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When Is It Too Late to Add a Forum Selection Clause?

Posted on Mon, Feb 25, 2013 @ 06:35 PM

by Jack B. HarrisonJack B. Harrison

Perhaps never.

Many ERISA benefit plan documents now include forum selection clauses in order to control where litigation involving the plan might occur.  These clauses usually designate the appropriate litigation forum for issues involving the plan as the judicial district where the plan is administered.  In a recent decision in Smith v. AEGON Cos. Pension Plan, the United States District Court for the Western District of Kentucky enforced a forum selection clause in a plan, even though the forum selection clause had been added to the plan documents after the person bringing suit had retired.

In Smith, the plaintiff had retired in 2000 and had been receiving benefits under the plan in question.  Subsequently, it was discovered that the plaintiff had been overpaid by the plan since retirement.  The plaintiff was told that there would be a reduction in his benefits to the correct amount and that the plan was seeking recovery of the amount of the overpayment.  Plaintiff then sued the plan in the Western District of Kentucky alleging that the plan’s decision to deny him the higher pension amount was arbitrary and capricious.  The plan then filed a motion to dismiss for improper venue, asserting that the plan documents contained a forum selection clause that required that litigation related to the plan be filed in Iowa.  Plaintiff argued that the forum selection clause was unenforceable as against him because it had been added to the plan documents in 2007, long after he had retired.

In analyzing the plan’s motion to dismiss, the Court identified three factors that are to be examined in determining whether a forum selection clause is enforceable: “(1) whether the clause was obtained by fraud, duress, or other unconscionable means; (2) whether the designated forum would ineffectively or unfairly handle the suit; and (3) whether the designated forum would be so seriously inconvenient such that requiring the plaintiff to bring the suit there would be unjust.”  In this case, the plaintiff did not claim that fraud was present in the inclusion of the forum selection clause, nor did he assert that a transfer to Iowa would so seriously inconvenience him as to be unjust or unreasonable.  Rather, plaintiff simply claimed that the clause was unenforceable because it had been added after his retirement.

The Court granted the plan’s motion to dismiss, explaining that an ERISA pension plan may be amended at any time, so long as the amendment does not reduce an accrued benefit.  The Court stated that the forum selection clause at issue here had no impact on plaintiff’s benefit amount under the plan.  The Court further held that the forum selection clause at issue was consistent with the ERISA venue provision, which provides that a claim related to a plan may be brought “in the district where the plan is administered, where the breach took place, or where a defendant resides or may be found.”

The lesson from the Smith decision is that it may never be too late to amend plan documents to add important litigation related clauses, such as a forum selection clause or statute of limitation clause.  Such clauses as these allow employers to centralize and control litigation related to their plans and may result in greater uniformity regarding administration of the plan, in that all judicial decisions related to the plan occur in one judicial district.  Smith serves as a reminder that prudent employers, in consultation with their counsel, should regularly review plan documents to determine whether clauses such as these should be added.

Tags: ERISA, ERISA Benefit Plans, ERISA Pension Plans, Employee Benefits