Alert December 18, 2014

Sixth Circuit Upholds Venue Selection Clause in Pension Plan

Summary

The U.S. Court of Appeals for the Sixth Circuit upheld a pension plan’s venue selection clause and affirmed dismissal of the participant’s claims for benefits on the ground that such claims were not filed in the authorized venue.

In Smith v. Aegon Companies Pension Plan, 769 F.3d 922 (6th Cir. 2014), the litigation was brought by a retiree who had been receiving pension benefits under a pension plan (the “Plan”) since his retirement in 2000. In 2007, the plan sponsor amended the Plan to add a venue provision that restricted participants and beneficiaries to bring claims concerning the Plan only in the federal district court in Cedar Rapids, Iowa.

In 2011, the Plan informed the plaintiff that he had been receiving an overpayment of pension benefits for the previous 11 years. The Plan reduced, and then eliminated, the plaintiff’s entire monthly benefit payments, stating that it would continue to do so until it had recouped the overpayment, or until the plaintiff remitted the overpayment to the Plan.

The plaintiff exhausted administrative remedies provided by the Plan, and filed suit against his former employer in Kentucky state court, asserting claims for breach of contract, wage and hour state statutory violations, estoppel, and breach of the duty of good faith and fair dealing. The employer removed the action to the U.S. District Court for the Western District of Kentucky, and successfully obtained dismissal of the claims on the ground that it was not a proper party defendant. The dismissal was affirmed on appeal, after which the plaintiff filed suit against the Plan in the same federal district court. The district court dismissed the plaintiff’s complaint without prejudice because of the Plan’s venue selection clause. The plaintiff appealed.

Appeals Court Decision

In a 2-1 decision, the Sixth Circuit affirmed dismissal of the claims on the ground that the venue selection clause was enforceable and applied to the plaintiff’s claims. Noting that ERISA’s “statutory scheme . . . is built around reliance on the face of written plan documents,” the court held that the venue selection clause added to the plan by amendment was presumptively valid and enforceable.

In so ruling, the court rejected the plaintiff’s argument that a venue selection clause could lead to an excessive burden on ERISA litigants were venues to lie only in remote locations. The court noted that a party may challenge the enforceability of a venue selection clause where the clause was obtained by fraud or duress, the designated forum would ineffectively handle the suit or would be prohibitively inconvenient, but found that the plaintiff had failed to make such showing here. The court also rejected the plaintiff’s argument that the plan document under which he retired should control his case because his pension claims accrued prior to the adoption of the venue selection clause. The court held that his claims did not accrue until the Plan informed him that it was reducing his payments, which occurred after the venue selection clause was added.

The court also rejected the argument advanced by the plaintiff and by the Secretary of Labor in an amicus brief that venue selection clauses are incompatible with ERISA, which provides for “ready access to the Federal courts.” ERISA § 2(b). The court declined to afford any deference to the Secretary’s “regulation by amicus,” because, among other reasons, “the Secretary is no more expert than [the] Court is in determining whether a statute proscribes venue selection.” It held that a venue provision does not inhibit ready access to federal courts when it provides for venue in a federal court, and that the costs of subjecting a plan to varying pronouncements of federal courts around the country would undermine ERISA’s goal of providing a low-cost administration of employee benefit plans.

The court also held that the plan’s venue selection clause was not inconsistent with ERISA’s venue provision, which permits suit to be brought in one of several districts, including where the plan is administered, where the breach took place, or where a defendant resides. The court further found that, by failing to make it below, the plaintiff had waived his argument that the venue selection clause violates ERISA § 410(a), which prohibits any provisions that purports to relieve a fiduciary from liability for its duties under ERISA.

In a dissenting opinion, Circuit Judge Clay argued that the preclusive venue selection clause should be deemed unenforceable as inconsistent with the purpose, policy, and text of ERISA.