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Venue clause in ERISA plan enforceable; no deference due DOL’s “regulation by amicus”

By Brandi O. Brown, J.D.

Rebuffing the Secretary of Labor’s attempt at “regulation by amicus,” the Sixth Circuit rejected the DOL’s interpretation, raised in an amicus brief filed in support of a retiree’s appeal, that venue selection clauses in employee pension plans are incompatible with ERISA. Concluding the agency’s interpretation was due neither Chevron nor Skidmore deference, the appeals court held the venue selection clause in question was enforceable. Dissenting, Judge Clay agreed with the DOL that such clauses were inconsistent with ERISA’s goals and that the unilaterally imposed provision should be deemed unenforceable here (Smith v AEGON Companies Pension Plan, October 14, 2014, Batchelder, A).

Pension plan. A few years before he retired, the plaintiff’s employer, Commonwealth General Corp (CGC), merged with AEGON USA, Inc. CGC offered some employees, including the plaintiff, enhanced compensation if he remained employed until the merger was complete. The terms of that offer were reflected in a Voluntary Employee Retention and Retirement Program (VERRP). According to that plan, his retirement date was March 1, 2000. The plaintiff elected to receive benefits under the “qualified” plan and the “non-qualified” plan for a total of over $2,000 per month. The selection letter also indicated that if he elected to participate in the VERRP, he would receive additional benefits. In February 2000, the plaintiff received a booklet indicating that the pension plans had been merged and that the VERRP participants were “[g]randfathered.” In 2007, the plan was amended and a venue selection clause was added, providing that any lawsuits regarding the plan were to be brought in federal court in Cedar Rapids, Iowa.

Attempt to recoup $150K. The plaintiff retired in March 2000 and began to receive a lump-sum monthly benefit. In 2011, the plan informed him that he had been overpaid for the preceding 11 years and that the overpayment, amounting to over $153,000, would have to be recouped. The plan stopped paying his monthly benefits, indicating it would continue to do so until the full amount was recovered. After his appeal to the pension committee was denied, he filed suit against CGC in a county circuit court in Kentucky, asserting claims for breach of contract, breach of the duty of good faith and fair dealing, state wage and hour violations, and estoppel. The case was removed to district court and dismissed. The plaintiff then sued the pension plan in federal district court in Kentucky, but that suit was dismissed based on the venue selection clause. The plaintiff appealed.

Regulation “by amicus.” The Secretary of Labor filed an amicus brief contending that venue selection clauses are not compatible with ERISA. The Secretary had filed one prior amicus brief, in a Tenth Circuit case, expressing that interpretation. Noting that the U.S. Supreme Court had not yet addressed what level of deference is due such attempts at “regulation by amicus,” the majority determined that the DOL was entitled to neither Chevron nor Skidmore deference.

Under Chevron, U.S.A., Inc. v Natural Resources Defense Council, Inc., deference is due to agency interpretations when that agency was “acting with the force of law.” In this matter, the agency’s interpretation did not meet that requirement because it was contained in a brief and not in a regulation or ruling.

A “mood” not entitled to deference. Whether the DOL was due deference under Skidmore v. Swift & Co, however, was a “more difficult question.” Both the U.S. Supreme Court and the Sixth Circuit had accorded such deference to amicus briefs in past cases. However, the “contextual factors” present in those cases were not present here. First, the agency did not have superior expertise in determining “whether a statute prescribes venue selection.” Even if it did, the appeals court explained, its “bare textual analysis of ERISA” alone did not mirror the contextual requirements found in United States v. Mead Corp. that it “constitute a body of experience and informed judgment to which courts” should accord deference.

Moreover, the agency’s interpretation had only been expressed once before and was not consistent with its “prior acquiescence.” Instead, it was an “about-face.” Also, the two amicus briefs the agency had filed were the “only indication” that the agency had “adopted this particular interpretation of ERISA,” making it further dissimilar to Skidmore and other cases. “An agency’s mood is not entitled to Skidmore deference,” the appeals court reasoned.

Clause is enforceable. Reviewing the clause itself de novo, the Sixth Circuit determined that it was enforceable. Noting that ERISA affords “large leeway” to employers, the appeals court rejected the plaintiff’s argument that the clause was not valid because it had been added unilaterally seven years after his benefits had commenced. The Supreme Court has recognized, in non-ERISA circumstances, the validity of forum selection clauses that were not produced through “arms-length” transactions, the appeals court pointed out, and the logic that supported those clauses applied equally here. Thus, the venue selection clause was “presumptively valid and enforceable.” The court also rejected the notion that such a holding would “lead to an excessive burden on ERISA litigants,” noting that a party could always challenge a clause’s reasonableness.

Likewise, the court was not persuaded by the plaintiff’s argument that the 2007 plan document did not control because his pension claims had accrued seven years earlier. Applying the “clear repudiation rule,” by which a cause of action accrued when the fiduciary clearly and unequivocally repudiated benefits, the court found his claims accrued in 2011 and not before, as he did not dispute the level of benefits he received prior to that time.

Not incompatible with ERISA. Most courts to have considered the question have determined that venue selection clauses in ERISA plans are valid. If Congress had wanted to prevent waiver of ERISA’s venue provision, it would have “specifically prohibited such action,” these courts have reasoned. Neither the plaintiff nor the DOL explained how ERISA’s policy of providing “ready access to the Federal courts,” found in 29 U.S.C. Sec. 1001(b), was inhibited by the provision in question. Moreover, the court explained, other ERISA policies were “furthered” by such clauses, including uniformity of the administrative scheme and the low-cost administration of such plans.

ERISA’s venue provision, furthermore, was a “permissive” one, indicating that suit “may be brought” in several possible district courts, and the venue clause in question provided that a suit was to be brought in one of those possible districts — the district where the plan was administered. Even if it did not fit within one of the enumerated options in ERISA’s venue provision, the appeals court explained, the venue selection clause in the plan “would still control.” The court had upheld mandatory arbitration clauses in ERISA-governed plans, which “precluded venue in federal court entirely.” It would be “illogical” to treat venue selection clauses differently.

Dissent. Judge Clay contended that the 2007 venue selection provision should be deemed unenforceable because it was “inconsistent with the purpose, policy, and text of ERISA, and contravenes the ‘strong public policy’ declared by” by the statute. Clay noted that the Iowa venue was 500 miles away from the plaintiff’s home and work and that the plaintiff had no connection with that venue. Moreover, Clay noted, ERISA’s text and legislative history “clearly demonstrate” that Congress sought “open access to several venues for beneficiaries seeking to enforce their rights,” a goal that would be undermined by such a restriction.

Moreover, the dissent faulted the majority for overlooking an important distinction between such a clause and an arbitration clause — i.e., that the latter is governed by the Federal Arbitration Act, which requires that such clauses be favored. Moreover, the Sixth Circuit had never held that an arbitration clause could prescribe the geographic location of the forum.