Plaintiff asserts that forum selection clauses are not enforceable under ERISA. In support, Plaintiff relies on a district court case from the Eastern District of Texas, Nicolas v. MCI Health & Welfare Plan No. 501, 453 F. Supp. 2d 972 (E.D. Tex. 2006). In that case, the court held that the policies of the ERISA statutory framework supersede the general policy in the Fifth Circuit of enforcing forum selection clauses. Id. at 974.

Drapeau v. Airpax Holdings, 2011 U.S. Dist. LEXIS 82992 (D. Minn. July 27, 2011)

Plaintiff sought pay and benefits under a severance policy. The severance plan fit into a larger set of agreements following the sale of a business, the terms of which were included in a stock purchase agreement (”SPA”). (In the SPA, the successor employer agreed to “honor all employment, severance . . . and other compensation and benefit plans, policies, arrangements and agreements . . . “)

The plan administrator denied the plaintiff’s claim, asserting that he was terminated for willful misconduct (a defense under the plan terms), and denied a subsequent appeal. The plaintiff filed suit and the Defendants moved to dismissed under Rules 12(b)(3), 12(b)(6), and 28 U.S.C. § 1406(a), or, in the alternative, to transfer the action under 28 U.S.C. § 1404(a) and/or § 1406(a).

The Defendants argued that the SPA’s forum selection clause requires this action to be brought in the Northern District of Illinois or a state court in Chicago, Illinois. The Plaintiff asserted that forum selection clauses are not enforceable under ERISA.

Could the SPA forum selection clause be enforced in this context?

The Forum Selection Clause Language

The SPA contained a choice of venue provision which the Court excerpted as follows:

[A]ny suit, action or proceeding seeking to enforce any provision of, or based on any matter arising out of or in connection with, this Agreement or the transactions contemplated hereby shall be brought in the United States District Court for the Northern District of Illinois or any Illinois State court sitting in Chicago, Illinois, and each of the parties hereby consents to the jurisdiction of such courts . . . in any such suit, action or proceeding and irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding in any such court or that any such suit, action or proceeding which is brought in any such court has been brought in an inconvenient form [sic].

The Plaintiff’s Arguments

The Plaintiff presented three reasons that the Court should not enforce the forum selection clause:

#1 the SPA’s forum selection clause is not explicit enough to be enforceable because it was “buried” in the SPA and does not specifically reference Plaintiff’s severance agreement;

#2 forum selection clauses are not enforceable under ERISA; and

#3 the forum selection clause was unreasonable.

The Court’s Response

The Court was unconvinced.

First, the Court noted that the forum selection clause in the SPA was unambiguous and clear in its terms.

Second, the Court distinguished the legal authority cited by the Plaintiff, observing that the SPA “is not a SPA is not a welfare-benefits plan covered by ERISA.” Even if it were, the authority cited, Nicolas v. MCI Health & Welfare Plan No. 501, 453 F. Supp. 2d 972 (E.D. Tex. 2006), “conflicts with the reasoning of the court in Schoemann ex rel. Schoemann v. Excellus Health Plan, Inc., 447 F. Supp. 2d 1000 (D. Minn. 2006).” In short, the Court agreed that ERISA “does not require the Court to disregard, as a matter of law, a forum-selection clause.”

Finally, the Court rejected the unreasonableness argument, stating:

Here, Plaintiff’s action arises from the SPA, which contains a forum selection clause that requires this case to be heard in Illinois. Plaintiff has not demonstrated that the forum selection clause was the product of fraud or overreaching or that Plaintiff was unaware of the clause before signing the SPA. Thus, the forum selection clause should be enforced absent a compelling and countervailing reason. Plaintiff has demonstrated no such reason here and Plaintiff’s assertions that the forum selection clause is unreasonable do not suffice.

Note: Though this case arose in the context of a collateral agreement, namely the SPA, the Court was clearly of the opinion that forum selection clauses contained in ERISA plan terms were enforceable. On the other hand, the Court appears to leave open challenges within the framework of 28 U.S.C. § 1404(a)

Section 1404(a) Factors: The existence of a forum selection clause constitutes a factor to be considered within the general rule governing objections to venue. The general rule is that, for the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it might have been brought.”

The Court must consider:

#1 convenience of the parties,

#2 the convenience of the witnesses, and

#3 the interests of justice.

The review involves a “case-by-case evaluation of the particular circumstances at hand and a consideration of all relevant factors.” Generally, the burden is on the party seeking the transfer “to show that the balance of factors ’strongly’ favors the movant.”

A valid and applicable forum selection clause becomes a “significant factor that figures centrally into the district court’s calculus.” A forum selection clause is “prima facie valid and should be enforced unless enforcement is shown . . . to be ‘unreasonable’ under the circumstances.” (citing, M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10 (1972) (quotation omitted). Overcoming a forum selection clause requires a “compelling and countervailing reason.”

“Unambiguous & Clear” Language. The Court noted that the clause was set forth separately under the bolded heading “Jurisdiction.”

Agreement & “Waiver” – Additionally, Plaintiff agreed to the forum selection clause and, under the terms of the agreement “waived any venue objection when he signed onto the SPA.”

Basis For Challenge – The foregoing factors reveal important points for plan sponsors to consider in drafting forum selection clauses. On the other hand, one can also infer from the opinion factors that improve the odds of challenging such provisions, such as:

#1 the clause is “the product of fraud or overreaching”

#2 the plaintiff was unaware of the clause before signing (or perhaps signed nothing, as in the case when the clause appears in the terms of an ERISA plan)

#3 enforcement would effectively deprive the opposing party of a meaningful day in court and

#4 other factors that show that enforcement would be unjust or unreasonable.