Venue Selection Clause in Retirement Plan is Enforceable: Sixth Circuit | Practical Law

Venue Selection Clause in Retirement Plan is Enforceable: Sixth Circuit | Practical Law

In Smith v. AEGON Companies Pension Plan, the US Court of Appeals for the Sixth Circuit held that a venue selection clause in an ERISA-governed retirement plan that limited venue to a specific district court was enforceable.

Venue Selection Clause in Retirement Plan is Enforceable: Sixth Circuit

Practical Law Legal Update 1-584-6705 (Approx. 4 pages)

Venue Selection Clause in Retirement Plan is Enforceable: Sixth Circuit

by Practical Law Employee Benefits & Executive Compensation
Published on 21 Oct 2014 • USA (National/Federal)
In Smith v. AEGON Companies Pension Plan, the US Court of Appeals for the Sixth Circuit held that a venue selection clause in an ERISA-governed retirement plan that limited venue to a specific district court was enforceable.
On October 14, 2014, in Smith v. AEGON Companies Pension Plan, the US Court of Appeals for the Sixth Circuit held that a venue selection clause in a retirement plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) that limited venue to a specific district court was enforceable (No. 13-5492, (6th Cir. 2014)).

Background

The plaintiff was an employee of Commonwealth General Corporation ("CGC") which later merged with AEGON USA, Inc. ("AEGON"). Several employees, including the plaintiff, were offered enhanced benefits through the Voluntary Employee Retention & Retirement Program ("VERRP") if they would continue to work through the merger. The VERRP provided that the plaintiff would retire on March 1, 2000 and would be entitled to additional compensation from the CGC Retirement Plan, which was later integrated into the AEGON Companies Pension Plan ("AEGON Plan"), pursuant to the merger. The plaintiff elected to participate in the program and retired on March 1, 2000.
In 2007, the AEGON Plan was amended to include a venue selection clause restricting the venue for any action related to the plan to the Federal District Court in Cedar Rapids, Iowa.
In 2011, the AEGON Plan informed the plaintiff that he had been overpaid for the last eleven years and that his monthly benefit payments would stop until the plan had recouped the amount overpaid. After his appeal to the AEGON Pension Committee was denied, the plaintiff filed suit against CGC in circuit court, which was removed to district court and ultimately dismissed because the court held that CGC was not a proper party defendant (Smith v. Commonwealth General Corp., No. 12-6284, (6th Cir. 2014)). Afterwards, the plaintiff filed suit against the AEGON Plan in the US District Court for the Western District of Kentucky, which was also dismissed because the plaintiff did not file suit in the district court specified in the plan's venue selection clause. The plaintiff subsequently appealed asserting that the venue selection clause was unenforceable.

Analysis

In finding the venue selection clause enforceable, the Sixth Circuit's analysis turned on two lines of reasoning: first, whether venue selection clauses were generally enforceable (see Venue Selection Clauses are Generally Enforceable) and second, whether ERISA's venue provision precludes venue selection clauses (see ERISA does not Preclude Venue Selection Clauses).

Venue Selection Clauses are Generally Enforceable

The court explained that ERISA plan administrators are given large leeway to design plans and are generally free to amend plan terms for any reason, and decided that the venue selection clause that was added to the AEGON Plan was enforceable. In reaching this conclusion, the court rejected the plaintiff's arguments, reasoning that:
  • The Supreme Court has recognized forum selection clauses (even where the clauses were not the product of an arms-length transaction) and that this logic extends to venue selection clauses, making the clause at issue presumptively valid and enforceable.
  • The clause was reasonable because it did not pose an excessive burden on litigants. The court applied the three-part test it uses to evaluate the reasonableness of forum/venue selection clauses and determined that the plaintiff had not demonstrated that the clause was unreasonable.
  • Under the clear repudiation rule (which holds that a cause of action accrues when a fiduciary gives a claimant clear and unequivocal repudiation of benefits), the plaintiff's claims did not accrue until 2011 when the AEGON Plan informed him of his reduction in benefits. Therefore the 2007 amended plan document, which included the venue selection clause, was controlling.

ERISA does not Preclude Venue Selection Clauses

The court then turned to the plaintiff's argument that the venue selection clause limiting the venue to one district court conflicted with ERISA's venue provision, which permits a suit to be brought in one of several enumerated districts (ERISA Section 502 (29 U.S.C. § 1132)). In rejecting this argument, the court noted that the majority of courts that have considered the issue have held that the clauses are enforceable, reasoning that if Congress had wanted to prevent private parties from waiving ERISA's venue provision, Congress could have specifically prohibited such action. Siding with the majority of courts, the court explained that:
  • There was no showing that the venue selection clause would inhibit ERISA's policy of providing access to the federal courts, and in some instances the clause furthered ERISA's policies by encouraging uniformity in the application of the law to the plan.
  • ERISA's venue provision is a permissive one, allowing a suit to be brought in one of many districts, and because the plan's venue selection clause provided for a venue in one of these districts it was consistent with ERISA.
  • The logic of a previous Sixth Circuit case holding that mandatory arbitration clauses in ERISA plans are valid also applied to this case, and as a result the venue selection clause would still be controlling even if it limited the venue to one that did not fit within ERISA's venue provision.

Dissent

The Sixth Circuit also issued a dissenting opinion which argued that the venue selection clause was inconsistent with ERISA's purpose and goals. It reasoned that by requiring the plaintiff to bring suit far from home and in a place to which he has no connection, the clause conflicted with ERISA's broad venue provision. In addition, it determined that ERISA's legislative history and Congress' intent indicated a desire for open access to the courts, which was undermined by the limited venue provided in the clause. Finally, the dissent argued that the majority should not have relied on the precedent set forth in arbitration cases because arbitration clauses are governed by the Federal Arbitration Act whereas the venue selection clause in this case was governed by ERISA.

Practical Impact

Although a majority of the courts that have considered the issue have found venue selection clauses in an ERISA-governed plan to be enforceable, the Sixth Circuit is the first circuit court to consider the issue. Plan administrators should keep this in mind as they consider whether to add a venue selection clause to a plan. A venue selection clause may enable the plan to have a single body of law applied to the plan, creating legal consistency and administrative ease for the plan administrator.