A judge in U.S. District Court for the Northern District of Illinois recently denied a motion by BP Corp. to have a claim against its retirement plan fiduciaries moved to federal court in the Southern District of Texas.
That decision was the latest in a long and growing body of case law addressing the enforceability of so-called venue selection clauses under the Employee Retirement Income Security Act.
To date, the majority of courts have come out in favor of venue selection clauses, which limit where plan participants can bring suit against plan sponsors.
But two district courts — the Northern District of Illinois and the Eastern District of Texas — have ruled against the enforceability of venue selection provisions, arguing that Congress intended plan participants to have open access to federal courts when it crafted ERISA.
Provisions 'not shady'
Recently, the U.S. Department of Labor has made its thoughts clear in amicus briefs filed in courts considering the enforceability of venue selection clauses.
In short, under the Obama administration, regulators don’t care for the provisions. In an amicus brief filed in Nicolas v. MCI Health and Welfare Benefit Program, Labor Secretary Thomas Perez wrote, “Forum selection clauses are incompatible with ERISA.”
The fact that the country’s chief benefits regulator’s opinion departs from the majority of case law may leave plan sponsors wondering if adding a venue selection provision to a plan document invites liability.
But ERISA expert Barry Salkin, currently counsel with the Wagner Law Group and formerly a senior attorney at Winston and Strawn, says sponsors should not fear using the provisions in plan documents.
In fact, not only are venue selection provisions “not shady,” but when written appropriately, they are a best practice for many types of retirement plans, says Salkin.
“It is a best practice,” he said in an interview with BenefitsPro, “because if you don’t have the provision in a document and you then try to have the forum changed you will almost always lose — courts will defer to participants choice of forums.”
In effect, Salkin says writing a venue selection clause into a plan document is a safety measure for sponsors, and assures them they will have the full range of options at their disposal to defend a prospective claim.
“At the end of the day these are permissible provisions, despite the fact the DOL has very strong opinions on the matter,” said Salkin.
In the July issue of the Benefits Law Journal, Salkin provides an extensive look at how courts have measured the enforceability of the provisions.
In Mezyk v U.S. Bank Pension Plan, a court in the Northern District of Illinois ruled a provision was not enforceable on the grounds that the venue selection clause was not “reasonably communicated” to plan participants, wrote Salkin.
Typically, courts have sided with sponsors when plaintiffs claim a venue provision has been inadequately communicated.
Nonetheless, Salkin has some advice for sponsors when using the clauses. “Don’t bury them in the document,” he said. “They should probably be put in bold letters.”
Waiting for the Supreme Court
As decided as the Labor Department is on the matter of venue selection provisions, courts have not given deference to its amicus briefs.
In 2014, the 6th Circuit Court of Appeals upheld a lower court decision to dismiss a claim on the grounds of a retirement plan’s venue selection clause, in Smith v. Aegon.
Labor Secretary Perez filed an amicus brief to the appellate court, but his argument that the provision was not compatible with ERISA was not “made with the force of law,” wrote Judge Alice Batchelder, in a split decision.
Furthermore, Aegon's venue selection clause was enforceable, given that the clause was made in writing, and that ERISA’s statutory scheme “is built around the reliance on the face of written plan documents,” added Batchelder.
In not granting Perez’s brief deference, the 6th Circuit said, “DOL was no more expert than this court in determining whether a statute prescribes venue selection. Even were the secretary more expert, the secretary’s bare textual analysis of ERISA, without more, does not constitute a body of experience and informed judgment to which courts should defer.”
In the appellate court’s view, the fact that Labor Department has been silent on the issue for nearly four decades effectively makes its recent position on the provisions an “about face” that “lacks longevity.”
The plaintiff in Smith vs. Aegon ultimately petitioned the Supreme Court to hear the case, but in January of 2016 the high court refused to review the claim.
Eventually, Salkin thinks the Supreme Court may take up the issue, but only if a decision were to emerge from another appellate decision that found a venue selection provision unenforceable.
“If a circuit divide emerges, I think the court would be inclined to take the issue up,” said Salkin. “This would seem to be an appropriate and legitimate enough question for the court to consider. These are becoming a more common type of plan provision. The question of whether they are permissible under ERISA is significant.”
Of course, the Labor Department could propose new regulation, but that process would be long, and “subject to a lot of challenges,” noted Salkin.
“Ultimately, no one can predict where this issue will wind up,” he said.
In the interim, sponsors can advance with an understanding that they are well within their right to use the provisions in plan documents.
“They are not a magic bullet,” added Salkin. “But for the time being the provisions are a best practice, and will remain so until, and if, the DOL prevails and says they are not.”