On August 10, 2017, in In re Mathias, the United States Court of Appeals for the Seventh Circuit held that a venue section provision in an employee benefit plan governed by the Employee Retirement Income Security Act of 1974 (ERISA) was enforceable and was not inconsistent with ERISA’s venue provision in ERISA Section 502(e)(2). This was a case of first impression for the Seventh Circuit, and follows a similar decision from the United States Court of Appeals for the Sixth Circuit in Smith v. Aegon Cos. Pension Plan.
George Mathias was employed by Caterpillar at its plant in Pennsylvania. In May 1997, Mr. Mathias experienced serious health issues, and the Social Security Administration declared him to be disabled. The company covered his health insurance as an employee on long-term disability. Mr. Mathias decided to retire in 2012, retroactive to 2009, but his employment status was not changed, so he paid less than the full premium due for coverage for retirees, which was higher than for disabled employees. In 2013, the company discovered the error and notified him that he owed the difference in premiums between the rate for retirees and disabled employees.
Mr. Mathias sued the company and its ERISA-governed health plan in the United States District Court for the Eastern District of Pennsylvania – the district of his residence. However, Caterpillar’s benefit plan included a provision that required participants and beneficiaries to file suit related to the plan benefits in the United States District Court for the Central District of Illinois – the district in which the benefit plan is administered. Citing the plan’s venue selection clause, Caterpillar moved to transfer the case to the Central District of Illinois. Mr. Mathias opposed the venue transfer motion, arguing that the plan’s venue selection clause is invalid since ERISA contains an explicit venue selection provision in ERISA. The Eastern District of Pennsylvania rejected Mr. Mathias’ arguments, relying primarily on the Sixth Circuit’s decision in Smith that venue selection provisions in ERISA plans are enforceable and not inconsistent with ERISA’s venue provision specifically or ERISA’s purposes generally.
The Decision Upholding Venue Clauses
The Seventh Circuit, in a 2-1 split decision, upheld the plan’s venue selection clause, finding that it was enforceable even though it limited the venues that are available to plan participants and beneficiaries under ERISA. Under ERISA’s venue provision, an action may be brought in the district court where:
The plan is administered;
The breach or violation took place; or
A defendant resides or may be found.
The Seventh Circuit noted that there is no language in ERISA’s venue selection section that expressly invalidates a venue selection provision in an ERISA plan.
The court noted that while ERISA plans are a “special kind of contract” and ERISA does have a statutory goal of protecting participants and beneficiaries, an ERISA plan “nonetheless is a contract.” The court then observed that the Supreme Court has held in other circumstances that contractual forum-selection clauses are presumptively valid even in the absence of arm’s-length bargaining so long as ERISA does not forbid them. The court followed the Sixth Circuit’s reasoning in Smith and found that the “may be brought” phrasing in ERISA is entirely permissive and no other ERISA language prohibits parties from contractually narrowing the options to one of the venues listed in ERISA. Since the plan’s venue selection clause limited the forum to one of those available under ERISA – the district where the plan is administered – the Seventh Circuit concluded that allowing plan venue selection provisions to stand reflects the significant leeway that ERISA affords employers in designing their benefit plans.
This decision gives employers in the Seventh Circuit (which covers Illinois, Indiana, and Wisconsin) some confidence that their plan venue selection clauses will be upheld against future participant challenges. Through In re Mathias and Smith, these venue selection clauses are now enforceable in at least two Circuits, including the Sixth Circuit (which covers Michigan, Ohio, Kentucky, and Tennessee). However, it must be noted that both In re Mathias and Smith were split decisions, and that the Department of Labor in its amicus brief sided with the participant’s interpretation of ERISA. Therefore, it is possible that other Circuits might reach a different conclusion, which would cause a Circuit split. Moreover, there are Circuits of the appellate courts that tend to be more participant-friendly in ERISA cases generally. Therefore, while the trend appears to favor upholding these ERISA plan-based venue clauses, employers in jurisdictions outside the Sixth and Seventh Circuits should understand that there is less certainty that their plan venue provisions will be enforced if challenged.