).
In addition, the court may choose to enforce the forum selection provision by transferring, rather than dismissing the case. In our experience, participants generally do not argue for transfer, but the decision of whether to dismiss or transfer is within the district court’s sound discretion.