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Fall 2017 | Employee Benefits Committee Newsletter

Seventh Circuit Holds Forum Selection Clause Enforceable

By: Radha Pathak, Of Counsel, Stris & Maher, LLP; Associate Dean of Student & Alumni Engagement, Associate Professor Law, and Director of Institute for Trial & Appellate Practice, Whittier Law School. Stris & Maher represents George Mathias.

A second court of appeals has weighed in on the enforceability of forum selection clauses in ERISA cases. Joining the Sixth Circuit and the majority of district courts to have addressed the issue, the Seventh Circuit in In re Mathias, 867 F.3d 727 (7th Cir. 2017), held that forum selection clauses are enforceable in ERISA cases. Id. at 728 (citing Smith v. Aegon Cos. Pension Plan, 769 F.3d 922 (6th Cir. 2014)). The Department of Labor filed amicus curiae briefs opposing enforcement of the forum selection clauses in both Mathias, 2016 WL 7212256, and Smith, 2013 WL 4401190, and both opinions were issued over dissents. Mathias, 867 F.3d at 734-37 (Ripple, J. dissenting); Smith, 769 F.3d at 934-36 (Clay, J. dissenting).

As the Supreme Court has explained outside the ERISA context, a plaintiff ordinarily has the right to choose the location of her lawsuit, subject to the constraints of jurisdictional doctrines and venue rules. Atlantic Marine Const. Co., Inc. v. U.S. Dist. Ct., 134 S. Ct. 568, 581-82 (2013). A forum selection clause disrupts that “venue privilege” by requiring the plaintiff to file suit in the forum(s) specified in the contractual provision.i Id. Forum selection clauses were historically viewed with disfavor, but attitudes have changed considerably within the last fifty years. In M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 9-10 (1972), the Supreme Court noted that some courts were beginning to accept forum selection clauses. More importantly, the Court approved the forum selection clause before it, stating that there were “compelling reasons why a freely negotiated private international agreement, unaffected by fraud, undue influence, or overweening bargaining power, such as that involved here, should be given full effect.” Id. at 12-13. And recently, in Atlantic Marine Const. Co., the Court emphasized that “a valid forum-selection clause should be given controlling weight in all but the most exceptional cases.” Id. at 581.

A forum selection clause does not render venue improper: The Court in Atlantic Marine Const. Co., stated clearly that venue is proper if it complies with the requirements of the applicable federal venue statute. Id. at 577 (“Whether venue is ‘wrong’ or ‘improper’ depends exclusively on whether the court in which the case was brought satisfies the requirements of federal venue laws, and those provisions say nothing about a forum-selection clause.”). Nonetheless, a defendant may move to transfer the case to the federal judicial district identified in the forum selection clause.ii Id. at 579 (explaining that a motion to transfer 28 U.S.C. 1404(a) is the proper way to enforce a forum selection clause that specifies a federal judicial district as the agreed-upon forum). Where a valid forum-selection clause exists, a district court should alter the ordinary 1404(a) transfer analysis so that only “public-interest” factors are considered. Id. at 581. These include factors such as “the administrative difficulties flowing from court congestion; the local interest having localized controversies decided at home; [and] the interest in having the trial of a diversity case in a forum that is at home with the law.” Id. at 581, n.6. And these public interest factors will likely lead to transfer: “Because those factors will rarely defeat a transfer motion, the practical result is that forum-selection clauses should control except in unusual cases.” Id. at 582.

The Court’s enthusiasm in Atlantic Marine Const. Co. for forum selection clauses should be read in light of the Court’s assumption that the forum selection clause before it was valid. The Court in Atlantic Marine Const. Co. did not have occasion to elaborate upon the criteria for determining whether a forum-selection clause is valid. But it is this threshold question that may well prove critical in the ERISA context, where plans are relying with increasing frequency on forum-selection clauses to funnel litigation to a single federal judicial district.

ERISA’s venue provision is found in 29 U.S.C. § 1132(e)(2), and it provides plaintiffs with a variety of venue options. The statute specifies that an ERISA action “may be brought in the [federal judicial] district where the plan is administered, where the breach took place, or where a defendant resides or may be found.” 29 U.S.C. § 1132(e)(2).iii In Mathias, as in other cases, the beneficiary brought suit in a forum that was relatively convenient for him, but the plan documents required the suit to be brought where the plan sponsor was headquartered. As a result, the case was transferred from the Eastern District of Pennsylvania to the Central District of Illinois. Mathias filed a motion for re-transfer, and when the motion to re-transfer was denied, Mathias filed a petition for writ of mandamus in the Seventh Circuit.

Supported by the Secretary of Labor, Mathias argued that the forum selection clause was invalid – and thus unenforceable – because ERISA does not permit plan documents to constrain a plaintiff from suing in a forum specifically authorized by ERISA’s venue provision.

The Seventh Circuit disagreed. The court started from the premise that forum selection clauses in ERISA plans are presumptively valid. Mathias, 867 F.3d at 731. Relying heavily on the Sixth Circuit’s decision in Smith, the court concluded that forum selection clauses are consistent with both the text and purposes of ERISA. The court characterized ERISA’s venue provision as “entirely permissive,” and it found “no other statutory language [that] precludes the parties from contractually narrowing the options to one of the venues listed in the statute.” Id. at 732. Moreover, forum selection clauses “preserve ready access to federal court” and “reduc[e] administrative costs for plan sponsors and beneficiaries alike.” Id. at 732.

In his dissent, Judge Ripple agreed with Mathias and the Secretary of Labor that the forum selection clause was invalid. “In [his] view, a contractual clause that restricts the right of an ERISA plan participant to an action in a forum far away from his home and his place of employment with the defendant contravenes the strong public policy embodied in ERISA itself.” Id. at 735. Moreover, unlike the majority, Judge Ripple found persuasive Boyd v. Grand Trunk Western Railroad Co., 338 U.S. 263 (1949), in which the Supreme Court refused to enforce a forum selection clause in a case under the Federal Employers Liability Act (FELA). The majority in Mathias had distinguished Boyd as reflecting then-existing suspicion of all forum selection clauses (Mathias, 867 F.3d at 733), but Judge Ripple found Boyd to have continued salience (id. at 736).

On November 17, 2017, Mathias filed a petition for writ of certiorari in the Supreme Court.

i More precisely, “when a plaintiff agrees by contract to bring suit only in a specified forum—presumably in exchange for other binding promises by the defendant—the plaintiff has effectively exercised its ‘venue privilege’ before a dispute arises.” Atlantic Marine, 134 S. Ct. at 582.
ii If the forum selection clause specifies a state or foreign forum, then the doctrine of forum non conveniens is the proper method of enforcement. Atlantic Marine, 134 S. Ct. at 582.
iii Section 1132(e) is entitled “Jurisdiction,” but it is subsection (e)(1) that addresses federal subject-matter jurisdiction. Federal jurisdiction over ERISA cases is primarily exclusive, but state courts have concurrent jurisdiction over benefits claims. 29 U.S.C. 1132(e)(1).