Mar 30, 2017

ERISA and Forum Selection Clauses


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11/17/2008
Brian S. King
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A forum selection clause is where the parties insert in a contract language identifying a location for filing of a lawsuit to resolve disputes. Last week the U.S. District Court for the Southern District of New York issued a decision enforcing a forum selection provision in an ERISA plan. I believe it’s a bad decision. You can read the case, Klotz v. Xerox Corp, 2007 U.S. Dist. LEXIS 78334, (S.D.N.Y. 2007), here, in the “misses” category of the website library. The case is straightforward in its facts as far as ERISA benefit claim claims go. Robin Klotz sued her employer’s disability benefit plan alleging that her claim had been wrongfully denied. She brought the suit in federal district court in Manhattan. However, Xerox had included in its plan a clause requiring any lawsuit under the plan be brought in federal court in Monroe County, New York. It asked the court to transfer the case to Rochester, over 300 miles away. The court granted Xerox’s motion. The decision gets off on the wrong foot immediately by analyzing the issue based on the Supreme Court’s discussion of forum selection clauses in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). In that case the Court held that generally forum selection clauses are enforceable. But the Supreme Court specifically referenced the fact that in M/S Bremen the Court was faced with a commercial contract that was freely negotiated between two sophisticated parties. Three characteristics of the contractual relationship in M/S Bremen are missing in Klotz. First, it is almost certain that Robin Klotz did not have any opportunity to “freely negotiate” the language of the ERISA plan offered by her employer. Most ERISA plans, whether self-funded or fully insured, are provided to employees on a take-it-or-leave-it basis. They are not subject to alteration or negotiation in any meaningful sense. Indeed, employees are usually not even aware of the details of an employer’s benefit plan at the time they accept an offer of employment. Second, employees do not compare in sophistication or knowledge of the details of an ERISA plan to employers who sponsor those benefit plans (or the insurers who fund those benefit plans). They simply do not have the tools to negotiate with their employers or insurers on anything resembling a level playing field (the exception to this being employees who are part of labor unions). Third, the Supreme Court in M/S Bremen was dealing only with the language of the contract between the parties. There was no limitation from any other authority on where the parties in that case could agree to resolve their disputes. The same is not true for ERISA cases. When it passed the statute, Congress established a number of different locations from which plan participants, beneficiaries and fiduciaries could choose to bring suit. 29 U.S.C. §1132(e). That section of ERISA states that “. . . an action under this title . . . 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 . . ..” I don’t commonly see forum selection clauses in ERISA plan documents. In large part this reflects the common belief among drafters of ERISA plan documents that the venue and jurisdiction provisions of ERISA quoted above set up rights for parties to an ERISA lawsuit that cannot be gutted by employers or insurers who want to restrict where plan participants and beneficiaries can bring suit. The court in Klotz brushes those concerns aside by improperly analogizing ERISA plans to commercial contracts and by ignoring ERISA’s explicit directive about where parties may bring suit. I’ve posted about ERISA’s venue and jurisdiction provisions previously here.

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