Venue Clauses
Art by Tim Bower
A former Pfizer executive recently filed a writ of certiorari—i.e., a request for a court to review a case—with the U.S. Supreme Court, asking it to rule that a forum selection clause in a Pfizer employee benefit plan governed by the Employee Retirement Income Security Act (ERISA) is unenforceable. The writ noted that this view about the provision, which specifies the jurisdiction in which an ERISA civil litigation will be heard, is also shared by the Department of Labor (DOL). Still, to date, the position has failed to persuade a federal court of appeals; three recently held that the forum selection clauses in such plans are permissible.
This is the fourth time a writ of certiorari has been filed with the Supreme Court on this issue. When the first of these cases, Smith v. Aegon Companies Pension Plan, came before the court, it requested the view of the solicitor general, in the Department of Justice. This usually indicates that the court finds the case of interest—though more recently, a year ago January, it denied such a petition. The solicitor general agreed with the DOL that forum selection provisions in ERISA plans are unenforceable. It recommended, though, that the court not grant certiorari until the issue had been further developed at the circuit level.
Perhaps if a circuit court takes a position contrary to that of the 6th, 7th and 8th Circuits, which, in those first three cases, decided the clause was enforceable, the Supreme Court will hear it. But, absent a circuit split, it will probably not grant certiorari. Therefore, though a minority of district courts side with the DOL, a sponsor may be fairly confident as to including such a provision in its plan and assuming a district court will enforce it.
The issue is a close one, though: In the 6th and 7th Circuit cases, in which the Supreme Court denied certiorari, dissenting opinions were filed. That means it’s entirely possible that a circuit split might arise. Such an occurrence would be more likely, however, if the DOL were to issue regulations setting forth its position on this issue.
Two competing policy interests are at stake with respect to venue selection clauses. On one hand, as the Supreme Court stated in Atlantic Marine Construction Co. Inc. v. U.S. District Court for the Western District of Texas, where “the parties have agreed to a valid forum selection clause, a district court should ordinarily transfer the case to the forum specified in that clause. Only under extraordinary circumstances unrelated to the convenience of the parties should a [transfer] motion be denied.”
This view is also reflected in the Restatement (Second) of Conflict of Laws, which says, “the parties’ agreement as to the place of the action will be given effect unless it is unfair or unreasonable.”
On the other hand, ERISA’s venue provision states that a participant may bring suit in any district “[1]where the plan is administered, [2] where the breach took place, or [3] where the defendant resides or may be found.” The preceding has been described as a liberal venue provision designed to give easy and ready access to the federal courts and is consistent with the language of ERISA Section 2(b), “by providing … ready access to the federal courts.”
Unfortunately, as drafted, the language of ERISA’s venue provision is ambiguous. Is it meant to be a statement of a participant’s rights, or does it merely set forth the range of venues in which an ERISA civil litigation may be brought?
As in most litigation contexts, a persuasive argument can be advanced by either side. Proponents of enforcing venue clauses focus on Congressional intent by arguing that Congress did not specifically prohibit the clauses. It should be noted, though, that when ERISA passed, the courts didn’t view the clauses as favorably as they do today. It was only since the middle of the last decade that they became prevalent in ERISA plans.
Opponents of the clauses point out that Congress intended to protect participants by giving them three forum options and that legislators could have added language to ERISA’s venue provision to allow the clauses. Opponents also argue that enforcing the clauses violates public policy, in this instance, barring ERISA plan participants from enforcing their rights. Even under the favorable Supreme Court decisions in this area—which hold that, typically, forum selection clauses are enforceable, public policy would be a basis for nonenforcement. Proponents of the clauses meanwhile focus more upon contract law and previous court decisions with respect to forum selection clauses more generally.
Marcia Wagner is an expert in a variety of employee benefits and executive compensation areas, including qualified and nonqualified retirement plans and welfare benefit arrangements. She is a summa cum laude graduate of Cornell University and Harvard Law School and has practiced law for 32 years. Wagner is a frequent lecturer and has authored numerous books and articles.